This paper considers the decline in support for private sector ownership of infrastructure. If not addressed, this could lead at best to increased regulation and contractual controls and at worst to the end of private ownership; to the detriment of both the public and private sectors.
The historic debate has been caricatured as a binary choice between on the one hand private sector high risk transfer, high cost of capital models and/or profit-maximising short-termist behaviour, and on the other pure public ownership, with low cost of capital, strong public ethos but poor cost controls. In practice, there should be a spectrum of possible models, with this binary choice only at the extremes.
This paper argues for two key changes:
• The introduction of radical new governance for private ownership, enshrining a commitment to long-term social objectives as part of its stewardship, and a very different approach to ownership, that clearly aligns shareholder, government, lender and the public's interest in having long-term sustainable infrastructure. This needs to be considered by all private owners of public infrastructure including PFIs, utilities and long-term concessions.
• For investment in new infrastructure, a greater use of the model most likely to build trust; one that combines a structure that allows a low cost of capital with that new strong governance, with clear long-term objectives and a public service ethos.
Such a model would benefit the public sector, as it would provide an alternative model to procure infrastructure, that retains private sector finance, focus, cost controls and due diligence, but avoids some of the unwelcome features of current models. It would also impact the public sector in the way it should design infrastructure procurement, how it chooses preferred bidders, and the nature and scope of the regulation that would be required.
Adopting such a new model would open opportunities across energy, roads, rail, franchising and local authorities and put infrastructure on a more sustainable, lower risk path.
It is in the nature of a paper of this kind that it makes generalisations. Of course, its conclusions are not universally true, as there are beacons of good private sector ownership and governance and public sector partnerial behaviour that stand out. But as an industry, there is much the public and private sectors can do together to re-build trust and work together partnerially.
Private sector ownership can deliver huge public benefit. But given the current antipathy, it is only likely to attain widespread public support if it can be achieved with a cost of capital close to that of the public sector, and where its objectives and management pay are aligned to long term performance and public sector values.