PPPs: Public Costs and Risks for Private Profits

Abstract

After the generally acknowledged failure of privatization, public–private partnerships (PPPs) have been promoted as a better means for private interests to secure lucrative rents at public expense. PPPs are supposed to reduce the fiscal burden, fill the resource gap for much needed investment to achieve economic development and to better provide infrastructure and services. These claims are grossly exaggerated in light of actual experience. The private sector, for example, is supposed to be better in risk assessment and management; but all too often, the public sector ends up bearing the bulk of the risk, worsening fiscal burdens contrary to what has been promised. Through revenue guarantees to the private partner, PPPs socialize risks, enabling private gains. PPPs in social sectors, such as health, are particularly problematic as they tend to adversely affect access, thus undermining universal health coverage. PPPs have also distorted national investment and development strategies. Thus, by and large, PPPs generally do not serve the public interest well. Hence, public alternatives, including procurement, have to be considered, before governments commit to PPPs. Instead of promoting PPPs, such as ‘blended finance’ arrangements for aid delivery, sincere development partners should empower governments through appropriate strategic capacity building and budget support.