Annex (continued)
POTENTIAL EFFICIENCY
SAVINGS FROM
THE PRIVATE
SECTOR UNDER
THE PPP
6. The efficiency savings which can reasonably
be expected by having the private sector manage the infrastructure
programme and the associated risk under the PPP are substantial.
Experience in several industries has shown reductions in unit
costs of at least 20 per cent and sometimes as much as 40 per
cent. The efficiency improvement in the British Rail Infrastructure
Services companies, probably the most analogous sector, is understood
to have been about 30 per cent since privatisation. This illustration
assumes a rather conservative 20 per cent improvement. In practice
LUL would expect to secure greater efficiency than this through
the PPP process.
7. The main source of these efficiencies
is expected to be a clear focus on the performance of the infrastructure,
the introduction of strong project management skills, and the
application of innovative approaches which the PPP contractual
regime has been designed to encourage. Our observation is that
such benefits are typically only achieved when the private sector
is fully engaged, and in particular when private management has
the right incentives and private sector capital behind it, producing
a constructive tension which improves the management of risk.
8. This case is illustrated in Table 6,
which shows figures for spending on infrastructure under the PPP
which can be compared to those for a public sector option in Table
2. The 15-year total of about £12 billion for infrastructure
spending is the figure which has been referred to publicly in
the past.
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