Info Service on WTO and Trade Issues (Apr18/08)
12 April 2018
Third World Network
Europe: PPPs show
"widespread shortcomings and limited benefits"
Published in SUNS # 8660 dated 12 April 2018
Geneva, 11 Apr (Chakravarthi Raghavan*) - While Public-Private
Partnership s (PPPs) have the potential to achieve faster policy implementation
and ensure good maintenance standards, an audit of such projects in
the European Union show s "widespread shortcomings and limited
benefits", says a Special Report (09/2 018) by the EU Court of
The report of the Luxembourg-based EU Court of Auditors, dated 20
March, became available here last week.
The full report, with footnotes and references, can be found at: https://www.eca.europa.eu/en/Pages/DocItem.aspx?did=3D45153
The Organisation for Economic Co-operation and Development (OECD),
in the "Principles of Public Governance of Public-Private Partnerships"
(2012), de fines Public-Private Partnerships (PPPs) as "long
term contractual arrangements between the government and a private
partner whereby the latter delivers an d funds public services using
a capital asset, sharing the associated risks."
This broad definition, the EU Court of Auditors says, shows that PPPs
can be designed to achieve a wide array of objectives in various sectors,
such as transport, social housing and healthcare, and can be structured
under different approaches.
The three main PPP categories are: (a) concessions, where, typically,
final users of the service pay the private partner directly, with
no (or reduced) remuneration from the public sector; (b) joint-ventures,
or institutional PPPs, where both the public and private sector become
shareholders in a third company; (c) contractual PPPs, where the relationship
between the parties is governed by a contract.
[Over the last decade or two, PPPs were promoted and pushed in developing
countries via policy advices and/or conditionalities by the IMF and
the World Bank, regional development banks, and other funding agencies
of the UN system. And in many instances, the Transnational Corporations
based in the developed countries, or domestic enterprises with TNC
links, become the concessionaires, partners in joint ventures in the
developing country or the parties to a contractual PPP.
[The problems identified in the report of the EU Court of Auditors,
while focussed on PPPs in the EU and its members, are present by several
orders of magnitude in developing countries, whose governments and
bureaucracies have less expertise and experience in negotiating such
In the audit report, surveying the workings and outcomes of several
PPPs in EU members, the report of the Court of Auditors concludes
that there is a high risk that PPPs will not contribute to the expected
extent to the aim to implement greater part of EU funds through blended
projects including PPPs.
Public-Private Partnerships (PPPs), the report notes, harness both
the public and the private sector to provide goods and services conventionally
supplied by the public sector, while easing the tight budget constraints
on public spending.
The auditors say: "We found that despite PPPs having the potential
to achieve faster policy implementation and ensure good maintenance
standards, the audited projects were not always effectively managed
and did not provide adequate value for money. Potential benefits of
PPPs were often not achieved, as they suffered delays, cost increases
and were under-used, and resulted in 1.5 billion euro (of) ineffective
spending, out of which 0.4 billion euro (were) EU funds."
"This," the report of the auditors adds, "was also
due to the lack of adequate analyses, strategic approaches towards
the use of PPPs and institutional an d legal frameworks. With only
few Member States having consolidated experience and expertise in
implementing successful PPP projects, there is a high risk that PPPs
will not contribute to the expected extent to the aim to implement
greater part of EU funds through blended projects including PPPs."
PPP projects harnessing both the public and the private sector, the
report says, provide goods and services which are conventionally supplied
by the public sector, while easing the stringent budgetary constraints
placed on public expenditure.
Since the 1990s, a total of 1,749 PPPs worth 336 billion euro have
reached financial close in the EU. Most PPPs have been implemented
in the field of transport, which in 2016 accounted for one third of
the entire year's investment, ahead of healthcare and education.
However, to date EU funds have been little used for PPPs.
Although the Commission's policy has been encouraging the use of PPPs
for some years (e.g. the Europe 2020 strategy) as a potentially effective
means of delivering projects, "we identified that during the
2000-2014 period just 84 PPPs, with a total project cost of 29.2 billion
euro, received 5.6 billion euro in funding from the EU."
Structural and Cohesion Fund grants were the main EU source of funding,
followed by financial instruments - often in cooperation with the
European Investment Bank (EIB).
The Auditors examined 12 EU co-financed PPPs in France, Greece, Ireland
and Spain in the fields of road transport and Information and Communication
The visited Member States accounted for around 70% of the total project
cost (29.2 billion euro) of EU-supported PPPs.
"We assessed whether the audited projects were able to exploit
the benefits PPPs are expected to deliver, whether they were based
on sound analyses and suit able approaches and whether the overall
institutional and legal frameworks within the visited Member States
were adequate for the successful implementation of PPPs."
"Overall," the Auditors say, "we found that:
-- PPPs allowed public authorities to procure large-scale infrastructures
through a single procedure, but they increased the risk of insufficient
competition and thus putting contracting authorities in a weaker negotiating
-- Procuring PPPs typically requires negotiating on aspects that are
usually not part of traditional procurement and therefore takes up
more time than traditional projects. One third of the 12 audited projects
were, with their procurement duration of 5-6.5 years, affected by
-- Similarly to traditional projects, also the majority of the audited
PPPs were subject to considerable inefficiencies in the form of delays
during construction and major cost increases.
Overall, seven out of the nine completed projects (with aggregate
projects costs of 7.8 billion euro) faced delays ranging from two
to 52 months.
Moreover, an additional amount of almost 1.5 billion euro in public
funds was necessary to complete the five motorways audited in Greece
and Spain, around 30% of which was provided by the EU (corresponding
to 422 million euro).
"We consider this amount to have been spent ineffectively in
terms of achieving the potential benefits."
-- More importantly, in Greece (which is by far the largest recipient
of EU contributions with 59% of the total EU-amount or 3.3 billion
euro), the cost per km of three assessed motorways had increased by
up to 69%, while at the same time the project scopes were reduced
by up to 55%.
This was mainly due to the financial crisis and to poorly prepared
projects by the public partner, resulting in premature and insufficiently
effective contracts with private concessionaires.
-- The large scope, the high cost and the long duration of typical
infrastructure PPPs require particular diligence.
"However, we found that prior analyses were based on over-optimistic
scenarios regarding future demand and use of the planned infrastructure,
resulting in project rates of use, below forecasts, of up to 69% (ICT)
and 35% (motorways). This does not take into account the pending risk
of the heavily underused motorways i n Greece after their completion."
-- On a positive note, nine completed audited projects have shown
good levels of service and maintenance and have the potential to keep
these levels for the remaining project duration.
-- For most of the audited projects, the PPP option was chosen without
any prior comparative analysis of alternative options, such as Public
Sector Comparator, thus failing to demonstrate that it was the one
maximising value-for-money and protecting the public interest by ensuring
a level playing field between PPPs and a traditional procurement.
-- The risk allocation between public and private partners was often
inappropriate, incoherent and ineffective, while high remuneration
rates (up to 14%) on the private partner's risk capital did not always
reflect the risks borne.
In addition, most of the six audited ICT projects were not easily
compatible with long contract durations since they were subject to
rapid technology changes.
Implementing successful PPP projects, according to the audit report,
requires considerable administrative capability that can be ensured
only through sui table institutional and legal frameworks and long-lasting
experience in the implementation of PPP projects.
"We found that these are currently available only in a limited
number of EU Member States. Therefore, the situation does not match
the EU's aim to implement greater part of EU-funds through blended
projects, including PPPs."
Combining EU funding with PPPs entails additional requirements and
Moreover, the possibility of recording PPP projects as off-balance-sheet
it ems is an important consideration for the choice of the PPP option,
but the practice also risks undermining value-for-money and transparency.
The Court of Auditors adds:
"We therefore recommend the following:
(a) not to promote a more intensive and widespread use of PPPs until
the issues identified are addressed and the following recommendations
(b) to mitigate the financial impact of delays and re-negotiations
on the cost of PPPs borne by the public partner;
(c) to base the selection of the PPP option on sound comparative analyses
on the best procurement option;
(d) to establish clear PPP policies and strategies; and,
(e) to improve the EU framework for better PPP project effectiveness."
[* Chakravarthi Raghavan is the Editor Emeritus of the SUNS.]