Tuesday, June 19, 2012

PPPs are a waste of money

Back in 2010, he government announced that it would be using Public-Private Partnerships in the education sector, with schools built and operated by for-profit companies, paid for by an annual charge. Over in the UK, such arrangements have been a disaster, with government massively overpaying for the infrastructure it buys. So how does it stack up in New Zealand?

Labour's Chris Hipkins asked just that in Question Time today, focusing on the trial PPP school in Hobsonville:

Chris Hipkins: What is the estimated saving in dollar terms from using a public-private partnership to build the Hobsonville school, instead of using regular public sector processes?

Hon CRAIG FOSS: In notional terms, I think the net present value was $111 million, which is about $2 million less than the public sector comparator. The absolute notionals, from memory, are something like $125 million or $128 million.

Firstly, 2% on a $100 million-plus NPV is a highly marginal saving, and will depend greatly on the methodology used. But then there's this:
Chris Hipkins: How much has been spent over the last 2 years developing the business case for the Hobsonville schools project?

Hon CRAIG FOSS: I do not have that answer to hand, but the costs for the partners associated with this—of course, those partners have to bear those costs themselves.

Chris Hipkins: Is he aware that Budget 2011 documents show that the Government spent $3.5 million over the last 2 years simply to prepare that business case—significantly more than the $1.98 million saving the public-private partnership is supposed to produce?

That's right: once you take into account the cost of the prep work, those "savings" are entirely illusory. As with SOEs, the government is privatising at a loss.

But as with SOEs, this isn't about getting a good deal for the taxpayer - its about looting the state for private profit and forking over government assets and revenue to National's donors and cronies. And that isn't something we should accept.