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PPP has been a bold experiment - Mukaba

PPP has been a bold experiment - Mukaba
By Joan Chirwa-Ngoma
Mon 16 Apr. 2012, 13:27 CAT

ACCA country manager Mukaba Mukaba says public-private partnership has been a bold experiment in public sector procurement over the past couple of decades in terms of its scope and innovation.

And developed economies are using Public Private Partnerships (PPP) in a fashion more appropriate for developing economies, according to a major new research project from the Association of Chartered Certified Accountants (ACCA).

The research commissioned by ACCA and conducted by Manchester Business School themed Taking Stock of PPP and PFI Private Finance Initiative around the world, is the first global comparison of different countries' PPP programmes.

The report uncovers developed economies with sound institutional frameworks for PPP but struggling to deliver value for money. Meanwhile, developing economies have poor PPP monitoring and review frameworks but are forging ahead with PPP projects that deliver otherwise unaffordable key infrastructure.

"Like all experiments, there have been mistakes, errors, and misunderstandings, but also some successes. Despite the problems, private finance has firmly established itself as a fixture in public sector procurement around the world and looks set to remain prominent," said Mukaba in his comments following the research findings.

"It will be interesting to see how PPP develops in the future, with improvements required in both developed and developing economies."

He noted that developing economies have several institutional improvements to make, while developed economies were still searching for the elusive value for money.

"The report is the first of its kind and represents a valuable contribution to our understanding of the state of PPP around the world," said Mukaba.

The government a few years ago embarked on infrastructure improvement through PPP. But recently, contracts to upgrade five border posts under a PPP arrangement were terminated when a commission of inquiry instituted by the new government found that the contracts were irregularly awarded.

And Professor Graham Winch of Manchester Business School said PPP in the developed world should be very different to PPP elsewhere.

"However, many developed economies are still approaching PPP as if they were developing economies: hoping to use PPP to procure infrastructure they can't afford thanks to public spending constraints. It delivers infrastructure, but at a far higher cost than otherwise might be expected. Is this cost too high? Taxpayers and public spending watchdogs seem inclined to think it is," he said.

"This approach has resulted in a pretty bad reputation for PPP amongst the public in some developed economies, but developing economies shouldn't let this put them off PPP."

For developing economies, according to Prof Winch, PPP isn't a luxury but a necessity.

He noted, however, that "the speed with which developing economies are adopting PPP in their public procurement is leaving institutional monitoring and oversight behind".

"The use of PPP might be necessary, but if they're not careful, developing economies could be in for a nasty PPP surprise in the coming decades as poor planning and oversight of projects comes back to bite them," warned Prof Winch.

The report found that there's no common PPP definition around the world. "Broadly, it is the use of private finance to provide public infrastructure but agreement generally ends there. Only in rare cases can private finance offer greater value for money than traditional public sector procurement. Private finance is generally more expensive than public finance, there is a high premium payable for risk transfer, and there are important accountability issues around the commitments made by the public sector to private finance providers," the research stated in part.

"Developed economies behave like developing economies. The additionality of PPP - providing otherwise unavailable funds for public procurement - is more likely to be of benefit in developing countries, where capital typically comes from outside the country (due to low national wealth) and the economic stimulus is relatively larger.

"In reality, almost all countries use PPP for additionality reasons, no matter the official justification. The UK, for example, has for three decades pursued a form of pseudo-additionality with regards to PPP. This has provided infrastructure sooner than otherwise available, but it has created a huge debt overhang on the public sector and few projects have achieved value for money. Singapore, on the other hand, with large national reserves, is committed to PPP on a value for money basis and consequently uses PPP very rarely."

Labels: ACCA, PPPs

posted by MrK @ 4:38 PM