From the campaign, Milei repeats as a mantra: “We start by cutting public works and bringing them to zero, and we put out to tender those that are in progress. Contracts are respected. But let’s go to a Chilean-style private initiative”. The Public Private Participation (PPP) scheme referred to was implemented in the 1990s and means that The State grants the power to the business community to carry out an infrastructure project in exchange for the usufruct of an asset through concessions.. The clearest example is a road corridor, where the private sector would charge a toll in exchange for carrying it out, but in Chile airports and prisons have also been built under this modality.
“The PPP system varies from project to project. The only thing that it is not is public work, where the State defines the work, sends it to bid, a private party wins the bid and the State pays them as it is done. Thus, the work is state-owned and is responsible for its administration. When States have no money or form of financing, the PPP arrives,” explains economist and specialist in this model Genaro Grasso.
It is important to clarify that the The Chilean State maintains a portion of its infrastructure works under the hand of the State: according to the Ministry of Public Works itself, the government invests 4.1% of GDP. “We will invest more than US$2 billion in tenders and re-tenders such as, for example, specific public works such as the cable car that will connect Iquique with Alto Hospicio,” she says on his website. The number is even below the consolidated real direct investment in Argentina, which was 2.8% of GDP in 2022. Milei until now maintained that only the private sector will carry out the works: “If it is not profitable for the market , then it is not socially desirable,” says the president-elect. The question arises regarding the future of works where the concept of necessity prevails over profitability.
Marco Enriquez Ominami, Former candidate for President of Chile and founder of Grupo de Puebla, said in a conversation with Radio 10 that the PPP model has worked regularly in the Latin American country, but warned of some of the questions. The first is the extra price charged to users because it allows the private sector to “charge whatever they want,” said Ominami and recalled that prior to the detailed regulation of contracts, Chileans “could go into debt up to 50 times due to non-payment and end up paying up to US$30,000” for not paying the toll in a road corridor.
In this sense, it ensures that The comparison between the economic system that works in Chile and that of Argentina is not possible, because there “everything is based on a system free to choose, but it is a trap, it is not the freedom of choice, but the freedom to get into debt.” Thus, households are 75% indebted to banks, and students at the age of 23 already have debts of US$20,000 to access their studies.
The second warning has to do with the limited capacity of the State to “make democratic and political decisions.” Here the risk of discretion also appears when defining projects: The State has the power to determine priorities but, if a private person approaches it with a work and it is accepted, on several occasions the selection criteria compared to other projects is not clear.
At the same time, recurring renegotiations due to outdated contracts and the urgency of a State that meanwhile maintains the power button on works carried out through subsidies also appear as a frequent problem. According to Grasso, the situation could be similar in Argentina, where “economic fragility is very great,” due to the level of inflation, difficulties in accessing financing by private parties, and discontinuities in works. “Charging for public works requires 15 or 20 years of tolls, but you depend on the demand not falling and the price remaining in dollars, although this is arbitrary. You finance yourself in long-term dollars and that entails a lot of risk,” analyzes the specialist.
In any case, Ominami highlights that Chilean infrastructure could not have been fully realized without investment from the State, since it is a mixed economy. In Argentina, according to official data, the public works model represents more than 250,000 direct jobs, and 480,000 in construction alone, a historical record for the sector. During the management of Unión por la Patria, 4,419 works were carried out, while 2,329 are in progress and 676 are projects under analysis.
PPPs in Argentina and the world
In 2020, the Ministry of Public Works terminated the road corridor works contracts that the government of Mauricio Macri awarded in July 2018 through the PPP modality.. The concessionaires had to acquire the financing and carry out the works, in exchange for the commercial exploitation of the tendered routes and highways. That debt later had to be paid by the State, while the companies were left with the toll business and the rental of the commercial spaces concentrated around the work. According to the main works plan, barely 2% was completed.. Due to the macroeconomic context, the private sector did not access financing for any of the six corridors, which would have implied an additional debt of US$13,000 million to be paid by the State in the next ten years, for works whose cost was estimated at US$5.4 billion.
The statements of various international institutions echoed the questions about the PPP system. For example, a report by the Committee of Auditors of the European Union warned that The PPP mechanism “had widespread deficiencies and limited benefits” and that “have increased the risk of insufficient competition.” At the same time, the UK National Audit Office said the use of such models “has declined significantly due to concerns about cost efficiency and value for money”. Finally, the CECE Foundation of CABA warned that in Latin America, “more than 70% of the PPP contracts signed from the beginning of the 90s until 2015 were subject to renegotiation.”
Source: Ambito
