The Juncker Plan and the promotion of Public Private Partnerships: lessons learnt for future economic recovery measures?

This blogpost builds on a chapter of our recent report 'Not Worth Celebrating Yet?' which analysed the pilot phase of the Investment Plan for Europe – also known as the Juncker Plan. In the report, we dedicated a specific chapter to investments of the European Investment Bank (EIB) in support to Public Private Partnerships (PPPs) under the financial pillar of the Juncker Plan – the European Fund for Strategic Investments (EFSI). Our research led us to question the development model promoted by the EIB in the health and education sector especially, as PPPs are often connected to direct or indirect privatisations of public services.

In the context of the COVID-19 crisis, this question holds a significant importance, as there are vivid discussions taking place around the public provision of essential public services and risks linked to privatisations. And looking back into how EU public finance has performed in the recent past is an important exercise for mistakes not to be repeated in future economic recovery plans at European level.

Public-private partnerships (PPPs) are contracts where a private company pays for, builds and sometimes runs an infrastructure project or service that is traditionally delivered by the public sector, such as schools, roads, railways and hospitals. What differentiates PPPs from public procurement is that a private company is responsible for raising the up-front costs for the investment, which is then paid back by the taxpayer over the course of the contract where the private company most commonly builds, maintains and operates the service. In return, private companies expect a guarantee that they will make a profit on the investment.

The use of private financing for public services has rapidly grown over the past 25 years, in and outside of Europe, with governments increasingly choosing private investment in infrastructure as a means of keeping down debt. Case studies from around the world continue to demonstrate that when governments opt for private investment for the construction and service delivery of health, transport, education and energy, access to essential services by the poorest in a society is restricted and inequalities tend to increase. The Covid-19 crisis in particular illustrates these failures, with the support for PPPs having played an important part in dismantling public health structures and undermining the universal right to health.

In the EU, since the 1990s, 1749 PPPs worth a total of €336 billion have reached financial close, according to the European Court of Auditors. And by the 2000s, the EIB had become the single largest lender for PPP projects in Europe (see this recent academic paper on the promotion of PPPs by the EIB).

But the claims around the benefits of private financing instruments such as PPPs have broken apart. PPPs are increasingly facing a public backlash as their effects become clearer over time, and some European countries have moved away from the model.

In March 2018, the European Court of Auditors published a special report exposing the failure of PPPs and slamming EU’s support for this model via the EIB and the EU funds. The court stated that PPPs are 'not always effectively managed and did not provide adequate value-for-money'.

The report, entitled Public Private Partnerships in the EU: Widespread shortcomings and limited benefits looked at 12 EU co-financed PPPs in France, Greece, Ireland and Spain in the fields of road transport and Information and Communication Technology (ICT). Inefficient spending was identified in contracts worth €1.5 billion, out of which €0.4 billion were EU funds. The report recommends that 'the Commission and the Member States should not promote a more intensive and widespread use of PPPs until the issues identified in this report are addressed (…) in particular, increasing assurance that the choice of the PPP option is the one that provides most-value-for-money.'

In the face of the growing skepticism and evidence against PPPs, it would have been logical for the EIB and the Commission to adopt a cautious approach in the use of such mechanisms under the Investment Plan for Europe. But the figures show that the European Fund for Strategic Investments (EFSI, the financing pillar of the Juncker Plan) is actually promoting the PPP model around Europe:

Until the end of 2018, the EFSI had approved and/or signed at least 28 PPP projects through guarantees of at least €3.995 billion.

In 2015, the European Commission and the EIB launched the Investment Plan for Europe, also known as the 'Juncker Plan' since this investment plan was a flagship promise of Jean Claude Juncker in the campaign for the European elections in 2014. In practice, the Juncker Plan is mainly structured around its financial pillar: the European Fund for Strategic Investments (EFSI), a fund under which the EIB gets guarantees to underpin its investments. Currently, the successor to the EFSI for the post-2020 period – the InvestEU programme – has been proposed as part of the negotiations over the future EU budget and is likely to be central to the European 'Green Deal'. Our report however identified a number of serious shortcomings that will need to be addressed if its successor is to have the intended impact.

We have identified four PPP projects in the health sector financed under the EFSI since the Investment Plan for Europe was set up.

In the health sector, the EFSI supported a nation-wide programme to develop up to 14 primary care centres in Ireland via a €70 million loan, and awarded loans for hospitals in Vienna (Austria), Treviso (Italy) and the Midland Metropolitan hospital in the United Kingdom.

In education, a PPP programme for schools was supported in Vienna, as well as the construction of new school complexes, and the extension and refurbishment of existing ones in the city of Espoo in Finland.

Since 2001, the Irish government’s healthcare strategy has been committed to moving extensive amounts of healthcare out of hospitals and into community-based primary healthcare centres. While this strategy was vaunted as a core component of modernising Ireland’s healthcare system, a less-reported feature was the system’s reliance on public-private partnerships as the mechanism for implementing the strategy.

Already in 2005, the risks associated with relying on private investment to develop primary healthcare centres were clear. In 2005, a private businessman had announced plans to build 60 primary care centres, on the basis of leasing them to the state, only for the initiative to collapse entirely due to the property crash. Nonetheless, the commitment to delivering Ireland’s new network of community-based primary healthcare centres remained intact, as per the 2001, pre-crash strategy.

14 of the 140 primary care centres delivered in Ireland since 2001 have been via PPPs funded under the EFSI, with €70 millions of EIB funding and matching co-funding from commercial lenders Talanx Asset Management and the Bank of Tokyo-Mitsubishi. A further 55 percent of the primary care centres built are operated via a lease from a private landlord. Only a third are publicly-owned. Under the PPP mechanism, the Irish Health Service Executive (the public body responsible for managing the Irish healthcare system) contracts a company to finance, build and maintain the new Care Centre for a period of 25 years, and in exchange pays a fixed monthly unitary charge to compensate the company.

At no point has there been a ‘healthcare rationale’ for the use of PPPs (or private leasing) to deliver Primary Care Centres. However, because the Health Service Executive retains ownership of the centres, it is unlikely commercial interests will have an impact on healthcare decisions per se. A more likely risk, according to a critical article published in the International Journal of Health, is that, at current estimates, the cost of the PPP healthcare centres over the 25 year funding period will certainly exceed the cost if they had been carried out through public financing. The government Department of Expenditure has already acknowledged that PPPs should be avoided due to excessive cost. However, this information does not appear on the documentation relating to the delivery of the Primary Healthcare Centres.

A major concern is that the type of healthcare provided will tend to be driven by commercial needs to repay loans and leases, over and above community healthcare initiatives. For example, 'complementary' private therapies such as counselling, well-being, mindfulness, are all private and for-profit, therefore easier to generate rent from than general practitioners‘ services. Another problem is that in many cases the PPP scheme involved building new care centres, despite the Irish state already owning different centres which are now lying vacant. So it actually facilitated property development, rather than investment in healthcare.

This case is not an isolated example. Such types of investments have proven highly problematic, especially in the health and education sectors.

The NGO network Eurodad has compiled various case studies, including the telling case of a hospital financed by the EIB in Sweden via a Public Private Partnership.

In this case, in 2010, the Swedish authorities gave a single bidder, the Swedish Hospital Partners (SHP), a PPP contract to build and manage the Nya Karolinska Solna Hospital. It was intended to be 'one of the world’s most advanced hospitals', but is now known as the 'world’s most expensive hospital'. It is still not fully operational due to technical failures. Furthermore, the cost of the project has rocketed — a fact that was only fully exposed in 2015 by journalists at the Svenska Dagbladet newspaper. Meanwhile the private consortium has made a significant profit.

While all infrastructure projects can be overrun, the complexity of PPPs make it extremely hard to enforce contract conditions and adequately penalise the concessionaire. There is ample literature available on this topic – from academics, trade unions and NGOs – critically analysing the concept and experiences of PPPs in the health and education sectors. In addition, several international and regional organisations have criticised the model. For example, the African Commission on Human and Peoples’ Rights adopted in May 2019 a resolution on States’ obligations to regulate the private sectors involved in the provision of health and education services.

If they are really to benefit European citizens, European public investments should be re-oriented towards supporting and further developing efficient public services in the health and education sector. Instead, the EFSI has been contributing to the privatization and weakening of existing public services in the field by financing ill-designed national programmes and privatization schemes.

Given the vulnerabilities in our public health systems that the Covid-19 pandemic dramatically exposes, past mistakes that contributed to the vulnerability of our societies facing the crisis – such as financing the privatisations of public services – should not be repeated. The EIB has a responsibility in this regard since it channeled public funds to support the privatisation of the health sector. Therefore, we call on the EIB to stop aggressively incentivizing and supporting PPPs and publicly recognise the financial and other significant risks that this model entails, especially in sensitive public services sectors like health through its investments in hospital, healthcare and health innovation.