A new study that looks at the effect of public-private partnership on water systems has concluded that the upfront payments to municipalities are essentially high-interest loans, What Happened
A new study that looks at the effect of public-private partnership on water systems has concluded that the upfront payments to municipalities—typically used to pay off debt—are essentially high-interest loans, and that “public-public” partnerships may be more effective.
Public-Private (P3)
The report, published by nonprofit but heavily biased Food & Water Watch, looked at public-private partnerships or “P3" deals, wherein control of public services—like water and sewer—are transferred to private entities in return for upfront payments.
The report noted that private equity stakeholders typically seek returns of 12 percent to 15 percent annually; to meet those returns, they typically increase water fees, and/or sell the water assets to other financial players. In the UK, for example, upon sales of stakes in privatization projects, private-equity returns were as high as 30 percent.
The report highlights 10 deals made since 2006, including the sale of water utilities in California, Montana, Colorado, Connecticut, Massachusetts, New Hampshire, Alaska, New Jersey and Texas. Some of these deals were made with major private equity groups such as JP Morgan, KKR, Carlyle Group and Macquarie Bank.
PUPs
The latest FWW report follows on a 2011 study that advocated public-public partnerships, or “PUP” deals. The study claimed significant advantages can be found when municipalities partner with other neighboring communities to maintain the non-profit approach to utilities. These include:
- Bulk Purchasing: Creating co-ops to save money in the purchasing of materials and equipment
- Shared Services: Joining forces to develop shared infrastructure
- Reengineering: Building more efficient utilities by combining engineering departments of multiple municipalities
Charting Performance
FWW claims the PUP model outperforms the P3 model in three areas:
- Efficacy: PUPs have shown better performance with longer term objectives
- Efficiency: Increase service delivery and lower costs are typically associated with PUPs
- Equity: With a non-profit approach to services and delivery, all parties involved including the municipality, ratepayers, community groups and the utility itself, are treated equally