The end of the affair
This blog is all about me. After nine years working at the Bulletin, it is time to move on and so please indulge me for a moment as I take the time to look back on the industry.
When I began covering private finance, the UK was in the middle of its PFI boom, with practitioners barely able to look up from their desks due to the large number of projects being churned out – with new opportunities seemingly emerging on a daily basis. Then came the 2008 global financial crisis, the ‘age of austerity’ and a backlash against long-term contracts where maintenance budgets were ring-fenced – and suddenly looked way over-engineered in a time of cutbacks.
This was, of course, not the view taken around the world, with other countries beginning to recognise that using the private sector might actually be a good way of continuing to deliver new infrastructure despite not having the cash in hand to pay for it all up-front.
Even so, with the exception of a few pockets like Canada and Australia, the last five years have seen a clear reduction in the number of investment-ready projects available, not just in the UK but in places around the world. And this at a time when there are a growing number of investors holding cash that is looking for a stable, long-term home that can offer strong returns.
But of course, these are well-rehearsed arguments in favour of private sector investment in public infrastructure that have been made time and again over the past decade. The question has often been, ‘is anyone listening?’
For all the negativity – and the current morass of Brexit is only restricting dealflow across both the UK and Europe (previously among the powerhouses of PPP) – I believe that there are some good signs for the industry at present.
Yes, the collapse of Carillion has sent shockwaves through the global PPP market. And yes, the UK chancellor’s decision to “abolish” its use of PFI and PF2 – and subsequent confirmation that it will not seek to create a new model and will “no longer procure off-balance sheet projects using a design, build, finance and maintain/operate contracting structure where the taxpayer directly pays for the project” – is a blow for the market, especially given the UK’s position as a private finance leader.
However, the UK is seeing a new approach spring up, with private sector finance and expertise still very much in demand from local authorities and health trusts, providing a new way of doing business that offers the private sector to connect more directly with the local communities they serve.
Given that some of the criticisms of PPPs have often been the failure of the private sector to properly engage with local people, this is clearly an opportunity to show what the public and private sectors can achieve together. Facing an often sceptical public, this will not be easy, but it is perhaps the last chance saloon for the industry. Get this wrong, and there will be nowhere left to turn. Get it right, and the relationship between the general public and private sector providers could yet be fixed.
Meanwhile, another shift is happening, led by New Zealand, where the country has chosen to define a philosophical split between those areas of infrastructure where private profit is not an issue (think mainly economic infrastructure, such as roads), versus those where such profit does not ‘feel’ so appropriate (largely social infrastructure such as schools and hospitals). As the world struggles to convince its public of the merits of using private finance in public infrastructure, this split seems like a potentially sensible compromise. Experience in the UK has long shown that opposition to private prisons, for example, is far lower than the idea of private cash in hospitals (often labelled ‘privatisation by the back door’).
Ultimately, there are few countries in the world that can afford to deliver all the infrastructure needs of their population through public cash alone. Private finance is here to stay, even if I won’t be around to cover it.
Fortunately, I leave you in the very capable hands of Amanda Nicholls, who will be stepping back into the editor’s chair after I leave, ready to cover this exciting new phase of the global PPP industry.
Finally, I would like to thank all those with whom I have worked in the industry over the years, it has always been an interesting and enjoyable experience, and one which I may well return to at some point in my career!
Paul Jarvis, managing editor