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infrastructure financing

Pushing water downhill: Considering ICT PPPs

Jeff Delmon's picture
Students using new high-speed Internet in Tonga. Photo: World Bank Group

For private financiers, official government support to information and communications technology (ICT) projects might seem like trying to push water downhill. After all, isn’t ICT incredibly profitable? What’s the point of a public-private partnership (PPP) in this sector, anyway?

Here’s the rest of that familiar argument: Government should stay out of the way and let the private sector carry the communications sector; it is a waste of effort and inefficient to try to push forward something that has its own momentum. Like a rushing river, the naysayers conclude, ICT needs no help advancing down its inevitable course.

It sounds reasonable in theory, but in practice, that approach just doesn’t work. The government needs to guide the river down the best course for the citizens it serves, building a weir or mill to help the river provide maximum benefits to the people who need it. And, just as water is the foundation of life, communication technologies are necessary to prosper in today’s world. Knowledge is power. And specifically, access to markets is improved by mobile phones, as is access to banking services, finance, investment opportunities, and education.

Successful ICT strategies usher in jobs, empowerment and economic growth.

​Why institutional infrastructure is as important as physical infrastructure: Southeast Asia’s experience with air liberalization policies

Cledan Mandri-Perrott's picture
As a Singapore-based public-private partnerships (PPP) team focused largely on infrastructure development, we look closely at infrastructure’s impact on our region’s economic health. The governments in our area also track this in great detail, coordinating efforts through the Association of Southeast Asian Nations (ASEAN)
 
Photo: Wikimedia Commons

Among other benefits, ASEAN gives countries a platform to develop coordinated ways in which member countries can accelerate economic growth alongside social progress. An important focus for ASEAN members is how this large, diverse group can build infrastructure that will bring valuable public benefits to all of its citizens. This includes infrastructure development, some by way of traditional PPPs,that improve road networks, trade connectivity, mobility, power, and other public services in developing regions.
 
Yet in the ASEAN community, as everywhere else, building infrastructure cannot be done in a vacuum.  Developing institutional infrastructure and improving the quality and efficient use of existing physical infrastructure is as important as creating physical infrastructure. The right policies and programs can ensure that existing infrastructure is efficient, provides quality services and is used to optimal capacity. As ASEAN’s successes have demonstrated, these goals are contingent on good planning and coordination among users and agencies.

One question, eight experts, part eight: Thomas Maier

Thomas Maier's picture
Almaty, Kazakhstan. Photo: Wikimedia Commons

To gain a better understanding of how innovation in public-private partnerships (PPPs) builds on genuine learning, we reached out to PPP infrastructure experts around the world, posing the same question to each. Their honest answers redefine what works — and provide new insights into the PPP process. This is the question we posed: How can mistakes be absorbed into the learning process, and when can failure function as a step toward a PPP’s long-term success?

Our eighth and final response in this eight-part series comes from Thomas Maier, Managing Director, Infrastructure with the European Bank for Reconstruction and Development (EBRD).

For countries new to PPPs, there is no doubt a steep learning curve. Fortunately, there is also a growing body of experience that such countries can learn from — the key is to understand the essence of the lessons and then incorporate these changes into the design of government support for PPPs.

Ultimately there is, of course, no substitute for good project preparation, local capacity and the development of solid legal frameworks and local capital markets — we all know these are the building blocks for the long-term success of any country’s PPP program.

Focusing on lessons learned from EBRD’s region, two current examples from Kazakhstan and Turkey come to mind.

​Developing municipal credit markets: Experience with pooled finance

Kirti Devi's picture

Urbanization is a defining trend of our time. In 1900, 13 percent of the world’s population was urban. Today more than half of the estimated population of 7.2 billion lives in cities. And this growth has happened in one century.
 
On the upside: Urbanization and economic development are correlated and there are other benefits of density and agglomeration economies. Production is concentrated in cities, which are also centers of demand and social convergence. No country has achieved high-income status without significant urbanization. However, increasing energy use, accelerating CO2 emissions and more environmental pressures will accompany GDP growth. Mismanaged urbanization will impose social and environmental costs that will be difficult to reverse.
 
In many countries, this urbanization trend is playing out within the context of increased decentralization and fiscal adjustment, and local governments are increasingly responsible for the provision and financing of public infrastructure for their constituencies. This has placed an increased strain on local financing resources and led to an emphasis on the development of local credit markets and resorting to public-private partnerships (PPPs).

​Toward an effective PPP business model: An eight-point plan for closing the infrastructure gap

Thomas Maier's picture
Photo: Wikimedia Commons
The global need for infrastructure is significant, particularly in emerging markets. By consensus estimates from the Organisation for Economic Co-operation and Development (OECD) to the Boston Consulting Group and the World Bank Group, the estimated annual global infrastructure investment need is about US$3.7 trillion – of which only about $2.7 trillion is currently met on an annual basis. 

This much-discussed “infrastructure gap” is large and it is widening. Even if fiscal conditions in developed and emerging economies improve, the need introduced by the infrastructure financing gap is unlikely to be met from public sources alone. This generates an expectation that private capital and user charges must be mobilized to fill these gaps.

But this is an entirely predictable problem, and over many years the international community has made efforts to provide assistance in building public-private partnership (PPP) capacity in emerging markets. Finding ways to leverage private sector investment through sound, consistent and sustained public sector policies should be a focal point for governments around the world.  International financial institutions (IFIs), given their unique relationships with emerging market governments, can and do play an important role. The community of professionals in multilateral development banks (MDBs) is listening; MDBs are willing and able partners.

Of course, stating that idea is one thing; practicing it is another. Here are eight ways that together, we can move from the theoretical to the actual and reach our goals for infrastructure.

How national PPP units can influence regional performance: Korea’s experience

Kang-Soo Kim's picture

Kang-Soo Kim is Executive Director, Public and Private Infrastructure Investment Management Center (PIMAC), at the Korea Development Institute (KDI), the Republic of Korea’s leading think tank on national economic development. In this blog entry, he explains how national Public-Private Partnership (PPP) units can influence regional economic performance.

Photo: Wikimedia Commons

What advice would you give governments creating a PPP unit?

First, for a government considering this, the vision for PPP needs to be established and shared with others. Second, clearly distinguished roles and functions must be institutionalized. Third, expertise needs to be developed in fields like law, finance, accounting, economics, development, and engineering. Fourth, active benchmarking of developed PPP economies and cooperation with other PPP units should be encouraged and promoted

Overall, it’s critical to remember that a PPP unit’s expertise and capacity is not built overnight. So my final piece of advice is that while experience is built, remaining patient is just as important as maintaining a clear vision of PPP.

What makes PIMAC effective?

The legal and institutional system that guarantees independence and objectivity to the evaluation body is the most important element here. A PPP unit should not be in any way influenced by other players in a PPP project — whether the budget authority, the competent authority, or the private concessionaire. The government is vulnerable to political influence although the private sector is the project stakeholder. Independent and objective assessment by the PPP unit is therefore all the more crucial. It is important that the government lends its support, and that all decision-making reflects evaluations made by the PPP unit.

One question, eight experts, part two: Fernando Crespo Diu

Fernando Crespo Diu's picture

To gain a better understanding of how innovation in public-private partnerships (PPPs) builds on genuine learning, we reached out to PPP infrastructure experts around the world, posing the same question to each. Their honest answers redefine what works — and provide new insights into the PPP process. This is the question we posed: How can mistakes be absorbed into the learning process, and when can failure function as a step toward a PPP’s long-term success?

Our second response in this eight-part series comes from Fernando Crespo Diu, Director of UTAP, the Portuguese PPP unit.

Although not a desirable outcome, failure is always the first step of the learning process toward more successful projects, in terms of implementation, value for money, and financial and fiscal sustainability. There is an enabling prerequisite for the learning process, particularly given the complexity and long duration of PPP arrangements: the establishment of institutional arrangements that provide stable, professional and fully dedicated teams of experts within the structures of the public sector.

A central PPP unit — ideally located in the Ministry of Finance — should participate in all stages of a project lifecycle, from structuring to contract management, allowing continuous feedback and dialogue between contract management and public teams. In such an environment, the role of external advisors has to be carefully planned, as they provide key skills along the project lifecycle, but must not substitute those tasks where knowledge must be developed, stored and used by the public sector.

Senegal shifts its thinking: Context is everything

Oumar Diallo's picture
Editor's note: this is the second in a two-part series. Click here to read the first part, "Senegal shifts its thinking: Rural water delivery moves to private operators."
 
Photo: flickr/Julien Harnels

In the rural water sector in Senegal, as with many parts of the world that have experienced tremendous changes, context is everything. Rarely does one single act spur a shift at the government level; many elements combine to prompt a change in approach.

The PPP team in Senegal was privileged to be able to develop a brand-new system for rural water delivery in Senegal (see previous post here), but our activity was just one contributing factor in a much larger national and even international effort. The political context in Senegal, along with sustained attention to the Millennium Development Goals (MDGs), created the right atmosphere for this PPP.   
 
Here are five important elements that came together to make Senegal’s paradigm-shifting PPP possible:
  1. Government officials’ forward-thinking views. Coming up with an original plan for the delivery of rural water depended on zoning changes. Our group’s internal study showed that dividing the country into three zones would make it possible to cluster services. Government’s willingness to consider clustering pipe systems across 14 regions was critical, because it made support from the private sector a viable option.

One question, eight experts, part one: Isabel Rial

Isabel Rial's picture

Some public-private partnerships (PPPs) fail. That’s a fact. But when the lessons these failures impart are integrated into future projects, missteps have the potential to innovate — energizing the learning cycle and setting the stage for long-term success. To gain a better understanding of how innovation in PPPs builds on genuine learning, we reached out to PPP infrastructure experts around the world, posing the same question to each. Their honest answers redefine what works — and provide new insights into the PPP process.

This is the question we posed: How can mistakes be absorbed into the learning process, and when can failure function as a step toward a PPP’s long-term success?

Our first response in this eight-part series comes from the International Monetary Fund's Isabel Rial.

For centuries, PPPs have been used by governments as an alternative to traditional public procurement for the provision of public infrastructure, although results have been mixed. If properly managed, PPPs can deliver substantial benefits in terms of mobilizing private financial resources and know-how, promoting efficient use of public funds and improving service quality.

Yet in practice, PPPs have not always performed better than traditional public provision of infrastructure. The reasons for this vary across countries.

​Integrating West African economies PPP-wise

François Bergere's picture
Photo: Wikimedia Commons

What do Benin, Niger, Guinea-Bissau, Togo and Mali have in common? Apart from being members of the eight-country strong West African Economic and Monetary Union (UEMOA), they share a common status as low-income countries, faced with huge infrastructure needs and financing challenges.
 
Furthermore, they have decided that one way to address these challenges and sustain their economic growth was to promote public-private partnerships (PPPs) through a regional framework and strategy. This initiative is supported by the Public-Private Infrastructure Advisory Facility (PPIAF) for the World Bank, and Agence Française de Développement (AFD) and Expertise France on the French cooperation side.
 
Which is why — on July 2-3 in the midst of sweltering weather in the leafy  suburbs of Ouagadougou, the capital of Burkina Faso,  which  is also  home to  UEMOA headquarters — 20 or so experts and decision-makers attended a two-day seminar to discuss the framework and strategy. Beyond PPIAF and AFD, regional participants included representatives from the UEMOA Commission, the Regional PPP unit at the West African Development Bank (BOAD), the African Development Bank (AfDB), the African Legal Support Facility (ALSF), the Organization for Harmonization of Business Law in Africa (OHADA), and the Central Bank of West African States (BCEAO).
 
The issues we covered included the need to:

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