Education PPPs in Asia – some ideas from Scotland
The Scottish "hub” model has potential to be applied for education PPPs in ADB developing member countries.
Public-private partnerships (PPPs) in the education sector—known as “e-PPPs”—come in many forms. They can be voucher schemes aimed at placing choice in the hands of families, contracting in/out of services from private providers to increase capacity and/or quality of education, or infrastructure e-PPPs that seek to create new capacity at pace and break the build-neglect-rebuild cycle.
There are many examples of e-PPP voucher schemes and contracting services in low- and middle-income countries across Asia, Africa, and Latin America. But infrastructure e-PPPs outside high-income countries are rare.
Since PPPs are so widely used in developing countries in other sectors (water, transport, energy), what can we learn from the best models of e-PPPs in infrastructure, and what might a successful Asian infrastructure e-PPP look like?
I detect a feeling among multilateral lending agencies that PPPs are not ideal for the education sector. Reasons posited include the complexity of school buildings, or the political sensitivity of private involvement in education.
Neither argument holds water, in my opinion, but either way the infrastructure gap in education is vast, and PPPs can help close that gap. It is interesting to see that ADB sees potential for e-PPPs in several education sector interventions including Sindh (Pakistan), the Philippines, and for student accommodation in Azerbaijan.
It is clear that e-PPPs are effective at mobilizing professional design and construction services rapidly, and on a scale that would be hard to achieve wholly within the public sector. There is evidence that they improve cost/time certainty, and they break the cycle of “invest and neglect.” Knowledge performance indicators (KPIs) show high standards of building maintenance when payment penalty mechanisms are properly designed and managed.
One of the barriers to wider adoption, I believe, is that to date policy objectives are seldom clearly defined, and external impacts seldom measured. We need programs that set out the policy objectives in quantifiable terms, then to design projects to deliver those objectives, and finally to measure the impact in the long term.
Scale is another factor that, I believe, limits adoption.
PPP procurements are complex and time-consuming. Fixed overhead means that projects need to be large to be good value compared to conventional structures. Projects of between $50 million and $100 million are often mentioned as the minimum viable size. Although this is seldom a problem in hard infrastructure or hospitals, it’s more difficult to justify for schools.
In the course of my research into e-PPPs for ADB, I have examined such projects around the world, including those I have experience of in the UK, Latin America, and New Zealand. So, what do e-PPP best practices look like?
The UK’s private finance initiative (PFI) structure has a 20 to 30-year contract life, and has provided the template for PPPs at schools and hospitals around the globe. With some local variations, Australia, New Zealand, Canada, Brazil, and more recently Uruguay and Turkey have all followed the PFI model. These projects are generally successful in their own terms, and examples of outright failure are rare.
Scotland has been a source of innovation in e-PPPs for twenty years, and now has around 70 signed school PPP deals. In recent years it has taken the PFI structure in a different direction. The Scottish “hub” e-PPP model is a two-tier regional structure which has halved the typical time to procure schools, improved cost certainty, and slashed the viable project size.
The upper tier, a long-term joint venture contract between a private partner and regional public agencies, functions like a framework agreement in which long-term KPIs are used to incentivize social benefits including vocational training and the development of a local supply chain for small and medium-sized enterprises.
The lower tier of the structure is made up of individual PPP projects, called off from the framework by the regional public agencies as and when the need arises. The framework agreement contains strict methodologies for specifying and procuring individual PPPs, and for demonstrating that good value is achieved. The individual PPPs at this lower tier use the familiar project financed PPP structure.
The Scottish model has potential to be applied for e-PPPs in ADB developing member countries. By making smaller projects viable, it reduces the need for weighty bundles made up of multiple schools, so helping simplify (and speed up) the procurement process. A visible long-term pipeline with partial exclusivity (subject to performance) incentivizes and enables the private partner to develop the skills of the workforce, work with communities, and develop a local supply chain.
In Scotland, teaching remains firmly a public sector role, but the inclusion of teaching could be considered in other jurisdictions. This could be achieved through parallel contracts for the provision of teaching. Or by including teaching within the e-PPP contract, perhaps with periodic break points and options to renew or terminate the teaching contract subject to performance.
Rather than leave e-PPPs in the “too difficult” pile, we should ask ourselves how a model so widely used in some jurisdictions could be tested in the region.
The use of infrastructure PPP need not imply a lift-and-drop replication of the classic PFI approach. There are variants that have the potential to bring appreciable additional benefits and wider social returns.