27 February 2017
The European Water Movement with the European Network on Debt and Development, and more than 75 NGOs and trade unions from all over the world, signed the following letter.
To: World Bank Group PPP team
CC: World Bank Executive Directors
Dear World Bank Group (WBG) PPP team,
We are writing to explain why we will not participate in this public consultation and why we are encouraging other stakeholders to adopt the same approach. We strongly believe that the WBG should not address contractual provisions without first and foremost fixing the perverse accounting incentives which make PPPs a dangerous tool.
Today many countries go for PPPs instead of traditional procurement not because of efficiency gains, but because non-transparent accounting measures allow them to keep the costs and contingent liabilities “off-balance sheet”, which means that the true costs of the projects remain hidden. This is oneof the key drivers behind PPPs. It enables decision-makers to circumvent legislated budgetary limits and still deliver essential services, without having to take into account the fiscal implications in the medium and long-term.
By using off-balance sheet accounting measures, governments create the dangerous illusion that PPPs are cheaper than they really are. Also the European Commission is warning of an “‘affordability illusion’ which tends to be exacerbated when a project is found to be off balance sheet”. Likewise, experts within the IMF’s Fiscal Affairs Department argue that “an inadequate budgetary and/or statistical treatment may allow governments to ignore the impact of PPPs on public debt and deficit. In practice, governments often end up bearing more fiscal costs and risks than expected in the medium and longer term”. Indeed, PPPs have already left lasting fiscal legacies in countries such as Portugal, Hungary, Ghana, Tanzania, Uganda, Peru - or Lesotho, where a PPP hospital swallowed up half of the country’s health care budget while giving a high return of 25% to the private sector provider.
We regret that the WBG has not paid sufficient attention to this fundamental problem. The different reports, frameworks and guides that the WBG has produced over the years have remainedambiguous about the WBG’s position on on-balance sheet accounting for PPPs. And again in this draft report on Recommended PPP Contractual Provisions, the WBG only lists the concerns raised by other institutions and does not clarify how PPPs should actually be accounted for and, importantly, if it would approve a project if the partner country decides to keep the costs and liabilities off the books.
The WBG has a responsibility to ensure that governments select the most fiscally sustainable financing mechanisms for the medium and long term, and hence that they only opt for PPPs if their costs and liabilities are registered on-balance sheet. Given the alarming nature of this issue, we – as representatives of civil society organisations – have therefore decided that we will no longer participate in public consultations on PPPs until the WBG :
- Explicitly and reiteratively calls on countries to only consider PPPs if their full costs and contingent liabilities are reported on-balance sheet and registered as government debt, rather than off-balance sheet, and only after a full and transparent analysis of the true costs and benefits of PPPs over the lifetime of the project. This analysis must takeinto account all the fiscal implications over the medium and long-term and the risk comparison of each option.
- Only approves PPP projects if the partner country decides to register the costs and liabilities on-balance sheet.
We encourage you to prioritise this issue and give effect to our demands.
Looking forward to hearing from you,
 EIB. (2016). Guide to the statistical treatment of PPPs
 Jin, R. and Rial, I. (2016). Regulating Local Government Financing Vehicles and Public-Private Partnerships in China. IMF.
 Romero, M. (2015). What lies beneath? A critical assessment of PPPs and their impact on sustainable development. Eurodad.
[4 ]Anaba, B. and Clifton, S-J. 11 November 2015. Proof is piling up that private sector finance is not an easy development fix. The Guardian.
 Aslan, C. (2014). How Do Countries Measure, Manage and Monitor Fiscal Risks Generated by Public Private Partnerships? Chile, Peru, South Africa, Turkey. World Bank.
 Oxfam (2014). A dangerous diversion.
 See page 14 in the draft report on Recommended PPP Contractual Provisions