The joint statement sets out our concerns on PPPs, includes examples of the many problems identified, and ends with a call for action to IFIs, governments and CSOs! The World Bank is currently at the forefront of the global promotion of PPPs as the preferred option to fund social and economic infrastructure projects, and service delivery, which is why it is so important to get our concerns heard next week!
PPPs are essentially long-term contracts, underwritten by government guarantees, under which the private sector builds (and sometimes runs) major infrastructur projects or services traditionally provided by the state, such as hospitals, schools, roads, railways, water, sanitation and energy.
PPPs are promoted by many G20 governments, and some public development banks – such as the World Bank – as the solution to the shortfall in financing needed to achieve the Sustainable Development Goals. Since the late 1990s, some countries including the United Kingdom, Portugal and Hungary have embraced PPPs ranging from healthcare and education to transport – with troubling consequences. They have been less common in the global South - but that is changing rapidly, with many countries in Latin America, Asia, and Africa now passing enabling legislation and initiating PPP projects.
The experience of PPPs has been overwhelmingly negative and very few PPPs have delivered results in the public interest. Common problems include:
Threat to public finances
PPs are, in most cases, the most expensive method of financing. They cost governments - and hence citizens - significantly more in the long run than if the projects had been directly financed through government borrowing. Yet, they are attractive because they can be hidden ‘off balance sheet’ so they don't show up in the budget and government debt figures, giving the illusion of ‘free money’. Also, despite claims to the contrary, PPPs are often riskier for governments than for the private companies involved, as the government may be required to step in and assume the costs if things go wrong. For example:
- A PPP hospital in Lesotho costs three times more than the public hospital it replaced – US$67 million per year – eating up more than half the public health budget.
- The St Bartholomew’s Hospitals PPP in the UK involved initial investment by the private sector of £1.149 billion, but has left the public sector having to pay six times more – £7.194 billion – between 2007 and 2048. These very high costs have necessitated cuts in health services and quality of care provided by the local health authorities.
The threat to equality
PPs risk fostering inequality by profiting those who are already wealthy – i.e. asset holders who invest in and profit from PPP projects – whilst simultaneously extracting wealth from those who are already poor and vulnerable, including women. The more governments pay to private firms, the less they can spend on essential and gender responsive social services, such as universal social protection, which are vital to realise women’s rights. Furthermore, PPPs often come with new or increased fees for users of services. For example:The high costs of PPPs in Tanzania’s electricity system were pushed onto consumers, increasing energy tariffs by 40 percent in just one year;
- The PPP for tertiary care rolled out in Karnataka, southwest India, suffered from poor governance, accountability and grievance redressal mechanisms, with rapidly declining access to services for patients below the poverty line.
- In Liberia, the PPP contract with Bridge International Academies, a commercial chain of school backed by the World Bank, costs 13 to 21 times more than government schools, and students were expelled en masse from their original schools.
The threat to democracy
PP contracts are extremely complex. Negotiations are covered by commercial confidentiality, making it hard for civil society and parliamentarians to scrutinise them. This lack of transparency significantly increases the risk of corruption and undermines democratic accountability. For example:
- In Australia, an Independent Commission against Corruption found that politicians unlawfully influenced a decision on a water PPP so that AUSm of state money was siphoned off to a minister, his family, and associates;
- The Brazilian construction company Odebrecht paid bribes to government officials in a dozen Latin American countries. The cost of a PPP road linking Brazil and Peru rose from USm to US.3bn through corruptly secured renegotiation processes.
In addition, PPP contracts often undermine the right and obligation of the state to regulate in the public interest. PPPs can limit the capacity of governments to enact new policies – for example strengthened environmental or social regulations – that might affect particular projects. In addition, PPPs further threaten national democracy because PPP contracts tend to favour opaque and unaccountable international adjudication rather than local or national courts, without considering the drawbacks of these investor-state dispute settlement (ISDS) systems. Under World Bank-proposed PPP contracts, the state can even be liable for costs from strikes by workers.
In Manila, after private water operator Manila Water Company (MWC) raised water rates by 845 percent, the public regulator rejected yet another rate hike. The MWC took the public regulator to arbitration at the International Chamber of Commerce. The arbitration panel rejected MWC's rate hike and the MWC is now seeking US$1.79 billion in compensation from the government for projected revenue losses. Despite this, the World Bank has promoted the project as a success.
The threat to fundamental rights
PPs are now a popular way to finance ‘mega-infrastructure projects’, but dams, highways, large-scale plantations, pipelines and carbon-intensive energy infrastructure can wreck habitats, displace communities and destroy natural resources such as lakes and rivers. PPPs have also led to forced displacement, repression and other abuses of protestors, local communities and Indigenous Peoples.
For example: the Bujagali Dam – a US$860m PPP project in Uganda jointly financed by the African Development Bank, the European Investment Bank and the World Bank – has damaged Lake Victoria and the livelihoods of local people.
There are also growing numbers of dirty energy PPPs, involving oil, gas, coal and waste to energy incineration, all of which contribute to climate change. And social and environmental legislation is increasingly being weakened in order to create ‘competitive’ business environment for PPPs.
What are we calling for:
We urge the World Bank, the International Monetary Fund and other public development banks, together with the governments of wealthy countries, to:
- Halt the aggressive promotion and incentivising of PPPs for social and economic infrastructure financing, and publicly recognise the financial and other significant risks that PPP entail.
- Support countries in finding the best financing method for public services in infrastructure, which are responsible, transparent, environmentally and fiscally sustainable, and in line with their human rights obligations.
- Prioritise domestic resources to provide efficient and accountable public services, whilst augmenting them with long-term concessional and non-concessional finance.
- Ensure that high transparency standards apply, particularly with regard to accounting of public funds, and disclosure of contracts and performance reports of social and economic infrastructure projects.
Finally, we urge all those concerned with justice, equality, sustainability and human rights to resist the encroachment of PPPs and to push instead for high-quality, publicly-funded, democratically-controlled, accountable public services. The well-being of our communities and societies depends on it.
Sign on to the statement by Monday 9 October COB Brussels time, which will be sent to the press on Tuesday, together with a press release.We will continue to collect signatures after this date as well.