|09-2016 - PUBLIC – PRIVATE – PARTNERSHIP (PPP) IN ARUBA (Part III) English Version|
Oranjestad - In two articles issued prior to this, the Aruba Chamber of Commerce & Industry brought forward an extensive analysis on the ‘Public Private Partnership’ (PPP) phenomenon, where a comparison was made with the experiences in the Caribbean region, in Europe, and in Aruba. In this last article of the series, we will present our final conclusions referring to the situation in Aruba, including our recommendations for the future.
In the case of Aruba, we are not arriving at that many negative conclusions on the items evaluated and that were considered crucial to a successful execution of a PPP project. However, in a number of items we come to the conclusion that in the case of Aruba it is still much too early to have all the needed information, in order to be able to give a soundly based opinion. This has been the case, for instance, of the aspect of sufficient expertise, both in the field of technology, as well as the legal terrain, on the government’s side, to be able to match the private partner, and offer sufficient counterweight in the process.
The major problem signaled here is the relationship between the magnitude of total PPP investments, compared to the size of the economy, and size of government. Regretfully, in the data analyzed so far, we could not encounter any evaluation of exactly this aspect, that however turns out to be so important.
However, in order to be able to make a comparison, we may take the case of Turkey, described in the EIB report referred to in our second article, as one of the countries that implemented the most PPP projects. Turkey arrived in 2009 at a total amount of € 12.5 billion in PPP projects, in a country of 76 million inhabitants, and a GDP of about € 600 billion. Aruba has less than 110.000 inhabitants, a GDP of € 2.5 billion, and a total investment in PPP of at least € 450 million. This will bring about an additional burden of between € 40 - 45 million per year on government’s budget, for a period of about 20 years. Per capita this may mean a burden for Aruba that is much larger than what other evaluated countries may have to endure.
It should also be taken into account what the financial situation in general of the government is. For example, the burden of the bond loans and other debt items, that together sum up to a total of € 100 million in interest payments per year, alone. In the case of the PPPs, the annual installments include both capital, interest and maintenance fees. This means a total of nearly € 150 million per year in debt payments, on a GDP that is nearing the € 2.5 billion mark, with a government budget of € 675 million in expenditure, and revenue that is structurally under that level.
In the studies analyzed so far, reference is not made, in most cases, to countries as small as Aruba, with the exception of the islands of the Eastern Caribbean. This should be a matter of major attention for analysis in the future: when does a country – of the size of Aruba – reach its maximum capacity of absorption of PPP projects, and other projects of public responsibility, with consequences for the public coffers?
Another discussion related to this matter would be that the payments for the PPP projects in reality are replacing the part of the government budget that would be normally used for investment. The Aruba Supervisory Body on Public Finance (CAft in Dutch, instituted by law in 2015) came to the conclusion that investment items on the budget fell to a level of 1%, which is not considered an acceptable level for any country. But perhaps we should not look at this matter in this way. The PPP projects fall beyond the direct scope of the government budget, where only the annual installments for the PPP projects appear, while the total debt does not appear as a direct public debt. If we are to have a realistic view of the investments made by the country, one may consider separating the amount of initial investment from the interest payments, and the payments for maintenance. Then we may have a more clear view of what the public partner - government - is actually investing. This regretfully does not solve the problem that in this way, a substantial part of public investment, and of public finance, is not subject to the scrutiny of Parliament.
As recommendations, we propose the following:
- A complete analysis and evaluation of all PPP projects, currently in the process of execution, or already concluded. This study may also include the necessity, or not, of developing the specific capabilities related to PPP, in terms of technical and legal expertise, the institution of dedicated expert units for PPP, etc.
- Propose more transparency in publicity regarding the projects. Until now the focus has been more on the aspect of propaganda for these projects, but no details are given about technical and financial matters. Also, transparency in accountability post-project, possibly through scrutiny by Parliament.
- Recommendation to include in the evaluation, the question what the ‘carrying capacity’ of a country of the size of Aruba would be, in view of its situation regarding its GDP, government budget, and volume of its financial commitments related to PPPs, and other public investment. If possible, attempts should be made to have data on other countries in a comparable situation as Aruba, with regard to size and type of economy.
Aruba, March 31, 2016
Chamber of Commerce & Industry