Vexed Bermoothes

Spinning like mad that he’s being fiscally responsible, Dr. Brown indicates that Bermuda soon will jump down the slippery slope of PFI (private finance initiatives):

Dr. Brown said he will be looking at creative options to decrease the tax burden. He revealed that the Government is drawing up a blueprint for public private partnerships (PPP) in Bermuda. PPP projects – which are used extensively in the UK and elsewhere – spread the cost of major infrastructure work by asking private companies to foot part of the bill, in return for part of the profits.

Dr. Brown said: “It is Government’s intention this year to embark on the first large public private partnership…We are working on a PPP template, customized for Bermuda.” Dr. Brown said that private companies could be asked to participate in the building and running of the new Causeway, the new hospital and the new airport terminal.

As I said before, the adoption of PFI is likely to be a failure of Berkeleyan proportions for Bermuda.

• Bermuda Government is inexperienced in contracting. The major PFI players like HSBC are very experienced in it. Can you guess who’ll get the better deal?
• Few local entities are large enough to take this on; it would mean “selling Bermuda’s assets” to multinational companies. Government may bumble, but at least most of the money stays in the Bermuda economy. With partnerships, it will not.
• Use of outsourcing normally implies corresponding reduction of the Government payroll. Do you really believe that will happen?

PFI were a favorite of Tony Blair and Gordon Brown in the UK, particularly in the health care and education sectors. It is fair to say that the results have been troubled.

• They lead to a very skewed view of Government’s financial health as major projects are moved “off-balance sheet.” It would actually reduce transparency into Government finances.
• Although PFI projects are more likely to be completed on time, their costs are often significantly higher (30% higher according to some studies) over time than if the government had taken on the task itself, often leading to cutbacks in services.
• The PFI partner you start with may not be who you end with, due to the ongoing refinancing of deals.
• The costs of PFI deals are very much linked to the debt markets.