Friday, October 11, 2019

PPP assessment in steady state!

At the turn of the millennium, public private partnerships (PPPs) emerged as the rage in infrastructure. The apparent success of PPPs in countries like the UK, Australia, and Canada, made others, including developing countries like India, follow suit.

Sample this first independent assessment of the UK PPPs by the National Audit Office (NAO),
Most construction work under the Private Finance Initiative (PFI) is being delivered on time and at the cost expected by the public sector... Under the PFI only 22 per cent of public building projects had exceeded the cost expected by the public sector at contract award. This is a dramatic improvement compared with a previous survey of public building projects in 1999 which found that 73 per cent had overshot the cost expected by the public sector... Under the PFI only 24 per cent of public building projects had been delivered late with just 8 per cent being delayed by more than two months. This is also a dramatic improvement over the previous 1999 survey which found that 70 per cent of building projects had been delivered late to the public sector.
That was February 2003, at an early stage of PPP development in UK. 

Fast-forward 2018, the same NAO, this time with a much larger sample and mature stage of PPPs, had this to say,
The higher cost of finance, combined with these other costs, means that overall cash spending on PFI and PF2 projects is higher than publicly financed alternatives. The Department for Education has estimated the expected spend on PF2 schools compared with a public sector comparator (PSC). Our analysis of these data for one group of schools shows that PF2 costs are around forty per cent higher than the costs of a project financed by government borrowing. The Treasury Committee undertook a similar analysis in 2011, which estimated the cost of a privately financed hospital to be 70% higher than the PSC.
India is somewhere in the middle, moving towards the mature stage of PPPs, where there will soon be a large number of projects which are old enough to experience renegotiations, cost overruns, asset-stripping, skimping on investments etc. 

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