The PPP crisis. Part One: Intro

INTRODUCTION TO AN INFRASTRUCTURE DEVELOPMENT MODEL THAT FAILS TO MEET EXPECTATIONS

The provision of infrastructure is a first-order task for any public body responsible for the development and welfare of a territory. There is no doubt about the value or importance of infrastructure as a backbone of the lives of people, communities, businesses, institutions and the environment.

A very different matter is how to plan, execute and manage infrastructure. Public policies in this area are subject to a multitude of conditions - budgetary, technical, social, legal, procedural, among others - and affect and are also influenced by a large number of stakeholders. The people who design a specific infrastructure policy have a very complex problem before them, not least because they know their decisions will determine -often irreversibly- the development patterns of their territory for several generations.

In this context, one of the issues that generates more expectations, debate and controversy is public-private partnerships, which we generally call PPPs. It is an attractive delivery model for the public sector because it is expected to bring additional resources, efficiency and long-term value creation into the arduous task of satisfying the growing demand for public infrastructure and services. In practice, however, the expected benefits often do not materialize and the management of model is complex, misunderstood and sometimes badly planned, hardly managed or even failed, as evidenced by the data on infrastructure PPPs in recent years, as we will see.

The speed and complexity of the social change that we are experiencing and the increasing indebtedness of governments push them towards “simplistic” models of development and management like the conventional PPP model which, despite its formal sophistication, is rigid in essence. The political decision stems from the belief that there is a direct and automatic connection between causes -setting up the legal framework, obtaining financing, signing contracts, provision of human and material resources- and effects -conclusion of the works, effective provision of the service, economic growth, etc.

Picture above: Málaga Metro through Bulevar Louis Pasteur, Spain. Wikimedia (2014)

As it turns out, in an increasingly complex and unpredictable environment, governments enter long-term collaboration agreements (contracts) for expensive, immovable assets that must function and generate value for decades. It is an unsustainable approach, clearly heading for failure. The political decisions to use PPPs are not taking into account dynamics and motivations that actually determine the outcomes, and in the best of cases does not count in the flexibility to deal with the changes that will undoubtedly ensue. The vulnerability of the traditional PPP model is evident in the failure to spread its use, despite the remarkable efforts of governments and multilateral institutions to do so. In the second chapter of this series we will examine these in detail.

The polarization in world politics is no stranger to the world of PPPs. The prevailing ideological positions are increasingly extreme when it comes to private sector participation, without necessarily having an open, rigorous, genuine and rational debate on the problem.

If the objective of a PPP is to generate fruitful and lasting partnerships between diverse actors, it must evolve from the existing paradigm, in which the protagonist is the work or the asset, the legal architecture and its outputs (fundamentally investments), towards a systemic approach that matches the complex and interconnected reality. Such an approach considers infrastructure as a system of systems, similar to living organisms with different dimensions and behaviors: assets, people, organizations and the information that flows between them. Furthermore, these ecosystems do not live in a vacuum, but in specific territories of unique characteristics.

The new PPP paradigm can -and should- host adaptive models of collaboration, similar to those we already see in sectors such as information technology, where many entities truly collaborate, compete and adapt to survive. The success of this type of collaboration will not be based on the ultimate goal of growth per se, but on intelligent adaptation, taking advantage of each relationship for the benefit of the whole.

My purpose in this series of seven articles is to:

• Review the history and fundamentals of PPPs;
• Analyze the main arguments that justify the adoption of traditional PPP models: financing, efficiency and long-term value;
• Review how these arguments actually perform, looking at the dynamics that determine the outcome of PPPs in real life; and
• Share some ideas and reflections about principles of good governance in public-private infrastructure collaboration.

-> Continue to Part Two: History of PPPs.

This article is the English translation of a post originally published by Jose Cordovilla in his Spanish-language blog Infraestructuras y Gobernanza, where he writes about governance issues in infrastructure. All the articles in this PPP monographic series have been registered by the author on Safecreative under Creative Commons License conditions for sharing - Attribution, NonCommercial, ShareAlike 4.0