The Unionist, Issue 35, 13 February 2006

Submitted by EditorNews on 12 February, 2006 - 23:00.

This week's Unionist picks up the debate on Public Private Partnerships, a different model of funding services and infrastructure that is gaining some interest here and overseas. Either read on, or you can download the printed version of The Unionist here (PDF file, 253 kb)

Public Private Partnerships

A press release last month from the New Zealand Council for Infrastructure Development applauded a recent New South Wales Treasury report into Public Private Partnerships (PPPs) in Australian schools. Commenting on the report, the Council said it gave "clear insight into the tangible benefits of public and private sector partnerships." The Council wants New Zealand to pay more attention to PPPs, and organised seminars last week in the three main centres. "Public-private partnerships are being used extensively worldwide to bridge the gap between infrastructure demand and the limitations of public funds. As this example demonstrates, well-managed PPPs can provide better value for money and clear control and accountability for service standards," the Council said.

What are Public Private Partnerships?

A Public Private Partnership (PPP) is just that - a 'partnership' for the delivery of services or infrastructure between the public sector and the private sector. Rather than government funding development through general taxation and/or raising money on private capital markets, a PPP sees the government engaging the private sector to build, operate and own a project at a profit.

A group of private developers, banks, investors and others form a consortium to deliver the project, and retain the ownership of the asset for a set period of time (such as 30 years, after which it may sometimes be handed back to the state for free). During that time they recoup their investment and make a profit by either user charges (such as tolling on a road) or through fees paid by government, or a combination of both.

Proponents of PPPs argue that it is an excellent way of getting projects underway without the government having to shoulder the financial burden, and that the private sector is generally more efficient, innovative and 'leaner' than the public sector.

New Zealand experience of PPPs

To date PPPs have most commonly been discussed here in the context of transport, and the government's Land Transport Management Act, passed in 2003, provides for Public Private Partnerships (called concession agreements) providing they meet certain criteria. At the moment Rodney District Council are investigating PPPs in relation to roading and water.

Then Transport Minister Paul Swain, in a speech on the Land Transport Management Bill in 2002 said that "public private partnerships are another way of spreading the cost of land transport infrastructure over time and bringing fresh expertise and innovation to the sector."

What are the concerns?

A key assumption of the PPP model is that the private sector is more efficient than the public sector, and provides better value for money. However, PPPs typically involve a consortium of different players - lawyers, merchant bankers, developers, contractors, investors - and with that comes legal fees, consultancy fees and the costs associated with organising the arrangement. Necessarily, there is also going to be a profit margin built in. Government is usually able to borrow money at better rates than in the commercial markets, with lower interest payments. It is hard to see then how a PPP can deliver real value for money for the government without either cutting on quality or recouping money through other means than government - such as through charges to the end users. In the latter the public still pays - but in a way that significantly impacts more on those with low incomes.

NZEI Te Riu Roa noted in an article in Rou Rou in 2001 the experience of schools in the United Kingdom where private operators finance, build and run a school under a Private Finance Initiative scheme. They said that given the fees for lawyers and consultants, and the profit margins required, the schools ended up costing 15% more than public schools. "However, since PFI schools are required to be cheaper than state schools," NZEI noted, "savings are made by employing fewer staff, job cuts and increased income generation from private use of the school. Support staff jobs are all contracted out and surplus school land sold for private sector development."

Transfer of risk is often given as a positive outcome of PPPs ? government and the public can enjoy the infrastructure or services without having to take on the risk of developing them. In a report for the Australian Health Services Union in 2004, economics consultants Paul Fitzgerald and Graham Larcombe argued that in the end however the government will always remain guarantor and provider of last resort, as it has the wider responsibility of providing for its citizens. It noted the case of La Trobe Valley Hospital which was "surrendered back to the Victorian government in 2001, following the acceptance of the operating consortia that their assertions about operating a regional hospital less expensively and injecting new capital into the hospital proved false." The report continued: "the trend in the competitive tendering process is for exaggerated claims about the benefits of PPPs, such as cost savings and improved services, to be scaled down dramatically once they are put into practice."

What are union views of PPPs?

In its submission on the Land Transport Management Bill, the CTU expressed its concern about the use of Public Private Partnerships in land transport, saying it would prefer to see a much stronger central and local government role, which could include a private sector role in construction, but not in operating a toll road.

The CTU said that it was wary about any provisions which essentially assemble a collection of institutional investors, lawyers, accountants, merchant bankers and other private sector service providers who take what could be a public sector infrastructure project and turn it into a private sector commercial venture to provide the infrastructure and make a dollar on the way. It was not obvious to the CTU how the private sector could access funding on a better basis than the Government. In addition, there are alternatives - such as development bonds.

Australian Council of Trade Unions President Sharon Burrow argues that PPPs are no panacea for society's fiscal problems, and no magic bullet for provision of public infrastructure. "There are a number of alarming claims coming out of the UK and elsewhere about the pursuit of commercial returns by sacrificing safety standards, excessive price increases, diminution of the wages, working conditions and job security of the workers and short circuiting the normal processes of public audit and scrutiny such projects warrant," she said in a speech to the Australian Financial Review Infrastructure Summit, 15 August 2002.

Further reading

Weekly Union Events Listing

Unite Union Public Meeting - Minimum Wage (Abolition of Age Discrimination) Ammendment Bill Mon Feb 13, 7.30 pm Trade Union Centre (199 Armagh St), Christchurch Lynda Boyd, Unite lynda_1999@yahoo.com

Youth Union Movement action on youth rates Tue Feb 14, 4pm Starts Manners Mall 4pm, Parliament at 4.45pm 

CTU Meeting with Sue Hastings, Pay and Employment Equity expert visiting NZ from the UK Thur Feb 16, 1pm-2.30 CTU Boardoom, 178 Willis St, Wgtn Eileen Brown - eileenb@nzctu.org.nz

"Talking Union" [Union Toastmasters Group] Improve your verbal communication Thur Feb 16, 5.15pm CTU Boardoom, 178 Willis St, Wgtn Pat Bolster - patb@nzctu.org.nz

CTU Immigration Group Workshop Wed Feb 22, 9am - 1pm. CTU Boardoom, 178 Willis St, Wgtn Peter Conway - peterc@nzctu.org.nz

CTU Union H&S meeting Tues Feb 28, 9am-12pm CTU Boardoom, 178 Willis St, Wgtn Karen Fletcher - karenf@nzctu.org.nz

Union Partnership Programme Training (stage 1) Further info: http://www.worksafereps.org.nz/training/index_1.html Thursday March 16, 9am- 5pm Methodist Parish Hall, 62 London Street, Hamilton Karen Fletcher - karenf@nzctu.org.nz by March 2

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About EditorNews

Name
Sam Huggard

Phone
0064 4 802 3817

Email
samh@nzctu.org.nz