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Case studies: private financing for development
The consequences of privately financed projects are well documented, with the catalogue of public-private partnerships that have gone wrong including schools in Liberia, electricity systems in Tanzania, road building in Brazil and private water operators in Manila. These include stories of poor governance, corruption and bribery, as well as shocking price hikes in health, education and essential utilities that leave these services and products inaccessible for many people. Here we provide some case studies which demonstrate the problems with private financing.
The UK’s failed PFIs: deepening health and educational inequalities
The UK’s intense promotion of PFIs has provided many examples of schools and hospitals left with huge debts as a result of ineffectual private financing. One prime example is that of Carillion, a private construction company which held 420 public sector contracts in the UK, including maintaining 50 prisons, providing 11,500 hospital beds, over 200 school meals services and the country’s £1.4bn high-speed rail network. In January 2018, the firm collapsed with debts of £1.5bn, which has been estimated to cost £148m to the UK taxpayer. Meanwhile, the company’s head continued to receive a £660,000 salary and £28,000 in benefits for a further 10 months as part of his departure deal. The government was forced to step in with £300m of funding – sourced directly through government borrowing – to finish the construction of the Midland Metropolitan Hospital which had been stalled for eight months. The hospital is estimated to cost £150m more than was originally budgeted. NHS hospitals are paying the private sector £2bn a year for the construction and operation of hospitals under PFI, which costs the public up to 12 times the initial cost. Keeping up with debt repayments in some hospitals has forced them close to bankruptcy. Similarly, schools built by private contractors are facing huge shortfalls in funding due to the high payback costs of their PFI contracts. For instance, the Frederick Bremer School in London has been forced to cut staff, increase class sizes, stop buying any new equipment and cancel school trips and courses. The impact of PFIs in the UK is clear, with such outcomes clearly stunting rather than accelerating the UK’s progress towards the SDGs.
Source: The Equality Trust (2019) Finance development, not dividends: challenging the rise of public-private partnerships.
Sweden’s Nya Karolinska Solna (NKS): the world’s most expensive hospital
The UK’s promotion of PFI schemes led to other European countries following the model. In 2008, PFI arrived in Sweden when the Stockholm County Assembly used the mechanism to build the new Nya Karolinska Solna hospital. The hospital was the first of its kind in Sweden, despite calls from the government not to fund the hospital using private finance. The hospital’s projected total construction cost was €1.4 billion. However, this ended up being vastly understated with the project eventually costing €2.4 billion. In addition to this €1 billion overspend, the hospital opening date was pushed back from 2015 by three years, eventually opening in 2019 - 4 years after the scheduled opening date. Along with its overspend and late delivery, there have been resignations and technical failures in the hospital. Sweden’s first use of public-private partnerships is a prime example of how inequalities are exacerbated through private financing. Vulnerable people were left with a poorly run hospital that opened late. In 2018, Sweden's Finance Minister Magdalena Andersson questioned the use of private financing stating: "We've got the world's most expensive hospital and it in no way seems to be the world's best hospital.” Adding, "It's obviously serious for everyone who pay taxes in Stockholm, and for the Swedish government and parliament who put huge resources into funding health care, but above all, for all patients in Stockholm that have the right to safe healthcare."
Source: Eurodad (2018) History RePPPeated: how public-private partnerships are failing.