Rethinking P3s For Development

Public-Private-Partnerships-425x270In this April 2013 academic paper entitled When Business Meets Aid: Analysing Public-Private Partnerships for International Development, authors Margaret Callan and Robin Davies, both visiting fellows at Australian National University’s Development Policy Center, contend that the huge potential of public-private partnerships is still largely unrealized because their “purposes and forms are rarely distinguished and given explicit consideration.” The paper proposes a new framework and taxonomy for thinking about public-private partnerships for development to address this gap, .

 

 Callan and Davies distinguish among four categories of partnerships:

            Inclusive business ventures: These core business activities benefit the population at the bottom of the pyramid. Government-led development agencies play three roles in making these business activities more inclusive: improving the knowledge base for inclusive business activity, providing risk-sharing subsidies, and exercising convening power to broker partnerships.

            Pro-poor supply chain initiatives: This consumer-oriented sub-category of inclusive business aims to include the poor in supply chains in an equitable way, while reducing others social or environmental harms created through the supply chain. Labeling and certification mechanisms connect these practices to consumers, by allowing them to choose “products considered to be ethically produced and sustainably managed.”

            Public-private partnerships for service delivery: Many private enterprises provide services to their employees and local communities in health and education. Development agencies often assist by providing in-kind contributions or funding to expand and improve the provision of services.

            Product development partnerships (PDPs): In response to a “gross mismatch between the burden of illness and investment in health research,” international organizations, private foundations, and some official donors have established partnerships to develop new medicines, health technologies or delivery systems.

The authors raised critical questions about each partnership model and challenged commonly held beliefs about partnerships.

Callan and Davies pointed out, for example, that a surprisingly small amount of evidence exists on public-private partnership impacts and cost-effectiveness. They also questioned the view that partnerships need to be mediated by “brokers” who understand both parties, and the idea that private-sector actors are less “fickle” than public agencies in their financial commitments. The authors argued instead that local businesses are, in fact, “the best and most consistent partners for inclusive business approaches.”

As recently as June 2013, a conference promoting the use of PPPs was held in Bahamas and another one is carded for later in the year in Trinidad and Tobago.  It is clear that more and more Caribbean countries are opting for this model for financing large infrastructure projects which allows for off balance sheet capital infrastructure long term debt. Jamaica constructed its highway linking Montego Bay in the north of the island to Kingston through a PPP. This highway is now a toll road, which means that users have to pay to use the highway, which cuts transport times between the two main Jamaican cities considerably. Arawak Cay Port Development Holdings Ltd (ACPDH) in Nassau, Bahamas was another project developed as a P3, with ownership of the port being a partnership between the Government, ACDPH and the public (the company is listed on the Nassau Stock Exchange). This partnership was formed to design, develop, construct, manage, operate and maintain the Nassau Container Port and the Gladstone Freight Terminal as a modern container port and warehousing complex. Alternatively, the private partner could be contracted to take over management of a public asset, such as an airport which was the approach adopted in respect of the management of the Lynden Pindling International Airport in Nassau.” In Trinidad and Tobago, the water desalination project DESALCOTT is an infamous P3 still plagued with allegations of corruption, though largely said to be operating efficiently. The Cabinet of Trinidad and Tobago is also said to have approved PPPs as national policy and there is a robust pipeline of 90 projects with a value of over US$5 billion that has been identified in collaboration with ministries, departments and divisions. Some 20 of these has been approved to proceed including two airports, four highways, an open access broadband system, schools, hotels and diagnostic centres.

Notably no mention was made at that recent conference of some of the massive P3 failures which have already been experienced across the globe, resulting in significant pushback in the UK where the end of the Governments fascination with the Private Finance Initiative (PFI) infrastructure development model is being celebrated. The PFI expedition was one of the costliest public policy experiments in the history of Great Britain and now initiatives are underway to recoup monies from the private sector participants. Some of the criticisms include :

            - The information, negotiating power and professional capacity assymetries between the public and private sector participants are routinely taken advantage of by the latter resulting in long term deals favouring corporate interests as opposed to the development objectives the partnership was conceptualized to serve.

            - No substantial body of evidence that P3s have delivered better value for money for the taxpayer, nor that they have been more innovative or better designed.

            - Flawed procurement and tendering processes usually attend the P3 project model due to a largely unregulated space.

            - The recording of the debt is typically off balance sheet thereby giving the false impression of financial health.

The critical question is whether policymakers and public sector professionals in the region have the capacity to engage on an even playing field with their private sector counterparts so as to ensure that the deals entered into represent best value and serve the long term interests of the public.

In the circumstances this paper and others seeking to highlight the pitfalls of the P3 infrastructure financing model are well worth the read for Caribbean public officials, professionals and technocrats so that as we hurtle along the P3 path we are mindful of the inherent risks and build capacity to manage them.

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