Press Release: Developed countries making errors on PPP – report
ACCA publishes review of PPP/PFI around the world
Developed economies are using Public Private Partnerships (PPP) in a fashion more appropriate for developing economies, according to a major new research project from ACCA (the Association of Chartered Certified Accountants). The research commissioned by ACCA and conducted by Manchester Business School, Taking Stock of PPP and PFI around the world, is the first global comparison of different countries’ PPP programmes.
The report uncovers developed economies with sound institutional frameworks for PPP but struggling to deliver value for money. Meanwhile developing economies have poor PPP monitoring and review frameworks but are forging ahead with PPP projects that deliver otherwise unaffordable key infrastructure.
‘PPP in the developed world should be very different to PPP elsewhere,’ says Professor Graham Winch of Manchester Business School. ‘However, many developed economies are still approaching PPP as if they were developed economies: hoping to use PPP to procure infrastructure they can’t afford thanks to public spending constraints. It delivers infrastructure, but at a far higher cost than otherwise might be expected. Is this cost too high? Taxpayers and public spending watchdogs seem inclined to think it is.
‘This approach has resulted in a pretty bad reputation for PPP amongst the public in some developed economies, but developing economies shouldn’t let this put them off PPP. For developing economies, PPP isn’t a luxury but a necessity. However, the speed with which developing economies are adopting PPP in their public procurement is leaving institutional monitoring and oversight behind. The use of PPP might be necessary, but if they’re not careful, developing economies could be in for a nasty PPP surprise in the coming decades as poor planning and oversight of projects comes back to bite them.’
The report found that:
· There’s no common PPP definition around the world. Broadly, it is the use of private finance to provide public infrastructure but agreement generally ends there.
· Only in rare cases can private finance offer greater value for money than traditional public sector procurement. Private finance is generally more expensive than public finance, there is a high premium payable for risk transfer, and there are important accountability issues around the commitments made by the public sector to private finance providers.
· Developed economies behave like developing economies. The additionality of PPP – providing otherwise unavailable funds for public procurement – is more likely to be of benefit in developing countries, where capital typically comes from outside the country (due to low national wealth) and the economic stimulus is relatively larger. In reality, almost all countries use PPP for additionality reasons, no matter the official justification. The UK, for example, has for three decades pursued a form of pseudo-additionality with regards to PPP. This has provided infrastructure sooner than otherwise available, but it has created a huge debt overhang on the public sector and few projects have achieved value for money. Singapore, on the other hand, with large national reserves, is committed to PPP on a value for money basis and consequently uses PPP very rarely.
· Accounting treatments matter more in developed economies. Accounting treatment of PPP is likely to have a greater impact on the attractiveness of PPP in countries with public spending constraints (i.e. developed countries) because it determines the border between ‘on’ and ‘off’ the public balance sheet. The evidence is that accounting treatment is not a subject of national debate in countries without strict public spending constraints.
· Value for money monitoring is lax in developing economies. Value for money is the only official justification for PPP in developed economies. Countries like Japan and the UK must assure stakeholders that PPP is the procurement option with the best value for money, which can lead to strong institutional frameworks for PPP evaluation and monitoring. In countries where meeting the growing demand for infrastructure is more important than meeting that need efficiently, guidelines for value for money assessment remain under-developed or absent.
The report contains a breakdown of the history PPP and other variants of private finance around the world, as well as case studies from developing and developed countries (including, the UK, China, Singapore, France, Japan, Malaysia, India, Thailand, South Korea, and Indonesia).
‘PPP has been a bold experiment in public sector procurement over the past couple of decades, in terms of its scope and innovation,’ says Arif Masud Mirza, head of ACCA Pakistan. ‘Like all experiments, there have been mistakes, errors, and misunderstandings, but also some successes. Despite the problems, private finance has firmly established itself as a fixture in public sector procurement around the world and looks set to remain prominent. It will be interesting to see how PPP develops in the future, with improvements required in both developed and developing economies. Developing economies have several institutional improvements to make, while developed economies are still searching for the elusive value for money.
‘The report is the first of its kind and represents a valuable contribution to our understanding of the state of PPP around the world.’
FULL REPORT: Developed countries making errors on PPP
