The Problem with PPPs in Singapore

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The Problem with PPPs in Singapore

The decision to scrap a PPP for Changi Airport Terminal 5 reveals the difficulties of making this model work.

The Problem with PPPs in Singapore
Credit: Flickr/Jesse

On September 19, Singapore’s Transport Ministry announced that Singapore’s Changi Airport Terminal 5 will be government run, quashing speculation that the terminal might be privatized. While airports such as London’s Heathrow Airport and Germany’s Frankfurt airport are private aviation hubs, Singapore’s newest terminal will likely be operated by government-linked Changi Airport Group, the current operator of existing terminals.

The government’s decision to deviate from Singapore’s much-acclaimed public private partnership (PPP) model of infrastructure development comes amidst a multitude of problems that have emerged in past PPP projects, such as the Singapore Sports Hub and SMRT. While PPPs have often been lauded for their cost effectiveness in delivering public goods, in particular, physical infrastructure, Singapore’s past experiences have shown that this has not always been the case.

The public-private partnership model was first introduced in Singapore in 2003, when the Public Utilities Board awarded SingSprint, a special purpose company comprising of Hyflux Ltd and Ondeo, a contract to build the Tuas Desalination Plant. Following that, the Ministry of Finance moved to promote the adoption of PPPs by setting guidelines to successfully structure and manage PPP projects. Projects that involved the development of sports facilities, incineration plants, water and sewage treatment, IT infrastructure, education and healthcare facilities have been earmarked for PPP suitability. In particular, all government infrastructure projects over SGD 50 million (US$37 million), have to be “considered for suitability as PPP projects.” This particular clause in procurement guidelines reflects the government’s commitment to tapping private sector expertise and competitive advantages in the delivery of large-scale public goods and services so as to avoid imposing a greater burden to taxpayers.

Singapore is the first Southeast Asian country to adopt PPP models for social infrastructure development. While this partnership model is often trotted out as a Singapore government “best practice,” the success of this model is depends on sector and project type. PPPs in the utilities sector tend to be more successful. On the other hand, in the case of the development of Terminal 5, it is clear the government feels that a non-PPP arrangement might be best for Singapore.

That decision would seem to make sense for a number of reasons. Having a single airport operator across all five terminals would ensure consistency in service, standards, and systems. In 2015, Changi Airport welcomed 15.2 million visitors. As the port-of-entry, quality and user experience at the airport is synonymous with the Singapore experience. For many Singaporeans, Changi Airport comes close to being a national icon. Having a government-linked corporation in charge of the operations of the terminal would give the government greater say and control in the intricacies of the project, and by extension, the overall user experience of these millions of individuals. Privately-run national airports, such as Heathrow airport, have been plagued by accusations of underinvestment and declining standards as owners seek to rein in expenditures. Having government oversight, or even participation as a voting shareholder, may avoid situations where the government is powerless to intervene.

This is not the first time the Singapore government has abandoned a PPP model. The NUS University Town @ Warren PPP, an integrated residential college, was canceled in 2007. Originally slated for private sector operation, it was later announced that it would be owned and funded by the University itself. Although no clear reason was given for this shift, a multitude of factors have to be taken into consideration by all parties for a successful public-private partnership.

Most of Singapore’s PPPs are a variation of the Design-Build-Finance-Operate (DBFO) or the Design-Build-Operate (DBO) model. Depending on the specificities of the partnership, the private sector is typically in charge of designing, building, financing, and/or operating the facility. As such, private companies would primarily be concerned with the feasibility and profitability of this project. On the other hand, the government would be concerned with the potential political and regulatory risk that might emerge in the project. Individual interests aside, a successful PPP would have clearly defined roles and risks, open channels of communication and healthy relationships between public and private stakeholders.

If the fate of past PPP projects is anything to go by, infrastructure projects that have strong social and symbolic elements appear to be less suited for this form of partnerships, largely attributed to the active public sector interest involved in these facilities. The Singapore Sports Hub, for example, has been plagued by complaints of low quality and faulty amenities. In one instance, Chinese pop star Jay Chou’s concert at the Sports Hub was marred by sound problems, prompting concert-goers to petition for a refund. Public furor also erupted over the initial $26 million rental fees the Sports Hub wanted to charge the government for National Day Parade rehearsals.

The PPP nature of the venue means that it is should be run primarily as a commercial venture. However, the NDP saga shows that Singaporeans inevitably expect the management company to discount commercial interests for the collective good of the nation, especially for facilities that have historic or national significance. The problems arising from the Sports Hub – the first PPP of such magnitude and complexity – might have influenced the government’s final decision to rule out the possibility of private sector cooperation in the building of Terminal 5 altogether.

Nevertheless, it is not all doom and gloom for PPPs in Singapore. PPPs in sectors like utilities have been fairly successful. For one, past precedence is a major contributing factor. PPPs in utilities have been successful because of the standardized structures and contracts coordinating agencies have developed over the course of managing many such projects. Furthermore, these projects tend to be more straightforward. It is easier to measure the profitability and success as prices are regulated either through price ceilings or subsidies, providing operators with a steady income. The government also pays the operator a steady flow over the course of the contract.

Looking forward, the government hopes to diversify its array of PPP projects beyond utilities to include research and innovation. At the inaugural Leaders in Science Forum held in August 2016, Deputy Prime Minister Teo Chee Hean asserted that public private partnerships, such as the Advanced Remanufacturing and Technology Center, which develops technologies to refurbish unusable products back into a working state, are instrumental in improving the state of research and innovation in Singapore.

Even as Singapore aspires to be Asia’s infrastructure and project financing hub, it is evident that public-private partnerships are not the panacea to all infrastructure development projects. Though effective in some areas, governments have to, as Harold Macmillian described it, be wary of selling off the “family silver.”