NZ Treasury on PPPs
The NZ Treasury has a paper looking at the advantages and disadvantages of Public-Private Partnerships (PPPs)*. The conclusions are almost exactly what I would have written myself.
This paper argues that:
* there are other ways of obtaining private sector finance without having to enter into a PPP
* most of the advantages of private sector construction and management can also be obtained from conventional procurement methods (under which the project is financed by the government, and construction and operation are contracted out separately), and
* the advantages of PPPs must be weighed against the contractual complexities and rigidities they entail. These are avoided by the periodic competitive re-tendering that is possible under conventional procurement.
The paper concludes that PPPs are worthwhile only if all three of the following conditions are met:
1. The public agency is able to specify outcomes in service level terms, thereby leaving scope for the PPP consortium to innovate and optimize.
2. The public agency is able to specify outcomes in a way that performance can be measured objectively and rewards and sanctions applied.
3. The public agencyâ€™s desired outcomes are likely to be durable, given the length of the contract.
The only thing missing is a discussion of the cost of capital. I’ve discussed this issue with NZ Treasury in other contexts, but I’m not sure where they would come out in relation to PPPs
* Acronyms are tricky things. In the post below, PPP means Purchasing Power Parity. And once upon a time, it meant Point-to-Point Protocol, which was used by modems.