Here is a new paper I wrote that provides perspectives on patterns of public-private partnerships (PPPs) in infrastructure across time and space.
PPPs are a new term for old concepts. Much infrastructure started under private auspices. Then many governments nationalized the ventures.
Governments often push infrastructure providers to keep prices low. In emerging markets, the price of water covers maybe 30 percent of costs on average, that of electricity some 80 percent of costs. This renders public infrastructure ventures dependent on subsidies. When governments run into fiscal troubles, they often look again for PPPs, and price increases. As a result, PPPs keep making a comeback in most countries, but are not always loved.
Normally critics of the private sector like disparaging the greed of bankers. Many bankers in turn take a dim view of people who do not see the value of endeavors involving the profit motive. Yet, as the French say: “Les extremes se touchent” – sometimes extreme views have more in common than they care to admit.
In one such case, both bankers and critics of public-private partnerships (PPPs) are happily united in dumping risks on unsuspecting taxpayers – precisely the citizens whose interests they profess to serve. How so?
Banks are unusual firms. They carry little equity relative to debt – often no more than five percent of total assets at best. Typical firms in other sectors would find such levels of equity positively dangerous. They often carry equity worth 50 percent of assets, many even more.
Bankers say equity is expensive and debt cheap. Hence low leverage – little equity as a share of assets – makes sense. If that were it, firms other than banks would be fairly dim-witted. They should also load up on debt and thus lower costs. So why don’t they?
Note: This blog entry was adapted from an original submission for the PPIAF Short Story Contest. It is part of a series highlighting the role of Public-Private Partnerships (PPPs) in projects and other transformative work around the world.
For the most part, protected areas in Brazil are managed by the public sector. As a result, like other countries, these areas face conservation difficulties, including a lack of resources for maintenance and other initiatives.
Because of this lack of public-sector financial and human resources, the private sector has provided a significant portion of funding for managing protected areas. One of these cases is in Brazil’s Minas Gerais State. The Secretary of State for Environment and Sustainable Development (SEMAD), Forest State Institute (IEF) and Public-Private Partnership Central Unit collaborated to develop a PPP model focused on management, conservation and operation of three protected areas, located in the State’s Karst region: PPP Peter Lund Cave Route.
The PPP Peter Lund Cave Route aims to structure a single, singular national and international tourist track, aligning the unique natural and cultural elements of the karst region. This new management model is demonstrating results for conservation and sustainable development, including the mobilization of public policies that value one of Brazil’s greatest characteristics: biodiversity.
I would loved to have been at the PPP Days 2015 conference in London this week. But even though I was in Kyiv, I was able to join in. The opening plenary was streamed live, and on the second day, I was able to interact with a panel of PPP experts using Google Hangouts and Twitter.
I’m no stranger to either platform. I get most of my news through Twitter, and my daughter sends me messages from class on Hangouts (hi dady [sic], school is sooooo boring :P).
This time, however, I was engaging with giants of the public-private partnership (PPP) universe. Laurence Carter, the Senior Director of the World Bank Group’s PPP Group, moderated a panel of seasoned experts from EBRD, the Indian School of Business, and Meridiam, an investor in infrastructure. Together they provided perspectives on PPPs from international financial institutions, academia and the private sector. I joined about 200 other people from around the world and watched it live. But something was different: you could interact with the panel from afar and ask questions via Twitter using the hashtag #PPPMOOC (go check it out).
I was aching to test the system, so I tweeted a question about the value of small PPPs at the municipal level, like the Malyn Biofuel PPP I blogged about recently. I could hardly believe it when Laurence asked the panel for their views on the subject. How incredible: from Ukraine, I was influencing the course of discussion of a panel of PPP experts in London! They talked about it for five minutes and offered some valuable insights.
The second half of the PPP Days conference in London was devoted to country presentations of priority PPP projects, and a few projects – those most likely to be brought to market in the next six to 12 months – were showcased in detail. It was an inspiring example of collaboration for the greater good, proving that PPPs’ potential is limited only by our imagination. (OK, and budgets. And elections. And good structuring. And the presence or absence of natural disasters. But it all starts with imagination and commitment.)
PPP Days participants also exchanged ideas today with people around the world who are engaged in the ongoing Massive Open Online Course (MOOC) on public-private partnerships, via the first-ever PPP MOOC Google Hangout. This was an unprecedented opportunity for the over 23,000 people from more than 190 countries now taking the course to ask their most pressing PPP-related questions to officials and experts attending PPP Days – and for these officials and experts to learn from those in the field.
The PPP MOOC Google Hangout was facilitated by Laurence Carter, Senior Director of the World Bank Group’s PPP Group. Panelists included Julia Prescott, Chief Strategy Officer, Meridiam; Thomas Maier, Managing Director for Infrastructure, EBRD; and Pradeep Singh, CEO of the Mohali Campus and Deputy Dean of the Indian School of Business.
As your PPP Days Rapporteur, I feel like I should start this dispatch by typing “Dateline: London” on a manual typewriter in a newsroom thick with cigarette smoke. Alas, I am hunting and pecking the tiny keyboard of my phone from Exchange Square, the immaculate, smoke-free home of the European Bank for Reconstruction and Development (EBRD), our hosts for the PPP Days meeting.
“Doing More, Doing Better” is PPP Days’ ambitious-sounding theme. The event’s creators convened the gathering to enhance the collaboration among multilateral development banks (MDBs) that is already strengthening the PPP marketplace. One of the best examples of this collaboration, the PPP Knowledge Lab, launched at the conference this morning. The PPP Knowledge Lab, now live at www.PPPknowledgelab.org, is an online “one-stop-shop” for everything PPP. It’s an important online resource that will continually be refreshed and expanded.
Just as the PPP Knowledge Lab gathers great ideas onto one platform, PPP Days has gathered experts and thinkers in one place. These two days are packed full with talks, presentations, panel sessions, and breakout sessions that chip away at one of the most challenging questions of our day: “What would it take to double the right private infrastructure investment in emerging markets?”
Most public-private partnership (PPP) transactions you hear about are large, multi-million dollar infrastructure deals with serious global players competing in international tenders.
But PPPs don't have to be big to be successful. In Malyn, a town of nearly 30,000 in Ukraine, a biofuel PPP helped the city administration heat three schools last winter by refitting a municipal boiler house, allowing it to substitute expensive, unreliable imported natural gas with locally-produced biofuel made from locally-produced pellets made from wood or straw.
I never planned to get so involved with sharing knowledge when I started my career as a civil engineer. However, last week saw the culmination of two intense but extremely rewarding pieces of work for me that were all about knowledge sharing and learning.
First of all, I was in Malawi, together with my World Bank and IFC colleagues, to help with a two-day workshop on public-private partnerships (PPPs) in water with more than 60 professionals from across the region, in collaboration with Malawi’s Ministry of Agricultural Irrigation and Water Development. Over the course of the workshop, we all learned a lot from sharing experiences with our peers both public and private and discussing how the private sector can play a role in expanding and improving water and sanitation services. Everyone took to the exercises with gusto as they played the roles of the public and private sector negotiating the risk allocation of a PPP project.
This lively and stimulating debate was mirrored by the virtual debate I was following on-line in the margins of the workshop. Over the last six months, I have been helping put together a free on-line learning course on how public-private partnerships can help deliver better services.
The PPP MOOC (Massive Open Online Course – yes, that was new to me too) launched on June 1 and will run for four weeks. It includes video lectures, readings, quizzes and other learning materials that are designed and taught by experts from academia, government and the private sector. It has been fascinating to pull together the materials for the course and work with the range of presenters, who so graciously gave us their time and expertise for the course.
In March we released the update from the Private Participation in Infrastructure (PPI) Database for the first six months of 2014, covering investment activity in energy, transport, and water and sanitation. The good news of a rebound of investment commitment from a decline in 2013 was noteworthy, alongside the heavy concentration of activity in Brazil.
The PPI Database’s 2014 full year update for these sectors has just been released, and it confirms the trends we began tracking for the first six months. Total investment in infrastructure commitments for projects with private participation in the energy, transport, and water and sanitation sectors increased six percent to $107.5 billion in 2014 from levels in the previous year. The total for 2014 is 91 percent of the five-year average for the period 2009-13, which is the fourth-highest level of investment commitment recorded – exceeded only by levels seen from 2010 through 2012.
This increase over 2013 was driven largely by activity in Brazil. Without Brazil, total investment commitments would have fallen by 18 percent, from $77.2 billion in 2013 to $63.4 billion in 2014. Although this is lower than H1 2014 (57%), Brazil’s large stake is a continuation of a recent trend.
The Latin America and the Caribbean (LAC) region saw $69 billion of investment commitments, or nearly 70 percent of the total for 2014. Three of the top five countries by investment commitments in 2014 were from LAC. The top five, in order, were Brazil, Turkey, Peru, Colombia, and India.
The submissions included examples of innovative PPPs in emerging markets across a broad range of sectors, such as transport, water, energy, and health. Submissions were judged by an independent panel on several criteria, including the identification of actionable ideas, replication potential and relevance to the World Bank Group’s twin goals: ending extreme poverty by 2030 and boosting shared prosperity (measured as the income of the bottom 40 percent in any given country).
The overall winner is Anna Roy for her submission on the India Infrastructure Finance Company’s use of innovative financing to facilitate private investment in infrastructure projects. The India Infrastructure Finance Company was created in 2006 by the Government of India to help raise long-term funds for PPPs. The company, which is fully owned by the government, has approved investments in more 300 infrastructure projects since its inception.