Economic worth of PPPs

There is no book in recent times with a sweep as comprehensive and vast, insights as rich and thoughtful, data as recent and authentic, and production as lavish and well-done as the International Handbook on Public-Private Partnerships by Greame Hodge and Anthony Boardman, two scholars who have gone beyond the known in this interesting and complex field of great relevance today.

The book is divided into four parts, namely conceptual frameworks, disciplinary themes in public-private partnerships, empirical experience in public-private partnerships and crucial issues for the future.

Some of the areas it examines, perhaps for the first time in serious academia, relate to the economic worth of PPPs, governing partnerships, P3s in America and the World Bank/UN experiences, a process perspective on PPPs, lessons from developed and developing world to name a few. Erik Hans Klijn argues that than in the traditional principal-agent relationship or in traditional government contracting with the private sector, in PPP, the private sector gets involved fundamentally in decision-making. In an essay on reviewing PPPs, Greame Hodge argues that neither the availability of off-budget financing nor the avoiding accountability for capital funding are particularly valid reasons to evaluate PPPs and argues how, like any household mortgage, they merely distribute a one-off chunky capital outlay into a bunch of manageable payments in the future.

Principal-agent problem

In an extremely insightful piece, Mathew Flinders argues that PPPs are founded on an underlying logic that clashes intellectually with the values on which the modern state rests.

The one area where the book could perhaps go further in a future edition is to demonstrate whether government failure or market failure is more expensive to society and which needs to be addressed how.

Jean Bettigenies and Thomas Ross demonstrate the challenges posed by the buying and selling of goods in an environment of imperfect and incomplete markets and contracts and argue that PPPs are a special case of the principal-agent problem.

Political risk factor

Anthony Boardman and Aidan Vining try to postulate what the economic worth of a PPP could be. They argue that PPPs postpone governments cash outlays; make the government's current balance-sheet look good for future liabilities are seldom reported ; may improve cash flows for citizens; may be more willing to pay a toll to a private operator than to the government for the same service; and lastly, transfer of risk to the private sector.

A caveat is that in sharply polarised polities, especially in imperfect democracies, large PPP projects actually increase political risk for they can become the subject of debate and dislocation of the incumbent (worse case scenario), especially where there is some form of crony capitalism involved. Enron's huge India investment and the Chennai desalination plant are cases in point.

The chapter on the Australian PPP experience powerfully demonstrates that it has been a mixed story so far, and not as rosy as some commentators would want one to believe.

Lessons for policy-makers

It argues how discount rates have been manipulated to show the public sector comparator poorly in some projects and how the size and value of risks has been less than robust in terms of calculations, which have often led to contentious results.

In an interesting chapter, Carston Greve argues that there is a rapidly emerging PPP ‘industry' in the world with the UK and Australia leading the way.

But he rues about the absence of data and transparency of the complex relationships between companies, governments and international organisations, and says future research should look at the efficacy of PPPs from the government's perspective and how and why companies themselves are involved in developing PPPs.

In brief, the Handbook informs, engages, questions, criticises and educates, especially at a time when most of the world, reeling under the global financial meltdown, are looking at PPPs as a manna to rev the engine of economic growth.

PPPs are indeed here to stay, and have an impact and reach across sectors — the great contribution of this volume is to prove with evidence that they are not an unqualified blessing and indeed have areas of concern that need to be addressed.

Apart from the minor criticisms above, the only point one can mention is that a chapter each on India's and China's PPP experience who, accordingly to the World Bank's PPIAF database today, account for a majority of the global PPPs, is perhaps the only shortcoming of an otherwise brilliant, seminal volume. A must buy.

(The author is an IAS officer. The views are personal.)

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