Sports Hub 'an isolated case'; other public-private partnerships in Singapore have worked well: Analysts
SINGAPORE: Public-private partnerships (PPPs) are under the spotlight after the Government took over the management of the Sports Hub last week, more than a decade earlier than agreed upon.
The S$1.33 billion facility was a tie-up between the Government and SHPL, a consortium made up of four companies – Infrared Capital Partners, Dragages Singapore, Cushman & Wakefield Facilities & Engineering, and Global Spectrum Asia.
SHPL was hired in 2010 on a 25-year contract to design, build, finance and operate the Sports Hub. It has run the sporting facility for eight years since it opened in 2014.
Last Friday (Jun 10), it was announced that government agency Sport Singapore (SportSG) will take over the ownership and management of the Sports Hub from Dec 9.
What is a public-private partnership?
The public-private partnership (PPP) was a form of procurement introduced under the best sourcing framework in 2004, according to the Ministry of Finance’s (MOF) second version of the handbook on PPPs published in 2012.
The best sourcing framework "encourages public agencies to engage private sector providers in delivering non-core government services if it is more efficient to do so", the handbook stated.
Traditionally, public agencies only engage private sector companies to construct facilities or supply equipment, said MOF. The public agencies will then own and operate the facilities or equipment to deliver services.
However under PPP, the public sector will "focus on acquiring services at the most cost-effective basis, rather than directly owning and operating assets".
In the long run, a PPP would mean public services could be delivered in a "more value for money way" by optimising the "expertise, resources and innovation” in the public and private sectors to “meet public needs effectively and efficiently".
WHY THE SPLIT?
A number of factors led to this breakup, analysts said, but this “isolated case” is not an indictment of the PPP model – which has worked well in many other instances here and abroad.
Professor Lawrence Loh, director at the Centre for Governance and Sustainability at National University of Singapore (NUS) Business School, said that the Sports Hub faced challenges even before the COVID-19 pandemic.
When the Sports Hub hosted international football matches in its early years, it drew flak for the poor condition of its pitch. Audiences attending concerts also had complaints about a leaky retractable roof and the sound system.
The National Day Parade was supposed to be held there annually but after one run in 2016, it moved back to the Floating Platform.
Prof Loh said that while the National Stadium at the Sports Hub has booked a few large events, these were probably not sufficient and large revenue streams failed to materialise. Due to the pandemic, the last two years have been “tough” and the Sports Hub’s profit has halved, he added.
At the same time, the aims of the Government and the consortium have diverged – the Government is emphasising broader participation in sports, while SHPL would need to raise more revenue, which may mean raising its rentals and fees.
“The pandemic has not helped but going forward they really need to up their revenue streams, including even upping their booking fee, so this will not help the social objective of broadening participation ... they don't square together,” he said.
“It's very hard to have a business model of sports while at the same time serve a social purpose.”
PPP SUCCESSES AND FAILURES
But while the PPP has not worked in this case, there are many other projects which have succeeded.
Said Prof Loh: “Don't throw the baby out with the bathwater … I think it’s just an isolated case, because of the speculative nature of the subject of the PPP, which posed a challenge.
“But PPP as a concept in finance, in management is definitely very sound because of the principle of synergy – synergy in risk sharing, synergy in resource allocation.”
Abroad, there are numerous examples of thriving PPP projects including airports in Japan, New York’s Central Park Conservancy and infrastructure like toll roads in China, said Prof Loh.
In Singapore, there has been a range of PPP projects since the early 2000s in areas ranging from water and sewage treatment and incineration plants to IT infrastructure, defence facilities, transport and education.
The book Exploring Public-Private Partnerships in Singapore by Kim Soojin and Kwa Kai Xiang counted 38 publicly known PPP projects launched between 2000 and 2019.
More than 80 per cent of these projects have been successful, according to the authors’ analysis. Some examples are the SingSpring desalination plant, ITE College West and TradeXchange.
Apart from the Sports Hub, some failed PPPs include the Changi Motorsports Hub, university accommodation at the National University of Singapore (NUS) and the Singapore Management University, and the Tuaspring integrated water and power plant.
Mr Kwa Kai Xiang, a lecturer at the School of Social Sciences at Nanyang Technological University and co-author of the book cited above, said that there are some common factors that can determine if a PPP works out.
“On the whole, although there can be project-specific factors leading to PPP success and failure, there are nonetheless common critical success factors underpinning successful PPPs from various sectors,” said Mr Kwa.
Two factors are a “sound financial infrastructure” for the private company, and the “alignment of public and private sectors' interests”.
An external factor that could make or break the project is the stability of global economic conditions and supply chains. At a project level, one thing to look out for would be the corporate and financial management of the PPP, he added.
As detailed in his book, there have been at least five successful PPP water projects between national water agency PUB and the private sector from 2000 to 2010, including desalination plants and NEWater plants.
The National Environment Agency also contracted with Keppel Seghers to build and operate an incineration plant, which has been operational since 2009.
In the education sector, the ITE College West built by Gammon Capital has won several awards, including the Asia Pacific PPP Deal of the Year by Project Finance International, Singapore.
In contrast, sports facilities projects have not had such a good track record. With the Changi Motorsports Hub, the company involved, SG Changi, was investigated by Singapore’s Corrupt Practices Investigations Bureau (CPIB) for irregularities in the tender.
This caused the project investors to withhold funding and the project not meeting key deadlines. In 2011, the then-Singapore Sports Council terminated the project partnership.
One notable failure that dominated headlines was the Tuaspring integrated water and power plant project by Hyflux. After Hyflux underwent court-supervised debt restructuring, PUB took over the desalination plant from Hyflux in May 2019.
On the other hand, there are PPPs whose success is difficult to fully ascertain, according to some industry analysts. One such project is the MRT system.
“I think it’s quite hard to talk about the issue because it’s actually very complex. The PPP encompasses a wide range of activities, and so it’s hard to say whether a PPP works,” explained Associate Professor Walter Theseira, who teaches economics at the Singapore University of Social Sciences.
“There is a wide range of arrangements for the MRT system, which span a range of different concepts. … Some external experts might not even call our system a PPP.”
When the MRT system first opened in 1987, its lines were fully owned and operated by the state. Then in 1996, more of the MRT system was privatised in hopes that it would lead to greater efficiency.
In 1998, SMRT – which was then a government-linked company under Temasek – began operating the North-South and East-West lines. SMRT later became a listed company in 2000.
LTA also awarded the operating licence for the North-East line to SBS Transit, another listed company.
But in 2016, following criticism that SMRT as a private company might have prioritised profits over providing an essential public good, SMRT was delisted. LTA bought back SMRT's rail assets, returning them to government control.
On the other hand, Associate Professor Raymond Ong, from the Department of Civil and Environmental Engineering at NUS, believes the MRT system's PPP has "largely worked".
"If we look at (earlier) days, what happened is that private operators had to do the maintenance, and also the operations of the stations and trains. And often, this would mean that lesser attention might be paid to the reliability of the service, the maintenance and quality level," he said.
"In this case, what happened is the Government took control of the infrastructure. And the operator takes control of the operations. So this means that they actually free the operator from the need to maintain the infrastructure. The operator will continue to invest in operations and improve the level of service, while the Government owns the railway operating assets. So that we will enjoy a better public transport system."
BALANCE NEEDED FOR PPP TO SUCCEED
However, like all PPPs, in the case of the MRT, a well-designed PPP is “meant to leverage the best aspects of private and public sectors”, said Assoc Prof Theseira.
“We believe the private sector has more flexibility, willingness to change and innovation, and is thus better placed to design, build and operate the system compared to the public sector. They’re not bound by civil service rules, for instance."
“On the other hand, what you hope to mitigate with public sector involvement is the private sector’s tendency to do (things) that might harm the public interest.”
Using the MRT system as a case study, a balance must be achieved when it comes to PPPs.
“The principle is that you look for competition and innovation … These things are more easily or readily available in the private sector. The problem is when you believe in this principle too much and don’t have the necessary safeguards, then you end up with undesirable outcomes," said Assoc Prof Theseira.
"It’s a trade-off… Just as it’s untenable to go to a completely private system, it’s also just as untenable to go to a completely national system without any sort of private sector involvement.
"Something in between is still all right. The problem is how far in between you are. It’s an open-ended question that we need to think about harder."
Where a lot of PPPs might “come to ruin” is when the private sector “bites off more than it can chew”, added Assoc Prof Theseira.
With an MRT system, this might look like a cost structure that might require them to charge a certain amount for fares that might not meet public sector objectives.
Another area of potential failure is when the government doesn’t uphold its end of the bargain, such as “building conflicting train lines” that might compete with the PPP.
“One should be quite careful about PPPs, because there are a lot of ways they can go wrong, and when they go wrong, the situation might result in a lot of taxpayers footing the bill. ... We can’t expect the system to always get it right,” added Assoc Prof Theseira.
Unforeseen circumstances, such as a pandemic, could also change the operating environment dramatically, forcing the need to "rewrite” a PPP.
As such, Mr Kwa noted that public and private sector parties who want to develop PPPs can consider establishing rigorous processes to identify risks and challenges so that they can mitigate them in a timely manner.
“At the external environment level, monitor more closely current and anticipated global economic and supply chain trends, especially trends that can have a direct impact on the ability of the concession company to deliver its project outputs,” he added.
The Sports Hub partnership seemingly failed to have a robust way of spotting and addressing risks and challenges, he said.
And in the bigger picture, there are "parallel" lessons to be drawn with the MRT system and the Sports Hub, namely understanding the "balance of who actually bears the risk of revenue and the risk of cost", said Dr Ong.
If only one party bears all the risks, it will be a "vicious cycle", where there is "less incentive to improve infrastructure". This would then lead to fewer "premium activities" being held in Singapore, as infrastructure is key to attracting sports events, he said.
"It's the same as the MRT. If we don't invest in infrastructure, then the train will break down, and who will take the system? But now people have restored confidence in the public transport system. Ridership has increased over the years, compared to, say, five to 10 years ago. Having shared ownership (of the system) has helped in this aspect," added Dr Ong.
With the Sports Hub, however, Dr Ong cautioned that looking at who benefits in the future does not always come down to monetary value.
"It is a bit unlike the MRT, because the MRT benefits the entire Singapore. Any breakdown will have a huge societal cost. ... Under the Sports Hub, what is the societal value, monetary or non-monetary, that we are bringing to the table? Sometimes it's not just about money."