Transparency essential for good PPP governance

Why is transparency important in PPPs? 

• Because no one is indifferent to the performance and cost of the public services which are essential  to our quality of life. 
• Because public services provided by PPPs cannot close, and  costs not recovered from the users must be paid by the taxpayers.  

When complex PPP contracts are held off-budget, they contribute to the hidden public debt   iceberg.  When the excess market liquidity drains off, that's when we discover which projects are really sustainable.  

As with the truth, the debt will out. 

Cross-country    studies show that   better public  information  correlate with better public governance. This transparency is  especially critical when dealing with complex and opaque  and very long term contracts like PPPs and concessions. 

The WBI World Bank Institute sees disclosure  of contractual terms as  a crucial tool in the governance of public economic transactions given the absence of market-based governance mechanisms. Higher transparency can increase accountability by facilitating taxpayer monitoring, since the paying public has a natural right to access project and contract information.

Thus,  PPP disclosure policy should aim at promoting  transparency, accountability and contract discipline  based on general good governance principles, with details applied on a case by case basis. It should be applied to all PPP contracts, not just those awarded under non-competitive procedures. PPP contracts should be subject to at least as much or more public disclosure over the various phases than other public investment projects. 

In the preparation and approval phases,  disclosure should cover  the level and nature of public services to be provided, including traffic/volume forecasts (at least the  base case, to justify that the project is worth doing).  The Government’s traffic forecast should be disclosed prior to the beginning of the tender process, usually as part of a Stakeholder consultation procedure. 

Further, disclosure should include service level specifications and project performance targets and respective indicators, to permit public monitoring and scrutiny over the life of the contract.  

Most importantly, projected Government budget commitments to the project  should not only be disclosed, but also be subject to budget approval and appropriation.  This must include payments in kind (ex. land), grants, guarantees, financial support, all forms of  actual and contingent payment liabilities and ultimate responsibilities for project maintenance should the private partner fail to meet its performance obligations. 

Exceptionally,   bidders can be protected from disclosing “commercially confidential” information to competitors, but this should be restricted as much as possible to the bidding phase,  and the type of information and the period should  be specified and agreed prior to tendering (ex cost, bid prices, technology, etc).

Some of the “elements of a proactive disclosure”,  include: 

1. A concise project description and contract summary in plain language, including project justification and major phases and milestones
2. The current (and previous) version of the PPP contract, including side agreements,  any changes made to the contract and to the respective Government budget, keeping  the redactions/blackout of  items considered confidential to a minimum. Contract changes, including claims, renegoaitions and arbitration  decisions  should be disclosed promptly, but no less than quarterly.
3. Copies of the public partner’s periodic project progress/monitoring reports (quarterly during construction, annually during operation), including analyses of actual versus planned performance in  timeline, budget payments, performance indicators, etc.   
4. This information should be subject to a process of validation prior to publication. 

Regarding setting and compliance with the budget limits for PPP,  the Brazilian model described requires pre-approval and annual monitoring of actual and potential PPP liabilities.

Mariana Abrantes de Sousa, PPP Lusofonia

Sources:  WBI on PPP transparency, disclosure - divulgação, transparência 2012 
Iossa 2007  on ppp contract design http://www.gianca.org/PapersHomepage/Contract%20Design.pdf

Judice  2011 Arbitragem, Interesse Público e confidencialidade 
S Ping Ho Game Theory and PPP Contracts
Sustentabilidade das PPPs e os Tribunais Arbitrais