PPPs: a novel form of re-distribution

WA & NSW jump on the PPP bandwagon
David Carey

The pre-Christmas announcement that the WA government has embraced a Public Private Partnership (PPP) policy, and the NSW announcement of a new PPP school building and operating contract, contrasted nicely with the concurrent announcement of the decision of the largest private operator of the Victorian public train and tram network, National Express, to discontinue its operations.

As the States continue to adopt the Public Private Partnerships(PPP) or Private Finance Initiative(PFI) policy, contrary to the warnings of many that the policies have never been shown to have met the claims of lower costs, perhaps the experience in Victoria will help get the message across.

The biggest private transport operator in Australia, multinational National Express, has now pulled out despite the Victorian government offering the firm an extra $90 million, and offerring $47 million to the other two private operators, Yarra Trams and Connex, the UK transport multinational.

It's worth remembering that the advocates of PPPs and PFIs originally said the reason we should have them is that they take the risk away from the public finances, deliver infrastructure faster and cheaper, and thus save the public money (the public sector, they said, has a tendancy to "overinvest"). The private sector "competitive" approach, they said, will bring "efficiency", and they will make a profit.

But what has really happened both in Victoria and the UK, for example, is that the private operators have again failed to make the profit that they predicted, and have simply asked the public to bail them out so they can still make a profit to be distributed to the shareholders. If not enough public money is given to them, they say, they will give up the contract.

The recent British experience in particular must cause the PPP and PFI boosters to think again. The UK Institute of Public Policy Research (IPPR) has recently examined PFI (PPP) performance and was quoted in The Guardian on 10 December 2002 as concluding that "there is currently no evidence about whether the PFI [PPP] delivers once schemes are up and running." There have been 378 PFI projects in the UK. The Guardian stated the IPPR found that " ... only 23 out of 378 PFI projects - just 6 per cent - have been independently audited to see if they offer value for money, says the IPPR." The report said that there may be value in prisons and road building, but not in schools and hospitals.

In fact, the British firms are now trying to get out of the PFI deals. Those that are staying, like Connex, have had to be given more public money. Connex was just given the equivalent A$190 million to keep in the business of running the UK trains: just as Connex said this week that they would have to be given a whole lot more public money in Victoria, in addition to their current A$47 million subsidy, to pick up the business that National Express abandoned in Victoria.

The UK's Roy Hattersley recently aptly put it, while commenting on the difficulty of understanding why Labour governments would support failing PFIs:

... When a PFI contractor confesses that the price he quoted was too low for the job to be finished, the government graciously makes up the difference ... if the company is still paying a dividend, taxpayers are contributing to shareholders' income. For a Labour government, that is a novel form of redistribution.

Perhaps the last word should come from the man who started it all in Victoria. Former Coalition Premier, Jeff Kennett, said on ABC-TV's 7.30 Report on 17 December, 2002:

They're (the Victorian private transport operators) saying they're going to ask for more subsidies. I'm saying there should be no more subsidies for anyone.


David Carey is Federal Secretary of the State Public Service Federation.


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