Last autumn, in the early months of the Covid pandemic, the flashy new Berlin Brandenburg Airport opened its doors 10 years late and at an overall cost of at least € 7 billion, two and a half times the original budget.
The state-run 30-year-old airport project, widely regarded as a national embarrassment, is not an isolated case in Germany’s transport infrastructure record. Construction of Stuttgart’s new railway station, now the subject of fraud allegations, cost € 8.2 billion, higher than an initial € 2.5 billion.
For the FDP, the “amber” member of Germany’s incoming traffic light coalition government, such examples highlight the shortcomings of entrusting large-scale infrastructure projects to public sector managers and budgets.
As the administration prepares to take office this week, the 176-page coalition agreement underlying it carries the clear influence of the FDP, especially in the section on “future investments and sustainable financing”.
To temper the spending instincts of the dominant SPD and the Greens, it is demanded that the country’s “debt brake”, which limits Germany’s structural deficit, be maintained, even if the coalition promises “a decade of investment”. The plan includes “unprecedented additional spending”, thanks in part to a promise to “activate more private capital for transformation projects”.
Specialist infrastructure operators, the country’s cash-rich insurers and the capital markets, rekindled by a hope EU-wide Capital Markets Union, will all be essential providers of that private capital, according to senior officials.
One key paragraph, inserted at the insistence of the FDP, advocates the expansion of public-private partnerships, a key board of British infrastructure renewal since the 1990s – though less recently. Data from Britain’s National Audit Office show volumes peaked in 2007 at £ 8.6 billion, when more than 60 transactions were entered into, which in recent years has reduced to virtually nothing.
German enthusiasm for PPP has shown a similar pattern of decline, although the numbers are much smaller – at the peak of 200738 transactions worth a total of € 1.5 billion have been made, according to Partnerschaft Deutschland, an advisory group. In 2019, the last year for which data is available, only three transactions were made, worth just € 66 million.
Those patterns reflect a mixed verdict on the effectiveness of PPP. The British NAO has been critical of the value for money achieved on a variety of projects since the 1990s. German advocates, such as the BDI Employers’ Federation, point out advantages: a world-leading, rapidly upgraded Autobahn network would not have been possible without a private-sector partnership. The price paid – by drivers via toll roads – divides public opinion.
The new coalition agreement clearly states that money from the private sector must be used to support a wide range of investment priorities – environmental protection, digitalisation, education, research and infrastructure.
The tension, by design, is between a government that wants to reduce costs and a private sector that is eager to maximize returns. This is not recognized in the coalition agreement, although some figures in the new administration are clearly skeptical about money in the private sector, especially given the ultra-low interest rates on German government debt. “When we can raise funds at zero, why do we have to pay money to the private sector?” ask one.
Officials’ view of private money as relatively expensive debt financing is wrong, says one top insurance manager: for one thing, private sector money must bring industry expertise; for another, cash is best used not as debt, but as equity, protected by a state-sponsored first-loss buffer, to help control the kind of cost overrun that has ravaged the Berlin airport budget.
With or without PPP, the new government has other strategies to escape the constraints of the debt brake. KFW, the existing development bank, for example, looks like recapitalization – a process that should not contribute to government debt. The bank can then help fund major transformation projects. The agreement proposes a similar approach to increase funding for state-owned Deutsche Bahn and state-owned real estate agency Bima.
As Olaf Scholz, the incoming SPD chancellor, working out the right balance to strike with his new FDP finance minister Christian Lindner, they may have to look to heaven. Even in Covid times, enough planes fly overhead to Brandenburg Airport to give a regular reminder of how not to do so.