PPP for the People

A small Irish coastal town has during recent years witnessed a bitter dispute  about fishermen’s right to keep fishing vessels in a newly developed marina intended mainly for pleasure boats. The marina development is a public private partnership (PPP) project and the  dispute escalated this summer  when the private operator attempted to seize and remove a fishing vessel allegedly moored in contravention of harbour bye-laws. The owner of the boat did in an act of passive resistance prevent this from happening and the police was required to intervene to defuse the confrontation between harbour staff and fishermen. 

The PPP project in question is essentially a concession for the private operator to develop and commercially operate a marina as well as to construct residential units on  surrounding lands. The obligation on the part of the private operator is to maintain the marina and to develop and maintain coastal protection around the harbour. The investments required over the 30-year period of the PPP  are to be recovered by the operator via the sale/lease of the residential units and business facilities and the collection of various fees for use of the marina.

Fishermen have been fishing out of the town for more than two hundred years. It seems that in  the planning phase of the project berthing rights for fishing vessels were initially promised   but the commitment has over time vanished from the agenda. During the last year a berthing arrangement for fishing vessels was agreed but there has since then been mutual accusations concerning failure to observe bye-laws and excessive harbour charges. 

It serves no purpose to look for who is right or wrong. Suffice it to say that the  entire chain of events clearly demonstrates shortcomings in communication between the various stakeholders. It also seemed that local authorities did not see themselves as party to the conflict despite the obvious public interests involved.  

This Irish story is an example of the kind of problems that the use of PPPs may encounter in any country. PPP’s are not strictly defined and the term is occasionally used very broadly to cover any large works or management project. However, what characterises PPPs is the focus  on delivery of certain services to the public and  payments to the private party depending on market interest or concrete availability of  services. A key dynamic in any PPP relation is the allocation of project risks in accordance with the normal contractual approach whereby a risk is allocated to the party best suited to manage it. It is based on this approach that the private party assumes the risk for sufficient market interest in what the project delivers.

On the other hand, the political responsibility for ensuring delivery of the services in question remains with the public sector. Practically speaking this means that angry citizens will naturally complain to the municipality rather than to the private water concessionaire when for example water supply is interrupted. It is for reasons of politics that the public party cannot really disclaim responsibility for proper delivery of public services, such as water supply. This  also means that the public sector may be forced to spend resources saving capsized PPP’s. The private party is obviously involved in the project for purely commercial reasons and not accountable beyond the contractual commitments. It is therefore crucial that the public party ensures that the PPP project actually delivers and is efficient.

PPP experiences over the last thirty years have been mixed. Many projects were  hampered by cost overruns and inefficiencies. A report of 2018 from the EU Court of Auditors concerning PPP projects in EU member states[1] highlights these and other shortcomings and identifies various causes. These include vagueness in contractual terms on key aspects, such as performance requirements, monitoring procedures or sanctions and too much flexibility as to costs allowed to be covered by the household tariffs. Other causes has to do with failure in monitoring and enforcing contracts. Even when contract terms are crystal clear as regards performance and monitoring, they need to be monitored and enforced. Problems in this respect are  particularly pronounced in developing countries where fragile administrative structures and resources makes it difficult for the public sector to monitor that PPP’s actually produce intended results. 

In my own experience it was for many years a problem that concession arrangements in for example the water sector included vague commitment for the operator to “do the outmost to ensure…etc” but without specific performance targets and indicators that would allow systematic monitoring of operator activities and the triggering of specific sanctions in case of deviation from targets as regards water quality, continuation of supply etc. Often, the calculation of tariffs was based on the so-called “cost plus” model whereby households in fact took charge of the costs of the operator despite efficiency, or lack thereof. All in all, this meant that the risk for the operation was in reality not taken by the private operator but rather by the public authority and households, – a main point highlighted in the above report from the EU Court of Auditors.  

PPP’s have during recent years been moving up the political agenda in a new role as vehicles for promoting sustainability on a global basis and in this way embracing broader public interests. There is in principle nothing new in promoting sustainability. For a number of years already, good international practices concerning public contracting in general have moved towards incorporating sustainability policies, one example being the continuous reforms of the EU public procurement directives. 

 However, a new role is mapped out for PPP projects in connection with the UN Sustainable Development Goals which entered into force in 2016. More commonly known as the UN World Goals, these goals are pillars in the most ambitious global development plan to date, which by 2030 will set the course for a more sustainable development in the world.  Clearly,   the Goals have successfully established a common understanding amongst stakeholders of what is important in the way forward and the potential role of for example business. This is translating into growing interest amongst enterprises and municipalities as to how to proceed in the finer details.   

The Goals address themselves not just to governments and international organisations but also to private sector, civil society and educational institutions. The idea is that there is an obligation on anyone with know-how, technology or finances in relation to those lacking such resources. The 17 Goals address a broad spectrum of global priorities including poverty reduction, sustainable economic growth, decent jobs, climate, peace and equality. Goal # 17 is about the specific goal of mobilising and coordinating resources. This Goal uses the abstract concept of “partnerships” which is broadly about political, technological and economic cooperation across national borders, where both governments, companies, organizations and ordinary people take the goals to heart and work together to achieve them. 

What puts PPP at centre stage is that PPP is specifically highlighted as a tool for partnering public and private resources. In fact, many of the Goals include  infrastructure development as an important element in not just energy or water supply  but also for improved conditions for production and distribution and PPP’s are already often used as vehicle for such activities.

The wording of the  Goal sets “effective” PPPs as a target. Obviously, it requires more precise criteria and indicators to define this target and allow for better design of PPP projects. More specific sustainability criteria and indicators have been developed in a number of different fora. Within EU specific tools have been developed for products and processes in the EU Eco-label and Eco-audit schemes and last but not least within the EU Green Public Procurement arrangements[2]

A PPP-focused approach for developing such criteria has recently been provided with the   UNECE People First PPP self- assessment tool[3]. The tool is specifically aimed at assessing Goal-compliance of PPP projects and is effectively setting forth a virtual checklist for PPP design. The checklist includes a number of headings concerning optimal access to essential services and environmental sustainability 

As regards access and essential services the purpose of the checklist is to clarify that what the project offers (water supply, waste management, health services) must represent an actual improvement in meeting the public needs, not least those of disadvantaged groups and that the services must be affordable. In this connection it is also required to establish verifiable indicators to allow measuring of project performance by specific monitoring mechanisms.

Concerning environmental sustainability, the checklist focuses on whether for example greenhouse gas emissions, energy and water consumption of the project have been calculated and whether strategies are in place to address excess emission and consumption. Similarly, also the need for waste management is addressed, including whether the project is to be located on previously developed land or barren or on degraded land unfit as farmland?

Stakeholder engagement is a separate third heading on the checklist. Inclusion of stakeholder engagement is an interesting new development and emphasises the importance of  ensuring broad consensus behind PPP projects. On the issue of stakeholder engagement, the checklist  requires specific stakeholder engagement/public participation policies and account to be effectively and fairly taken of stakeholder feedback. There are also requirements that sufficient information concerning the functioning of the project is regularly provided, including reporting concerning stakeholder consultations. Specific attention is given to the management of complaints and whether the project is able to demonstrate success in such management, including publication of individual cases.   

Stakeholder engagement is of overall importance in relation to the other criteria because the mobilising of stakeholders allows the other criteria concerning access, service level, affordability and sustainability to be continuously verified not just by the project monitoring prescribed in the PPP operation contract but by all interested parties. Such mobilisation is particularly important where public sector administrative systems and resources are fragile and where civil society organisations becomes even more important as “red-flaggers” of performance. 

In larger PPP projects it has become good practice to involve stakeholders not just during the operation phase but also at earlier phases. Even when the project is merely being discussed well in advance of  the design phase, the involvement of stakeholder groups allows discussions of fundamental issues such as why the project is necessary and which specific public interests it is intended to serve. In contrast, and in a traditional approach the stakeholder consultation often becomes another formality that loses relevance once deadlines for comments etc. have expired. Such traditional consultations will frequently commence only at the stage where specific plans and designs are already elaborated without any preliminary broader consultation of general concepts and objectives. This 11th hour approach typically leaves the groups being consulted in a relatively weak position.  

The position of stakeholders is particularly fragile in cases where the project has been initiated in a sphere of private interests rather than following public demands. With EU-member states as a notable exemption, such so-called unsolicited proposals are accepted in quite a few countries, albeit often limited to cases where the proposal is of an innovative nature. Often, the rules would require a competitive procedure but with preferential position under one form or the other for the initiator of the proposal. Such preference falls short of basic principles on equal treatment and this has been the main criticism so far in the context of good procurement practices. Seen in the context of the World Goals, a possibility for basing PPPs on unsolicited proposals from the outset would seem to weaken the position of stakeholders.

Going back to the marina case there are indications that too little account had been taken of establishing clear lines of communication between the project and the various stakeholders and clarifying the role of the private operators and public authorities respectively. Clearly, there has also been uncertainty as to what was agreed on important issues, such as access of fishing boats. These are all questions that would be covered by a comprehensive stakeholder engagement strategy. The dramatic way that the actual conflict evolved also showed an apparent lack of agreed procedure for conflict resolution.

Stakeholder engagement at the earliest phases is particularly important for ensuring that PPP projects are designed to cover all aspects of public interests; in the marina PPP for example that the project is servicing all users of the existing harbour facilities. During the life of the PPP,  it is by means of regular flows of information and the possibility to ask questions and raise criticism  that the public and their interest groups are able to monitor that the PPP projects perform according to requirements. 

In the broader perspective, stakeholder engagement arrangements will presuppose  a certain level of accountability and transparency in relations between State and citizens. Where public authorities are not used – or for that matter inclined – to consult with citizens it is not likely that they will start in the particular case of PPP. This raises the final and tricky question whether PPP for the People requires an  environment of governance and transparency of a certain substance to operate effectively.

[1] The report is available at https://www.eca.europa.eu/en/Pages/DocItem.aspx?did=45153

[2] More about the so called GPP can be found at https://ec.europa.eu/environment/gpp/index_en.htm

[3] User manual for the tool can be found at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwjTgLP9rMnyAhXqQkEAHTIxCugQFnoECAUQAQ&url=http%3A%2F%2Funece.org%2Fsites%2Fdefault%2Ffiles%2F2021-03%2FUNECE-People-first-PPP-Self-Assessment-Tool-UserGuide-English.pdf&usg=AOvVaw0y6-5d2k4VMsyJ35FaR3hq