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ppp Friday, 31 August, 2001, 15:16 GMT 16:16 UK
Private finance on an international scale
A man in a hard hat against international flags
By BBC News Online's Emma Clark

Public-private partnerships (PPP) are increasingly becoming the all-purpose cure for mending public infrastructure around the world.

It doesn't matter if your country's infrastructure is hundreds of years old, or if you are just getting started.


A lot of projects are not unique, they are happening in Europe, the US and Australia

Michael Carrack
Ernst & Young
With public purses under strain, partnerships allow governments to tap private finance and expertise to reform inefficient and underfunded public services.

At the front of the international pack is the UK's Labour government, which has given its blessing to almost 20bn worth of PPP projects, ranging from revamping the London Underground to outsourcing school services.

"A lot of projects are not unique, they are happening in Europe, the US and Australia," said Michael Carrack, a director of project finance at Ernst & Young.

"But the UK is innovative in taking skills from developing oil and gas, and road and rail, [with private finance] and exporting them to other sectors."

'Market leader'

Within these new sectors - health, education, accommodation, defence and even Cornwall's beaches - the UK is experimenting with PPP to make up for years of under-investment.

Since the first PPP projects in the late 1980s and early 1990s, the UK has managed to iron out problems with legislation, procurement and approval deadlines.


The UK is becoming a market leader in this area because of its experience

Theo Blackwell
The Industrial Society
"The UK is becoming a market leader in this area because of its experience," said Theo Blackwell, a policy specialist at think-tank The Industrial Society.

And it would seem that the UK is willing to share its hard-won knowledge with other countries.

According to the Office of Government Commerce, the UK has recently entertained representatives from at least 13 countries, including Australia, Japan, South Korea, China, Germany and Poland.

"There is a huge overseas interest in what the government is doing," said a spokesman.

Inspiration from the US

But the UK has also drawn its own inspiration from overseas, particularly from the US.

"The US has a more cultural bias to entrepreneurship and more ability to introduce private sector innovation into public services," said Mr Carrack.


The US has a more cultural bias to entrepreneurship and more ability to introduce private sector innovation into public services

Michael Carrack
Ernst & Young
For example, the Industrial Society's Mr Blackwell describes the London Underground PPP project as a "homegrown idea" but adds that the New York subway provided a model.

In the 1980s, New York used bonds issued to private investors to fund a complete overhaul of the city's decrepit subway system.

London's Mayor Ken Livingstone has made no secret of his plan to use the same bond finance to improve the Underground, but so far the government's more complex PPP proposal has won the day.

Now New York is debating new forms of funding to cut down on state subsidies for the subway, and could look beyond bonds to increase private involvement, according to Mr Blackwell.

"The initial model came from the US over to the UK, was developed and has now been brought back to the US," said Roger Baird, editor of trade journal The PFI Report.

Running prisons and schools

The US has also successfully used private money to run its prisons and is exploiting the same ideas to turn around its schools.

Last year, in what was seen as a ground-breaking arrangement, $80m from private investors was used to build and equip Niagara Falls High School in New York.

Across the Atlantic, some local authorities are also beginning to forge more sophisticated deals for British schools.

"They are putting private management into schools and hospitals, it's not just building, it's the way they manage people," said Mr Baird from The PFI Report.

The private management model has already proved effective in UK and US prisons, where it has been easier to push through ideas because "prisoners don't have the same public sympathy", said Mr Baird.

New frontiers

The new frontiers are health and education. Australia, which is looking to the UK for help with tapping private expertise on other projects, already boasts a more liberalised health system.

Ernst & Young's Mr Carrack noted that the Australian public health service provides in some ways a more innovative model than the UK envisages for its own hospitals.

"In Australia, the private sector controls clinical services and there is more freedom for the operational side of the business.

"In the UK most of the doctors will still be employed by public services."

Nevertheless, Mr Carrack said the UK government has made "an amazing step change" with the amount of hospitals that have been turned over to PPP.

International projects

Australia, meanwhile, is transferring its PPP experience in health, and building roads and rail, to education, defence and accommodation, added Mr Carrack.


Only Germany and France have been slow to follow - and Germany because the legislation is prohibitive

Michael Carrack
Ernst & Young
Other countries that are adopting PPP with enthusiasm include Japan, which has several extensive programmes, Canada, which is working on a PPP road project, Norway, where a rail scheme is underway, Ireland and Italy.

Whereas most of these countries are improving existing services, Eastern Europe and South Africa are also using PPP to develop new infrastructure.

"Only Germany and France have been slow to follow, and Germany because the legislation is prohibitive," said Mr Carrack.

Bonanza

The UK's track record in PPP is also proving a bonanza for facilities management (FM) companies that have worked on British deals.

"FM service providers are doing well in the international markets," said Mr Carrack.

Just as the US' Bechtels and Ambacs have cashed in on UK projects, so the Jarvises of the UK are set to conquer Europe.

Ernst & Young itself, which works in an advisory capacity on deals, has been involved in 260 projects since 1996.

More recently it has advised the Irish government on a metro rail deal - one of the largest ever privately financed projects ever undertaken in Ireland.

The increasing cooperation between different countries and the proliferation of PPP deals suggests that the concept is here to stay, despite the controversy surrounding some of the individual projects.

In a couple of decades, the notion of publicly funded services might have become as outdated as surviving on a state pension.


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25 Jun 01 | Business
23 Sep 00 | UK Education
03 Apr 01 | UK Education
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