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Investing in social infrastructure in Europe: what role can PPPs play?

Sixth session in the cycle on

 

The development of Public Private Partnerships (PPPs) for common interest

 

Click here to view a summary of the event 

 

26 June 2018

 

Speakers

Filippo Munisteri
Policy Officer at DG ECFIN

 

Monika Chaba
Policy Officer at DG EMPL

 

Ariane Rodert
President of the section for the Single Market, Production and Consumption of the European Economic and Social Committee (EESC)

 

Mathieu Prengel
EU Policy officer at the Permanent Representation to the EU of the French public financial institution Caisse des Dépôts et Consignations

 

Luc Tousseyn
Partner and representative for Benelux in Brussels at TA Europe

Moderator

Nicolas Vincent

 

In 2013, a Policies & Practices session was dedicated to the topic “Public Private Partnerships to develop social policies”. The main conclusion of the debate was that Public Private Partnerships (PPPs) can be powerful solutions to implement Member States’ policies in a cost-effective way, especially in a context of austerity.

5 years later, in January 2018, the European Commission and the European Association of Long-term Investors released the report “Boosting Investment in Social Infrastructure in Europe”. It underlines the need for “long-term social investment”, which can be achieved only through “a real boost in public and private investments, working hand in hand to provide the most appropriate, efficient social infrastructure for people”. The report stresses also that “PPPs […] are financial innovations which […] have proven their usefulness at local level.”

However, in continental Europe, the recourse to PPPs is still quite uncommon, and even rarer in the social sector. This type of partnership has also been decreasing in the last decade.

 

InvestEU: a new structure for investments and funding within the EU

 

Filippo Munisteri, from DG ECFIN, reminded the audience that the level of investment in the EU in percentage of GDP had not yet reached the level it was at a decade ago, before the financial crisis. Although figures are improving, the Commission finds aggregate investment still too low. InvestEU aims to bring under one roof 13 EU financial instruments – “already a big exercise in terms of streamlining and simplification,” said Mr Munisteri. From this regrouping, more efficiency is expected, as well as improvements in terms of equity guarantee and risk sharing instruments. “There are a number of instruments which cover different policy areas,” said Mr Munisteri, “they will all be merged into InvestEU which will be a common budgetary guarantee.”

 

The panellist explained the rationale behind the programme: “we will have a single fund with a single regulation, a single agreement with implementing partners and we would have it based on the new financial regulation – the single road book.” All of this should provide “a policy-driven approach implemented for thematic policy windows like two of which already exist under the Juncker plan”. To illustrate this, Mr Munisteri explained: “you can have an infrastructure window and an SME window – and on the top of that, we will have a research innovation and digitisation window as well as a social investment in skills window.”

 

Mr Munisteri explained that the same streamlining effort had been brought on the advisory hub by merging the 12 existing advisory bodies into a single one.

 

Mr Munisteri stressed another novelty of the InvestEU programme: fundings will be accessible to new implementing partners – while at the moment the EIB Group is the sole one. In practice, it opens opportunities tonew institutional actors, like the Council of Europe Bank as well as national promotional banks and any other institutions or entity that complies with the financial regulation.

The European pillar of social rights and InvestEU

 

Monika Chaba, policy officer at DG EMPL explained that the Social Investment and Skills Window of the InvestEU will support the implementation of the European Pillar of Social Rights. After reviewing them quickly for the audience, Ms Chaba explained the 20 Pillar principles were divided in three chapters:

1. Equal opportunities and access to the labour market
2. Fair working conditions
3. Social protection and inclusion

Ms Chaba stressed it was a long life cycle approach: “the pillar as you know,” she said, “very much talks about people's rights to these services defined in the principles. Ms Chaba continued: “we need now to make sure that we deliver these services in a most effective and cost-efficient way. And the way to do it is of course through social innovation.”

 

The origins of social innovation and the role of European fundings to potentially boost this trend

Ariane Rodert was next on the panel. Ms Rodert is president of the section for single market production and consumption in the European Economic and Social Committee. In the EESC, Ms Rodert also represents social service providers and social NGOs in Sweden.

 

Ms Rodert explained that while speaking about social investment “ one key thing to keep in mind is that it has to do with subsidiarity and competence.” To Ms Rodert, there is one question: can the EU legislation act or not in this case? “And it also has to do with how we fund and finance our welfare systems,” she added as a sub-question.

 

Ms Rodert followed the cue from Ms Chaba, regarding social innovation partnership: “if we look at social services and the welfare sector for most countries, they were designed and developed by civil society initiatives.” In other words, “if you look at public schooling or prenatal care or any of these services, they were actually initiatives by the civil society to fill in a gap and they were very innovative in that movement.”

 

Because they seek to address a need, these services deliver a user-centered approach. In essence, they are, explained Ms Rodert, “very flexible and innovative and also very fluid because they are only looking at the best way to solve that, fill that gap or meet that need.” With less prominent market-driven goals, there is room for a very constructive partnership with civil society and public authorities. The latter, because they are not allowed to fail, cannot experiment to the highest degree as a partner can.

 

“Many financial instruments today are not designed to capture what these social enterprises actually deliver,” Ms Rodert explained. Social impact or “reduced social cost” have indeed an added social value but financial instruments generally look at return on investment. “The committee has raised this issue over and over: we have to start measuring social and economic progress in parallel,” concluded Ms Rodert. “This is something we have to do and we have to lift up the social impact variable a lot more and look at the opportunity to save social cost in the future.”

 

A social innovation case study inFrance: the Caisse des Dépôts et Consignations Hémisphère fund

 

Mathieu Prengel, from the French Caisse des dépôts & consignations (CDC), showcased the Hémisphère fund, a social impact fund. “Since 2015, there have been migrants on the streets of Paris,” he explained. “For the past 40 years the solutions were to put homeless people into commercial hotels, pay the bill and let them deal with their problems alone.”

This time, the French government set up a call for tender asking for social support and accommodation in an affordable way. “We worked with our subsidiaries CDC Habitat, a social housing operator and Ampere Gestion, a real estate portfolio management company to set up this fund and attract private institutional investors.”

The operation raised €100 million and helped open budget hotels. “The scheme was to buy them, renovate them, turn them into accommodation centres, setting up a kitchen on the floor, showers, bathroom in order to provide 6,000 people with accommodation in less than two years.”

 

The interesting component of the Hémisphère fund is that the remuneration for the institutional investors is partially fix (as a rent) but there is also a variable part of the remuneration which is tied to social objectives. In the latter part, “you would see for instance the access to school for children, access to healthcare, access to a permanent accommodation.”

 

Mr Prengel stressed another benefit: “with this scheme, we were able to attract insurance companies which are usually not keen on risky adventures as social impact bonds can be.” This allowed to move very quickly : 6,000 units were built in less than two years.

 

“It is a great success for Caisse des dépôts and for the State as well,” emphasised Mr Prengel, “we believe that the State makes savings on more than 40% on rentals compared to when they used to pay commercial hotels in Paris or in other cities.” 

 

Implementing successful PPPs: what methodologies to implement?

 

Last on the panel, was Luc Tousseyn from TA Europe, an international independent partnership which provides consultancy in real estate and infrastructure. “We provide technical advice to the lenders of the projects,” explained Mr Tousseyn, “at every level in the PPP projects we provide a risk assessment to the lenders, the institutional investors: at the tendering, construction and maintenance phase.”

 

Recently, TA Europe advised on education project, healthcare projects, prison construction and management in various member states. Mr Tousseyn explained what they learned out of these PPP projects: “the most positive is the input of the creativity and the effectiveness of the private sector.” This came along, “through the whole lifecycle approach at the start of the design until the end of the contract.” Mr Tousseyn sees a great benefit of a successful PPP lies also in the operation and maintenance contract components: they can be tailored to the sector’s needs and so that the social sector can focus on their social tasks.

Mr Tousseyn also shared four fundamental parameters of a successful project:

 

1. the scale of the project
2. the risk allocation between contracting Authority and private sector
3. a clear definition of the requirements
4. the change management in the operation phase.

 

Responding to Mr Tousseyn’s presentation, Ms Rodert stressed that these metrics were essential: “we need a whole portfolio of instruments to encourage these kind of partnerships to deliver better services for people.”

 

The added value of InvestEU

 

The discussion then opened to the floor and panelists started debating. Mr Munisteri stressed that “for the first time”, with InvestEU, “we have a window which is specifically dedicated to the social investment skills.” It has the objective to foster investment in the sector while taking into account the specificities of the social sector when it comes to return on investment.

 

By bringing the Commission’s stamp of approval on investment projects, said Mr Munisteri, “we hope that our guarantee will help our implementing partners to encourage initiatives as the one developed by Caisse des Dépôts together with the Council of Europe Bank.”

 

Susanne Kraatz, administrator at the European Parliament, asked the Commission panelists if they could further explain the structural organisation of the funding programme: “you have the infrastructure, you have the SME window, and then you have two topic windows,” she said. “So what is the structure then within these windows?” she asked.Mr Munisteri replied that a social project – the “social window” – will encompass educational, hospitals and social housing. These types of projects have strong service-oriented needs on top of financing needs to social enterprises: these projects are at the crossroads of “micro financing and social outcome contracting,” said Mr Munisteri. “These projects are more services-oriented rather than brick and mortar type of project,” he added.

 

Simplification process

 

Istvan Karasz, from the European Youth Card Association, asked the Commission officials the rationale in regrouping all these sources of funding into one single InvestEU programme. Mr Munisteri replied that the first benefit comes from gathering the 38 instruments into one single programme – which should simplify matters for the Commission, the implementing partners as well as the final beneficiaries who can go to one single programme.”

 

David Percheron, from the CDC, agreed that having direct access to the EU guarantee will be a substantial improvement. Mr Percheron could see good complementarity between the European Commission and national public investors like the CDC which have deep roots at a national level. In his view, there would be benefits in working directly with the Commission: “we have some assets and with these direct access on the basis-to-basis projects, we can do more.”