… At no cost to the government

We hear this much too often for comfort. This is usually how we justify doing government responsibilities by involving the private sector. Especially its money. Two and a half decades ago, we call these transactions as Build-Operate Transfer schemes, and even passed laws to govern them.  Until much later did we realize there are far more other permutations of these schemes that we expand them by using the term Public-Private Partnership (PPP).  Which is what the international community call them anyway.

And much was the novelty it brought that it became a worldwide practice.  The international financing institutions scrambled to divert their portfolios in order to get a piece of the pie.  If private capital is used in development, this will decrease the banks' business.  So terms like "co-financing" started to surface.  Private business is used to leveraging anyway, using other people's money to finance their undertakings, up to 75% of it in many cases, using only 25% from their equity.  Where else to get the financial close but the banks.

There is a lot that the world has benefited from PPP.  It drives private capital to fund the needs of development, much faster than when government internal revenue was solely used, or when Official Development Assistance (ODA) is accessed.  Closer to home, this administration made it as a centerpiece program, achieving investments never heard of before.  If we sum up the PPP projects approved so far, the amount is staggering, especially that there is nothing much to compare it with in the last half a century.  Truly phenomenal.

Unfortunately, as always, other sectors misunderstand PPP as they mistook a lot of basic issues in economic and fiscal management.  That's when you often hear the phrase, "… at no cost to the government."  Let's get real about this - there is no such thing as a free lunch.  Businessmen won't venture into something where they won't get anything in return, called bluntly, the Return on Investment.  More so with non-human faceless corporations.  At the very least, when the private world enters into a BOT or PPP agreement with government, it gets to gain or collect whatever the latter should have in the future.  That, my friend, is foregone income and is the cost to the government, in lieu of the infrastructure and efficiencies the private sector brings in.

Is it a bad idea then?  Far from it, but depending on the "Business Case."  Most people think the PPP/BOT only brings in money from the private sector.  It does but over and above that, it brings in efficiency that government cannot attain simply because of its raison d'état.  That's why PPPs are still desirable even if the government is awash with money.  Where the services are profitable, it is better left to the private sector, and the budget for those can be placed to better use on social services which do not really generate any kind of revenue (social welfare, public health, etc.).  The metric to use is not the amount of money saved but the Value-for-Money measure, between going into PPP, or not.

At the end of the day, we should not forget - the private sector does not go into a deal where it will lose money.  It doesn't offer unsolicited proposals because it loves us (no offense meant) - it's in for the money.  It is government's responsibility to ensure that the deal is fair to both parties, but highly beneficial to the people.  The VFM is one of the main indicators.  Everything has a cost, and to justify something as "… at no cost to the government," is a bit suspect, if not, downright a red flag for something ominous.

The PPP will stay and will probably carve a significant share of the total cost of development worldwide in the next century.  But is crucial that we do them correctly and with utmost prudence.