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Business

Misgivings as public-private partnerships catch on in Germany

The idea of public-private partnerships seems an attractive one, especially when the federal government, states and municipalities are facing deficits. However, some doubt they are beneficial for the state.

A view of traffic on a highway at night

Public infrastructure like highways are being built under PPP schemes

It's clear that Germany has to adopt austerity measures - in the federal budget alone, over 80 billion euros ($102.86 billion) need to be saved by 2014. And that's not all. Under the constitution, the federal budget must be balanced from 2016 onwards.

Nevertheless, the state must continue to ensure that roads, schools, prisons, hospitals and cemeteries, for example, are built or renovated. For this, it would need to borrow money - but no new debts can be incurred. So the public-private partnership (PPP), which sees the state entering into business transactions with the private sector, is becoming more and more popular.

Public buildings and infrastructure such as schools and highways are increasingly being built by private companies. In return for their commitment, companies are paid a portion of the highway charges or, as the case may be, municipalities pay them rent for buildings - for periods of up to 30 years.

Jan Muecke, the permanent secretary in the federal Transport Ministry, believes such partnerships are a good thing.

"The idea is to introduce private capital and private know-how into public administration, so that public duties can better be performed," he said. “For this, we rely on private partners who have expertise in their area of work. It is therefore important for us to promote PPP projects in Germany."

A red pencil

PPPs are becoming popular with chronically indebted local authorities

This seems to apply above all to the country’s chronically indebted local authorities like the western German city of Muelheim, whose budget has been capped. When the local authority was unable to raise 14 million euros for the construction of a multimedia library, it went into partnership with a private investor, who built the library and then rented it to the city for a period of 25 years.

Frank Steindorf, the head of Muelheim's city administration, said PPP projects are a "way to do things that are urgently needed in the city that we otherwise could not do because of this budget cap."

Win-win situation?

PPP projects sound like a win-win situation in which both parties benefit from the venture. To be able to judge that, however, one would have to know who is liable for structural defects or how high the rent paid by the city to the private investors is, for instance.

When it comes to those points, however, local authorities remain silent and claim the information is confidential for business and operational purposes.

Non-disclosure of such facts is the rule in almost all of the estimated 150 PPP projects nationwide, which account for a total volume of 20 billion euros.

The details of the individual PPP contracts are guarded like state secrets, and even hidden from elected parliamentarians. It took the Green party's deputy in parliament, Anton Hofreiter, several attempts to have a look at the contracts between the Ministry of Transport and construction companies restoring and widening four stretches of highway.

In order to do so, he had to declare in writing he would not make public any concrete data or figures - especially any information about the share of the highway tolls that construction companies will be receiving over the next 30 years.

The German coat of arms superimposed over euro currency notes

Is the state losing out with PPPs?

State 'at a disadvantage'

Hofreiter says his assumption that the state is losing out financially has only been reinforced by what he has read.

"In the initial projects, we are already talking of several hundred million euros that the federal government may end up losing," he said, suggesting that if the calculations of the construction company prove correct, more and more trucks will use these highway routes.

In a report, the Federal Audit Office concluded that the state appears to be at "a significant economic disadvantage." The Transport Ministry refutes this allegation, claiming that the Federal Audit Office failed to consider all the relevant data.

In the US, Canada or Sweden, the issue would probably have been laid to rest a long time ago. In those countries, every citizen has the right to inspect files, especially when they involve the awarding of public contracts.

Author: Panagiotis Kouparanis/rb
Editor: Gerhard Schneibel

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