Corporate Governance key for PPP projects?

There is a lot of evidence that Governance of PPP projects is essential for public sector to succeed in PPP, but not very much attention has been given to Corporate Governance of SPV. And indeed the philosophy of PPP is that private sector knows what it is doing and gets things right, or at least better than public sector. And this is correct – as long as public sector does its job in supervising and managing the overall project and behavior of private partner in particular.

As I see it, Corporate Governance is a bit forsaken subject, when establishing PPPs. Governments should not only get familiar with corporate structure of SPV, but also should be fully familiar with all contractual relationships within the PPP structure and perhaps should be represented on the Board of the SPV (certainly not being responsible for its decisions) or in its controlling governance structure.

Recent Report of UK National Audit Office (published 5 June 2009) clearly states responsibility of the poor Corporate Governance for the failure of this very important PPP project.

"The main cause of Metronet’s failure was its poor corporate governance and leadership. Many decisions had to be agreed unanimously by five shareholders, which all acted as Metronet’s suppliers and had different motivations depending on their roles. The executive management changed frequently and was unable to manage the work of its shareholder-dominated supply chain effectively. These suppliers had power over some of the scope of work, expected to be paid for extra work undertaken and had better access to cost information than the management. The poor quality of information available to management, particularly on the unit costs of the station and track programmes, meant that Metronet was unable to monitor costs and could not obtain adequate evidence to support claims to have performed work economically and efficiently."