Beyond Britain: how do other countries use PFI?

The 8-mile long Confederation Bridge linking New Brunswick, Canada with Prince Edward Island. Opened in 1997, it was the first Canadian public facility to be built with a Private Finance Initiative contract.
The 8-mile long Confederation Bridge linking New Brunswick, Canada with Prince Edward Island. Opened in 1997, it was the first Canadian public facility to be built with a Private Finance Initiative contract. Credit: Chensiyuan / Wikimedia Commons

First seen in Britain in the early 1990s, Private Finance Initiative has reached far beyond its natural boundaries over the years.

With projects active in France, Spain, Portugal, Japan, Nigeria among many others, we can safely say that few countries have resisted the lure of PFI.

Going by the names PPP or P3, it may not be referred to by the same term.

The underlying principle, however, is the same: infrastructure projects are financed, built and maintained by the private sector against annual payments from public authorities.

Here we give an overview of how three countries (France, Japan and Canada) have developed PFI policies.

France

Total capital spending (2005 – 2015): Euro 35.8 bn (£ 26.4bn)

Number of projects (2005 – 2015): 139

Largest project: Tours – Bordeaux High Speed Rail (£ 4.3bn – in construction)

 Having first experimented with public-private partnerships in the late 80s, it is only in relatively recent times that France has implemented a PFI model similar to the British one.

Introduced in 2004, the contrat de partenariat (CP) gave public authorities power to grant a private partner a mission to design, build, maintain, operate and finance public services against a unitary payment made by the public sector.

French authorities were slow to embrace the new PFI for their construction needs. Arguably, because of the legal constraints enshrined in the Act.

The use of PFI, in fact, had to be justified on grounds of urgency or complexity with procuring authorities having to define the benefits it would bring. In short, PFI was treated as a deviation from normal procurement rather than as a first choice.

In 2007 Nicholas Sarkozy decided to give a boost to the PFI policy spinning it as a way to create economic growth at a time of crisis.

Since then a raft of deregulations have made it easier for public authorities to justify PFI. Its use, however, remains less widespread than other developed countries like the UK.

A controversial feature of the French PFI market is the monopolistic dominance of the three major contractors (Vinci, Eiffage and Bouygues), which have been responsible for the overwhelming majority of projects.

Data source: IJGlobal

Japan

Total capital spending*: ¥ 4.3tn  ( £ 23.5bn)

Number of projects*: 428

Largest project: Haneda International Airport expansion (£ 770m)

A plane taking off from Haneda International Airport in Tokyo, Japan.
A plane taking off from Haneda International Airport in Tokyo, Japan. Credit: Alex Len / Wikimedia Commons

Private Finance Initiative emerged in Japan as an alternative financial resources for the provision of public services as a result of the country’s economic collapse of the mid-90s.

The ‘PFI Act’ was passed into law in 1999 under the Liberal Democratic Government.

Not everything has been going smoothly in the implementation of PFI, however.

In 2006 Thalasso Fukuoka, a PFI funded health and wellness centre, was closed for four months following the collapse of its main private sponsor. The local administration was forced to buy out the facility at taxpayers’ expense.

After being re-elected into office in 2012, PM Shinzo Abe committed to a “proactive use” of private finance to fund public infrastructure projects.

The current administration has set a goal of a total of 12 trillion yen (£ ) of PFI projects to be delivered by 2022.

It is implementing a new ‘concession-based’ model, characterized by a higher degree of private-sector involvement.

* Data available until September 2013.

Source: PFI Promotion Office – Cabinet Office Government of Japan.

Canada

Total capital spending: $ 65bn (£ 43bn)

Number of projects: 222

Largest project: 407-ER Toronto Highway Extension (£ 1.16bn)

The Ontario Highway 407
The Ontario Highway 407. Credit: Isaac Wilson IV / Wikimedia Commons

Brief history: Canadian authorities have been using forms of public-private partnerships for the provision of public services since the early 1990s.

Similarly to the UK, PFI was first used in Canada for the construction of a bridge, namely the Confederation Bridge linking Prince Edward Island with mainland Canada.

The Canadian model, named PF3, has won praise globally for its more rigorous focus on ‘value for money’ analysis. In short, as other traditional procurement methods remain available, the private finance option is only pursued when it can be demonstrated that it will save taxpayers’ money in the long-term.

A distinctive element of the Canadian model is the presence of central procurement agencies at provincial level.

According to experts, this peculiar structure eliminates many of the problems (poorly drafted contracts, lack of expertise etc.) associated with having one-off clients.

Data sources: IJGlobal / The Canadian Council for Public-Private Partnerships (CCPPP)

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