PPPs: A leap of faith needed if UK firms are to lead the way

Around the world, cash-strapped governments are following the UK in turning to public private partnerships to fund projects.

And there is growing evidence of UK firms’ involvement in this global expansion, with Currie & Brown’s involvement in a massive £3bn PPP hospital programme in Mexico, while contractor AMEC became the first foreign investor to lead a major PPP project in South Korea, the £900m Incheon Bridge development.

Europe has made progress on many economic and political fronts – not least by becoming a market of 452 million people. But there is a long way to go before a ‘single market’ or common approach will be developed for PPPs.

The initiative is still very much at an embryonic stage. The state of PPP development varies widely between the member states, although it is increasingly a theoretically acceptable financial tool available to governments.

PPPs cannot be applied throughout Europe on a uniform basis, due to differences in revenue and spending considerations, and major differences in the applicable legal systems. However, a number of common factors are evolving as a variety of frameworks for PPP initiatives are developed across member states.

Neil King, investment director with equity finance company Innisfree, believes there is a “strong appetite” for PPP developments in Europe.

“But it’s still relatively early days, and it would be difficult to predict precisely how quickly matters will evolve.”

King notes that most European governments have woken up to the benefits of PPPs, and specialised units to promote the initiative have been set up in Portugal, Spain, Germany, France, Italy and the Netherlands.

“PPPs have proved an enormous success in the UK, and I’m certain that other governments have taken note and will wish to emulate the UK’s success,” he said.

However, QSs and project managers themselves are not totally convinced about a mass exodus among UK firms across Europe and then the rest of the globe. Mark van den Berg, chairman of Northcroft, advised the Portuguese government on its PPP hospital programme. He believes that British companies will approach the international PPP market with a certain degree of caution.

“I’m not convinced there’s that much enthusiasm. People have to be convinced that there will be fair and open competition.”

British firms may feel there is a bias towards local contractors, but van den Berg doubts the domestic concerns will possess the necessary expertise.

He shares the perception that many countries will be drawn towards PPP arrangements as a consequence of limited financial resources. He cites Australia, where recent enhancements in the quality of healthcare have largely resulted from PPP arrangements.

“PPPs have evolved as a result of pressure to ensure quality in providing public services. I believe there is considerable evidence that the private sector can deliver services more efficiently than the public sector.”

Tim Steadman, a partner in the PPP group with law firm Clifford Chance, sees enormous potential for the initiative internationally, although doubts PPPs will develop speedily. “It’s vital the political will is in place. Specifically, the country’s finance minister must buy into the idea. There’s no point in having some specialist unit that lacks clout.”

Steadman notes that difficulties could arise in countries with a federal structure, such as Brazil, Germany and Australia. “Support for PPPs must exist strongly at both the federal and state levels. It’s not going to work if both levels don’t pull together.

“Initially, it’s best to focus on clearly deliverable projects, rather than aim for something immensely ambitious.” He cites the Dutch high-speed rail link to the Belgian border and a sports centre project in Singapore as good examples of ‘pathfinder’ deals.

Steadman sees considerable scope for British companies to become involved. “Initially, the indigenous service providers may have a slight edge. But as we’ve found here in the UK, demand inevitably exceeds supply, and there’s certain to be a need for British involvement. After all, we are the pioneers of the initiative.”