PPPs are no more than an accounting "trick" to keep debt off public balance sheets in order to allow eurozone economies to keep within strict public debt limits set out in the Maastricht criteria.
Collaborations between public authorities and the private sector have become an increasingly common instrument for raising capital to fund transport infrastructure development, as well as to build hospitals and schools. They have been frequently used in public procurement initiatives by governments in Western Europe and are beginning to take off in eastern member states.
Last year, the European Commission launched guidelines on setting up PPPs and the EU economic recovery plan launched in November 2008 includes several such projects in the research and development area (EurActiv 27/11/09). These include the Green Cars Initiative, which draws half of its funding from the 7th Framework Programme with matching investment from private companies.
The UK is seen as a leader in the field of PPPs and is viewed as an example by several Eastern European nations. PPPs are also touted as an effective means of building infrastructure capacity by the United Nations Development Programme (UNDP), which will host a conference on the subject today (25 September) in Bosnia and Herzegovina.
However, David Price remains deeply concerned by the growing reliance on private debt in funding public projects. He said the cheapest way of raising money for public investment is government borrowing. "When the private sector borrows on the government's behalf, which is all PPPs are about, then there is an additional cost," he said.
Price also casts doubt on claims that private-sector involvement injects efficiency into a traditionally sluggish process. "The government says that it could save money [by using PPPs] greater even than additional cost of finance. The trouble is there's no evidence for this. In fact, the evidence from the National Health Service in the UK is that the cost is carried by the service," he said.
According to his research, hospitals in the UK built through PPPs have 30% fewer beds than the public hospitals they replace, and cuts in other areas of the health service are required in order to pay for the additional cost of such initiatives.
The enduring popularity of linking up with private industry is that governments can effectively hide public debt, according to Price. "Any government that wants to look prudent likes to keep its debt figures down. PPP investment in most cases does not count as public debt, even though it obviously is public debt. So it is a bit of a trick to keep it off the public balance sheet," he says.
While this gives the impression that the national books are "clean", Price says the impact on the public balance sheets when a private partner goes bust can be dramatic. "In the case of the London metro, £400 million was suddenly added to government debt overnight, because the PPP company went bankrupt."
Price said the EU had allowed this situation to develop, but fears are growing about the unknown scale of the risk public authorities are exposed to when PPPs go bankrupt.