A report by the European Court of Auditors Risk on the effectiveness of Public-Private Partnerships (PPPs) in Europe has found significant shortcomings ranging from insufficient competition and significant delays to cost increases and lack of comparative analyses.
In the report published on Tuesday (20 March), the auditors concluded that “the EU co-financed Public Private Partnerships (PPPs) cannot be regarded as an economically viable option for delivering public infrastructure”.
The auditors assessed 12 EU co-financed PPPs between 2000 and 2014, in France, Greece, Ireland and Spain related to road transport and information and communication technology (ICT), with a total cost of €9.6 billion and an EU contribution of €2.2 billion.
In the same period, the EU provided €5.6 billion for 84 PPPs, with a total project cost of €29.2 billion.
Greece is by far the largest recipient of EU contributions, with €3.3 billion or 59 % of the total, followed by Portugal (€564 million) and France (€324 million). The main sources of EU funding are the Structural and Cohesion funds, followed by Financial Instruments, often in cooperation with the European Investment Bank. Since 2015, PPP projects have also been funded through the European Fund for Strategic Investments (EFSI).
According to Oskar Herics, a member of the European Court of Auditors responsible for the report, PPPs put the contracting authorities in a weaker negotiating position as few companies have the financial backing to submit bids.
For a €2.4 billion project in Greece (Central motorway), only one offer was evaluated at the final stage of the procurement.
According to the report, the lack of clear policy and strategy, the weak legal framework, and the overoptimistic scenarios regarding future demands resulted in an increase in costs in most cases.
The projects audited “faced a large cost increase to 1.5 billion euro. In Greece, the cost increase was of 1.2 billion and in Spain of 0.3 billion euro, both borne by the public partner,” Herics pointed out. In some cases, like one project in France (Pau-Pyrenees) and one in Ireland (MAN), the overall cost analysis was missing.
Asked by EURACTIV, Herics explained that these specific countries were selected to be audited due to the high volume of projects and EU co-finance.
He also noted that the audit did not find any significant differences among projects funded by Structural Funds or the ones funded by Financial Instruments.
The main recommendations from the auditors are for the member states to ensure value for money for the PPP projects and establish clear policies and strategies identifying the sectors that are the most suitable for this model to apply.
As for the European Commission, the EU auditors recommended providing financial support only to the sectors that are of high strategic relevance and connecting it with the assurance from the member state that the PPP option has been duly justified.
What the Commission says
In its reply to the report, the European Commission rejected the lack of competition complaint, pointing to the international tendering procedure that is open to EU and European Economic Area (EEA) construction markets.
It acknowledged, though, delays and cost overruns, but linked them to the “effects of the sovereign debt crisis and the recession that affected the European economy”.
Regarding the three Greek motorways, the Commission backed the country’s decision to select PPP procedures as “public, national and EU funds were not sufficient to complete the Trans-European motorways in Greece within a reasonable deadline”.
For the C-25 motorway in Spain, the Commission referred to the EIB, acknowledging significant delays as “a result of the worldwide economic crisis”, while for the ICT project in Pau Pyrenees, the lack of cost-benefit analysis is justified due to the particular innovative character of the project and the lack of any previous comparable experience in France.