THE recent pronouncement by presidential candidate Leni Robredo of her preference for the continuation of the Public-Private Partnership (PPP) strategy of development has raised eyebrows among civil society organizations and social movements. Introduced in the early nineties by the Ramos administration as the Build-Operate-Transfer (BOT) model, Philippine PPPs have since accounted for 116 projects, with 37 more in the pipeline.
The Organization for Economic Co-operation and Development (OECD) defines PPPs as “long-term contractual ar-rangements between the government and a private partner, whereby the latter delivers and funds public services using a capital asset, sharing the associated risks.” PPPs are a global phenomenon wedded to the neoliberal agenda of privatization, liberalization and deregulation. The strategy is aggressively promoted by financial institutions like the World Bank and the Asian Development Bank.
PPPs, however, are fraught with inherent frailties. A University of Greenwich professor, David Hall, wrote in 2015 that “experience over the last 15 years shows that PPPs are an expensive and inefficient way of financing infrastructure and divert government spending away from other public services.” Further, the model is “fundamentally incompatible with pro-tecting the environment and ensuring universal access to quality public services.”
PPPs have allowed “services and financial corporations, global consulting firms and law firms to reap profits from basic public services such as health, water, and energy.” They are also a form of creative accounting, a trick to get around limita-tions on public borrowing imposed by international financial institutions (IFIs). The irony is that, in the end, PPPs worsen a government’s fiscal problems.
Governments end up providing subsidies to corporations in PPP projects as reliance on market forces alone would make them “prohibitively expensive.” PPPs thus become a clever way of concealing long-term public borrowings. “Instead of using cheaper public finance,” Hall says “governments and international public sector bodies are supporting PPPs through substantial state aid, in the form of privileged access to government guarantees or public funds.”
Hall sees several distortions arising in the process of PPP implementation: public debates and decision-making are sacri-ficed; PPPs are “being set up than would otherwise be decided; public policy is diverted to creating PPPs rather than the op-timum infrastructure; social, environmental and economic objectives of public policy are de-emphasized; and PPP crowds out other uses of it, e.g., to finance actual infrastructure through supporting governments.”
Generally, he recounts the following major problem areas: “PPPs do not bring in extra money – government pays for the cost of PPPs thru taxation; money is borrowed from banks, pension funds, and other investors;” PPPs will “invariably in-volve higher public spending;” in order to maximize profits, PPPs charge higher prices for the service; and risk transfer is shared unequally as “the private sector is skilled at shifting residual risk to the public sector.”
Additional problems include corruption issues, underestimating costs and exaggerating expected demand; lack of trans-parency by “withholding information on commercial confidentiality” grounds; long-term contractual rights result in non-PPP areas bearing the brunt of reduced public spending; worsened employment conditions of workers; and environmental damage, especially in energy sector PPPs that rely on fossil fuels (coal, oil, and gas).
A 2018 performance audit of PPPs by the European Court of Auditors (ECA) of the European Union concluded that the EU’s 1,789 PPPs since the 1990s had “widespread shortcomings and limited benefits.” The “single procedure” procurement mechanism “increased the risk of insufficient competition thus putting contracting authorities in a weaker negotiating posi-tion.” The nontraditional nature of PPP procurement exposed inefficiencies in “the majority of the audited PPP,s causing “construction delays of from 5-6.5 years, major cost increases” and “reduction in project scopes.”
Prior analyses of projects were also “based on overoptimistic scenarios regarding future demand and use of the planned infrastructure.” In “most of the audited projects, the PPP option was chosen without any prior comparative analysis of alternative public options.” Further, “the risk allocation between public and private partners was often inappropriate, inco-herent and ineffective.” Lastly, the ECA noted that “administrative capability” was absent in most EU states.
If highly developed countries with strong states as in the EU can mess up the PPP model, what more low- and middle-income countries with weak states? In the Philippines, the much-ballyhooed PPP-related water privatization in Metro Ma-nila and adjoining provinces begun in 1997 has been found deficient in achieving its objectives.
A 2019 study by the University of the Philippines’ Center for Integrative and Development Studies (UP CIDS) enumerat-ed the problems encountered under Philippine water privatization. These are the rising price of water, causing inequality and a class bias; excessive profit-taking beyond allowable limits; inadequate and unreliable coverage, particularly for the urban poor; poor water sanitation and wastewater treatment services; the increase of nonrevenue water; inefficient manage-ment—underspending and irregular practices; noninvolvement and/or diminished role of local government units and local communities; workers’ welfare and unemployment issues; use of public funds for water privatization; and regulatory cap-ture due to the weakness of the regulatory agency.
In sum, although billed as a partnership between government and the corporate sector, the interests of the private sector are instead upheld while public concerns are marginalized. Leni Robredo, however, is not alone in espousing the flawed PPP model. Judging from their standing in the ideological spectrum and unless they say otherwise, all other major presidential candidates are expected to support the defec-tive PPP strategy. The only exception is the socialist team of Leody de Guzman and Walden Bello.