Private
finance
Debt
Tax
justice
Aid
Financial
architecture

The problem with Public-Private Partnerships and the role of the EU

Added 04 Dec 2018

This article was originally published in the Parliament Magazine.

Public-Private Partnerships are a deeply worrying trend and carry far more risk for the state than for the private companies involved, writes Enrique Guerrero Salom.

As 2018 draws to a close, many are looking to the future and considering the action needed to create a better world in 2019 and beyond.

Next year will mark four years since the Sustainable Development Goals (SDGs) were agreed by governments across the globe. In the EU, concerns on how to achieve these goals have been a key part of heated discussions on how to spend EU institutions’ resources between 2021 and 2027.

In the course of 2018, many large financing institutions such the World Bank and the EU’s own European Investment Bank (EIB) continued to push Public-Private Partnerships (PPPs) as a way to finance development projects. They have continued to advise and finance governments and companies to implement PPP projects. 

But for many politicians, civil society organisations and communities affected by PPPs across the world, this is a deeply worrying trend.

PPPs are long-term contractual arrangements where the private sector provides infrastructure and services that have traditionally been provided by the public sector, such as hospitals, schools, roads, water and sanitation.

Last week in the European Parliament, we held an event in which we heard from development finance experts about the failings of many PPPs across four continents.

The European Network on Debt and Development (Eurodad) presented a joint civil society report entitled "History RePPPeated", which takes an in-depth look into ten projects across the fields of education, energy, health, justice, transport, and water and sanitation.

They include the case of Lesotho, where a PPP was launched to build a national hospital. Latest figures indicate that the hospital will cost twice the so-called "affordability threshold" set by the government and the World Bank at the outset of the project.

Closer to home, we heard about the Offshore Gas Castor Project in Spain, financed by the EIB, which was beset by poor planning and caused more than 1,000 earthquakes in the area. Despite never having been used it has so far cost the public €3.28bn.

We also heard from the authors of a new report on PPPs in Southeastern Europe. This included a waste management PPP in Belgrade, Serbia, slated for financing by the EIB, the European Bank for Reconstruction and Development, and the World Bank’s International Finance Corporation.

This project exposes serious failures, including a lack of transparency and public accountability to ensure proper contract implementation and improvement of public services. It also poses a threat to the environment, a risk of serious increase of public debt and increased financial burden on citizens.

These new findings add to a growing body of evidence which includes reports by the European Court of Auditors (ECA), and the UK's Public Accounts Committee.

The ECA's report, entitled "Public-Private Partnerships in the EU: Widespread shortcomings and limited beliefs", criticised the performance records of PPPs in several EU countries, stating that they were "not always effectively managed and did not provide adequate value-for-money."

The resounding message from all of this is that PPPs come with a high cost for the public purse, an excessive level of risk for the public sector and, therefore, a heavy burden for citizens. Every single PPP studied in "History RePPPeated" was riskier for the state than for the private companies involved.

PPPs also tend to lack transparency and are so complex that some governments have claimed that they will shift course.

The needs of people – living inside and outside Europe – have to be placed centre stage. Instead of promoting PPPs as the default option, EU institutions, development banks, and individual Member States should evaluate all options and choose financing methods that are responsible, accountable, financially, socially and environmentally sustainable, and in line with human rights obligations.

The European Parliament has a key role to play in monitoring EU institutions' work to deliver positive development outcomes.

As the debates on both the EU budget and the delivery of the SDGs progress, we urge all players to ensure that the needs of citizens, and not that of big business, come first.

This article was written in collaboration with Cecilia Gondard of the European Network on Debt and Development (Eurodad) and Zvezdan Kalamar of Serbian ecology and sustainable development campaign group, CEKOR

About the author

Enrique Guerrero Salom (S&D, ES) is a member of Parliament’s Development committee