‘Partnership’ is the key word in PPP, and the key to understanding what is so wrong with the concept in general.

Commercially, partnerships are entered into to spread the required investment and the associated risk between the partners. Accordingly, the returns/profits are then spread equally proportionately amongst the parties.

The problem with PPP fundamentally is that the Government, by the very nature of being a governance and not commercial body, takes on at least the major risk if not all of it. The US $20m bailout of Citigroup is a great example of what happens when risk is transferred to the public.

Meanwhile, the commercial entity gets at least the major return, if not all. It would have to expect an outstanding return and/or low risk, for it to enter into a PPP in the first place. Because… If the partnership was fair and advantageous to both parties in regards to the risk/return profile, then generally two or more commercial parties would have already entered a partnership in order to capture this return. (Nature abhors a vacuum, and capitalist markets are absolutely no exception.)

That statement is slightly simplistic in that in a PPP there may be consents or other barriers to commercial partnerships that are lowered. But the fundamental principle holds true… PPP’s are required where the risk profile is too high, or the return too low, for the project to be directly profitable economically. But the projects may be desirable to the government and the community because of the long-term social good, and return to the overall economy (if not the government coffers directly).

In general I believe PPP’s will transfer risk to the taxpayer, and profit to the shareholder – socialising losses and privatising returns.

Simple really. It works. Dont need to change it.

burt. rather than attack me, show why Fletcher challenge is wrong.

If Fletcher Challenge made a statement that they thought all construction projects should be paid in full up front and that contracts should always have early completion bonus clauses but never have late completion penalty clauses would you agree with them on that as well?

I can’t show you why Fletcher Challenge is wrong, because they may be wrong but they may also simply prefer standard deposit and progress payment arrangements because they are more profitable or because they are less problematic from an administrative perspective.

I suspect Fletcher Challenge would rather engage in PPP arrangements over having no work at all, but I could be wrong on that as well.

Being less cynical there is no denying that the government generally does not perform as well as commerce in terms of running businesses. So, if a PPP needs a well run business for future revenue streams and service then it’s a good candidate. Also a PPP is about allocating risk to the most suitable entity. Commercial entities often manage risk well as they go out of business if they don’t. Not sure roading fits those criteria as it’s more about building the roads than running them in terms of a business. I’ll talk about risk below.

Risk – Burt made a valid point – Fletcher C do well out of major infrastructure works in NZ at the moment (not a huge amount of competition as a smaller market- FC said so themselves in the article and that they have a large backlog), manages to lay off a fair amount of the construction risk back on the government currently anyway and FC doesn’t really want to get in to running the piece of infrastructure its building as it would be taking on more risk in terms of future revenue flows (and running a business it has no expertise in). FC is making money now – why take more risk without a corresponding potential reward against the risk especially as the article is saying they don’t see the revenue stream? The funding comment is a bit of red herring I feel. But as FC said in the article whether it’s better for NZ to have a PPP is very dependent on the nature of the contract and who ends up owning what risk. FC are obviously not keen to have the risk but could be a rock and a hard place for FC tie the construction work to the PPP and then they are forced to take the risk as they need the construction work.

On the comment around the government having to step in on the demise of a PPP – I did read an article about 9 months ago putting forward a decent argument (based on analysis of PPPs in Europe had a quick look could not find it to post a link) to say most of the time it cost the government less than if they did it themselves as the reasons for the death of whatever PPP usually related to low ongoing revenues for usage charging, which would normally have been the case anyway. The private company had losses, which the government did not have to bear. In the cases were the government really suffered it typically wasn’t really a PPP as they had contractually underwritten the project and offset no risk whatsoever!!

The article did a rough comparison with cost overruns against non PPP infrastructure investment and found similar rates of blowouts so that implied it didn’t affect construction or set-up costs. It also found many PPPs that worked but invariably the first few didn’t as government did not know how to set them up, initially.

Whoever said it’s about wealth transfer think a little the construction companies already make a profit. If done correctly it transfers risk to them greater risk equals less profit typically.

So, a definite worth considering but needs to be carefully done and for the appropriate PPP.

And everything Blair said was a good idea because his party name was “Labour”. That is why we had to have them too, like pledge cards and cash for honours.

Times change and now the Labour party activists are just scared that National may use the tools that Labour put in place and be successful. Couldn’t have that because the key issue is not what is good for NZ but who delivers the good outcomes.

Did you just engage in a retrospective banning?

You are a complete wanker – if you want an echo chamber then so be it, otherwise get over yourself and explain what justified that banning.

(calling you a complete wanker justifes the ban – but before that, was it that I disagreed with Steve P ?)

IrishBill: I’ve just noticed this. Take a two week ban. You are continually overstepping the bounds and I see no reason we should host your oikish comments. I suggest you head over to Kiwiblog and call David a “partisan hack” day in day out and see what happens there.

If the risk is always borne by the taxpayer in the end, why pay someone else a profit for taking that risk?

Of course you are correct (I say this so I you don’t delete my post). I think you have hit the nail on the head. The public service should train and retain construction workers. We could call it the ‘Ministry of works’ and they could be the sole ‘contractor’ engaged on all public works. That model has never failed before has it…

Are you very young and can’t remember any of the things that have been tried and failed in the past or do you not even go as far as to consider why things are like they are today?

Again – You have tied yourself in a knot Steve, you think private companies are only motivated by profit so when they say they are not keen on PPP arrangements have you considered that it might be a less profitable arrangement for them – IE: A better deal for the tax payers?

If Fletchers said PPP’s were good you would say they are bad – you can’t have it both ways… Well you can and you do – but that won’t stop me pointing out that you are a partisan hack who cares not what is being talked about but only who is doing the talking.

IrishBill: I’m certainly not young. In fact I’m too old to have to suffer boorish fools. Take a week off.

That’s the key question – and its one the right can’t answer. But then, PPP’s are more about transferring wealth and hiding debt than getting a good deal for the public anyway.