Chapter 2 - PPPs—For and Against

Abstract

The public-sector reform movement known as "New public management" provides the theoretical background for public–private partnerships (PPPs), but in reality the main driver for growth is that PPPs avoid limitations on public-sector budgets. However, the detailed debate on the merits and demerits of PPPs is a highly complex one. PPPs are believed to encourage decentralization of government, separating responsibility for the purchase of public services from that of their provision, output or performance-based measurements for public services, contracting-out public services to the private sector, and privatization of public services. However, private-sector finance for a PPP clearly costs more than if the project were procured in the public sector and financed with public-sector borrowing. Public-sector borrowing is cheaper because lenders to the government do not take any significant risk with their money, whereas lenders to a PPP take a greater risk. But a project's risks do not disappear just because the public sector is funding it—it can thus be argued that these risks are retained by the public sector and constitute a concealed cost of the project, which should be added to the lower cost of public-sector financing to make this comparable with a PPP's financing costs.