Public Private Partnerships (PPP) and Privatization

Executive Summary

PPPs are how private companies rob the public domain.

Introduction

PPP is a technique to steal benefits from the public domain by proposing a “partnership.” The private banking interests promote PPP and privatization. They are a major focus of the corrupt representatives of private banking interests like the IMF, the World Bank, the Inter-American Development Bank, the African Development Bank. This quote explained the deception of PPPs.

“The report concludes that PPPs are an expensive and inefficient way of financing infrastructure and services. These privatisation policies are also linked to the new wave of trade negotiations (TISA, TPP, TTIP), also secretive, without public consultation, agreed behind closed doors and heavily influenced by business interests. These trade deals not only facilitate PPPs but will also lock them in, making it next to impossible to reverse them, regardless of outcomes. To access these funds, governments are advised to do a whole lot of PPPs at the same time in order to create a pool of assets that can then be bundled and sold on to long-term investors. This is exactly what the financial services companies did with home mortgages at the turn of the century, which brought us the global financial crisis of 2008. PPPs originated as an accounting trick, a way round the government’s own constraints on public borrowing. This remains the overwhelming attraction for governments and international institutions. Just as companies like Enron had tried to conceal their true liabilities by moving them ‘off-balance-sheet’, so governments started using PPPs as “tricks…. whereby public accounts imitate the creative accounting of some companies in the past.” – Why PPP Don’t Work

As an example of how poorly PPPs outcomes the following explains the EU countries that have made the greatest use of them. “Although PPPs are often promoted as a solution for countries under fiscal constraints, the evidence suggests rather that they worsen fiscal problems. According to the EIB, the six countries which have made the greatest use of PPPs in recent years are Cyprus, Greece, Ireland, Portugal, Spain and the UK. Four of these are subject to ‘Troika’ rescue packages, and the other two – Spain and the UK – both face large fiscal problems. In both Portugal and Cyprus, the IMF/EU ‘troika’ packages have identified PPPs as a contributory cause of the countries’ fiscal problems, and required an audit and renegotiation of existing PPPs and a freeze on new PPPs.” – Why PPPs Don’t Work. Corrupt private interests lobby for PPP investments that may not be the highest social good projects, but which are the most profitable for the private interests as is explained in the following quotation. “PPPs do not add to this – rather, they select a small number of the most profitable projects, and persuade governments to prioritise spending on these projects, even if this distorts the development of public services. In Africa, for example, they finance high-tech hospitals in a few urban centres where there are enough wealthy people to support private medicine, but not the universal networks of clinics or the salaries of staff needed to provide healthcare for the poor. In Europe, they finance some lucrative toll roads on existing busy routes, but not the extension of toll-free roads to improve rural or peri-urban areas.” – Why PPP Don’t Work

PPPs also are filled with corruption and cost overruns as is expressed in this quotation. ” PPPs have shown the usual problems. A PPP for the new Berlin airport was abandoned; a new concert hall in Hamburg was originally estimated to cost €114 million and be finished in 2010, but the private construction company Hochtief now expects it to be completed in 2017 at a cost of €780 million. The total rents of a 15 year PPP project for 90 schools in Offenbach increased from an initial forecast of €780 million to €1.3 billion. ” – Why PPPs Don’t Work. Highly corrupt consulting firms like McKinsey promote PPPs, pretending they do not have enormous conflicts of interest, as do private banking interest organization like the Word Economic Forum (WEF), which hides that it is a cat’s paw of international banking. “These public bodies sponsor a stream of publications and advice from international consultancy, accountancy and legal firms, such as McKinsey and PWC. These consultancies themselves make further profits from legal and consultancy work arising from the complex contractual processes involved in PPPs.” – Why PPs Don’t Work. This is an example of the finding of a paper by the WEF. “The bleak outlook for traditional financing means that governments must consider alternative financing models to leverage private capital into infrastructure.” PPPs turns over a natural monopoly to a private entity with zero concern for the public interest. A perfect example of this is a toll road. The private entity then uses that monopoly against the public. Naturally, without a private central bank, there would be no need for PPPs. This is the problem with having to go to private entities for finance. They not only rob the public of the right to create money, but they impost more private and corrupt outcomes. The point of the term PPP is a type of Orwellian doublethink. It makes it sound like there is a partnership, when in fact, the private banking interests are preying on the government. What is just as ludicrous is that PPPs are justified in part on the ability to transfer risk to away from the government to private companies. This makes no sense. And this is explained in the following quotation. “Governments can nearly always borrow money more cheaply than private companies or private individuals. This is because there is very little risk of defaults. Governments are always there, with large tax revenues whereas no private company is
immune from the risk of going bankrupt. Lending to private companies is therefore more risky, and so the interest rate is higher. In 2011 a representative of the UK private companies involved in PPPs estimated that the average extra cost of private sector capital over conventional borrowing had been 2.2 per cent a year. A new report on PPPs in water in the USA compares the total cost of financing the same amount of infrastructure through public borrowing and private finance. Private finance costs between 50 percent and 150 percent more. In Rialto, California, the annual cost of private finance in a new water concession PPP is $16 million, more than double the cost of financing the same debt and investment by the public authority.” – Why PPPs Do Not Work

And it would make even less sense if local goverments (that is who approves the PPP), raised their own money from a public central bank and paid zero percent interest on that money. The other problem with private central banks is that it puts the necessity to borrow money on all levels of government, and then schemes like PPPs are implemented to “help reduce” this burden. What should be apparent is that PPPs sound very similar to the war and reconstruction profiteering that followed the Gulf Wars. The basic approach is the same. Corrupt political officials with connections to companies that will receive contracts (i.e. Dick Cheney) promote a war, or a massive public expense. They then make the benefits seem much better than they will be (the fighting will be over in a few weeks, all costs will be covered by Iraqi oil reserves), and then once the project (in this case the war) is begin, the fleecing of the public purse begins. In each case (the Gulf War and PPPs) the corrupt promoters support the idea of privatizing or outsourcing work and contracts to connected individuals as it is “more efficient.” After the 2nd Gulf War, Dick Cheney became CEO of Halliburton, which was a major recipient of government contracts in Iraq. As with Halliburton, as soon as the prime contractor is selected, a cascade of corrupt practices follows as is explained in the following quotation. “After a PPP is awarded, there is further lack of competition. Instead of the sub-contracts being put out for competitive tender, as they would be if the public sector was running the project, the private companies involved in the PPP are able to award contracts to their own subsidiaries without competition – so they can charge much higher fees.” – Why PPPs Do Not Work

As with the cost of private contractors in Iraq, PPPs are careful to ensure that no cost or benefit comparison occurs after the project is over. This is explained in the following quotation “Governments often try to avoid these comparisons. They want to use PPPs, regardless of their cost, to reduce the apparent level of government borrowing and debt – they are not interested in the comparative value for money. So it is often claimed that ‘there is no alternative’ to a PPP, because of the constraints on government borrowing, and a reluctance to increase taxes or charges.’” – Why PPPs Do Not Work

After the costs balloon and the fake forecasts created by McKinsey or PwC are not met, now there are successive rounds of negotiation between the private entities and the government. The point of all of the work of attorneys and McKinsey is to trick the public entity into initiating the PPP, at that point the public entity is locked in. The outcome of PPPs in roads is covered in the following quotation.

“The case is no different when it comes to public roads. A 2007 paper by US PIRG found that privatizing roads never benefits citizens. Financial firms were typically able to buy the assets on the cheap and then raise toll rates while usually sneaking language into the agreements that prevented governments from building competing infrastructure. The paper presented evidence that the Indiana Toll Road lease will cost taxpayers at least $7.5B. There is absolutely no reason for any government project to ever require paying “rent” to the financial sector in the form of financing. The United States federal government is the monopoly supplier of US dollars. It can add them to the economy at will through deficit spending or remove them via taxation. There is no earthly reason for a public entity to be forced to depend on the private sector to provide any type of financing. ” – New Economic Perspectives

Source: New Economic Perspectives