What the EU Court of Auditors found was that, even though the public were paying €1.5 billion for cost overruns, they were also providing investors with returns of up to 14 per cent.
Ottawa (21 March 2018) — This week the European Union (EU)’s European Court of Auditors in the European Union (EU) became the latest public sector auditors to identify serious problems with P3 privatization schemes. These problems are similar to those identified by auditors general in 5 Canadian provinces, whose reports were noted by the Newfoundland and Labrador Association of Public and Private Employees (NAPE/NUPGE). And similar agains to those identified by the National Audit Office in Britain.
Higher costs and delays attributable to P3 privatization schemes
The EU Court of Auditors report, Public Private Partnerships in the EU: Widespread shortcomings and limited benefits, looked at 12 P3 privatization schemes that received EU funding. They found that cost overruns cost the public an extra €1.5 billion. Because of additional time required for contract negotiations, using P3s resulted in delays for a number of projects – by as much as 6.5 years.
There was also no relationship between the higher borrowing costs and who was responsible for risks. The privatization industry tries to justify the higher cost of borrowing for P3s by claiming that risk is being transferred to the private sector. What the EU Court of Auditors found was that, even though the public were paying €1.5 billion for cost overruns, they were also providing investors with returns of up to 14 per cent.
Attraction of P3 privatization schemes is being able to hide government debt
Even though borrowing costs are higher, accounting rules mean that for many P3 privatization schemes, governments don’t have to include the costs on their books as debt. That allows governments to hide how much they are borrowing – even as the public have to pay more. This ability to hide debt is very popular with small-c conservative governments trying to convince people that cutting taxes for the wealthy won’t affect governments' ability to pay for the quality public services we all rely on.
According to the EU Court of Auditors, for 5 of the 12 projects they looked at, the reason a P3 was used was that it enabled governments to hide debt. There was no consideration of the cost to the public or the impact on the quality of public services.
Canadian auditors general also critical of P3 privatization schemes
For Canadians, the findings of the EU Court of Auditors aren’t a surprise. Many people recall the Ontario Auditor General’s report, as reported in the Toronto Star, a few years ago that found that using P3 privatization schemes cost Ontario residents $8 billion more than they would have paid with public procurement. Auditors general reports in other provinces have also raised serious concerns about P3s. These include the cost of public procurement being artificially inflated to make P3s appear cheaper than they really are.
Problems with P3 privatization schemes unavoidable
The model for P3 privatization schemes assumes that you can add higher returns for investors and additional administrative costs to infrastructure projects and still end up saving money and getting better service. As reports from an ever-increasing number of auditors from the public sectorare showing, that doesn’t add up. As long as governments keep using P3s and other schemes for privatizing public infrastructure, problems are inevitable.
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 390,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. — NUPGE