Wednesday, August 12, 2009

Why bother with PPPs?

You see I have friends who can't wait for this - they would make a fortune screwing public servants of money to do something none of them really understand. The key to getting the best value out of them is simply letting the private sector build something and charge people for using it, and bear the risks of overspending, poor customer service and lack of demand for the service - like the Melbourne Citylink toll motorway - a great success, because the private consortium that designed it, chose the route, bought the properties, built it and now operate it - were allowed to do so, albeit with enormous contracts and a legal framework to keep (excessive) oversight. In that case the road exists because the owners borrowed to pay for it, and use tolls to pay back the debt. You wont find too many PPPs quite that elegant.

PPPs make sense when governments want to hide borrowing they make. PPPs probably make sense in developing countries when they want to build infrastructure and don't have legal frameworks to readily allow private investment to be securely made. However, I am not convinced they are better than privatisation OR the state sector contracting out activities it isn't any good at.

Bill English is keen on public-private partnerships, the privatisation you have when you want to privatise profits and socialise the risks.

He waxes lyrically about how much it is done in Australia
. Music to the ears of management consultants, lawyers and the big 4 accountancy firms all keen to have a slice of the expensive pies involved in setting them up. You see, precious few public servants have a clue about what to do, so a lot of your money would be expended on consultants to help them out. Given I know some of the people who would do this, it is pretty clear to me that the you better have a good reason to spend such horrendous amounts of money trying to match clever people in the private sector out to milk profits and minimise risks.

English lists sectors he clearly approves of being involved in PPPs. Lets go through them:
- Roads: Well quite simply there aren’t enough road projects in New Zealand big enough to be worthy of the transaction costs involved in a PPP. Far better would be to allow private companies to design, build, own, operate and toll roads with little government involvement at all, except interconnecting with existing roads. For example, the Auckland Harbour Bridge and the approaches from the Central Motorway Junction to as far north as Constellation Drive, could be sold – lock stock and barrel, it could have included the Victoria Park Tunnel project and the right to toll (and either refund road taxes spent using the road or pro-rata the payments to the company). THAT would have made a lot of sense and be a model for the rest of the country.
- Rail: Look it isn’t profitable. Unless you’re going to sell the freight business off, then this is just paying the private sector to manage a black hole. A PPP would be worse than the status quo.
- Water: Why not privatise? It has been successful in England, and has addressed serious deficits of core infrastructure. Besides, this is a local authority function. Private providers would encourage water conservation, because they would seek to maximise returns by charging what the market could bear.
- Energy: Given it is partially privately owned, why even think of a PPP? Contact Energy works, so lets just privatise the other three SOEs and Transpower.
- Defence: A core role of the state. Why would you allow anyone to profit from supplying property and managing national security? What happens if that PPP provider is sold to a foreign owner with hostile intent? Certainly you may contract the private sector to manage property or assist in advice, but supplying infrastructure?
- Hospitals: Again, why not just let private companies supply hospital capacity that you buy services from? Why sign up to a monopoly provider to guarantee its returns?
- Schools: As with hospitals.
- Prisons: As with defence. Management contracts and advice are all very well, but having the private sector responsible for incarceration has always worried me.
- Radio networks: Why own these at all? Radio New Zealand can hardly be privately run as a PPP given it makes little revenue, so why not just privatise it and let people pay for it voluntarily?

With that, and his ever bright and political popular ideas of a capital gains tax and reintroducing the land tax that Ruth Richardson abolished, is it any wonder that Bill English is starting to look like the Finance Minister we might have got had Labour been re-elected?

No comments: