In the midst of the most significant financial crisis in decades, and in the context of severe budgetary constraints across Europe, member states are seeking new forms of financing to support sustainable public services.
Collaborations between public bodies, such as local authorities or central government, and private companies - known as Public Private Partnerships (PPPs) and Private Finance Initiatives (PFIs) - are at the heart of governments' attempts to revive their public services and have been widely adopted by countries across Europe to finance new infrastructure projects.
PPPs can be described as long-term cooperation between a public authority and a private partner, where the latter is involved in the various phases of the project, assumes risks and responsibilities traditionally born by the public sector and often contributes to the financing of the project. At European level, the European Commission has recently proposed a legislative package covering both public procurements and concessions to improve and clarify the existing legal framework.
Yet in some cases PFIs and PPPs remain controversial with numerous questions being raised. In this context ACCA organised on 7 March in Brussels a roundtable entitled Taking Stock of Public Private Partnerships and Concessions in Europe: Are they value for money? during which the ACCA research report called “Taking Stock of PPP and PFI Around the World” conducted by the Manchester Business School was officially launched on the Brussels scene.
The report examines ten country case studies, including France and the UK, and outlines their experience of PPPs and PFIs. It provides an up-to-date view of developments in Europe and contrasts these with the diffusion, evolution and translation into practice with Asian countries and also touches on lessons learned by governments from entering into PFIs and PPPs arrangements.
ACCA’s round table discussion revealed that the issue is divisive. PPP’s advocates argued that they are a fast and efficient way to offer public services and finance innovation due to the know-how of private finance, management skills and financial acumen of the business community but that they have been ‘mis-sold’ in many member states.
On the other hand, opponents highlighted that PPP’s value for money advantages can only be achieved in narrow circumstances and are hard to prove. They claim that the public sector has demonstrated both skills deficiencies and confusion when working with private finance, and that PPPs are no more innovative than conventional procurement at creating efficient infrastructure. In addition several voices amongst stakeholders and the European Parliament claim that the European Commission failed to demonstrate that there is a market failure that would justify the use of PPPs in Europe, and that much more transparency is needed, though the Commission’s proposal seems too bureaucratic. Some participants also highlighted that in their views, there was a risk to lead to further privatisation, which would be detrimental for democracy.
However, Lukasz Rozanski, from the public procurement unit in DG MARKT, made it clear that the aim of the Directive on Concessions is not at all to force privatisation or externalization of public tasks or to interfere in setting quality standards for the provision of services. The EC Impact Assessment Report on Concessions concluded on the need for rules to ensure more efficient spending of public money, improved access to concessions market and to facilitate the mobilization of private capital to improve investment opportunities and innovation. More specifically, the Directive on Concessions also aims at improving transparency through compulsory publication of concession and award notices and of prior information notice and concession award notices for social service concessions. In any case, it is not about imposing the use of PPPs, but about facilitating their establishment by providing a clear and stable legal framework, only if a public authority considers that a PPP is the best option.
Professor Graham Winch from the Manchester Business School said ‘The case for value for money from private finance in the public sector has yet to be proven. The benefits gained from the availability of ‘extra’ finance, the transfer of risk from public to private sector, and improvements in decision-making processes are too nebulous to provide any certainty that they outweigh all the known problems with PPPs.
He was echoed by Elizabeth Campagnac, from the Université Paris Est Ecole des Ponts Paris Tech who added that "in France, until now, partnerships contracts were far from having demonstrated their superiority either as a budgetary tool or as a reflationary tool."
Heide Ruehle, MEP highlighted that "the proposed Directive on the award of service concession contracts is not a real solution for the problems with PPPs. There is not enough transparency on public contracts to avoid corruption, the public should be aware of how their money is spent. In addition, all budgetary implications linked to PPPs are not in the books of public authorities, they do not appear in the public accounts. Transparency should however not mean more bureaucracy, and so far the European Commission did not succeed in demonstrating the market failure or distortion on which the initiative on Concessions should be based. The Commission should rather take into account the decisions of the Court of justice of the European Union, which clearly defines the notion of concessions. There is no need to legislate for the moment, concessions are different from public procurement and, for reasons of complexity, should not receive the same treatment. Last but not least , the proposed Directive opens a lot of issues, adding plenty of exemptions, which does not seem to be the right route to more legal certainty.”
On the other hand, for Bernard Huvelin, Vice President of Vinci and a Member of the European Economic and Social Committee, the development of PPPs originate in the difficulties of indebted public authorities to finance certain projects. Despite criticism from opponents, PPPs allow winning time and gaining efficiency, delays are usually respected and quality is ensured since the preparation of operations, their execution and the maintenance are executed by the same entity, with one person responsible. Unfortunately, the value of time is not integrated in public accounting systems. We all agree that more transparency is needed, but it should be from both sides.
Klaus Heeger, Secretary general of CESI (Conferation Europeenne des Syndicats independants) added "CESI regrets that the current one-sided approach, combined with growing budgetary constraints, encourages public authorities to recourse to PPPs without prior in-depth cost-benefits analyses and without sufficiently taking into account other parameters, such as social protection, working conditions and environmental aspects. Furthermore, the EU should strongly promote more transparent framework for PPPs and their enhanced visibility in state budgets, not least to increase the democratic control over PPPs. It is also about time that more attention is paid to the so-called "positive rules" provided for by the Treaty of Lisbon and the Charta of Fundamental Rights which may allow to reconsider the benefits of in-house provision of projects for citizens. As a start, best practices for in-house service provisions could be subject to detailed assessments".
Gillian Fawcett, head of Public Sector and chair of the event concluded : “PPPs continue to be a hot topic, and need to be used wisely across the globe. However, key messages from the roundtable indicated that public authorities need to chose carefully as whether to enter into PPPs/PFIs. It was pointed out that these are a tool but not the only tool in the toolbox. All participants also agreed that it would be a positive sign to integrate PPPs into public accounting systems and take into consideration additional elements such as assets and amortised costs facing debts.
- A copy of the ACCA research report “Taking Stock of PPP and PFI Around the World” conducted by the Manchester Business School is available to the left of this article.
You can also find out more about ACCA’s Research & Insights programme to the left of this article.
- ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability.
- We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and their delivery to meet the diverse needs of trainee professionals and their employers. We champion the needs of small and medium sized business (SMEs) and emerging economies, and promote the value of sustainable business. We support our 147,000 members and 424,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills needed by employers.