PPP? IT WORKS BEST FOR LARGE WORKS
Involving the private sector in financing, implementing and managing public works is a great opportunity, when applied to the development of large infrastructures or redevelopment plans and complex re-launches. It makes much less sense to resort to forms of public-private partnership to cover the costs of minor projects. In fact, in this case, the complexity of the procedures does not justify the effort involved.” often; moreover, the excessive fragmentation of the decision-making power and the widespread provincialism have led to a dangerous limbo of “non-decisionism.
Nowadays, ensuring a public-private relationship based on transparency, certainty of rules, and contracts has become one of the crucial elements in global competition. Those operating on a global scale can currently choose from at least a hundred countries where the potential conditions for investing exist. In this scenario, Italy can no longer afford the luxury of derogating this basic requirement of “country-reliability,” regardless of the political and institutional guidelines that have taken place over the years. These considerations have prompted us to entitle the second number of Agorà “Public Private Partnership.” The interventions that animate our “square” present different visions and offer possible solutions, with a strong focus on the most advanced and innovative international realities. In the same spirit as Autostrade per l’Italia, Agorà is proud to be a national champion able to invest in Italy so that it can grow abroad, bringing its experience, expertise and “passion” for mobility to the rest of the world.
Guido Tabellini, Professor of Economics at the Bocconi University since 1994 and former rector of the University of Milan (from November 2008 to September 2012), is an expert in macro-economic policy and the analysis of problems and issues related to the development process. This is his analysis on the effectiveness of the tool of public-private partnerships from a broad point of view and a look, from above, at the advantages and limitations of the involvement of investments outside the PA, so as to give life to what national and local governments are no longer able to guarantee citizens. Taking into account that, due both to the economic crisis and to structural reasons (which essentially depend on the weakness of the model used in Italy and the bureaucratic rigidity), partnership initiatives between local authorities and national and private investors are also going through a difficult phase. According to a recent study presented by the National Association of Manufacturers, of 100 notices published by public bodies in Italy to carry out PPP works, only 66 are actually awarded, 38 are implemented, and only 25 are finally concluded and the private management of the work has begun. In practice, 75% of the projects are lost along the way.
In contrast with what you postulate, in our country the PPP tool is mainly used for minor works, below the threshold of five million euros. Their use is much more difficult for large infrastructures. How do you see the picture?
In my opinion, this is an improper use of the potential of PPPs. In the case of a large work, in fact, it is possible to create forms of collaboration, which enable all the parties involved to play their role. Public administration maintains the role of coordinating the various actors, while the private entity focuses on the operational components. This scheme can be applied well to complex programs, but not to small initiatives, where the effort is wasted.
In a time of economic crisis, can the use of the PPP open up new opportunities?
Without a doubt. Public-private initiatives are now more important than ever for two reasons. Firstly because, given the current state, the public sector has no resources to implement major investments and take on the full expense. Secondly because, in a moment of crisis of confidence and high country-risk, the private sector is particularly averse to exposing itself and committing resources to projects with no guarantee of return. With the union of the two needs, interventions may arise that are able to look further, beyond the stalemate.
In your opinion, what are the respective roles of responsibility in PPPs for the public sector and the private investor?
They have complementary roles. Most of the time, when investing, the private sector does so with a very practical view, but also a very sectorial one that lacks a wide-ranging outlook. Looking further than the single intervention, trying to imagine the positive impact for an area or for the entire country, is, in fact, a role that belongs to the public administration. Similarly, if more than one subject is involved in the same program, the public administration should have reserved the task of coordination.
And the role of the private partner?
It is more operational. To give just one example, the costs-benefits analysis of each project must focus on the logic of maximum convenience. This is the task of those who are used to dealing with the need to optimize every day.
The credit crunch also weighs down on the development of PPPs. Would it be useful to review the Basel 3 Regulations, which strongly discourage long-term loans by banks? Or introduce the golden rule on investments, of not accounting for certain categories of public funds for investments?
In my opinion, the Basel 3 matter is outside the partnership topic. The problem of the functioning of the banking system needs to be addressed at a much broader level. On the contrary, I think the release of the internal stability pact can represent an opportunity. Managing to better separate current expenditures from capital accounts expenditures could help identify resources at least to get the development of public works started.
How much does the high mortality rate for projects recorded in Italy depend on the lacking capacities of the contracting authorities in developing good feasibility studies and preliminary analyses? How important is increasing the training of public entities, particularly small local authorities?
It is essential. In this sense, one way would be to locate a technical structure for the PPP that answers not only to a single municipality, but also to a higher authority, on a regional or even ministerial level. Not to mention that this highly specialized unit could also help the municipal offices in the structuring phase of procurement notices, which are often too complex for the expertise of a smaller local authority.
On February 18, more than 15 months after the introduction by law (Article 18 of the Law of November 12, 2011, number 183, the 2012 Stability Law), the CIPE took the first concrete step for the use of tax rebates on project financing. How do you rate this measure? Can it be applied effectively to large works?
In principle, it is a kind of exchange that works, even though (like many aspects of public-private partnerships) there is a risk of abuse. In fact, whenever the public sector provides discounts or uses forms of compensation that are not visible to the public, there is a risk that the true cost of the project is being hidden from taxpayers. Not to mention that the recovery through tax deductions shifts the financing burden to the future. In my opinion, to avoid incurring in unclear situations before activating such initiatives, it would also be important to define the profile of a technical body: the guarantor of transparency for each transaction, a sort of authority or commission with the task of always examining and approving the form in which public participation takes place.
Why have PPPs had better luck abroad? What differentiates Europe from Italy?
It is absolutely wrong to think that everything abroad works, but not here in Italy. There are countries, such as Portugal and Spain, which have made extensive use of partnership tools, but with the result of creating gaping holes in national accounts that are hardly curable now. However, what can be seen in principle is that these forms of partnership have worked well and successfully in states where the PA works efficiently. Lack of competence at all levels of government, central and local, together with an inability on the part of Italian directors to be able to coordinate with each other, often ends up with determining the implementation of projects that are trapped in the same production procedure. Once again, the place to start is greater efficiency, combined with the simplification of bureaucratic procedures.
(Abstract from Autostrade per l'Italia's Magazine "Agorà")