22.9.2005   

EN

Official Journal of the European Union

C 234/52

1.1

This opinion draws heavily on a background paper prepared by the EIB for the EESC in July 2004 (1).

1.2

European countries currently use the public-private partnership model (PPP) (concessions and other types of contracts) in very different ways. The term PPP covers a wide range of situations; according to the European Investment Bank (EIB) ‘the key feature of a PPP is that it involves a risk sharing relationship between public and private promoters, based on a shared commitment to achieve a desired public policy outcome’.

2.1.1

2000 years ago, the physical transport of mail throughout the Roman Empire, the ‘vehiculatio’ was the responsibility of the emperor, while the local authorities were responsible for the ‘stationes’, i.e. postal stations.

The contract drawn up after calls for tenders by the local authorities and managers of these huge ‘post houses’ conferred responsibility upon the latter for their construction, upkeep and operation for five years — a ‘lustrum’ — a fairly typical duration for contracts in Roman law, frequently occurring in the area of land ownership (including ‘precaria’ contracts). It would take twelve centuries for this type of contract to re-emerge.

Not only Emperor Augustus's postal service was based on a concession contract, the system was used for the building of ports, thermal baths, marketplaces and even roads.

2.1.2

In the 19th century, the European railway network was built entirely through concession contracts, and not only for railway building and construction works but also for various other public services such as the supply of water, gas and electricity, household refuse collection, telephones, etc.

2.1.3

Moreover, in most Member States, public procurement law stems from the law of concessions.

2.1.4

In the 20th century, the concession contract has enabled not only the building of motorways and car parks but also water supply systems, museums, airports, tramways, underground railway systems transport, facilities for urban areas, the refurbishing of schools and hospitals, etc.

2.1.5

Many countries have begun to use PPPs and the EESC has prepared a brief summary in its opinion (2) on the Green Paper on public-private partnerships and community law on public contracts and concessions which was adopted on 27 October 2004.

2.2.1

‘The European Council in October 2003, invited the Commission and the EIB to explore how best to mobilise public and private sector financing support of the Growth Initiative, and how to give further consideration to a number of initiatives which should assist in the development of PPPs.

2.2.2

The Commission, with the support of the Bank, thereafter prepared a series of measures that were incorporated into the Growth Initiative that was endorsed by the European Council in Brussels in December 2003. The proposals focused on the creation of the right regulatory, financial and administrative conditions to boost private investment as well as the mobilisation of Community funding, allied with an invitation to Member States to continue refocusing public expenditure towards growth-enhancing areas without increasing public budgets.

2.2.3

The EIB's proposals to the Council focused on the provision of substantial additional resources both for TENs and i2i (3), the two key sectors covered by the Growth Initiative (4). The EIB undertook to (…):

2.2.4

The EIB's commitments made under the Growth Initiative were a natural evolution and step up of measures already taken by the Bank over the previous ten years, to encourage greater private-sector financing of public infrastructure. (...)’.

2.2.5

In its opinion on the Green Paper on public-private partnerships and Community law on public contracts and concessions  (5) the EESC highlighted significant discrepancies between the Member States in terms of recourse to PPPs. It also notes that local and decentralised public authorities often take a more pragmatic approach to developing PPP programmes than central government.

3.1.1

‘The term “public-private partnership (PPP)” has been in general use since the 1990s; there is, however, no single European model of a PPP (...).

3.1.2

Provision of new investment in infrastructure in Europe is increasingly being carried out under a range of PPP structures based on the principle of private sector risk taking participation in the provision of public infrastructure through payment by the users or by raising a charge on public funds commensurate with the service provided or with the risk transferred to the private sector. Typical examples of such public infrastructure are airports, railways, roads, bridges, tunnels, environmental facilities (such as waste incinerators and water treatment plants) and public buildings including government offices, schools, hospitals and prisons. (…)’.

Appendix 1 illustrates the extent to which ‘PPP programmes, legal systems and government organisations [had] developed within EU-25 (…)’ at the end of 2003.

3.1.3

‘The core objective for the public sector of a PPP programme is to harness private sector skills in support of improved public sector services’. (…) ‘PPPs are therefore often characterised by the public sector:

3.2.1

PPP structures (...) can be means of delivering infrastructure developments across Europe. (…) Provided that the public and private sectors fully exploit their advantages and the potential synergies to be gained from cooperation, PPPs can contribute to improved quantity and quality of public services.

3.2.2

PPPs offer the opportunity to capture private sector efficiencies and introduce appropriate risk-sharing mechanisms between the public and private sector. Unfortunately this has not always proved to be the case, especially for large IT projects. The ability to transfer and ultimately align risks and rewards within project structures has proved critical to the ability of PPPs to deliver improved Value For Money to the public sector (…).

3.2.3

Alongside reforms to public procurement rules, this had enabled the private sector to respond positively to these new opportunities to become involved in the delivery and operation of public infrastructure across many EU countries (…).

3.2.4

This also gives smaller private companies (including SMEs) the ability to participate in large scale projects (and to access long term finance) in a way that would have been problematic in conventional private sector ‘balance sheet financed’ procurements (…).

3.2.5

In response to the financial problems suffered by the public sector as a result of a political approach that favours the private rather than the public sector and which, in certain countries, has for years neglected the necessary investment in public services, the key to improving public services is a higher level of investment and the ability to push forward projects that might not have been possible to finance under classical procurement procedures. However an innovative approach to financing capital projects for the public sector can provide better value for money than PPPs.

3.2.6

The EIB emphasises that ‘Given that many such projects are classified as “on balance sheet” for government deficit accounting purposes under ESA 95 guidelines (6) the question of government accounting treatment is but one of the many factors that may be taken into account by governments in their decisions to authorise an overall PPP programme and it is certainly not the most important’. The EESC points out that Eurostat (7) has established rules for recording PPP projects in the national accounts of Member States. These rules take account of:

3.2.7

The EESC acknowledges that PPPs have developed considerably; however, many obstacles need to be overcome before public authorities in the Member States can use such partnerships on a regular basis.

3.3.1

‘The key consideration for governments in launching a PPP programme should be ensuring Value For Money (VFM). (...) The “no service/no pay” principle should ensure that the private partner is incentivised for timely delivery and operation of project assets. (...). In certain countries, traditional public procurements sometimes suffer from significant construction delays and cost overruns but the same problems have also beset some PPPs. Related to this, where life-cycle maintenance obligations fall to the private sector, operators are incentivised to optimise capital and maintenance spends over the project duration (…)’, but there have also been examples of operators exploiting their contracts when there have been unexpected changes in circumstances or where forecasts of costs have proved to be inaccurate.

3.3.2

The value to the public sector of risk transfer needs to be demonstrated on a ‘case-by-case’ basis in each project in accordance with an agreed methodology generally referred to as a Public Sector Comparator (PSC). (…) Mechanisms for the diffusion of best practice such as the creation of PPP Task Forces and specialised units and the use of widely agreed benchmarking tools to measure Value For Money can also be extremely helpful (…). The EESC points out that several Member States have set up teams of experts to set up PPP contracts and identify best practices. Furthermore, it recommends wider use of systematic comparisons between projects that are managed by public authorities and ones that are managed by private undertakings (cost, performance, etc.). It also recommends that a body of high-level experts be responsible for coordination at European level.

4.1.1

‘First and foremost, the Bank requires that all PPP projects supported by it are financially robust, economically and technically viable, meet the Bank's environmental requirements and are competitively tendered in accordance with EU procurement rules (…).

4.1.2

Wherever possible, EIB becomes involved in projects at an early stage, prior to commencement of procurement with the Bank working on a non-exclusive basis with all bidders (...) during the bidding phase. This ensures that bidders compete inter alia on the extent to which they pass the financial benefits of EIB participation on to the public sector.

4.1.3

The Bank's principle of providing complementarity with other funders (…) is maintained in (…) structures (…)’.

4.1.4

Therefore, ‘many EIB loans to PPP projects are either bank guaranteed or monoline insured, whether to maturity, or with release once the project has a proven operating record (…)’.

4.1.5

‘The credit quality of the Bank's PPP portfolio is underpinned by the public sector support for the payment streams to many PPP projects. Indeed, in many projects (such as the UK PPP hospitals and schools), payment obligations lie solely with the public sector and concessionaires are not subject to any form of “demand risk”. PPPs also typically benefit from strong regulatory and contractual frameworks. (...) Finally, although the volume of PPP activity has increased (see Appendix 2), the loan amounts involved remain relatively limited compared to overall lending volumes (...)’.

4.1.6

The EESC notes that the EIB funds between one sixth and one half of the total investment in PPP projects.

5.2.1

‘Appropriate, competitive procurement is one of the key conditions for success of a PPP. The tendering process can be a complex exercise, requiring highly-skilled people on both public and private sides. In some cases, the development of a PPP can involve long and costly negotiations; in other cases (often in countries with experience of concessions) it may be possible to simplify procurement whilst retaining competitive pressures. Review of the procurement procedure is an essential part of EIB due diligence on PPP projects (…)’.

5.2.2

The EESC considers it necessary that, in order to contribute to a climate of healthy competition, projects supported by the EIB should respect European competition law, particularly legislation on public aid. The EESC recalls its stand on the subject in its opinion on the above-mentioned Green Paper (10).

5.3.1

‘National audit authorities have given particular attention to the performance of, as well as the Value For Money from many PPP projects financed in their respective areas of responsibility (...)’. To assess the performance of PPP projects, the Committee suggests using all the available studies carried out in all the countries with PPP projects. Although the United Kingdom has used this instrument most to finance public services, other countries also have experience. Moreover, studies from all available sources should be used for a comprehensive assessment, particularly as regards the experience of the social partners, particularly the trade unions, of trends in working conditions, and that of consumers with regard to the quality of services.

5.3.2

‘Appendix 4 presents extracts from reports from the UK National Audit Office (11). These indicate that the performance of UK PPP projects has been generally good, particularly in respect of cost and time performances on major infrastructure, albeit with some weaknesses in the early schools projects; they have also been most helpful in pointing out difficulties or errors made, notably in the IT sector which has generally proven an unsatisfactory sector to date for PPPs. Similar reports (12) are also available from other national audit bodies; the recent — and critical — report of the Portuguese Tribunal de Contas on the SCUT programme (13) is a relevant example.

5.3.3

The EIB's overall experience is that the performance of the projects it has financed has been good. In terms of construction, projects have generally been completed by the target completion dates set out in the project contracts. Within the portfolio, just one project has fallen significantly behind schedule (...).

5.3.4

In general, projects have achieved anticipated levels of operational performance within six to twelve months of the commencement of operations (...). Release and refinancing tests applicable to EIB projects have normally been met at the appropriate time’.

5.4.1

‘As indicated above, it is a consistent observation that the initial focus of PPP procurement in most countries is on the transport sector. Thereafter, countries often make a progressive migration towards other sectors (such as education, health, energy, water and waste treatment) where the techniques of PPP procurement are being seen to be equally valuable (...).

5.4.2

For example, the UK has placed considerable emphasis on the importance of PPP structures in the social sectors of education and health — the largest in the history of the National Health Service. Since 1997, 64 PPP hospital projects with a capital value of GBP 11.1 billion (EUR 15.7 billion) have been approved by the Department of Health in the UK to commence procurement. Of these, 27 schemes with a value of GBP 3 billion (EUR 4.3 billion) have been completed and are operational, or are in construction (...).

5.4.3

At least three other countries in Europe (Portugal, Spain and Italy) are now bringing forward substantial PPP programmes in the health sector.

5.4.4

It is also notable that national PPP programmes often commence with relatively large, central government promoted projects, with subsequent development of smaller (sometimes repetitive) projects at local or regional government level’.

5.4.5

The Committee points to the need to take a comprehensive approach to research, development and innovation in the European Union's economic policy. The Committee takes the view that the potential of the European Investment Bank is not exploited to the full in this area. It therefore wishes to encourage it to direct a sizeable amount of its resources into this sphere, especially to applied research and innovation. This requires a creative use of all of the EIB's instruments — including PPP — in the area of research, which in most cases could well be considered a public service.

6.1

‘There is considerable diversity in the structuring of payment mechanisms for PPP projects in the EIB's portfolio, reflecting the diversity of PPP structures in Europe (...)’.

6.2

Government payments play a vital role. ‘In some cases, concessionaires have been directly incentivised to improve safety (through effective maintenance, improved lighting and so on) by payments-related to accident rates.

6.3

In practice, the Bank has noted a general tendency for the public sector to move from toll-based to availability-based payments in transport PPPs, however, the ability to use the different payment mechanisms inherent in PPP structures to achieve differing policy objectives and optimise risk-sharing is a key characteristic and strength of the PPP (...).

6.4

Given the willingness of the Commission to use Structural/Cohesion Funds to part-finance the public sector contribution in appropriate cases in the new Member States, collaboration of the work of National Task Forces with DG Regio and other Commission services is also highly desirable (...)’.

7.1

‘EIB has brought significant added value to the PPPs it has financed. From a financial perspective, the long loan maturities and capital grace periods offered by the Bank are particularly appropriate for major infrastructure given the long economic lives of the assets being financed and the typical evolution of cash flows over the project life (...).

7.2

Furthermore, the cost of EIB funds enhances public sector Value For Money from these deals. By strengthening the economics of projects, these features also benefit other participating financiers (...).

7.3

In this context, the EIB's high standard of due diligence, as well as its commitment to holding project debt until maturity (i.e. no selling down or syndication of debt which is common amongst other senior lenders), offers considerable stability, robustness, experience and added value to the public sector.

7.4

The Bank's ability to undertake upstream advisory work with public sector bodies on the development of PPP programmes or on individual priority flagship projects, either directly or indirectly (for example, through sharing or experience or secondments), has also been highly valued by the public sector where this has been done to date (...).

7.5

Related to this, the Bank's participation in a project, given its unique status as an “impartial” not-for-profit financier with a public policy mission and considerable technical expertise, can have an important effect in building confidence between the public and private parties to a transaction. One example of the Bank's catalytic influence is the Tagus Bridge project, the flagship project of the Portuguese PPP programme, where this role has been particularly recognised.

7.6

Finally, the EIB has also been able to develop innovative and flexible financing structures for PPP projects. (...). As set out in the Growth Initiative, the Bank is also working on the further development of an extended range of financial instruments such as Guarantees; Junior and Mezzanine Debt; Infrastructure Funds and extending its use of Securitisation as appropriate to facilitate the increased participation of the private sector in the provision of public infrastructure. These innovations, along with the value attached by other lenders to the Bank's due diligence, are contributing to the Bank's role as a catalyst for other sources of funding (...)’.

7.7

The EESC notes that the EIB can lend its support to public authorities by reducing costs and applying a strict policy of project evaluation and risk transfer in the implementation of PPP projects in Member States.

8.1

The EESC welcomes the EIB's significant contribution to PPP development and to supporting growth and the improvement of public services in the Member States by providing the funds necessary to carry out work in the following areas:

However, the EESC recommends that the EIB should also include funding for applied research and innovation, including patents, which give the EU world-wide primacy.

8.2

In its opinion on the Green Paper on public-private partnerships and community law on public contracts and concessions (14) the EESC stressed the need to:

8.3

The EESC considers that all bodies of public experts in the various Member States should cooperate amongst themselves and with the EIB so that they can forward to the Commission accumulated experience of best practices and launch a debate on how to improve the European legal framework.

8.4

Given the scale of the EIB's exposure and its experience of PPPs, the EESC suggests that once a year the Ecofin and Competitiveness Councils discuss a report on PPPs, jointly presented by the EIB and the Commission.