News analysis: Ahern ignores the shadows over PFI

18 Oct 01
Last week's Private Finance Initiative global summit in Dublin was a slightly curious affair.

19 October 2001

Inside the Burlington Hotel conference venue, delegates from countries such as Australia, Chile and Bulgaria listened intently to the PFI experiences of South Africa, Italy and Poland among others.

Irish Taoiseach Bertie Ahern was the leading light in a cast that included European and African ministers in supporting roles.

The private sector chipped in with some PFI heavyweights, including PricewaterhouseCoopers and WS Atkins, over the course of the three-day event.

Delegates were also treated to an almost evangelical performance from the Financial Secretary to the Treasury, Paul Boateng.

Breezing energetically into the conference hall like a stiff wind off the Liffey, he beseeched delegates – in a faux-Blairite performance – that they, too, should see the PFI light and begin their journey down the public-private partnership route. 'Let's get on and do it; let's get out there; let's do business; let's do business together,' he said.

And with that he was gone, rushing from the podium to hold a meeting with private financiers in the hotel lobby.

'Could you imagine a British minister giving a speech like that 15 years ago?' said one amazed delegate.

In truth though, Boateng need not have bothered with such a stirring performance. He was already preaching to the converted. Approximately 70% of those at the conference were from the private sector and there were few, if any, dissenters.

Outside the hall, though, was a different story. Anti-PFI demonstrators gathered on several occasions and at times the protests turned ugly with sporadic clashes with the Garda. Events far from Dublin were conspiring to add to the unreal air. The government's lancing of the Railtrack boil had made the private sector, converted or not, nervous.

'People are still working out what the effects will be for the industry. The government does need to clarify,' said Paul Haley, director of the International Project Finance Organisation.

Despite attempts by ministers and others to reassure finance representatives and construction firms that it would be PFI work as usual, a shadow of the government's own making had been cast.

Already there are rumours of PFI deals being scuppered or, at the very least, being made more expensive because of the decision to bring the curtain down on Railtrack.

Although it was a PLC and governed by different rules to PFI deals, the political fall-out between the public and the private sectors is potentially huge. It is not as if relations prior to Railtrack were perfect. 'The relationship between the public and the private sector is something like six out of ten at the moment,' said Dr Timothy Stone, head of PFI at consultants KPMG.

Only the lawyers, it seems, will be happy by the new confusion surrounding public-private partnerships.

However, there was one bright spot on the horizon for PFI – the recession. With the world economy in the process of slowing down, both before and after September 11, it seems that PFI could be well placed to help head off any recession or, more likely, help aid recovery.

Delegates heard that some countries would attempt to combat any economic slowdown with the good old Keynesian tactic of increased spending. Some of that spending would result in more government credits being made available for future PFI projects.

Ahern said he was confident of an economic recovery across Western Europe and that his Fianna Fail party aimed to 'invest in the Irish economy', with a 'crucial role' being played by PFI.

Ahern's view reflects a growing belief that the PFI is well placed to exploit an economic slowdown. Even at times of recession, governments will still need continued investment in the infrastructure. The more PFI can provide through the 'off-balance sheet' option rather than straightforward spending, the more treasuries across the globe will find it attractive.

The private sector will be only too keen to help out with a lucrative market at the time of a recession. 'I think PFI will come into its own if we go into recession,' said Haley. Borrowing money will also be cheaper because of lower interest rates, he added.

The option is one that is more likely to be used by countries that already have a well-developed PFI market, such as Ireland, the UK and the Netherlands, suggested Stephen Harris, head of International Strategy at International Financial Services, London.

This is a City-based group that represents the financial institutions in the UK. Harris said that other countries may not be able to adopt the same approach because their PFI markets are not so well advanced. But it is clear that other countries might follow Ireland's lead.

At the same time as the Dublin summit was coming to a close, Hong Kong was announcing a spending programme to help its economy. PPP is expected to play an increasingly large part in this programme, especially in water and waste water projects.

When delegates converge for next year's summit they may find a new PFI front, the one dealing with recession, has emerged.


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