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The Brazilian PPP | «A Mixed Message»

ABDI

Since a nicely done Financial Times article on the «mixed message» of Brazilian PPPs — public-private partnerships — earlier this year, BrazilianPPP activity has been tracked in some detail by the Observatório das PPPs, which dubbed 2012 «The Year of the PPP».

Financial journalist Luis Nassif suggests that correcting this «mixed message» will require reform of the regulatory agencies, viewed as the captive of powerful industry lobbies.

First, what the FT reported about an exemplary case in point from Bahia state:.

Modelled on experiences in Spain, the Hospital do Subúrbio was built by the public sector, but privately equipped and operated. It was the first new emergency unit for two decades in the city of Salvador.

“I think the government took one look at the challenge of running a hospital, and decided they weren’t up to it,” says Jorge Oliveira, chief executive of Promédica, part of the consortium that now operates the facility.

The backing of Mr Wagner, a member of the statist Workers’ party, was significant.

“If [PPPs] hadn’t been introduced by the Workers’ party, I don’t think they would have survived,” says Ana Maria Malik, a professor of health policy at the Getúlio Vargas Foundation in São Paulo.

According to the FT, a point of disagreement in this and any number of of other  PPPs is the assignment of demand risk.

The FT again:

The demand for services may be a lesson for future projects. Mr Oliveira at Promédica argues that the public sector should pay concessionaires per service provided, rather than require them to renegotiate the PPP contract if the number of patients exceeds forecasts.

“The risk of demand should stay with the government,” he says. “Otherwise you end up being a victim of your own success.”

Luis Nassif

Little by little Brazil is discovering a pragmatic middle ground when it comes to the investment and the management of public assets.

During the dictatorship, the generals exbibited a radical bias in favor of the economic protagonism of the State. The democratic regime that followed exhibited an equally radical opposition to the role of the State.

Now, the need to produce results is leading economic policy in the direction of a pragmatic middle ground — the increasing use of concessions and public-private partnerships.– that will, however, require adjustments:

***

In fact, the government’s economic activism works well when it comes to passing legislation, defining subsidies and specifying budget allocations — that is to say, when it comes to measures susceptible to political will and the power of the congressional vote.

When these measures come to implemented, however, they often come up against massive bureaucracy that blocks effective action.

***

That is why government policy must be carried out on the strategic, fiscal and financial fronts, in partnership with civil society — corporations, social organizations and popular movements, each contributing according to its own interest and area of expertise.

For example, the Ministry of National Integration is about to launch an irrigation auction that provides not just for construction but also for system operation.

Private managment of the prison systems is under discussion.

During the 2006 campaign, much was made of rain forest management services for  the Amazon, conceded to private companies that would be liable criminally and civilly responsible for environmental degradation in their area of operations.

***

This sort of policy-making generally leads to two distinct reactions from the more radical of the interest groups involved. The market fundamentalists denounce regulation in any form, while devotees of the State-managed economy protest any and all forms of privatization.

***

But there exists a virtuous middle term, one that clearly defines the respective roles of the State and civil society.

For example —

  1.  After consulting civil society, it is up to the State to formulate policies, define priorities and select the tools to be used. It might, for instance, privatize food services in a federal prison, without infringing on the judiciary’s role as an assigner of sentences.
  2. The State cannot abandon its regulatory function. All federal contracts need precise indicators of performance and exact measures of quality.
  3. It is possible to created efficient public organizations,, but only in specific areas. Examples would be the ABDI — Brazilian Agency for Industrial Development — or the recently created Embrapi. Furthermore, in cases of equal partnerships with the private sector, State organizations like  Finep and BNDES, set up to subsidize development, play an important role as well.

***

At this point, the regulatory agencies encounter the State. The role of such agencies is in dire need of reform. Mechanisms must be created to prevent companies subject to regulation from undermining or expropriating the agency’s authority.

Let us have a look at telecom regulator ANATEL. A high rate of turnover among employees and companies in the sector has completely undermined its autonomy. This is why the agency, on those rare occasions in which it has increased demands on telecoms operators, has issued token penalties designed to appease the federal presidency.

***

For this reason, the currrent trend toward broadening concessions and public-private partnerships calls for an urgent and immediate reform of the regulatory agencies.

Perhaps the most important effect of the PPP mechanism is constant oversight of the projects and services delegated. Certain «turn-key» projects have had disastrous results in the past.

I should translate the article by PPP Watch, but I cannot seem to find the copyright policy that would let me do so. Fair use, I hope, covers the rest.