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The global coronavirus pandemic is changing the way we live and work. Supply chains have been disrupted or are in danger of collapsing altogether. Besides being forced to deal with the unpleasantness of social distancing, people are having to increasingly cope with the economic effects of the crisis. And, with no vaccine or suitable therapy yet available, nobody is able to say when life will get back to normal. What is clear, though, is that both large sections of the economy and municipal budgets have been badly hit by the pandemic. With many city and district authorities already being in a precarious financial position before the Covid-19 crisis began, the backlog of investments is likely to get even bigger. It is time, therefore, to rethink the way problems have traditionally been solved and to enter into long-term partnerships with the private sector to ensure essential public services are delivered.
Ludger Rethmann, REMONDIS Board Chairman
The coronavirus crisis has meant that council revenue has plummeted. Business tax income has dried up, theatres, swimming pools and exhibition centres are closed (and still generating costs), regional airports, municipal hospitals… practically all public sector areas have been affected. Over the medium-term, fees and charges may have to be increased, pushing up the bills local inhabitants have to pay, many of whom are themselves facing financial ruin as a result of the pandemic. Just how big this problem is can be seen in the City of Wuppertal. On 21 April, the City’s treasurer, Dr Johannes Slawig, appeared on the “Tagesthemen” show (Germany’s most important news programme) to describe just how dramatic the situation is in this city with its approx. 350,000 inhabitants. He believes Covid-19 will cost the city 150 million euros – and this was just a conservative estimate.
People’s everyday lives are being impacted by social distancing and the economic effects of the Covid-19 pandemic.
As councils search for a way to overcome their problems, the spotlight is once again being turned on public private partnerships. Over the last few years, many councillors have dismissed this business model both for political reasons and because a number of negative examples involving infrastructure projects have made them sceptical. Long-term partnerships, however, set up with private sector businesses – in particular to deliver essential public services – create benefits for both parties and not just in the face of the extraordinary burdens caused by Covid-19. Public private partnerships dedicated to providing essential services could prove to be one of the ways to successfully get through this crisis. At the end of the day, ‘a load shared is a load halved’.
“There is a growing need for alliances. The task of providing essential public services is becoming increasingly more complex and more complicated. Just one example here is waste management. The old waste dumps – a thing long gone – and the almost complete recovery of raw materials for re-use, i.e. the circular economy, are poles apart. It is practically impossible for local authorities to set up all the technical and technological resources required to run top quality recycling operations. And, from a business point of view, it makes absolutely no sense to build and operate plants that a city or district could never run to full capacity as they generate only a fraction of the materials needed,” writes Professor Michael Schäfer in his book “Öffentlich-Private Partnerschaften” [Public Private Partnerships], which was recently published by Springer-Verlag and written together with co-author Ludger Rethmann.
PPPs dedicated to providing essential services could be one of the ways to successfully get through this crisis.
What is also true is that setting up a joint venture for the wrong reasons can lead to unequal partnerships. And desperation is rarely a good springboard for setting a new strategy. A local authority, therefore, that is weighing up whether to enter into a public private partnership to provide essential public services should never see this option as a way to achieve short-term relief or be prompted to do this by an acute emergency. On the contrary, a joint venture between the public and private sectors is a suitable means to unite economic and business know-how with municipal responsibilities and close customer ties over a long-term period.
“One of the determining factors behind the success of such a partnership is the reason why it was set up in the first place. The idea, the infrastructure and the services should be further developed as efficiently as possible both with a long-term view and in the interests of the local citizens. All three should be seen as being more important than the prospect of generating short-term one-off revenue. Collaborating with a large and well-established private sector business, which has both the know-how and the financial strength to invest, can enable local authorities to bring their current offer into line with the latest technical capabilities and, where necessary, with changing requirements,” co-author Ludger Rethmann, REMONDIS board chairman, writes in the book, describing the potential of such partnerships. “It is, therefore, both a sensible and smart decision when a local authority, which is responsible by law for these services, searches for a partner that already has the infrastructure needed or can deploy it for such a large number of users that it can be performed profitably. One of the keys to the success of such a joint venture is the close collaboration between the managing directors, one of whom is always from the private sector firm and the other a representative of the local authority. This enables the very most to be made of the know-how of both managing directors. The power of decision here normally lies with the public sector partner in line with the size of their shareholding.”
Would you like to find out more about PPPs? Further information can be found in our special issue
REMONDIS is a family-run business with strong ties to the regions it operates in and is not a listed public limited company with widely held stock. The firm, therefore, thinks and acts on a long-term and sustainable basis adapting its services to reflect the needs of the local, city and district authorities. Enabling the public sector partner to access know-how, innovation, business expertise and long-term planning security – this is the essence of public private partnerships dedicated to delivering essential public services.