Comments on: Public private pools

By: Christine

Christine — Tue, 24 Oct 2006 13:42:02 +0000

When I was growing up in Qld, all the local primary school pools had swimming clubs associated with them (and later on, public swims on weekends). The private school I went to did almost nothing with its pool out of hours, though I know of others that were more sensible (Nudgee College, eg). Anyway, if the objective is to get pools in use, I’d have thought there were simpler options than changing ownership.

By: MikeM

MikeM — Mon, 23 Oct 2006 03:32:39 +0000

The fundamental problem is that governments have not yet made the mindset change to accrual accounting. It doesn’t take an agile mind to understand that interest and repayment commitments on an $X million loan to fund a school have much the same effect as the, in effect, interest and repayment commitments to a firm that stumped up the money to build that school. In fact, because the latter also includes a profit component, the effect on government fiinancial position is actually worse. But on a cash accounting basis, PPP wins hands down.

Another difficulty presented by traditional government accounting practices is illustrated by the spate of schools that burnt down in NSW in the 1980s. Improving school security systems was a cost that had to be met out of the Education Department budget. But if a school actually burnt down, the cost of rebuilding it came from the Public Works Department budget. Education therefore had an incentive to spend as little as possible on security for run-down schools.

A PPP arrangement can solve this kind of problem, but it is a very roundabout way of doing it.

By: Nicholas Gruen

Nicholas Gruen — Sun, 22 Oct 2006 07:55:05 +0000

Jonno,

It’s not fine for roads. Transport planners don’t know what they’ll need most in 5 or ten years time. 30 years is way too long a time to lock down your options.

By: Jonno

Jonno — Sun, 22 Oct 2006 06:27:35 +0000

“provided the bureaucrats do a proper evaluation” is indeed a big proviso. It is amazing how much policy drives these evaluations. They are highly complex, not transparent and very clearly biased to the PPP (whether it is at the level of the interest rate used or more complex). It is not just in the UK that there is such a bias – it is very evident here too.

A big issue is the lack of flexibility these structures bring (in addition to their cost). Fine for roads, but tying a school or hospital into one of these structuress for 30 years makes some big assumptions about the future. We will also see the same as the UK I suspect, that when rationalisations take place, the driving factor will be which one has a PPP contract, rather than efficient outcomes.

By: Nicholas Gruen

Nicholas Gruen — Sun, 22 Oct 2006 01:26:22 +0000

Thanks for that Fred,

I’d not seen the economist article, but it’s findings don’t surprise. It’s a pity we’ve not had these debates on policy along rational lines and that it’s prooving so difficult to have them along such lines.

By: Fred Argy

Fred Argy — Sun, 22 Oct 2006 01:06:05 +0000

I agree with your sentiments Nicholas. There are only two good reasons to transfer ownership of public infrastructure investment to the private sector – efficiency or risk transfer. The efficiency benefits can generally be obtained by contracting out building, maintenance etc. without ownership – while the true extent of risk sharing is usually small. Having said that, the fact is that state governments, although becoming more flexible, are still irrationally preoccupied with their cash deficit (total spending, including capital spending, less receipts) – and not just their operational deficit. Because of that, they do not do enough to maintain, rebuild, remodel or refurbish schools. So PPP’s might do some good – provided the bureaucrats do a proper evaluation. In the UK, the Economist (5/10/06) reports an expert’s view that “the methodology (used to see if private finance will prove better value)has a built-in bias towards private financing.

By: Angharad

Angharad — Sat, 21 Oct 2006 12:49:01 +0000

I was a consultant for a tender for a PPP last year. It had a ‘social’ purpose and my job was writing stuff including a very detailed set of policies and procedures for a NGO member of a consortium. Other NGOS, part of rival consortia, were off doing the same thing.

It really struck me that a few short months before, policy was open and shared between NGOs. But the PPP changed all that. Policy was privatised with the result there was massive duplication. Indeed collaborating would have been colluding!

The end result is that that aspect was quite inefficient and I think that public policy lost out as a result. On the other hand, government policy in this area isn’t working too well so there are reasons to do things differently.