The gulf between private and public sector views on the attractiveness of private sector ownership of infrastructure is huge. While the private sector cites its track record of successful project delivery and cost controls, the public sector seems to have lost faith in private sector delivery; as has the public more generally.
It sometimes feels as if we inhabit two parallel and unconnected universes! The universe of private sector infrastructure companies and investors, convinced in the efficiency of private sector ownership and management versus public sector alternatives, and the universe of the public sector and more importantly the public at large, convinced that the private sector has a higher cost of finance and focuses on profit to the detriment of customers.
In the eyes of the private sector:
• The private sector delivers huge efficiencies - post privatisation the utilities have an extensive track record of reducing and controlling costs inherited from inefficient public sector bodies; Public Private Partnerships (the Private Finance Initiative in particular) have a long track record of successful delivery, with the vast majority of the 700+ PFIs procured delivered to time and budget
• Those who advocate public sector delivery have a short memory - privatisation came in response to unresponsive public sector monoliths, both inefficient and not customer friendly
• Just look at the radical transformation that private ownership has brought about in telecoms, rail usage, water, airports and roads and across the PFI sector
• Where there have been defaults or problems with private sector entities, from historic collapses to the recent administration of Carillion, the losses have been predominantly absorbed by the private sector - both debt and equity - not government. This demonstrates the strength of risk transfer to the private sector, not the weakness of the system
In this view of the world, the only thing missing is better data and measurement of successes and more publicity about decades of successful delivery.
For many in the public sector an alternative world view prevails; in particular in relation to Private Finance Initiative ("PFI") deals:
• They don't believe in the value for money arguments for private ownership, which rely on counterfactuals that can't be proved ("this is better than would have been the case if delivered by the public sector")
• Risk transfer to the private sector is limited; government ends up being the backstop, picking up the pieces on corporate failure. And the risk transfer tends to fall on the underlying contractors, not on the debt and equity financiers of each project
• Private sector windfall gains through share disposals or debt refinancing are unacceptable in the world of delivering public services
• Too many companies are seen to deliver poor services, at best bumping along the bottom of what is contractually stipulated or required by the regulator
• PFI asset management has often been poor and contracts are inflexible
• The public sector could deliver equal efficiencies if public project companies were allowed to borrow, as is the case with Transport for London
• Motivation for entering private sector deals has often been to get expenditure off balance sheet, which is increasingly difficult under revised accounting. So, the 'additionality' rationale for a private sector approach is diminishing
• The recent failure of Carillion suggests there are systemic risks in relying on the private sector to deliver infrastructure
Where the public at large sits between these extremes is perhaps unclear, but if the popular press is representative, it would be closer to the second end of the spectrum.
And the debate around how infrastructure should be delivered should be set within the context of a world of increasing disquiet with big business; a distrust of whether the private sector with its focus on shareholder value in priority to everything else actually produces better results. That context is particularly significant in infrastructure, where large private sector profits sit uncomfortably with companies delivering what are viewed as public services. There is certainly political popularity for the notion of moving back to a world of public sector delivery.