PPPS not all that great af­ter all

Kapi-Mana News - - OPINION/NEWS -

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.

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