Debt Office Commentary: Public-private partnership risks being expensive and uncertain for the central government
News 23 December 2021
Clear drawbacks and uncertain benefits. This is the conclusion drawn by Debt Office economists Carl Oreland and Magnus Thor following their analysis of public-private partnership (PPP) in a commentary.
In a PPP contracting arrangement, a private enterprise is appointed – to carry out a state infrastructure project, for instance – which is then repaid by the central government. In Sweden, it has not been particularly common. One of few examples is the New Karolinska Hospital. Abroad, PPP has been more commonplace, for instance in the UK, the Netherlands and France.
PPP advocators argue that the incentive structure in a PPP generates socioeconomic efficiencies. In a PPP, project payment is also deferred, and there is thus no near-term burden on the central government budget, which might appeal to decision-makers.
However, potential benefits are unsure and are outweighed by the drawbacks, according to the Debt Office economists in their commentary. Transparency surrounding decisions will be impaired, and financing will be more expensive because private-sector entities have a lower credit rating than the central government. A number of conducted empirical studies also appear to support this conclusion. In the UK for example, PPP is no longer used.
The authors round off their commentary by advising the central government against using PPP.