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Comment by rajeshp1986 | Hacker News Reader

rajeshp1986

Outside the realm of tech companies, large infrastructure projects are mostly built by PPP model(Public private partnership). It is one of the proven models in various countries as it saves govts. from spending large money upfront and not only ensures that private corporations finish the projects but also makes them liable for quality as they are liable for future maintenance.

The Toronto smart city project by Alphabet is a modern infrastructure project and totally makes sense that they follow PPP model for payments. Why do people here think it is a bad idea? IMO, it is a win-win for both Toronto & Alphabet.

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> Why do people here think it is a bad idea?

Because in the US, is is not a proven model. The vast majority of public-private partnerships really end up being "public eats the costs, but private entities win all the benefits". It's gotten to the point that the mere existence of the phrase "public-private partnership" is a red flag that something corrupt is happening. (If it was a good faith effort and all above board, then it would all be done publicly in the first place).

> it saves govts. from spending large money upfront and not only ensures that private corporations finish the projects but also makes them liable for quality as they are liable for future maintenance.

Sure, but it usually accomplishes this by transferring some amount of public assets over to the private corporation in the process, which is a net loss for everyone. It's a backhanded way of looting the public's funds under the veneer of "progress" and "cooperation".

Or for a simple analogy, public-private partnerships are usually the governmental version of a reverse mortgage.

I think you're right. PPP model works when the Government doesn't have avenues of raising funds. In less developed countries, Governments often cannot raise money by imposing taxes or issuing bonds (or they can't to the tune required to fund such things). In wealthier nations, the funding is usually not an issue, the Governments are well functioning. I agree with you that these projects must be scrutinized very closely.

The fundamental problem of any PPP is that a lot can go wrong or change in 20, 50 years. It's impossible to predict and anticipate future economic climate so both parts try to setup adversarial contracts where they are protected as much as possible.

On the other hand, a private partner can always fold, go bankrupt, etc. while the state isn't going anywhere and it's obliged by law to abide by it's commitments. So this asymmetry almost guarantees a strong survivor bias towards very bad deals for the public.

Except when everything goes exactly to plan for decades, PPPs tend to either fail or be detrimental to the public, by their innate nature. If we bring a bit of corruption into discussion in the initial tender phase, you get the full picture.

This would be in Canada, so we should see how Canada handles PPPs:

https://en.wikipedia.org/wiki/Public-private_partnerships_in...

Amazing that the 407 is used as an example. The government spent, inflation adjusted, over $100B to acquire the land and then build the highway. The cost was for the public.

Then they leased it to a private consortium for 99 years for $3B, claiming that it was a win because it "cost" $1.5B to build. That consortium has since made a windfall charging ludicrous toll fees -- the public pays again -- privatizing the profits.

PPP is overwhelmingly a sign of a bad deal. Where politicians trying to get a short term "win" end up costing ratepayers multiples.

Just because it's not entirely clear to me, are all of your numbers inflation adjusted? Or just the cost to buy the land? Because it doesn't pass the sniff test that the government would lease the project for a century for 3% of its present value.

The government of the day wanted the political "win" of claiming a balanced budget. That it would cost the residents many, many multiples over the years wasn't considered important.

I should add another important point about the 407 -- the route was chosen to be a traffic release, and an industrial corridor. Because of the very high toll roads it has become essentially an "executive" highway ($41+ one way trips), and the trucks and other traffic it was supposed to offload clog up the existing highways. The public benefit has been completely destroyed because the highway has been re-purposed for private benefit.

It is a debacle from top to bottom. But for one brief moment a government could claim a balanced budget (though they were actually $10B in the red).

PPP: Privitize the profit and socialize the cost. Sidewalk labs can take a long walk off my short Queen's Quay pier.

Yes. Let corporations in to cannibalize and strip-mine the public commons (common-wealth) with perverse incentives and gamify things too important the government should be doing.

Btw, do you ever watch TRNN or Economic Update?

Add in another horrible example of privatization in Canada, Ontario's Hydro One power company.

With every attempt of privatization of public services, I point out that:

* Public services are sometimes just that - they won't be profitable

* Privatization not only incentivizes skimping on services and deferring infra investment to save costs, but you now have the insult of a profit margin built into prices on often vital services. The "private sector efficiency" privatizations are sold on almost never end up aligning with the public interest

* Undoing privatization almost always costs more than was made privatizing.

Some other bad example:

Chicago selling decades of parking meter collection for pennies on the dollar

German Railways going private and the continual gutting of rural services that came along with it

Enron's market manipulation of California electric grid, causing blackouts and skyrocketing prices while they profited

After looking at the way public infra projects like the high speed train projects in California are managed, I am not sure how one can say that public only infra projects are proven to be successful

First time I ever saw anyone outside of politics, who was promoting such a deal, claiming PPP as beneficial. In the UK they have been financially negative from the very first back under Major. The Blair government was particularly keen on them. From wikipedia:

An in-depth study, conducted by the National Audit Office of the United Kingdom [33] concluded that the private finance initiative model had proved to be more expensive and less efficient in providing hospitals, schools and other public infrastructure than public financing.

EDIT: A different UK report, extensively damning, this time a 2018 Select Comittee: https://www.parliament.uk/business/committees/committees-a-z...

Totally successful for private profits in general. Less so for the public, which wants a given infrastructure without having to pay out the investors (which are investing into a private venture and thus of course are entitled a higher reward than loaning to the public...).

Just look at the German "Toll Collect" system. 5 years late. 10 years later, couldn't be delivered to the public (breach of contract...), because of "patents", while the private parts still happily collected their royalities. State had to meet in arbitration (WTF, it's tax money spent/collected here). Currently owned by the public, waiting the next successful PPP. Or look at the Genova-bridge-disaster. Basically most of the times PPP seems like the worst of both "worlds" combined, wielding an enormous shield of public bureaucracy which keeps all the private elements save from any public scrutiny reaping their maximized profits... Or look at healthcare in the US, ... Or ... Or how Julius Berger built Abuja, while Lagos is suffocating. Or ...

Just name one PPP project, which stayed in its cost envelope (isn't that the argument: public always is inefficient...) and was delivered to the public after the contract ended.

PPP are a huge scam. It’s basically a buzzword used for transferring public property into private hands. Most of the time PPP projects are ripe with corruption and end up in scandals and controversy. Typical examples are highways in Europe built with this model. Often the work is poorly done, the government spends more money than initially thought because it ends up costing 5x more usually and at the end of it all private corporation ends up extracting money from people via tolls and only doing the most minimal maintenance they can get away with.

Cannibalistic theft in a business suit. It's always sold as cheaper and then charges citizens as much as possible later because the state-subsidized monopoly is a business first, not a service.

People in Toronto don't have to look far to see PPP in action: The 407 toll highway. I take it a few times a year to bypass Toronto and just a section of it costs me over $30 per one way trip for my little sedan. It seems to be an absolutely enormous money maker with a 99 year lease.

And is it common in those projects for companies to receive a share of public taxes? Some of you might believe there isn't a big difference between a tax break to a company and a direct share of revenues and quantitatively this is true, but qualitatively it isn't. Incentives matter, and this could set a very bad precedent.

Traffic light cameras / stop sign cameras / speed traps operate on the model (% of fines assessed). Judge that as you will.

>Outside the realm of tech companies, large infrastructure projects are mostly built by PPP model.

No, they aren't. The PPP model is one of many ways of organizing infrastructure projects, and it isn't dominant even in the UK, where it has a disproportionately large penetration into the infrastructure provision market by number of projects.

If we look at infrastructure project models by dollar spend, PPP fares even worse.

This isn't to say there isn't merit to the model, but the main functional difference in the PPP model in comparison with standard procurement isn't the disjointment between the design/build and the maintain/operate steps. It's the financing - the who and the how.

What's proven about PPPs is that the government always overpays and always shoulders all of the risk anyway. So there's not even the slightest benefit to the public, it's just a way for politically-connected companies to milk the public for free money.

Because this “infrastructure” isn’t useful to anyone except people who might choose to live there. The location is virtually an island (if you consider the highway that separates it from the city to be equivalent to a river). It’s in a location nobody would go for anything other than their proposed buildings. There’s literally nothing useful there right now except parking for large events held in tents on that car park.

I recommend reading their proposal. It’s so tiny that all this noise over it is so pointless. Heated sidewalks would be nice though. Especially this week. But no, our city should not be investing in this.

You're stuck in an utopian delusion not dealing with reality. When you privatize government, you create perverse incentives for corporations to extort citizens by charging excessive prices and fees, provide shoddy service and tie them to other things they don't want or need.

Before it was widely brought in, in the UK, the magazine published a number of articles showing how numbers were being manipulated to make PPP seem more cost effective, years later we are stuck with the schemes.

Paying a company for 25 years and at the end of it owning a 25 year old hospital isn't great, especially when there was no reason for the govt to not own it outright the whole time.

A PPP still leaves the public with a piece of infrastructure whose profits they have not been able to realize and cannot reinvest. The "future maintenance" also tends to have a sunset period.

Neoliberal schemes like this impoverish governments over time by selling off the country's wealth one project at a time. It doesn't actually make sense, it just looks good enough in the short run for politicians.

I interned for SNC Lavalin Construction in my undergraduate, and a finance guy gave a presentation where he literally laughed out loud in this evil way about how much money SNC was going to make out of it and what a stupid deal it was for the public.

Literal quote: "They think they're getting a Cadillac, but they're getting a Toyota." Now the CEO-at-the-time has been charged with corruption and the Prime Minister is involved.

Fuck Public-Private Partnerships.

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