Montreal P3 'superhospitals' in doubt as private financing tanks

After alchemy

It was always a conjuror's trick, but now the magic of public-private partnerships is starting to lose its allure

"Why can't my left hand give money to my right hand?" wondered Wittgenstein. Bizarre proposals to jump-start the stalled private finance initiative...resemble the left hand writing out a deed of gift while the right hand pens a receipt. A scheme whose supposed rationale was using the private sector to shelter the taxpayer from risk may now be revived by using the taxpayer to underwrite much of the debt. Oh, and foremost among the finance providers that it is hoped can be enticed to take part in this way are banks in which the public has just bought a big stake.
Controversy has always surrounded the government's predilection for paying private companies to borrow on its behalf – paying off the mortgage using a credit card, the critics said, because of the higher interest involved. Until recently, however, no one doubted that the PFI was something that could be done. Sixty or more projects were agreed annually from 1998, with the new schools and hospitals of which New Labour made much being bankrolled by private money. But in 2007 the commercial bond market dried up as a source of cash during the credit crunch's first act; then, during the saga's more dramatic phase [last] autumn, the banks grew reticent too...
...The emerging idea seems to be for the state to shoulder more of the risk, something that the PFI industry's trade body, the PPP Forum, has already urged – it insists the dangers to the exchequer are small as it would "in effect be guaranteeing its own payments". The trouble with this line of argument is that it undercuts the entire rationale for doing the PFI in the first place. Ministers stopped pretending that private finance made additional investment affordable eight years ago, after their own favourite thinktank made the obvious point that, since taxpayers still had to pick up the tab in the end, the scheme did not generate free money. Ever since, the line has been that PFI bolsters efficiency by making sure that those charged with managing public investment have their own money staked on it being delivered on time and to budget. For projects such as road building – where contracts are straightforward to write and monitor – there may be something in this. But for more complex facilities it is impossible to foresee every contingency. A big hospital, for instance, is likely to have to reshape its services during its lifetime in unpredictable ways. Unless the authorities see such changes coming, the private contractor running the project has them over a barrel...
...The idea belongs to an era in which it was too often assumed that the money men had the power of alchemy. After the financial storm clears, a new form of capitalism will emerge. And in that new world it may well start to seem like a good idea for the government to do its own borrowing.