PPPs in the EU - introduction to EPSU conference

1. PPPs in the EU- introduction to EPSU conference By David Hall d.j.hall@gre.ac.uk Public Services International Research Unit (PSIRU) University of Greenwich, UK www.psiru.org May 2005

2. AcknowledgementsThis presentation is based on research financed by EPSU (www.epsu.org). It draws on work by Kate Bayliss, Robin De La Motte, Jane Lethbridge, Emanuele Lobina and Stephen Thomas.PSIRU research is also funded by Public Services International (PSI – www.world-psi.org); by the European Commission for the Watertime project, Contract No: EVK4-2002-0095financed under the EC 5th Framework research programme: see www.watertime.org ; and by other research contracts. PSIRU reports and other data are available at www.psiru.org . • Why PPPs? • Extent of PPPs • Economic issues • Public service issues • Employment issues • Trade union strategies

3. Concept of PPPs Used to cover wide range of things: • any contractual relationship between the public and the private sector i.e. outsourcing • joint ventures between the public and the private sector, eg Germany (1in 3 Stadtwerke part privatised ) , Italy, France • ‘PFI-style’ PPPs, where the private sector designs and builds a new asset e.g. a road, and operates the service (BOT) and provides finance for the investment (DBFO), similar to concessions (France, Spain)

4. Why PPPs? • Fiscal objectives (the most important reason) • Reduce apparent borrowing by government • defers the cost of capital investments • same origin of French concessions: Napoleon III lacked money. • Income from the sale of shares raises money for the budget. • Economic objectives: • expected efficiency gains • more reliable completion of projects on time and on budget • expected greater management skills of private sector • Political objectives • reduce role of the state • weaken influence of public sector trade unions • “the progress of countries appears to have more to do with the interest in PPPs, and the political will to promote them shown by individual governments, than any other factor” (PWC 2004).

5. Why PPPs? institutions and objectives

6. Why PPPs? EU initiatives to encourage PPPs • Eurostat ruling February 2004 • Makes it much easier to use PPPs to avoid fiscal constraints • asset is private if construction risk + demand or availability risk, are private • Advice on PPPs for new member states 2003, 2004 • DG Regio Guide to Successful PPPs 2003 (eligibility for ISPA) • DG Regio Resource Book on PPP Case Studies 2004 • Funding for PPPs • Cohesion funds, ISPA grants, EBRD loans (NMS); EIB loans (all states) • Green Paper on PPPs 2004 • proposes new procurement rules to make PPPs easier • General encouragement of market in public services • public services are priority for extension of internal market 2003 – 2006 • Green/white papers on public services see liberalisation as way forward • promotion of markets and PPPs outside Europe • GATS requests for other countries to open water, energy

7. Extent of PPPs: national government initiatives Source: EPSU PPPs survey 2003, PWC report 2004, PSIRU

8. Extent of PPPs: country and sector (EIB)

9. Extent of PPPs: also rejected or banned • UK : Govt ends PFI for IT projects, 2003: • “In the IT sector, structural characteristics have proven to be at odds with the principal benefits of PFI, and PFI has not been able to deliver the step-change in performance the public sector requires… The Government will replace PFI in IT with a range of procurement models, better able to deliver, on which it will consult.” • Netherlands: water PPPs illegal 2004 • In 2004 the Dutch parliament passed a new law which bans the involvement of the private sector in water. It had the support of most of the main parties.

10. Economic issues • Avoids limits on government borrowing • But PPPs may be worse option • Costs and efficiency: • Expected as main benefit • But capital costs more, efficiency gain unclear • Uncertainty: • Expected to improve reliability of construction • But uncertainty, liabilities and risk transfers • Contracting creates transaction costs etc

11. Economic issues: efficiency • Avoiding limits on public borrowing may be worse option • “recent Eurostat decision on accounting for risk transfer gives considerable cause for concern ,could provide an incentive for EU governments to resort to PPPs mainly to circumvent the Stability and Growth Pact (SGP) fiscal constraints.” (IMF 2004) • “there is the risk that the recourse to PPPs is increasingly motivated ….. in order to bypass budgetary constraints. If this is the case, then it may happen that PPPs are carried out even when they are more costly than purely public investment.” (EC 2003) • “Much of the case for PPPs rests on the relative efficiency of the private sector. While there is an extensive literature on this subject, the theory is ambiguous and the empirical evidence is mixed.”(IMF, March 2004) • Empirical evidence shows private sector not more efficient than public (Willner 2001) • USA public and private water equally efficient (Clarke et al 2005) • Productivity in EU: liberalisation/privatisation does not generate continuing productivity gains (Griffiths/Harrison 2004) • UK privatisations created no significant productivity gain, but did create negative distributional effects (Florio 2004)

12. Economic issues: costs, corruption, uncertainty • Costs higher than forecast • schools PFI project in north London resulted in an extra costs of £6.25m, due to lack of provision for desks, chairs and cabling for computers. • the cost of hospital PFI schemes has invariably been higher than originally forecast, requiring 30% cuts in bed capacity and 20% reductions in staff. • Corruption and systematic lying • executives of water groups Suez and Veolia convicted of corruption in Grenoble, Angouleme and Reunion (France) and in Milan (Italy) • Systematic lying: final cost of railway construction contracts always far higher than original estimates: a statistical analysis confirms explanation is “systematic lying” by companies. (Flyvberg et al 2003) • Uncertainty and liabilities • “….resort to guarantees to secure private financing can expose the government to hidden and often higher costs than traditional public financing….” (IMF 2004).

13. Economic issues: renegotiation of contracts Public interest Contract Actual path Shareholder interest

14. Economic issues: volatility of private investments

15. Public service issues • Loss of quality and quantity • UK: less beds in PFI public hospitals • Finland: price charged for new PPP library was so high that it could not afford to buy enough new books • Germany: road toll collection fiasco • Loss of trust: “The UK defence sector illustrates that PPPs involve significant transaction costs which must be set against any benefits in terms of economic efficiency incentives”(Parker and Hartley 2003) • Health and safety issues: UK • railway accidents • hospital MRSA • school meals quality • Weaker accountability to public • Denial of responsibility, limitations of contract

16. Employment issues

17. Trade union strategies: UK • UK (Unison): two types of objective • Opposition to PPPs • national campaign to limit or end PPPs: • campaign with TUC using political links with Labour Party • publicity and research: publicise examples of the problems and solid, intellectual case against PPPs, • local campaigns: • many local campaigns against specific PPP proposals • work with communities and affected users • developed alternative proposals for large scale PPPs • international campaign: at EU level (EPSU), global level (PSI) • Protection of members in actual PPPs: • training, guidance and support. • protection against the two tier workforce • protect public sector status of workers (inc pensions) • Agreements with private employers in PPPs • ultimate goal is for a fair wages clause ILO 94

18. Trade union strategies: Denmark • Denmark (DKK): three levels of strategy • National level • Lobbying on legislation and rules eg on ‘Free Choice Model’ in elderly care, standard contract, procurement rules, reform of municipal structure • Central agreement on consultation and participation rights, locally implemented • Local level • Participation at all stages • Includes discussion of alternatives as well as implementation • Allows local negotiation of improved protection • eg Copenhagen protects conditions throughout contract as a contract condition • Employer level • Continuing influernce through representation on liaison committee

19. Trade union strategies: EU/national policy issues • Legal framework at EU level • Policies on internal market, SGI, state aid, procurement, • Legal framework at national level • rules on comparing alternatives, guarantees, • institutional framework – consultation rights, framework agreements with local authorities, bank conditions etc; • Campaigns on PPPs: different scale of objectives • to stop PPPs eg Netherlands water? • Exclude some services eg UK IT? • to stop some techniques eg cross-border leasing?

20. Trade union responses: employment issues • Collective agreements with private sector (eg France), union growth agreements (eg UK) • Retention of public employment conditions on transfer to private sector (eg Berlinwasser) • National codes/legislation requiring pay and conditions equivalent to the public sector (eg Denmark, UK) • Conditions in bank loans requiring agreements with unions (eg EBRD/Bulgaria energy)

21. Trade union strategies: multi-level, multi-issue