In this uncertain environment, the need for viable, well-drawn-up business cases is greater than ever to get budget holder sign-off.
Critical healthcare infrastructure is badly needed in many countries across the world and globally investors want to invest in such infrastructure projects. But the PPP machine for healthcare is sitting idle. Surely something has to give, says John Seed, Mott MacDonald’s global sector leader for advisory services.
The case for PPP in healthcare remains strong, especially in low-income Asian, African and South American countries with an urgent need for sustainable infrastructure. Yet, aside from expansion in Turkey, there are no big programmes for healthcare on the horizon. One or two countries are talking about doing it, but the truth is that we face a real shortage of shovel ready projects.
It’s frustrating. Governments all around the world are screaming out for critical infrastructure. And investors are saying: we’ve got all this cash and with interest rates being as low as they are – or non existent – we can’t give the returns we want to our investors. They’re also screaming out – for infrastructure to invest in.
So, we’ve got the two ends of the equation. What’s going on in the middle that’s not working? Where’s the disconnect that’s holding back healthcare provision?
Short termism is one reason. PPPs are 30-year commitments and governments need to look beyond the end of a concession period to consider what the public sector will inherit. In an environment where political and investment cycles are typically five yearly, that’s off the scale. And PPPs are new, they involve change, and for many that spells ‘too difficult’.
Then there's transparency: for governments that’s not the way they like to operate. They prefer to avoid scrutiny from the international financial institutions and commercial banks that demand it.
Another reason is that some people find PPP a scary proposition. Procurers with a technical rather than financial background don’t fancy the prospect of doing a net present value calculation.
I think we’re also up against a growing stigma around PPP that it costs more than traditional procurement. It is true in certain sectors, if you do a bad deal. But it can offer good value when you follow best practice. In this uncertain environment, the need for strong, well-drawn up business cases, offering robust risk management and stable investor returns, is greater than ever to get budget holder sign-off. Health service procurers and their PPP providers need to be adding that capability to their arsenal.
While I am tremendously disappointed how the numbers of PPPs have dropped, I’m optimistic that a new wave of infrastructure investment is coming. In recent months, we’ve seen encouraging signs from the EU, with its pledge to increase the amount available to leverage private sector investment from €315bn to €500bn, which is a phenomenal amount of money.
The EU, fund managers and major investment banks have drawn up two major new standards for managing risk and providing sustainable social and economic infrastructure through PPP (we’re involved in both – the Sustainable and Resilient ‘SuRe’ standard and the International Infrastructure Support System).
The UK government has likewise signalled its intention to make the most of PPP for building infrastructure to meet social needs and stimulate the economy. The bottom line is that PPP has come a long way since its introduction a quarter century ago. PPP can be a much needed tonic for healthier health systems worldwide.
How to kick-start the PPP machine?
Our team at Mott MacDonald is drawing on 20+ years of experience of privately financed healthcare to help fill this gap in the middle. This involves the following:
• Proactively driving forwards the development of international standards, guidelines and tools that will help governments to develop bankable healthcare PPP projects faster and more efficiently
• Working to support the international finance institutions with government capacity building and training such that they have the right teams to be able to make these PPP projects happen
• Acting as a matchmaker in our markets to help make sponsors, lenders and investors aware of new bankable PPP projects wherever these may arise