History RePPPeated: How public private partnerships are failing

24 October 2018 by Collective , Eurodad , Latindadd , ODG (Observatorio de la Deuda en la Globalización)

From the complete failure of the Castor Project in Spain, to an overpriced hospital in Sweden, projects financed by the European Investment Bank (EIB) make no exception to the list of PPP disasters compiled in this new joint report.

The report exposes how PPPs across the world drain the public purse, and fail to deliver in the public interest.

History RePPPeated: How public private partnerships are failing , launched on the occasion of the Annual Meetings of the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

and World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, has been written by experts across four continents from organisations including Counter Balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. . They expose the negative impacts of PPPs that have often caused misery to local communities.

The report shows that multilateral development banks, such as the World Bank Group (WBG) and the EIB, have played a leading role in providing advice and finance for PPP projects in different sectors. This is despite the mounting evidence showing that PPPs are expensive, risky and opaque.

Maria Jose Romero, one of the report authors and Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad), said: “This report is a serious wake-up call. It is a collection of devastating stories – most of them resulting in national and international scandals in both developing and developed economies alike.

“Last year we launched a campaign manifesto in which more than 150 civil society organisations from around the world called for an end to the aggressive promotion of PPPs. There is overwhelming evidence of the harm they cause. How many more scandals do we need before a serious rethink takes place?”

The report covers 10 case studies from Colombia, France, India, Indonesia, Lesotho, Liberia, Peru, Spain and Sweden. The sectors investigated include education, health, water and sanitation, energy and infrastructure.

Some of the main findings are:

  • All projects came with a high cost for the public purse, and an excessive level of risk for the public sector and, therefore, they resulted in a heavy burden for citizens.
  • Nine out of 10 of the projects lacked transparency and/or failed to consult with affected communities, and undermined democratic accountability.
  • Five of the 10 projects impacted negatively on the poor, and contributed to an increase in the divide between rich and poor.
  • Three of the PPPs resulted in serious social and environmental impacts.

The case studies include three projects financed directly or indirectly by the EIB.

For example, the Castor Project in Spainfinanced twice by the EIBfeatures among the PPPs that had to be cancelled due to evident failures, including on proper due diligence to identify the possible impacts of the project. Feted as Spain’s biggest offshore gas storage plant — the Castor project was halted after gas injections caused more than 1,000 earthquakes. Despite never being used, the plant has so far cost the public €3.28 billion, which is currently set to be paid through increased gas bills. To date the EIB never recognised publicly its responsibilities in this fiasco, despite criticisms from the European Parliament and from its own Complaints Mechanism.

The EIB also financed a PPP failure in Sweden, where the construction of the Nya Karolinska Solna (NKS) hospital saw its cost rocket — from €1.4 billion to €2.4 billion — and was beset by technical failures. It is now known as the “most expensive hospital in the world”.

Last but not least, by financing Bridge International Academies Ltd (BIA) through the Novastar equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. fund, the EIB contributed to support a client involved in a controversial PPP educational project in Liberia. Indeed, the Liberian government outsourced the lion share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of its public pre-primary and primary schools to BIA, but the process was not competitive, local communities were not properly consulted, and there was not full transparency.

Xavier Sol, Director at Counter Balance, said: “The critical findings of this report come at a time when the problematic nature of PPPs is increasingly acknowledged by civil society, but not only. For example, the European Court of Auditors has recently published a report also pointing out to numerous failures of EIB-backed PPP projects in countries like Greece and Spain. It is time for the EIB and other institutions to face their responsibilities and work with countries to put in place a transparent, fair and accountable method for financing public services.”

The report recommends that the WBG, the International Monetary Fund (IMF) and other public development banks such as the EIB, together with the governments of wealthy countries that play a leading role in these institutions:

  • Halt the aggressive promotion and incentivising of PPPs for social and economic infrastructure financing,
  • Support countries in finding the best financing method for public services in social and economic infrastructure,
  • Ensure good and democratic governance is in place before pursuing large-scale infrastructure or service developments,
  • Ensure that rigorous transparency standards are applied.

Access the full report including all case studies here.

Notes to editors:

: premsa[at]odg.cat

Source: ODG

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