Editor's Note: The World Bank Group is committed to helping governments make informed decisions about improving access to and quality of infrastructure services, including using Public-Private Partnerships (PPPs) as a delivery option when appropriate. One of the PPP Blog’s main goals is to enhance the understanding of PPPs while eliminating misconceptions about them, ultimately enabling better decision making throughout every stage of the PPP cycle. To that end, the “Mythbusters” series, authored by PPP professionals, addresses and clarifies widely-held misunderstandings.
Like the Sirens whose voices lured mariners to their death, myths can undermine the best projects. The myths surrounding airport public-private partnerships are particularly distracting, and can sidetrack policymakers from the opportunities these transactions offer. But an open mind, commercial awareness, and the aid of experienced advisers can cut through the clamor.
It is important to distinguish between projects that exceed expectations — and therefore generate greater than expected financial returns to both parties, yet require additional, unanticipated capital investments — and struggling projects where there is an urge by the developer to reduce ongoing investment and maintenance.
“Successful PPPs are all alike…”
To paraphrase Tolstoy, successful PPPs are all alike, but every unsuccessful PPP is unsuccessful in its own way.
Successful projects are easier to manage owing to positive cash flows, and could additionally incorporate an obligation by the developer to increase its investment according to certain capacity-related triggers on the basis of floor and ceiling for project returns. This could also be supplemented by sponsor commitments to co-investment or to extend the concession terms based on minimum returns, as well as a sponsor sinking fund to ensure independence from the uncertain and tedious public budgeting process. Very often, concession agreements focus on what to do when things go wrong, but not how to continue to meet demand when things go well, especially toward the end of the concession term.
Standing by for liftoff
The concession of Galeao International Airport (official name: Rio de Janeiro/Galeão–Antonio Carlos Jobim International Airport) got off the ground in the second round of airport concessions. The first round dates back to early 2012, when the government issued tenders for three major airports: Guarulhos (São Paulo), Viracopos (Campinas) and Brasília.
In mid-2012, following the successful outcome of these three projects, the Brazilian National Development Bank (BNDES) approached IFC to assist with a second round of airport concessions, including Confins airport (Belo Horizonte) and Galeão (Rio de Janeiro). IFC teamed up with the Estruturadora Brasileira de Projetos (EBP), a project preparation company owned by some of the biggest Brazilian commercial banks and BNDES. Together, IFC and EBP were responsible for the financial, technical/economic/engineering, and environmental studies.
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When disaster strikes, air transport is often the only feasible mode of transportation for first responders and urgently needed relief supplies. Following an earthquake, tsunami or hurricane, most roads, rail tracks and even ports become unusable, as they are blocked for days by debris. Airports, on the other hand, are remarkably sustainable and, within hours, usually become operational again.
The main reason of this sustainability is that runways are on open space where debris of a disaster can be removed quickly. Furthermore, a runway usually suffers remarkable little damage even by a strong earthquake, such as experienced last week in Nepal or in Haiti in 2010. And even if there are cracks and holes in the runway, modern relief aircraft like C-130s can operate safely for some time.
However, the challenges of operating relief flights can quickly become overwhelming, especially for airports in developing countries that usually experience only moderate traffic. In Haiti, for example, more than 74 aircraft landed on a single day following the earthquake to unload supplies. Such traffic poses risks in the air; air traffic control, often hampered by inadequate or damaged surveillance installations, can’t cope managing all arriving aircraft. On the ground, where tarmac and taxiways are small, congestion quickly reigns which prevents the arrival of more flights.
Bhutan has some of the most thrilling rides in the world—in the air and on the ground.
Flying into Paro Airport, the only international airport in Bhutan, is an experience like none other—its narrow runway tucked between rugged 18,000-foot peaks, high in the Himalayas. Below, the road between Thimphu, the capital, and the border city of Phuentsholing twists and turns as it navigates some of the world’s highest mountain passes, often blanketed in fog with visibility reduced to mere meters. On clear days, both offer some of the most stunning, breathtaking views you will ever see.
But stunning peaks do not make for easy trade routes, and this is a problem in Bhutan. That’s why the World Bank’s International Trade Unit teamed up with the South Asia Transport Unit to conduct a diagnostic of impediments to transport and trade facilitation in Bhutan. The diagnostic, a prelude to a potential investment operation, was based on the recently released Trade and Transport Corridor Management Toolkit.