Mark Hellowell

‘The private finance initiative: policy, performance and prospects’

Contents: Acknowledgements PART I: CONCEPTUAL FRAMEWORKS 1. Introduction: The PPP Phenomenon and its Evaluation Graeme A. Hodge, Carsten Greve and Anthony E. Boardman 2. Mixes and Partnerships through Time Roger Wettenhall 3. A Brief Intellectual History of the Public-Private Partnership Movement Tony Bovaird 4. Public-Private Partnerships: Deciphering Meaning, Message and Phenomenon Erik-Hans Klijn 5. Reviewing public-Private Partnerships: Some Thoughts on Evaluation Graeme A. Hodge PART II: DISCIPLINARY THEMES IN PUBLIC-PRIVATE PARTNERSHIPS 6. Splintered Logic and Political Debate Matthew Flinders 7. The Economics of Public-Private Partnerships: Some Theoretical Contributions Jean-Etienne de Bettignies and Thomas W. Ross 8. Assessing the Economic Worth of Public-Private Partnerships Anthony E. Boardman and Aidan R. Vining 9. Different Delivery Models Colin Duffield 10. Law and Regulatory Aspects of Public-Private Partnerships: Contract Law and Public Procurement Law Christina D. TvarnA 11. Accounting for PPPs in a Converging World David Heald and George Georgiou 12. Risk Management Rui Sousa Monteiro 13. Governing Partnerships Chris Skelcher PART III: EMPIRICAL EXPERIENCE IN PUBLIC-PRIVATE PARTNERSHIPS 14. The UKs Private Finance Intiative: History, Evaluation, Prospects Mark Hellowell 15. Empirical PPP Experiences in Europe: National Variations of a Global Concept Gerhard Hammerschmid and Tamyko Ysa 16. P3s in North America: Renting the Money (in Canada), Selling the Roads (in the US) Anthony E. Boardman and Aidan R. Vining 17. The Australian PPP Experience: Observations and Reflections Graeme A. Hodge and Colin Duffield 18. Public-Private Partnerships: The Scandinavian Experience Carsten Greve and Ulrika Morth 19. Empirical Evidence of Infrastructure Public-Private Partnerships: Lessons from World Bank Experience Paul Noumba-Um 20. Public-Private Partnerships: The United Nations Experience Benedicte Bull PART IV: CRUCIAL ISSUES FOR THE FUTURE 21. The Global Public-Private Partnership Industry Carsten Greve 22. Towards a Process Perspective on Public-Private Partnerships Gudrid Weihe 23. PPPs in Developed and Developing Economies: What Lessons can be Learned? Catarina Figueira and David Parker 24. A Review of Transport Public-Private Partnerships in Britain Jean Shaoul 25. Reviewing Public-Private Partnership Performance in Developing Economies Argentino Pessoa 26. Conclusions: Public-Private Partnerships - International Experiences and Future Challenges Graeme A. Hodge, Carsten Greve and Anthony E. Boardman

THE PRIVATE FINANCING OF NHS HOSPITALS: POLITICS, POLICY AND PRACTICE

This article outlines and critiques the main fiscal and economic rationales for the Private Finance Initiative and examines the impact of the policy on the long-term financial viability of NHS trusts. It concludes that the PFI funding of capital investment is highly problematic. Its high costs can have a negative impact on the finances of health systems.

An Evaluation of the Projected Returns to Investors on 10 PFI Projects Commissioned by the National Health Service

Abstract: Drawing on the financial models of 10 PFI projects commissioned by the UK National Health Service (NHS), this article identifies the returns that are projected to be earned by private investors and evaluates these through the application of corporate finance methods. The paper begins with a description of the PFI model in the NHS and identifies the risks to which private sector costs and revenues are subject. An analytical framework grounded in capital budgeting techniques is outlined, and used to measure and evaluate investor returns. Cost of capital benchmarks are used as comparators to (1) assess the Internal Rate of Return for each project, and (2) as discount rates to calculate Benefit‐Cost Ratios. On both criteria, returns to investors on this group of PFI projects are shown to be much higher than would be sufficient to remunerate investors for the risk they bear.

Are Italian healthcare organizations paying too much for their public–private partnerships?

Italys health service—the Servizio Sanitario Nazionale (SSN)—has developed Europes second largest market for healthcare public–private partnerships. This article describes the origins of private finance for SSN infrastructure, examines the programmes scale and key characteristics, and provides a capital budgeting analysis of rates of return on 14 privately financed schemes. Excess returns are being made by the investors in these projects, and there is potential for SSN procurers to achieve significantly better value for money for the Italian people than has been the case to date.

Return of the state? An appraisal of policies to enhance access to credit for infrastructure-based PPPs

The global financial crisis had a major impact on the cost and availability of finance for infrastructure-based public–private partnerships (PPPs). In response, policy-makers have introduced models of ‘credit-enhancement’ that aim to reduce the risk faced by private investors and attract additional capital into the market. Other policies involve hybrid structures in which public capital substitutes for private finance. The emergence of capital constraints in recent years has resulted from increased sensitivity among investors to liquidity risks and capital adequacy regulations, rather than credit risks. Models of credit-enhancement therefore fail to target the source of the problem directly and distort incentive structures. Given liquid and efficient markets for government debt, the authors conclude that a policy in which the provision of public finance is combined with enhanced risk-bearing by private financiers is likely to be optimal.

Policy lessons from health taxes: a systematic review of empirical studies

BackgroundTaxes on alcohol and tobacco have long been an important means of raising revenues for public spending in many countries but there is increasing interest in using taxes on these, and other unhealthy products, to achieve public health goals. We present a systematic review of the research on health taxes, and aim to generate insights into how such taxes can: (i) reduce consumption of targeted products and related harms; (ii) generate revenues for health objectives and distribute the tax burden across income groups in an efficient and equitable manner; and (iii) be made politically sustainable.MethodsSix scientific and four grey-literature databases were searched for empirical studies of ‘health taxes’ – defined as those intended to increase the costs of manufacturing, distributing, retailing and/or consuming health-damaging products. Since reviews already exist of the evidence relating to traditional alcohol and tobacco excise taxes, we focus on other taxes such as taxes on retailers and manufacturers of unhealthy products, and consumer taxes targeting unhealthy foods, such as sugar-sweetened beverages.ResultsNinety-one peer-reviewed and 11 grey-literature studies met our inclusion criteria. The review highlights a recent, rapid rise in research in this area, most of which focuses on high-income countries and on taxes on food products or nutrients. Findings demonstrate that high tax rates on sugar-sweetened beverages are likely to have a positive impact on health behaviours and outcomes, and, while taxes on products reduce demand, they add to fiscal revenues. Common concerns about health taxes are also discussed.ConclusionsIf the primary policy goal of a health tax is to reduce consumption of unhealthy products, then evidence supports the implementation of taxes that increase the price of products by 20% or more. However, where taxes are effective in changing health behaviours, the predictability of the revenue stream is reduced. Hence, policy actors need to be clear about the primary goal of any health tax and frame the tax accordingly – not doing so leaves taxes vulnerable to hostile lobbying. Conversely, earmarking health taxes for health spending tends to increase public support so long as policymakers follow through on specified spending commitments.Systematic review registration numberCRD42016048603

Securing a Better Deal From Investors in Public Infrastructure Projects

Abstract The return on capital is a major contributor to the cost of design, build, finance and operate (DBFO) contracts, under which public infrastructure is financed and delivered by private companies. The article presents a method for evaluating the rates of return targeted by bidders and applies this to 10 contracts commissioned by the UK National Health Service. The presence of significant excess returns is identified in each case. We argue that, if the rate of return projected by an investor exceeds a benchmark cost of capital, derived using standard capital budgeting techniques, then a reduction in the fee to be paid by the public authority is justified.

Non-Profit Distribution: The Scottish Approach to Private Finance in Public Services

This article provides an analysis of the Scottish Governments approach to the use of private finance in public services. It examines the budgetary drivers behind the policy in Scotland and assesses its cost-efficiency. In doing so, it considers first the standard private finance initiative (PFI) model, and then turns to the ‘non-profit distributing’ (NPD) model – a variant of PFI developed in Scotland and one that is, at the time of writing, unique to the country. It concludes that, while NPD provides the Government with an important political benefit, in being seen to safeguard the ‘public interest’ while working within UK-wide budgetary constraints, the decision to continue with private finance carries a high economic cost.

A comparative analysis and evaluation of specialist PPP units' methodologies for conducting value for money appraisals

Abstract Governments throughout the world are turning to public‒private partnerships (PPPs) as a means of providing new infrastructure. The decision to adopt a PPP over conventional government procurement is usually based on a value for money (VfM) appraisal, but this analysis is conducted differently in different countries. This article describes the correct way to conduct VfM analysis if the goal is to minimize the present value of the costs to the Treasury and if the goal is to maximize social welfare. It then compares the documented methodologies of nine specialist PPP units. It identifies four ways in which these methodologies depart from either of the correct approaches, and shows how each departure favors the PPP option. Finally, it shows how the UK approach might be augmented to determine the best value to society.

The Non-Incremental Road to Disaster? A Comparative Policy Analysis of Agency Problems in the Commissioning of Infrastructure Projects in the UK and Italy

Abstract Theoretical research on public–private partnerships has emphasised their ability to address agency problems in infrastructure projects. Despite this, there is a substantial body of empirical research which documents the tendency of such projects to create budgetary problems for the state authorities involved. This article seeks to explore how and why these problems occur through case studies of PPP hospital projects in England and Italy. It shows how features of the PPP approach encourage and facilitate strategic behaviour by state employees during financial appraisals, and provides evidence that this has undermined the quality of investment decisions and given rise to contractual structures which have failed to minimise the long-run costs to the government. It hypothesises that the PPP approach encourages the commissioning of unaffordable projects, and suggests that future research should focus on the financial appraisal process to identify the political and organisational pressures that are particularly salient in this process and to further evaluate the outcomes.