The importance of disclosure in major infrastructure projects

I enjoyed this article by Marcos Siqueira, from the World Bank's Handshake Journal on public private partnerships, titled "What if we disclosed everything? Reactions to a radical proposal".

He sets out a really nice argument for transparency in public contracting, especially in developing countries that have governance concerns.

The crude truth is that opaque PPP policies serve a lot of interests, but almost none of them benefit service users or taxpayers. Here are some of the key points on transparency in PPPs, from my perspective:

First, much of the developing world faces complex governance challenges. Fairness issues haunt the day-to-day life of procurement processes. PPPs are very big projects, subject to sophisticated risk allocation mechanisms, and governments do not always have the capacity to fully understand the consequences of the contracts, which only increases the level of illegitimate interests surrounding projects. Therefore, in my opinion, unfortunately opacity is the best way to protect those interests.

Second, opacity feeds inefficiency, even when no explicit governance issues are present. The long-term nature of PPP contracts make managers want to protect themselves. After all, valid information can be a very powerful tool for users to push for contractually determined service levels to be effectively delivered, and for the government to use its regulatory tools to monitor costs and quality. I understand why contract regulators and private sector infrastructure operators prefer that service users do not have adequate information: they feel less pressure.

Third, opacity stimulates opportunistic behaviors, both of government and of the private sector. I have noticed around the world that parties often enter into agreements knowing all too well they will break it (or try to change it) as soon as they can. Opacity helps keep watchdogs at a safe distance, and creates an adequate environment for discretionary changes to a contract that might push it away from its original objectives. So the more opaque the practices, the more difficult it is to enforce a contract in the long run.
— Marcos Siqueira, What if we disclosed everything? Reactions to a radical proposal.

He goes on to say that "From my perspective, a full, radical, proactive transparency policy is the single best and least-expensive strategy to reduce the influence of those interests in the PPP project cycle. The transparency policy (see examples from PPPIRC) should include, at least, the unrestricted disclosure of:

  • Unredacted contracts
  • Associated financial deals
  • Unredacted bids
  • Unredacted amendments
  • Performance reports
  • Financial data of the project company
  • Fiscal commitments and risks"

But this is far from something that World Bankers and international policy advisers like myself try and impose on developing countries alone. At least in my case, my home jurisdiction practices what I preach.

Since 2007, the Victorian Department of Treasury and Finance has been publishing project summaries of every PPP project they enter into. And, in many cases, they even publish the unredacted contracts, as suggested by Siqueira. 

If you are interested in seeing what a real project agreement looks like, I do recommend taking a look through some of the contracts on the Victorian websites. Interesting ones for me are the City Link Concession Deed, and the sale deeds of all of our old power plants; which incidentally, worked out pretty well for the government, given the disruptions created by rooftop solar, among other technological changes...

After you've had a look at the concession deeds, most of which are well over 100 pages, you'll appreciate the effort made in producing project summary documents, which lay out most of the relevant information from the agreements, plus a lot more relevant information in a much more reader-friendly way.

The Victorian Desalination Project is a nice case study that shows how a government goes through the process of confirming that the project is needed, and that the private option creates value relative to the public option. The project summary document reports it was estimated that the winning bidder's price saved the government almost a billion dollars in present value terms.

The State Government of Victoria, through Partnerships Victoria was at the vanguard of developing manuals and training materials that form a lot of what is considered "international best practice" in managing private participation in public service provision. In some cases, developing countries adopted what they understood to be "international best practice" without understanding that they lacked certain key capacities or institutions to implement them. A lack of regulatory capacity is one key constraint for developing countries in particular.

Indonesia is still a reasonable distance from the State Government of Victoria's model of transparency. If you google around, you can find some excerpted or redacted power purchase contracts for PLN, but not much else is publicly available. 

Like Siqueira, I struggle to see the public interest in keeping such contracts confidential. As he notes: "I have been challenged that there are legitimate commercial secrecy concerns that indicate the need to keep information away from the public’s eye. My view on this is that the same lack of transparency required to keep commercial secrecy also serves to hide fairness issues during procurement, protects inefficient organizations from scrutiny, and creates difficulties for contract enforcement."

While many have learnt the hard way to be wary of swallowing developed country best-practice whole, enhanced transparency is hard to argue against in almost any jurisdiction. Indeed, it is arguably more critical in places like Indonesia.