A common problem with PPP projects is that private investors obtained a rate of return that was higher than the government’s bond rate, even though most or all of the income risk associated with the project was borne by the public sector.
It is certainly the case that government debt is cheaper than the debt provided to finance PFI projects, and cheaper still than the overall cost of finance for PFI projects, i.e. the weighted average cost of capital (WACC). This is of course to attempt to compare incompatible and incomplete economic circumstances. It ignores the position of taxpayers who play the role of equity in this financing structure. Making a simple comparison, however, between the government’s cost of debt and the private-sector WACC implies that the government can sustainably fund projects at a cost of finance equal to its risk-free borrowing rate. This would be true only if existing borrowing levels were below prudent limits. The constraints on public borrowing suggest, nevertheless, that borrowing levels are not currently too low in most countries. These constraints exist because government borrowing must ultimately be funded by the taxpayer.
A number of Australian studies of early initiatives to promote private investment in infrastructure concluded that, in most cases, the schemes being proposed were inferior to the standard model of public procurement based on competitively tendered construction of publicly owned assets (Economic Planning Advisory Commission (EPAC) 1995a,b; House of Representatives Standing Committee on Communications Transport and Microeconomic Reform 1997; Harris 1996; Industry Commission 1996; Quiggin 1996).
One response to these negative findings was the development of formal procedures for the assessment of PPPs in which the focus was on "value for money," rather than reductions in debt. The underlying framework was one in which value for money was achieved by an appropriate allocation of risk. These assessment procedures were incorporated in the private finance initiative and its Australian counterparts from the late 1990s onwards.
In 2009, the New Zealand Treasury, in response to inquiries by the new National Party government, released a report on PPP schemes that concluded that "there is little reliable empirical evidence about the costs and benefits of PPPs" and that there "are other ways of obtaining private sector finance", as well as that "the advantages of PPPs must be weighed against the contractual complexities and rigidities they entail".
Nowadays, a new model is also being discussed, called the Public–Private Community Partnership (PPCP) model, wherein both the government and private players work together for social welfare, eliminating the prime focus of private players on profit. This model is being applied more in developing nations such as India. Success is being achieved through this model too. it mainly helps to ramp up the development process as the focus is shifted towards target achievement rather than profit achievement.
Privatisation of water
After a wave of privatisation of many water services in the nineties of the previous century, mostly in developing countries, experiences show that global water corporation have not brought the promised improvements in public water utilities. Instead of lower prices, large volumes of investment and improvements in the connection of the poor to water and sanitation, water tariffs have increased out of reach of poor households. Water multinationals are withdrawing from developing countries and the World Bank is reluctant to provide support.
The privatisation of the water services of the city of Paris was proven to be unwanted and at the end of 2009 the city did not renew its contract with two of the French water corporations. After one year of being controlled by the public, it is projected that the water tariff will be cut to between 5% and 10%.