7/21/12

P3 financial crisis forces government to play banker

Oh brother - how bad can the public burden for public private partnerships (P3s) get?

Several years ago, not long after the world-wide financial crisis, OCHU did a campaign warning of the extra costs that would be loaded onto the public through P3s. The financial crisis was driving up the costs of private borrowing and the result would be more costly P3s.

Sure enough, milestone payments by the government were introduced to make it easier for the P3s to obtain sufficient capital to finance the projects. The P3s were becoming P4s: public-public private partnerships, as governments were forced not just to pay for the projects but also to get in on the financing side as well.

Following repeated P3 crises in England, the British government is taking this to all new levels. With private financiers unwilling to stick their necks out for long term loans given the current financial situation, the government has just announced that it is stepping in, not just with milestone payments, but with almost all of the capital for P3 projects starting in the next year.

Here is the comment from Mark Hellowell, an expert on British P3s (or, as the British say, PFIs): "this effectively turns a privately financed programme of social infrastructure delivery into a largely publicly financed one, with the Treasury making clear it is ready to provide virtually all the cash needed to get £6bn worth of projects off the ground over the next 12 months."

These won't just be public projects, however. The Conservative government is going to let the corporations back in for their profits once the private financial markets (and the financiers) calm down.

That's the plan anyway. One can't help but notice, however, that repeated P3 crises are forcing the public sector to play a bigger role.

In Ontario it started with the government requiring public ownership of the facilities right from the get go, then by narrowing the scope of services privatized through P3 projects, then by introducing a new role for public capital through milestone payments as a way to offset the financial crisis in the private sector.

Now the crisis of the private financiers is forcing Britain to take over almost the entire financing role.

"Private Finance Initiative" may need a new name.

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