Legal base	—
Document originated	19 November 2009
Deposited in Parliament	27 November 2009
Department	HM Treasury
Basis of consideration	EM of 7 January 2010
Previous Committee Report	None
To be discussed in Council	None planned
Committee's assessment	Politically important
Committee's decision	Cleared

Background

6.1  Public private partnership (PPP) describes a public service or private business venture which is funded and operated through a partnership of a national, regional or local government and one or more private sector companies. PPP involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project. In some types of PPP, the cost of using the service is borne by the users of the service and not by the taxpayer. In other types (notably the private finance initiative), capital investment is made by the private sector on the strength of a contract with a government to provide agreed services and the cost of providing the service is borne wholly or in part by the government.

6.2  The Commission, in a 2004 Green Paper on PPPs and public contracts and concessions, said of such partnerships:

"The term public-private partnership ('PPP') is not defined at Community level. In general, the term refers to forms of cooperation between public authorities and the world of business which aim to ensure the funding, construction, renovation, management or maintenance of an infrastructure or the provision of a service.

"The following elements normally characterise PPPs:

The relatively long duration of the relationship, involving cooperation between the public partner and the private partner on different aspects of a planned project.

The method of funding the project, in part from the private sector, sometimes by means of complex arrangements between the various players. Nonetheless, public funds — in some cases rather substantial — may be added to the private funds.

The important role of the economic operator, who participates at different stages in the project (design, completion, implementation, funding). The public partner concentrates primarily on defining the objectives to be attained in terms of public interest, quality of services provided and pricing policy, and it takes responsibility for monitoring compliance with these objectives.

The distribution of risks between the public partner and the private partner, to whom the risks generally borne by the public sector are transferred. However, a PPP does not necessarily mean that the private partner assumes all the risks, or even the major share of the risks linked to the project. The precise distribution of risk is determined case by case, according to the respective ability of the parties concerned to assess, control and cope with this risk."[27]

6.3  The Government describes such partnerships in the following terms:

"Public private partnerships (PPPs) are arrangements typified by joint working between the public and private sector. In the broadest sense, PPPs can cover all types of collaboration across the interface between the public and private sectors to deliver policies, services and infrastructure. Where delivery of public services involves private sector investment in infrastructure, the most common form of PPP is the Private finance initiative."[28]

The document

6.4  In this Communication the Commission suggests a framework for encouraging more frequent and better use of PPPs to meet existing and future needs for investment in public services, infrastructure and research in the EU. After considering in the Communication's introduction what PPP is, the Commission discusses the case for using PPPs citing improved delivery of projects, increased value for money, spreading of the cost of financing over the lifetime of the asset, improved risk sharing and capacity to leverage private funds and pool them with public resources. The Commission cites the particular importance of the last point in the present economic conditions.

6.5  The Commission then says that it wishes to promote PPPs as a useful delivery tool and wants to ensure EU rules and actions do not impede their development. However, it reminds Member States that projects should take account of relevant regulations governing such projects, such as those on accounting transparency, procurement procedures and state aid. That said it illustrates types of EU financing options available to PPP projects, citing:

• the Joint Technology Initiatives, which promote cross-Union research in the areas of innovative medicines, aeronautics, fuel cells and hydrogen, nanoelectronics and embedded computing systems;
• structural funds, including JASPERS, a project development facility launched together with the European Investment Bank and the European Bank for Reconstruction and Development, which aims at providing assistance as required for any stage of a PPP/infrastructure project cycle,[29] the JESSICA initiative for sustainable urban investment for PPPs/urban projects included in an integrated urban development plan[30] and the JEREMIE initiative in support of new business creation and improving access to finance for enterprises;[31]
• the European Investment Bank, which has made nearly €30 billion (£26.64 billion) available in loans for PPPs since the late 1980s;
• Trans-European Transport Network instruments, including loan guarantees, construction cost grants and provision of risk capital; and
• the Risk Sharing Finance Facility and Competitiveness and Innovation Programme to support PPPs in the areas of research, technological development, demonstration and innovation.

6.6  The Commission argues that PPPs have not yet reached their full potential and has explored the reasons behind this, drawing three main conclusions:

• the credit crunch has led to an increase in the cost of debt, has reduced the maturities offered by banks on this debt and has resulted in committed finance only becoming available at the end of a procurement process;
• PPPs are traditionally complex to procure, requiring significant resources and skills within the public sector, which have not always been available, and issues around securing long-term political commitment to projects and risk allocation between the public and private sectors have also contributed to their limited use; and
• the regulations governing the Joint Technology Initiatives are too restrictive and have hindered its ability to deliver.

6.7  In order to address these conclusions, the Commission suggests the intention to develop "an effective and enabling cooperation framework between public and private sector". Whilst noting that "the ultimate decision to use PPPs lies with the Member States' public authority and it is for Member States to review the national framework as necessary to enable it", the Commission says that it will, through a range of activities:

• improve access to finance for PPPs;
• facilitate setting up PPPs through public procurement of PPPs;
• ensure proper debt and deficit treatment of PPPs;
• improve information and disseminate relevant expertise and know-how; and
• address the specific challenges of Joint Technology Initiatives and financing for innovation.

6.8  The Commission concludes that in 2010 it will focus on five key actions:

• work with the European Investment Bank to increase the amount of funding available to PPPs, strengthen and streamline existing financing instruments and develop guarantee instruments;
• where EU funding is involved, develop better rules and procedures to ensure a level playing field between conventionally delivered projects and those delivered through PPP;
• propose a more effective framework for delivering research and innovation through PPPs;
• consider developing legislation on concessions, as a particular sub-category of PPP — the decision to proceed would be based on the outcome of an ongoing impact assessment; and
• improve dissemination of information and exchange of best practice by setting up a new PPP group to discuss concerns and consider future developments in PPPs.

The Commission says it intends to review the impact of this work plan before the end of 2011 and, if necessary, propose further new initiatives to maintain momentum.

The Government's view

6.9  The Economic Secretary to the Treasury (Ian Pearson) says that the Government welcomes the development of a framework on PPPs and the actions proposed to encourage and simplify the delivery of such partnerships. He comments further that:

• the vast majority of expenditure on the UK's public services has been, and will continue to be, procured and funded through conventional means;
• innovative procurement approaches, such as PPPs, have, however, been used to deliver some of the Government's most complex and significant public sector infrastructure projects and programmes;
• working with the European Investment Bank to, amongst other things, increase the amount of funding available to PPPs is desirable;
• the Government also welcomes the intention to create a level playing field between conventional and PPP projects seeking EU funding and to deliver a more effective framework for research PPPs;
• the UK has considerable experience in delivering PPPs and works with many fora across the EU and internationally to spread the lessons learned and best practice;
• the European PPP Expertise Centre is a joint initiative between the Commission, the European Investment Bank and Member States, including the UK;
• the Centre provides advice and assistance to the Commission on developing public sector capacity to implement PPP projects and programmes, improving PPP planning and contributing to the spread of best PPP practice between countries and regions;
• given that the UK is heavily involved in contributing to Centre, the Government will consider plans for a new PPP group once they have been developed further and in light of the similar work already under taken in this sphere by the Commission through the Centre; and
• until more information is provided on the nature of the Commission's plans for legislation on concessions, the Government would have a cautious approach to expanding the Union's role in setting the legislative framework for PPPs.

Conclusion

6.10  Efforts to improve the role of public private partnerships in public expenditure are important — so we draw this Commission Communication to the attention of the House. However, whilst we are content to clear the document, we applaud the Government's caution about the possibility of proposals which might expand the EU's role in legislation concerning public private partnerships — we would wish to scrutinise closely any such proposals which might arise.

28   See http://www.hm-treasury.gov.uk/ppp_index.htm.  Back

29   See http://ec.europa.eu/regional_policy/funds/2007/jjj/jaspers_en.htm.  Back

30   See http://ec.europa.eu/regional_policy/funds/2007/jjj/jessica_en.htm.  Back

31   See http://ec.europa.eu/regional_policy/funds/2007/jjj/jeremie_en.htm.  Back