4 March 2003
Speech by the Chief Secretary to the Treasury, Paul Boateng MP, on Public Private Partnerships, Ankara, Turkey
I am very pleased to be here today.
The history of relations between the UK and Turkey is a history of cultural and economic dialogue.
We are ancient trading partners. The first English Ambassador to the Sublime Porte (Istanbul) arrived in 1593.
British merchants and the British Consulate have been established in Izmir since the 17th century.
Two way trade is now running at over $5 billion per year.
One million British tourists visited Turkey last year. Over fifteen thousand Turkish students study every year in the UK. The FCO funded Chevening scholarship programme in Turkey is our largest in Europe. And the popular Sofra restaurants chain have 8 London branches.
Economic and cultural links are underpinned by strong political relationship at bilateral, NATO and EU level.
All of this speaks to the potential for deepening diplomatic, economic, and cultural ties. I am sure that Ali Babacan – who I was privileged to meet soon after his appointment when the G20 meet in Delhi last year – would agree with me that it is by sharing ideas, being open to new ways of thinking and new approaches to public policy – that progress is made.
EU enlargement looms large on the agenda and we look forward to working with the Turkish government across a whole range of economic reform issues.
But today we are here to build on the work of the Public Private Partnership Consultancy Project – run by the Turkish Treasury – and the workshops run by the British Embassy here in Ankara – to talk about partnerships between the public and the private sector, the opportunities associated with using private finance in the public interest, the risks associated with doing it badly, and the benefits associated with doing it well.
In the UK, the Chancellor Gordon Brown has set out the government position on the relationship between the state, the market, and the individual.
Every generation - since the great Scottish economist Adam Smith contrasted the invisible hand of the market to the helping hand of government - has had to resolve this question: what are the respective roles for individuals, markets and the state?
The great municipal works in Britain in the 19th century – street lighting, sewage systems, paved streets, and in a different way in the 1940s, nationalisation and the welfare state - established new ways of thinking about this problem. Whole areas traditionally left to markets became regulated or owned by the state in the interests of efficiency and equity.
In the 1960s and 1970s – in many countries around the world - the story could be summed up as the breakdown of that relationship. Old forms of state centred provision were seen to fail. And, when we refused to update our ideas about the respective roles of markets and state, the government also failed.
In the 1980s there was an attempt -- some of it largely successful, and to the benefit of both consumers and taxpayers, as in electricity, gas, and water, to withdraw the state from areas where previously it was thought that the only way of upholding the public interest was through public ownership. But major questions about the relationships between individuals, markets and the role of the state, remained unanswered.
The argument is whether, at a time of unprecedented need for investment in our public infrastructure – in schools and hospitals in the UK – in water and transport systems here in Turkey – the private sector can provide the benefits of efficiency and value for money to promote what most agree is the public interest – high quality schools, clean water, efficient transport systems. The answer for us has been a resounding ‘yes’. This has proved to be the best way of raising the level of new investment in the UK. For example, involving the private sector in the Scottish water sector has allowed us to invest an extra $200 million in water treatment.
The question I want to focus on now is how, for a new century, we renegotiate the relationship between the private and the public sector to get the best outcomes for citizens in each of these areas. What is required, as a starting point, is clarity on where, when, and how, the private sector can have a role.
The traditional role of governments has been as provider of a whole range of services – managing large sections of industry and large infrastructure investments. In these areas, our experience in the UK shows that centralized planning and the absence of market incentives have tended towards:
Inappropriate and costly investments – badly planned and managed;
Poor quality and coverage of services – delivered around the capacity of providers not the needs of the users; and
High debt and fiscal losses – a drain on the countries finances.
As Turkey moves forward with a programme of investment in water, in waste management, and in transport, these are problems you will wish to avoid.
In the UK these problems put a check on growth across the whole economy. The response of the government of the day was wholesale privatisation of a number of state owned enterprises and a virtual halt to badly needed investment in public infrastructure.
Ours has been a different approach for different times. We believe there are important lessons to be learned from the experience of the 1980s and early 1990s. There were serious problems. But with the right focus on priorities, on introducing sufficient competition, getting value for money for the taxpayer, and involving the workforce in the process of change, these are problems that can be avoided.
Our programme is therefore distinct from that of our predecessors – and represents an attempt to capture the benefits of private sector efficiency within the framework of regulation and where appropriate – as in the area if healthcare and education - state provision.
Public Private Partnerships – the approach we take now – aim to bring public and private sector together in a long-term partnership for mutual benefit.
Under Public Private Partnerships the public sector specifies the outputs required from new investment but the responsibility for and, crucially, the risks associated with delivering those outputs is transferred to the private sector. This is an important shift in the business of government itself. It recognises that in today's world governments are judged not so much on what they own - or even what they spend - but more on what they do.
The public sector has always drawn on the expertise and experience of the private sector. But, whereas in the public procurement of the past, private companies built and then walked away, the new system we have in the UK seeks to ensure that the companies involved are held to account for design faults, construction flaws overruns and long term maintenance so that value for money is achieved.
Let me give you an example of how that works…
One project in the UK involved the private sector investing $159 million in five waste water treatment plants around Edinburgh in Scotland, allowing us to meet new and more stringent water quality requirements ahead of schedule, and to meet European Bathing Water directives in time for the tourist season. The private sector takes on the risk for guaranteeing quality of service for a fixed price over a long-term contract -- in this case, 30 years -- and also provides the benefits of its technological and engineering expertise
That means that whilst the private sector is rightly helping in public service delivery, the public interest is paramount.
In pursuit of the public interest, we can and must capture the efficiency that can come from contestability, and share the risk of investment projects running over time or over budget.
Let me give you another example…
This kind of approach has given us innovative partnerships like the Croydon Tramlink in London, a $325 million light rail network built in partnership between the public and private sectors, using private sector capital and expertise. It delivered a brand new, state-of-the-art tram network linking areas of south London that had been congested and underserved by existing public transport. The project was innovative not just in its funding, but more importantly in the way the private sector took on the risk that fare revenues from the deal would fluctuate. This encouraged them to work to ensure the success of the new route, and also transferred risk from the public sector. Even though fares on the route ended up being lower than had been expected, the public sector did not suffer financially, and the quality of service continues to be high.
back to top
I think that these examples demonstrate that private sector participation can take on lots of different forms. The public sector has a range of options: from maintaining an asset or service wholly within the public sector, through to a range of market-based structures including contracting out – where the private and the voluntary sector can be involved; internal markets and what are effectively long term alliances. You will here more about the details of different approaches from experts over the course of the day.
I think they would all agree that the overarching objective must always be to deliver better public services. Focusing on what government does best, and what is best managed by partner organizations, is a means of reinventing the state to face the challenges and take advantage of the opportunities of the modern world.
No one is pretending this is easy. There are ongoing issues, lessons we have learned in the UK, and which we are eager to share with you.
Creating a suitable environment for private sector participation, removing the legal and regulatory barriers, setting up systems to ensure appropriate project selection, monitoring, evaluation, and feedback – whether you are working with the private sector on city infrastructure projects in water and wastewater, solid waste management and local transport, or looking forward toward public housing and education – these are important issues.
In the UK – in the experience of government itself, in agencies like Partnerships UK and the Office for Government Commerce – in the financial services industry and the professional service firms – represented here by International Financial Services London – we do not pretend that we have all the answers but we hope we have at least some of them. Today is about sharing that expertise.
Turkey and the UK, different countries, different problems, different approaches, different degrees of urgency, but a shared commitment, on the part of us all in our respective roles – to rigour in economic policy, to the devolution of power to the most appropriate institutions, and most of all to reform the state, and so to meet the higher expectations of citizens, to face the challenges of the 21st century with confidence. That is what today is about, I wish you every success with your efforts, and I am looking forward to our continuing work together.
Thank you.