2.21 There are risks of a conflict of interest in cross-sectoral PPP units that have multiple functions, even where these are purely public sector agencies. A conflict of interest can occur when the unit has a strong mandate to promote PPPs and increase deal flow, while at the same time having the responsibility for screening deals and ensuring that the projects are affordable to the government. Conflicts also arise if the same body promotes or assists in developing projects and then is asked to carry out ex post evaluations. The best solution in both cases may be to split the functions. In South Africa, the PPP unit faced a conflict of interest in providing transactions advice for projects and granting approvals. This was handled by seeking approvals on projects from individuals from other groups within Treasury. In British Columbia, the Treasury retains approval powers, as these are not granted to Partnerships British Columbia, as is also the case in the UK. Traditional oversight bodies also have a role - the U.K. National Audit Office has undertaken a number of reviews of the government's PPP program.
| Box 5: Institutions involved in the UK's PPP programs |
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The institutional system relating to the Private Finance Initiative (PFI) in the U.K. began in 1992 with the establishment of the Private Finance Panel and then, in 1997, the Treasury Task Force. Since then, the system has gone through a number of changes. At present, the main organizations dealing with PFI, in addition to the line departments and local governments that have primary responsibility, are the following: The Private Finance Unit in the Treasury is the body responsible at present for formulating policy and preparing policy and practice guidelines for PFI - e.g. concerning the preparation of a "public sector comparator." Partnerships UK (PUK) was set up in 2000 to handle the development of specific projects. The focus is on structuring the contracts, managing the procurement process, and supporting negotiations. PUK is now 51% owned by private institutions (e.g. financial services companies involved in financing PFI projects) and 49% by the government. Its role is to work closely with government departments to develop PFI transactions. It commonly takes a success fee when deals are closed. The Office of Government Commerce (OGC), an independent office of the Treasury reporting to the Chief Secretary, focuses on improving central government procurement in all its aspects, not just PFI. Specific PFI-related responsibilities have now been taken over by the Private Finance Unit in the Treasury. The Public Private Partnerships Programme (4ps) was set up in 1996 to provide support and advice to local governments, especially about procurement matters but extending over the entire project cycle. Advice concerns PPPs broadly, not just PFI projects. (In U.K. terminology, "PPP" can refer to a broader category that encompasses a number of different ways that the public and private sectors can work together.) The National Audit Office (NAO), as auditor of central government expenditure, carries out ex post reviews of PFI projects and programs as part of its mandate to evaluate whether government departments are achieving value for money. These are placed in the public domain. Select Committee on Public Accounts of the House of Commons (PAC), as the parliamentary watchdog, prepares reports on PFI projects and questions on selective basis. | ||
2.22 There is a special risk of conflict of interest with respect to PPP units that are public-private joint ventures, and where success fees incentivize the closing of transactions. The risk of capture by private interests could be high. Careful structuring of the arrangements for corporate governance is needed. Private sector participation is added to orient the unit more to the private sector's mode of thinking and working, but the unit still has to maintain the policy perspective and objectives of the public sector. In the U.K, for instance, one way that this is intended to be accomplished in Partnerships UK is through an Advisory Council, made up exclusively of members from the public sector, which was established by Treasury to oversee PUK. The Advisory Council approves the selection criteria used by PUK in deciding which projects to be involved in.
2.23 In general, it is clear that a public-private unit would not be the right place to issue PPP policies, though they could play a role in their development. Therefore, a public-private unit that provided transactions support would need to be complemented by the development of capacities elsewhere (typically in Finance) which could perform these functions. These tensions can mean that it may be useful to have a number of different institutions involved in different aspects of the PPP program (see Box 5), as is now the case in the UK.