The Addis Ababa Action Agenda (AAAA) of the recently concluded Third International Conference on Financing for Development (Addis Ababa, 13-16 July 2015) recognizes that "both public and private investment have key roles to play in infrastructure financing, including through (…) public private partnerships" (paragraph 48, AAAA). However, the AAAA also highlights the need to "build capacity to enter into PPPs, including as regards planning, contract negotiation, management, accounting and budgeting for contingent liabilities". It further stresses the need to "share risks and reward fairly, include clear accountability mechanisms and meet social and environmental standards".
While the AAAA highlights PPPs as a potential source for infrastructure investment, the language was carefully negotiated to take into account lessons learned from past PPPs. The emphasis on the need for fair risk-sharing and accountability is a response to the concerns of governments as well as many civil society organizations and public sector unions regarding the public sector costs and risks associated with many PPPs. Consequently, the AAAA confirms the need for private and public partners to be thoughtful in the design and implementation of PPPs to prevent pitfalls from the past, especially in light of the challenges related to the implementation of the ambitious 2030 Agenda for Sustainable Development.
However, some experts have argued that such pitfalls are unavoidable. They hold the view that PPPs simply "do not work" because of the incongruence of objectives of the public and private sectors. For example, Loxley and Loxley (2010), after a series of thorough and exhaustive case studies of PPPs in Canada involving schools, bridges and water treatment plants to social services and hospital food concluded that the claims of reduced cost and efficient delivery of services through PPPs to save tax payers money and benefit consumers were mostly empty and labelled them as ideological assertions. They found that PPP projects were more costly to build and finance, provided poorer quality services and were less accessible compared to publicly built and operated projects. Moreover, many essential services were less accountable to citizens when private corporations were involved. The study also found that the chief motive for the public sector to pursue PPPs in Canada was to get the projects "off book" and to give the appearance of lower debt levels. By quoting from a report of the rating agency Standard and Poor's, which found that investors in PPPs face "a relatively benign risk" and that penalty clauses for non-delivery by private partners are "less than rigorous", the study questioned whether risk was really being transferred to the private partners in these projects.
Whitfield (2010) provided a survey of PPPs around the world, showing how the model has been adapted to the economic, political and legal environments of different countries in Europe, North America, Australia, Russia, China, India and Brazil. It also examined the growing secondary market in PPP investments, "buying and selling schools and hospitals like commodities in a global supermarket" (p. 183) as well as the increasing number of PPP failures, usually as a result of investors' "miscalculations; states pick up the tab when they walk away". It found cases of deceptive techniques of assessing value for money (VfM) and manipulations of risk transfer so that PPPs appear to out-perform traditional public provision. Most importantly, Whitfield claimed that PPPs undermine democracy by systematically reducing the responsibility, capability, and power of the state.
As stated in Hall (2015, p.3), "private sector corporations must maximise profits if they are to survive. This is fundamentally incompatible with protecting the environment and ensuring universal access to quality public services."
While this may be seen as an extreme view, many observers (e.g. Harris 2003; Cavelty and Suter 2009; Bain 2009) believe that PPPs are not a simple panacea or a "silver bullet" to fill the huge financial gap in infrastructure investment. For example, evaluations done by the World Bank, International Monetary Fund (IMF) and European Investment Bank (EIB) - the organizations normally promoting PPPs - have found a number of cases where PPPs did not yield the expected outcome and resulted in a significant rise in government fiscal liabilities.2
In light of the above, this paper will discuss recent findings on the effectiveness of PPPs and reflect on their suitability as a key vehicle to implement the 2030 Agenda for Sustainable Development, as well as the AAAA. The paper begins with a brief history of PPPs followed by a discussion of the concept of PPPs and trends in infrastructure PPPs in developing countries. It then provides a synthesis of findings on the performance of PPPs followed by an analysis of the key issues underpinning successful PPPs, namely those that result in Value for Money in its broadest sense. The paper also outlines a broad enabling institutional framework for PPPs and reflects on recent efforts to develop common guidelines for successful PPPs. Lastly, it puts forward concrete recommendations on how such guidelines could be strengthened in support of the 2030 Agenda for Sustainable Development.
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2 See Akitoby et al, 2007; Hemming, et al, 2006; Bain, 2009.