Audit Office Faults Local Governments' Use of PPPs (1)
The National Audit Office has cited a number of faults in the way local governments enter into public-private partnerships, or PPPs, citing lapses in both transparency and foresight.
After carrying out checks of 15 PPPs, the office concluded that the local authorities were often unaware of the legal requirements for starting such projects, and in nine cases hadn't followed the Public Procurement Act when selecting their private partner. In more than half the cases, the officials didn't realize the contracts they were signing even fell into the PPP category and were unaware that the projects were therefore subject to a number of specific legal acts.
Auditors also noted, however, that the legal acts defining and regulating PPPs are ambiguous and guidelines for carrying out such partnership projects have not been set up.
Another problem the Audit Office cited was that none of the local authorities had looked into whether entering into a PPP, rather than another form of cooperation, was the best option, nor was there any analysis of whether the long-term financial obligations that the partnerships placed on future generations were reasonable.
In most cases, according to auditors, the local authorities had gone the PPP route in order to get around borrowing restrictions and start their projects quickly, while being fully aware that using a PPP would cost the taxpayer as much as 50 percent more in the long run than if the authorities had simply taken out a bank loan.
The National Audit Office recommended that the Ministry of Finance start analyzing the PPPs carried out by local governments, develop clear guidelines to regulate the projects and provide counseling for those who carry them out.