PPPS not all that great after all
Last week couldn’t have been a pleasant one for anyone who believes in the superior competence of the private sector.
Serco, the private firm that now runs Mt Eden prison, has reportedly failed, during its first nine months on the job, to meet nearly half the performance targets it was contracted to deliver.
According to a Corrections Department report, Serco wrongfully released and detained inmates, allowed an escape and failed to keep serious assaults under control. Moreover, while the company had agreed to place 92 per cent of inmates on to prisoner management plans, it has done so with only 28 per cent.
Only a few months ago, Serco won a $900 million, 25-year contract to build and run a prison at Wiri, due to open in 2015.
Finance Minister Bill English claimed in March to be confident that the Serco prison at Wiri would cost 10 per cent less than a public prison, while delivering better results.
‘‘ We are confident the new prison will reduce reoffending, improve public safety and help improve performance across the entire prison system,’’ he said.
The Wiri experiment is among the first of this country’s public/ private partnerships ( PPPs), where private firms will be paid to provide a public service ( for example a prison, school, hospital or motorway) while taking on a share of the financial, technical and operational risk in doing so.
During the 1990s, there was a lot of early enthusiasm that this financing model would enable governments to get expensive projects built and run – allegedly, more efficiently – without the state needing to take on the debt involved. Such optimism has faded, especially in countries that have had experience with the PPP model.
Unfortunately, it seems many PPP contracts merely shift the cost burden onto future generations, once the firms involved have taken their profits from the contracts.
Last week, for instance, the British Guardian newspaper released a devastating survey of Britain’s PPPs, which they call private finance initiatives (PFIs).
The total capital value of Britain’s 717 PFI contracts, the Guardian found, was only £54 million, but the ultimate cost to British taxpayers would exceed £300 million.
Some of that would include running costs, but even so, the Guardian concluded, PFIs were delivering very lean returns when compared with the overall costs the Government would have faced if it had borrowed the money directly to pay for the schemes.
In some cases, the final sum will be 12 times the original cost, over the 30-year term of the contract.
Already, the debt-financing burden is requiring the British government to step in, reassume control of some PFI- financed hospitals and pick up the liability.
The British Treasury is engaged in a ‘‘fundamental review’’ of PFIs and a search for alternatives, amid concerns that too many of the deals are delivering poor value for money.
Regardless, our Treasury seems to have lost none of its enthusiasm for the concept. Little of the debate about the feasibility of the PPP model has filtered through to New Zealand, which is still fixated on the partial sale of state assets.
It may be timely to have the debate soon, before the PPP concept is taken any further here.