Australia, Chile, and South Africa all have well-regarded PPP programs and none has suffered large losses on PPP-related contingent liabilities. Their approaches to the management of contingent liabilities look reasonable. So it's natural for other countries to look to the experience of these countries to see what practices they themselves might adopt. Caution must be exercised, however, in drawing inferences from just three case studies.
Even if we conclude that the three countries are reasonably successful in this domain, we can't be sure how close are the links between the success and the practices discussed above. Among other things, Australia, Chile, and South Africa have all enjoyed good economic growth in the last 20 years. Growth increases user-fee revenue and gives the government plenty of tax revenue with which to pay for PPP services. It means that guarantees are less likely to be called and contracts are less likely to be terminated. Of course, PPP policies in Australia, Chile, and South Africa may have contributed to economic growth; Chile's PPPs, for instance, may have allowed big investments in valuable infrastructure that the government would not have undertaken itself. But PPP policies are at most one small influence on economic growth.
Moreover, even if we knew what worked in Australia, Chile, and South Africa, we wouldn't necessarily know what would work in other countries. Some of the causes of success in those countries are hard to import. Compared to any developing country, Australia has a very high per-capita income (see Table 6, which also summarizes the approaches of three countries to the management of PPP-related contingent liabilities). Compared to other developing countries, Chile and South Africa have relatively competent, accountable, and clean public sectors. Each of the three countries is in the top half of the World Bank's 2007 country rankings on each of six indicators of the quality of public-sector governance (Table 6). Chile and Australia are near the top of many rankings. 27Creating a competent, uncorrupt, and accountable public service is obviously harder than creating a PPP unit with skills in the analysis of contingent liabilities, but it is surely more important.
Despite these difficulties, we can discuss which practices of the three governments other governments might consider, in the light of the experience of these three countries, as well as some others.
Table 6 The three jurisdictions and their approaches compared
| Chile | South Africa | Victoria |
Gross national income, total in billion dollars (per capita in thousand dollars) | 136 (8,190) | 278 (5,720) | 186 (35,760) |
Percentage rankings |
|
|
|
Voice & accountability | 77 | 69 | 93 |
Political stability | 66 | 51 | 79 |
Gov't effectiveness | 86 | 75 | 97 |
Regulatory quality | 91 | 66 | 96 |
Rule of law | 88 | 57 | 95 |
Control of corruption | 90 | 67 | 95 |
Tiers of government undertaking PPPs | Mainly national | National, provincial, and municipal | Mainly state |
Mainly user-fee funded roads and airports, some government-funded projects as well | Mix of toll roads and other mainly government-funded projects | Mix of toll roads and other mainly government-funded projects | |
Major contractual contingent liabilities | Most toll-roads and airport concessions have revenue guarantees. Contract renegotiation has led to large unplanned expenditures | Main contingent liabilities are to compensate contractors for early contract termination, including for force majeure and contractor default. Also some revenue guarantees | Government risk-bearing is more limited than in Chile and South Africa and mostly relates to risks the government can control |
Approval | Minister of Finance must approve concession contract. Minister is advised by a contingent liabilities and concessions unit. But most PPP expertise resides in the Concessions Department of the Ministry of Public Works. | Proposed PPPs and thus associated contingent liabilities must be approved at four stages by the National Treasury, which contains a specialist PPP unit. The Treasury's fiscal liability committee reviews at fourth stage. | PPPs must be approved at four stages by the Cabinet, which is advised by the Department of Treasury and Finance, which has a PPP group. |
Analysis | Ministry of Finance measures and values revenue guarantees for existing and proposed concessions. | PPP guidelines focus on estimating the expected costs of uncertain payments in publicly financed projects, not those in PPPs | Approval of Gautrain project was based on a 50-page report that analyzed many associated contingent liabilities, some small, others large. |
Reporting | Government agencies include a disclosure note on PPPs in their modified-cash-based annual reports. | Government agencies include a disclosure note on PPPs in their modified-cash-based annual reports. | Government reports according to IFRS. Most PPP assets and associated liabilities are on the government's balance sheet. Contracts are published. |
Note: National income is by atlas method. Per capita income for Victoria is for Australia as a whole.
__________________________________________________________________________________