psiru epsu ppps conference brussels may 2005 ppps in the eu - introduction to epsu conference by...

PSIRU EPSU PPPs conference Brussels May 2005 www.psiru.org

PPPs in the EU

- introduction to EPSU conference

By David [email protected]

Public Services International Research Unit (PSIRU)University of Greenwich, UK

www.psiru.org

May 2005


AcknowledgementsThis presentation is based on research financed by EPSU (www.epsu.org).

It draws on work by Kate Bayliss, Robin De La Motte, Jane Lethbridge, Emanuele Lobina and Stephen Thomas.

PSIRU research is also funded by Public Services International (PSI – www.world-psi.org); by the European Commission for the Watertime project, Contract No: EVK4-2002-0095financed under the EC 5th Framework research

programme: see www.watertime.org ; and by other research contracts.

PSIRU reports and other data are available at www.psiru.org .

• Why PPPs?• Extent of PPPs• Economic issues• Public service issues• Employment issues• Trade union strategies


Concept of PPPs

Used to cover wide range of things:• any contractual relationship between the public and

the private sector i.e. outsourcing• joint ventures between the public and the private

sector, eg Germany (1in 3 Stadtwerke part privatised ) , Italy, France

• ‘PFI-style’ PPPs, where the private sector designs and builds a new asset e.g. a road, and operates the service (BOT) and provides finance for the investment (DBFO), similar to concessions (France, Spain)


Why PPPs?

• Fiscal objectives (the most important reason) – Reduce apparent borrowing by government

• defers the cost of capital investments• same origin of French concessions: Napoleon III lacked

money.– Income from the sale of shares raises money for the budget.

• Economic objectives: – expected efficiency gains – more reliable completion of projects on time and on budget– expected greater management skills of private sector

• Political objectives– reduce role of the state– weaken influence of public sector trade unions– “the progress of countries appears to have more to do with the

interest in PPPs, and the political will to promote them shown by individual governments, than any other factor” (PWC 2004).


Why PPPs? institutions and objectives

Fiscal objectives Economic objectives

Political objectives

IMF Limits on government spending/borrowing

Efficiency Develop global market

EU Limits on government borrowing, debt (stability pact)

Efficiency Develop internal market

National governments

Limits on government borrowing

Efficiency, reduced public spending

e.g. reduce role of state, extend role of private sector, weaken unions

Local governments

Reduce local taxes Efficiency, reduced public spending

?


Why PPPs? EU initiatives to encourage PPPs

• Eurostat ruling February 2004– Makes it much easier to use PPPs to avoid fiscal constraints – asset is private if construction risk + demand or availability risk, are

private

• Advice on PPPs for new member states 2003, 2004– DG Regio Guide to Successful PPPs 2003 (eligibility for ISPA)– DG Regio Resource Book on PPP Case Studies 2004

• Funding for PPPs– Cohesion funds, ISPA grants, EBRD loans (NMS); EIB loans (all states)

• Green Paper on PPPs 2004– proposes new procurement rules to make PPPs easier

• General encouragement of market in public services– public services are priority for extension of internal market 2003 – 2006– Green/white papers on public services see liberalisation as way forward– promotion of markets and PPPs outside Europe

• GATS requests for other countries to open water, energy


Extent of PPPs: national government initiatives

Source: EPSU PPPs survey 2003, PWC report 2004, PSIRU

Country Sectors Law PPPunit

Czech Rep Roads, water, defence Draft 2004 Yes

Finland Health, roads, schools - -

France Rail, roads, water, health, transport, prisons Draft 2004 -

Germany Rail, roads, housing, schools, defence, IT, water

Draft 2004 Yes

Greece roads, airports Draft 2004 2003

Ireland transport, housing, schools, water, waste, health

Yes 2004 Yes

Italy Roads, rail, health, water - Yes

Hungary Roads, health, prisons, schools, water - Yes

Lithuania (concession law) 2003 -

Netherlands

roads, rail, schools, wastewater - Yes

Poland Roads, water Draft 2004 Yes

Portugal stadiums, hospitals, roads, rail, IT, water Yes 2002 Yes

Spain Health, rail, roads, water Draft 2004 -

UK health, schools, water, prison, rail, road, defence

Yes Yes


Extent of PPPs: country and sector (EIB)


Extent of PPPs: also rejected or banned

• UK : Govt ends PFI for IT projects, 2003: – “In the IT sector, structural characteristics have

proven to be at odds with the principal benefits of PFI, and PFI has not been able to deliver the step-change in performance the public sector requires… The Government will replace PFI in IT with a range of procurement models, better able to deliver, on which it will consult.”

• Netherlands: water PPPs illegal 2004– In 2004 the Dutch parliament passed a new law

which bans the involvement of the private sector in water. It had the support of most of the main parties.


Economic issues

• Avoids limits on government borrowing– But PPPs may be worse option

• Costs and efficiency: – Expected as main benefit– But capital costs more, efficiency gain unclear

• Uncertainty:– Expected to improve reliability of construction– But uncertainty, liabilities and risk transfers

• Contracting creates transaction costs etc


Economic issues: efficiency

• Avoiding limits on public borrowing may be worse option– “recent Eurostat decision on accounting for risk transfer gives

considerable cause for concern , could provide an incentive for EU governments to resort to PPPs mainly to circumvent the Stability and Growth Pact (SGP) fiscal constraints.” (IMF 2004)

– “there is the risk that the recourse to PPPs is increasingly motivated ….. in order to bypass budgetary constraints. If this is the case, then it may happen that PPPs are carried out even when they are more costly than purely public investment.” (EC 2003)

• “Much of the case for PPPs rests on the relative efficiency of the private sector. While there is an extensive literature on this subject, the theory is ambiguous and the empirical evidence is mixed.”(IMF, March 2004) – Empirical evidence shows private sector not more efficient than

public (Willner 2001)– USA public and private water equally efficient (Clarke et al 2005)– Productivity in EU: liberalisation/privatisation does not generate

continuing productivity gains (Griffiths/Harrison 2004)– UK privatisations created no significant productivity gain, but did

create negative distributional effects (Florio 2004)


Economic issues: costs, corruption, uncertainty

• Costs higher than forecast– schools PFI project in north London resulted in an extra costs of

£6.25m, due to lack of provision for desks, chairs and cabling for computers.

– the cost of hospital PFI schemes has invariably been higher than originally forecast, requiring 30% cuts in bed capacity and 20% reductions in staff.

• Corruption and systematic lying– executives of water groups Suez and Veolia convicted of corruption

in Grenoble, Angouleme and Reunion (France) and in Milan (Italy)– Systematic lying: final cost of railway construction contracts always

far higher than original estimates: a statistical analysis confirms explanation is “systematic lying” by companies. (Flyvberg et al 2003)

• Uncertainty and liabilities– “….resort to guarantees to secure private financing can expose the

government to hidden and often higher costs than traditional public financing….” (IMF 2004).


Economic issues: renegotiation of contracts

Public interest

Shareholder interest

Contract

Actual path


Economic issues: volatility of private investments


Public service issues

• Loss of quality and quantity– UK: less beds in PFI public hospitals– Finland: price charged for new PPP library was so high that it

could not afford to buy enough new books– Germany: road toll collection fiasco – Loss of trust: “The UK defence sector illustrates that PPPs

involve significant transaction costs which must be set against any benefits in terms of economic efficiency incentives”(Parker and Hartley 2003)

• Health and safety issues: UK– railway accidents – hospital MRSA– school meals quality

• Weaker accountability to public– Denial of responsibility, limitations of contract


Employment issues

Loss of employment

•Large loss of jobs in privatised/liberalised sectors– But also in state operations; some job loss is technical

Worse pay and conditions

Municipal collective agreement abandoned: employees get shorter holidays, lower pay (Finland)Pay cut for new recruits= “2-tier workforce” (UK, Austria)workers paid less in the private sector (UK, France)

- But depends on national laws and agreements

Casualisation

•Loss of public sector status•Short-term contracts in e.g care homes (France, Finland)

Weakening of union organization

•Loss of legal status and representation rights (Austria)•Fragmentation of employers (UK, Italy)


Trade union strategies: UK

• UK (Unison): two types of objective• Opposition to PPPs

– national campaign to limit or end PPPs: • campaign with TUC using political links with Labour Party• publicity and research: publicise examples of the problems and

solid, intellectual case against PPPs, – local campaigns:

• many local campaigns against specific PPP proposals• work with communities and affected users• developed alternative proposals for large scale PPPs

– international campaign: at EU level (EPSU), global level (PSI)• Protection of members in actual PPPs:

– training, guidance and support. – protection against the two tier workforce– protect public sector status of workers (inc pensions)– Agreements with private employers in PPPs– ultimate goal is for a fair wages clause ILO 94


Trade union strategies: Denmark

• Denmark (DKK): three levels of strategy• National level

– Lobbying on legislation and rules eg on ‘Free Choice Model’ in elderly care, standard contract, procurement rules, reform of municipal structure

– Central agreement on consultation and participation rights, locally implemented

• Local level– Participation at all stages– Includes discussion of alternatives as well as implementation– Allows local negotiation of improved protection

• eg Copenhagen protects conditions throughout contract as a contract condition

• Employer level– Continuing influernce through representation on liaison committee


Trade union strategies: EU/national policy issues

• Legal framework at EU level– Policies on internal market, SGI, state aid,

procurement,

• Legal framework at national level – rules on comparing alternatives, guarantees, – institutional framework – consultation rights,

framework agreements with local authorities, bank conditions etc;

• Campaigns on PPPs: different scale of objectives• to stop PPPs eg Netherlands water? • Exclude some services eg UK IT?• to stop some techniques eg cross-border

leasing?


Trade union responses: employment issues

• Collective agreements with private sector (eg France), union growth agreements (eg UK)

• Retention of public employment conditions on transfer to private sector (eg Berlinwasser)

• National codes/legislation requiring pay and conditions equivalent to the public sector (eg Denmark, UK)

• Conditions in bank loans requiring agreements with unions (eg EBRD/Bulgaria energy)


Trade union strategies: multi-level, multi-issue

Limit PPPs Public service protection

Employee protection

EU level Funding rules

Internal market policies

ARD

National level

National campaigns

Policy changes

Legislation/ rules eg 2-tier

Employer level

Local campaigns

Company agreements

psiru epsu ppps conference brussels may 2005 ppps in the eu - introduction to epsu conference by...

Documents

concept of ppps

ppps eurostat

epsu conference

psiru research

france pfistyle ppps

public spending

role of private sector

psiru reports