The sale of equity in PPP companies has major negative consequences for the future of public services and the welfare state. They are summarised below in ten key points:
Opportunity for profiteering: PPP contractors and banks are earning an annual rate of return, an average TWICE that agreed in PPP business cases. Equity is being sold an average of six years into the contract, with the expectation that further profits will be extracted over the remaining period of the contract.
Invalidates value for money: Excessive profits are a clear indication that key elements of the project, particularly risk transfer, have been exaggerated and overpriced. This invalidates the value for money assessment - the basis on which projects proceed.
Ownership matters: Majority or full private offshore ownership of assets is likely to constrain public sector interests and options at the end of the contract when future investment and management decisions must be made. Continued private management and control of public facilities will only hasten the growth of the 'whole' service approach and privatisation of 'core' public services.
Growth of a secondary market: Increased trading in PPP equity and the growth of private sector portfolios of public assets embeds market forces and the secondary market.
Offshore tax avoidance: An increasing number of PPP projects are acquired by offshore infrastructure funds. Tax avoidance increases private sector profits and reduces government revenue to fund public services.
Potential changes in management and community use: The consolidation of equity ownership, particularly in offshore infrastructure funds, may lead to changes in operational management and in charging policies for community use as they seek to 'sweat the assets'.
Erodes democratic accountability: The sale of PPP equity is not subject to democratic accountability and public bodies have no control over which PPP assets are sold, when or who acquires them.
Secrecy: There is very limited public disclosure of PPP equity transactions, with no obligation to disclose the price, profit or the purchaser, unless the project has a significant impact on a public company. PF2 does not address these basic matters of public disclosure.
Use of state guarantees: PPP payments are virtually guaranteed by government, except for performance failures, so the use of state guarantees is likely to further diminish risk transfer and increase PPP profits at taxpayer's expense.
No sharing of gains with public sector: To date there is no requirement for the private sector to share excessive gains with the public sector. The government regards this as a private matter despite PPP projects ultimately being entirely financed by the public sector and taxpayers. PF2 does not address this issue, it merely enables a public body to become a minority shareholder to join in the profiteering!