ADB, Aquino and the perils of private-public partnership (Part 2 of 2)

continued from Part 1

Aside from hefty financial guarantees, private firms involved in a PPP impose incessant rate hikes especially in the case of the water sector to reap superprofits. When the Metropolitan Waterworks and Sewerage System (MWSS) was privatized in 1997 through concession agreements, the quality of service has since deteriorated even as exorbitant fees have been charged to households, according to Bagong Alyansang Makabayan (BAYAN).

“The privatization of MWSS is one of the largest PPP projects ever implemented in the country. Almost 15 years ago, it was touted as the solution to inefficient water services amid exorbitant user fees. Today, the basic charge for water services in Metro Manila has already soared by as much 1,000% since the privatization in 1997,” the group said in a report.

BAYAN noted the failure of private concessionaires to ensure universal access and interrupted service in their coverage across Metro Manila. “Less than 60% of 790,000 households in Maynilad’s service area have 24-hour water service while only 74% receive water at 7-pound per square inch (PSI) or stronger pressure,” it said.

Deeper in a PPP project, private firms can be ratcheting more profits on top of exorbitant rates in the realm of equities.

Profiteering through equity transactions

In a report by Dexter Whitfield for the European Services Strategy Unit, it was found out that private firmsgenerated £10bn in about 240 equity transactions involving more than 1,000 PPP projects in the UK. Based on this, the average profit rate was at 50 percent, compared to average profits in construction companies of 1.5 percent in the five years to 2009.

In a typical PPP project, construction firms, banks, investment houses and other private players have an equity stake. Additional profits are gained through sale of equity investments to other parties interested in the project.

Whitfield said that based on the findings, PPP projects were “little more than money-making ventures for builders and banks,” adding that the huge sums generated from equity transactions “makes a nonsense of the original value for money assessments.”

Multiple equity transactions can also lead to full ownership of a public asset or service by a private shareholder. To illustrate this, Whitfield’s report cited the Barnet hospital in London, which became 100% owned by banking giant HSBC through four equity transactions.

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