This will probably not have gone down well with the World Economic Forum, which describes itself as “the international organization for public private cooperation.”
As many governments around the world, particularly in Europe, are gutting their public healthcare services (Spain and the UK being two prime examples), Mexico’s President Andrés Manuel López Obrador (AMLO for short) appears to be rowing in the opposite direction. A week ago, the soon-to-be-outgoing head of state unveiled plans to buy up nine public hospitals being managed by private consortia, for just 5.74 billion pesos ($320 million). In his customary morning press conference last Wednesday, AMLO said the cost in the PPP contracts was just too much (translated by yours truly):
You have already received significant sums of money over a number of years… We no longer want to continue paying you year after year for 20 years, as stipulated in the contract, because it is too much. It is a very special contract, but now things have changed. When they (former governments) gave you the contract, you were among the favoured ones, but that has changed; now the favoured ones are the children, the Mexicans, the people.
[We said] we are not going to expropriate your hospital, we are not going to leave you with nothing. We are going to carry out an appraisal of what your hospital is worth, with all its equipment, everything,… and we will pay you for it, and you will have money to do other business. And we will pay you right now, in cash, not in small installments. We will pay you and remain friends and in peace.
A 1,700% Mark-Up
The contracts in question relate to four hospitals tied to the Institute of State Workers Social Security (ISSTE), three to the Ministry of Health and two to Mexico’s Social Security Institute (IMSS). AMLO said that if the government continued paying the companies for the remaining duration of the contracts (as long as 20 years in some cases), it would cost the State around 93 billion pesos ($5.41 billion). That’s for nine hospitals that according to government estimates are worth just 5.74 billion pesos ($330 million) — a mark-up of around 1,700%.
“[The companies] tell me they would prefer — and I am taking this opportunity to send them this message once and for all — that we negotiate a reduction in the rate. No, no, no, because, even if we reduce it by half, it is still too much,” said AMLO.
The nine hospitals include three high-specialty facilities, in the cities of Ciudad Victoria (Tamaulipas), Léon (Guanajuato) and Ixtapaluca (Estado de Mexico). The companies affected include the Mexican construction firm GIA, the Mexican financial services group INVEX and three Spanish construction and infrastructure companies, Sacyr, Acciona and Eductrade.
What is perhaps most striking is the price AMLO claims to have secured for the nine hospitals under private management — the equivalent of just one year’s lease fees. It seems that AMLO made the companies an offer they couldn’t refuse, much as he did when he offered to buy up the lion’s share of Spanish energy giant Iberdrola’s Mexican operations earlier this year following two years of intense — and not very cordial — negotiations. At one point, AMLO even threatened to pause diplomatic relations with Spain over the abuses of its energy and infrastructure firms. The final deal gave back to the state-owned electricity company CFE majority control (around 53%) over Mexico’s electricity market.
One of AMLO’s main priorities for his last year in office is to strengthen public health care, with a view to making it universally available.* That puts Mexico at odds with the general direction of travel among OECD economies, with most North American and European governments in an apparent race against time to privatise public healthcare services. Presumably, AMLO’s cancellation of these PPP contracts will also not have gone down well with the World Economic Forum, which describes itself as “the international organization for public private cooperation,” especially if other governments get similar ideas.
PPP (or PFI): A Largely British Invention
The modern incarnation of the public private partnership (PPP), known in British English as public financial initiative (PFI), is widely considered to be the brainchild of the UK conservative governments of Margaret Thatcher and John Major — with plenty of input from the private sector, including, of course, the City of London. It essentially involves a consortium of private companies financing, building, maintaining and operating some element of a public service for an extended period of time (normally 25 to 30 years).
Once operational, the lead contractor leases the public service to the public body with a very high mark up while financial institutions cream off much of the money for simply arranging the loan deal. The attractions for both companies and banks are clear: a single contract provides the companies involved with a more-or-less guaranteed income stream for decades, usually underwritten to a large extent by the government itself. Companies can also lobby politicians to ensure that governments adopt PPPs, and renegotiate them whenever necessary during the long years of the contract.
The modern concept of PPPs did not exist before the 1990s but concessions for public works and services have been around for centuries, as explains a 2013 paper by Public Services International (PSI), the global union federation for workers in public services,
The principle was that the private company agreed to invest its own money in return for which the state guaranteed a monopoly to the company on supplying that service in the area covered, and so the company could expect to get a return on its capital by charging users. Concessions were often used in the 19th century to develop water, gas, and electricity systems, and railways, which involved high capital investment. But they were unable to deliver the required scale of investment for universal services at affordable rates, and so were generally replaced by public ownership using public finance.
For governments like the UK’s, PPPs, or PFIs, had an obvious benefit: they allowed ministers to harness large sums of private capital to invest in public projects, such as roads, new schools and hospitals, without paying any money up front — and thus keeping the level of current public debt lower than it would otherwise be. This meant that governments could continue spending without breaking neoliberal fiscal rules limiting public borrowing. It also meant they could hide the true extent of public debt through accounting trickery similar to that which put paid to Enron. The PSI report:
PPPs originated as an accounting trick, a way round the government’s own constraints on public borrowing. This remains the overwhelming attraction for governments and international institutions.
But it is also a dangerous way of kicking the can down the road…
Read the full article on Naked Capitalism
Nick Corbishley 