Wright, David, Public Private Partnerships, Europe. What do European Companies Know that the Rest of the World Can Learn? Notes for a presentation at the American Bar Association Section of International Law Fall Meeting, Paris, November 5, 2010
I want to spend a short while discussing the acronym PPP.
PPP is a label attached by governments, organisations and individuals to a variety of contractual arrangements between government and the private sector. Many of these arrangements have been used for decades, if not centuries/millennia.
So, when the organisers of this session refer to European companies and governments being in the vanguard of establishing PPPs to solve their infrastructure needs, what are they referring to? It clearly can?t refer to the entire range of projects labelled PPP or P3. What is different about PPP in Europe? What is it that attracts so much international interest, not only from the Americas, but from Africa, the Indian sub-continent and the Far East and Australasia?
Where Europe HAS excelled is in the innovative use of PPP in dealing with a backlog of economic or horizontal infrastructure; AND the development of the DBFO variant of PPP for social or vertical infrastructure to improve core public services such as education, healthcare, criminal justice and defence AND improve public accommodation generally.
The history of this development is recent ? starting in the UK in the early 1990?s but spreading quite rapidly to countries such as the Republic of Ireland, the Netherlands and North Rhine-Westphalia in Germany. There was then a pause of 2-3 years before a rush by governments in Europe and elsewhere to learn about this early experience and to adapt that learning.
The evolution of PPP in this short period is interesting: only 10 projects were signed between 1990 and 1995; then a steady increase (mainly in the four front-runner countries just mentioned) to between 80 and 100 projects signed annually between 1999-2003; then between 125-145 annually between 2004-2007; dropping back to about 115 annually in 2008 and 2009.
How widespread is the PPP phenomenon in Europe?
During the two decades 1990-2009, the UK accounts for two thirds of all European PPP projects. With 10% of the total number of projects, Spain is the second-biggest PPP market. France, Germany, Italy, and Portugal all represent 2-5% of the total number of projects, respectively. The UK, Portugal, France, Germany, Spain and Italy together account for some 92% of all European PPPs by number. I conclude that the PPP market in Europe is diversifying, but only slowly, across more European countries and across sectors.
There are several reasons why Europe has developed PPP, particularly DBFO, projects much more rapidly than the US.
1. Recent history in the UK of successful divestiture of state-owned corporations such as Rolls Royce, BT, BA etc.
2. Pressing need for immediate action to deal with decaying social infrastructure.
3. Centralised rather than decentralised government allowed for positive direction and political impetus and clear leadership.
4. This led to early standardisation of process, and bid and contractual documentation which could be copied by new entrants to the process. It is interesting to note Allen and Overy?s comment about the reliance on pioneering UK work. They say, ?There can be no other explanation.. for the drafting in a Texan road to match word for word the drafting in a Slovakian road PPP, which also happens to follow drafting from the [UK standard drafting].
5. Establishment in most countries of an authoritative central unit of PPP/DBFO expertise and promotion.
6. Little or no conflict between the legislature and the executive.
7. Rapid evolution rather than revolution.
As an example of the last point let us look at PPP for roads, bridges and tunnels in Europe in the period 2007-2009. There were approximately 50 such deals for which information on toll types is publicly available.
There are essentially three toll types each of which represents a different degree of transfer of risk to the private sector:
1. Real toll arrangements, with the private partner fully exposed to demand (traffic) risk.
2. Shadow toll arrangements, under which the private partner is reimbursed based on traffic usage ? however payments are made by the public sector procuring agency.
3. Availability payments made on the basis of the availability of the transport system; the demand risk is typically born by the public sector.
4. Sometimes a combination of the above.
The analysis shows that real tolling nearly disappeared in 2008-9; shadow tolls and availability based payment mechanisms also fell; mixed mechanisms rose to reflect minimum revenue guarantees, etc which diluted the risks being transferred to the private sector.
This flexibility and ability to evolve quickly suggests to me that PPP is sufficiently well-established in an increasing number of European countries and providing infrastructure in a growing number of sectors.
Public officials and private companies are increasingly confident in using PPP; many hundreds of examples of DBFO projects are operational, providing objective evidence that, generally, the advantages asserted by proponents of the European model are real and not imaginary.
I look forward to the development of some of these issues in the following 80 minutes.