Friday, February 08, 2008



Another reason to oppose PPPs

With the government investigating the possibility of funding Auckland's latest roading project with a public private partnership, it's worth looking at how well these structures have done overseas. unfortunately, the answer is "not very well". I've already talked about Coventry Hospital and Sydney's cross-city tunnel. Now we have another PPP disaster story: Metronet.

In 2003, maintenance of the London Underground was contracted out under the Private Finance Initiative. A private company called Metronet won the bid to maintain track, tains, stations, and signals on nine city lines. Naturally, they lowballed their bid to win the contract. Naturally, they did a shitty job. And naturally, they then stuck their hand out for more money. When it was refused, they declared bankruptcy. And now, their private investors are being bailed out by the British taxpayer:

Taxpayers are to cover nearly all of the debt owed by Metronet Rail after creditors exercised their right to call in public-sector guarantees for 95 per cent of the value of the debt of the collapsed private underground contractor.

The Department for Transport yesterday announced it would pay Transport for London, the London mayor's transport organisation, £1.7bn to cover the cost of the guarantees, at the same time as announcing a £39bn funding package for the organisation over the next decade.

TfL was facing the bill for Metronet's debt after lenders to the company exercised a so-called put option, allowing them to demand repayment of 95 per cent of the company's debt six months after it went into administration.

The company collapsed in July, after running out of money and failing to win enough extra funding in an appeal to the arbiter of the 30-year, £30bn London Underground public-private partnership.

So, do a shitty job, and laugh all the way to the bank. But it's all OK, because its private investors who are laughing. Not to mention the consultants, who scammed more than the value of Metronet in fees for arranging the contracts. The whole thing was a scam from start to finish, to transfer public money into private pockets.

Given that the whole purpose of using public private partnerships is to do things cheaply and transfer financial risk away from the government, this can only be regarded as a huge failure. We shouldn't repeat it here. We should not use PPPs and their British variety of crony capitalism in New Zealand.

(Hat tip: BazzFazz)