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public investment management

Preventing renegotiation, fostering efficiency

Rui Monteiro's picture
Lawyers usually say that “the best contract is the one you never have to pull out of the drawer” — a view that focuses on trust, common understanding and mutual advantages. And then they will add that public-private partnership (PPP) contracts, even with the best government–business relationship, are a bit more complex. That’s because they are based on incentive mechanisms that require not only regular monitoring, but also some degree of cooperation and a modicum of strategic management — the three components of PPP contract management.
Photo: Wikimedia Commons
The ultimate success of a PPP contract depends on effective service delivery under conditions of sustained efficiency. The efficiency comes from linking private operator rewards to performance over the long-term (output focus), and from providing credible commitment by the private partner through private finance (or, as it’s known in some circles, “hostage capital”).
There are many cases, as seen in previous issues of Handshake, of PPPs providing high-quality reliable service to users at a reasonable cost for users and taxpayers. But there is also recognition that, over the long-term, PPP efficiency may be jeopardized by contract renegotiation — by necessity renegotiation under no competitive pressure, with asymmetrical information.

This sort of renegotiation creates a risk of breaking the initial commitment, changing rewards and risk allocation. Though theoretical economists would say 
that “in the long-term” renegotiation of incomplete contracts is unavoidable, PPP practitioners should do their best in order to avoid the need for renegotiation, while simultaneously preparing for renegotiation when it is the best solution in terms of public interest.

Improving Public Investment Management: Spotlight on Ethiopia

Mario Marcel's picture
 
Overview of Addis Ababa, Ethiopia. Photo - Arne Hoel / World Bank
Overview of Addis Ababa, Ethiopia. Photo: Arne Hoel / World Bank


Last month I met with ministers and local officials in Addis Ababa to explore areas where we, at the World Bank, can help build institutional capability in Ethiopia. The trip was an enriching experience, both personally and professionally. It was gratifying to see first-hand the good work and commitment to development exhibited by our staff in the country.

We have had a decade-long engagement with Ethiopia with a successful track-record. Ethiopia has one of the largest World Bank portfolios in the Africa Region (US$6.1 billion in 2014) and the partnership is strong, with a robust future.

During my visit, I gave a lecture at Addis Ababa University on Public Investment Management before an audience of faculty, students, civil society organizations and donors. I shared with them how much public infrastructure investment has done for the country. Ethiopia has the third-largest public investment rate in the world and three times the average for Sub Saharan Africa.

This effort has contributed to growth that has averaged 10.9 percent since 2004—a figure higher than that of their neighbors or low-income countries on average. Infrastructure investment has also been helpful in expanding access to services and in gaining competitiveness, being a large landlocked country. 

Leveraging the link: Public Investment Management and Public-Private Partnerships

Aijaz Ahmad's picture
Jordan is my second home, as I have worked there, off and on, since the late 1990s. I have watched Amman grow from a relaxed city into a hustling, bustling regional business and financial hub. Even though my Arabic is still rusty, there is no shortage of development partners and government officials ready to talk in our common language — the vocabulary of public investment management (PIM) and public-private partnerships (PPPs).
 
Amman, Jordan. Photo: Wikimedia Commons

Recently I was invited to speak at Public Investment Management (PIM): Best Practices Workshop hosted in Amman, Jordan by the World Bank Group’s regional Governance team, led by Emmanuel Cuvillier. My job there was to show the linkages between public investment planning (PIP) and PPPs. As I prepped for my speaking engagement, I realized how little progress we, the global PPP community, have made in developing an integrated approach for undertaking investment projects.

One obvious reason for this is that PIMs are not fully integrated in the planning functions by most governments. And PPP projects that follow privatization programs have adopted many of the habits of the privatization programs — for example, only work on a list of selected entities, and establish an ad-hoc commission/committee tasked to undertake evaluation and tendering — with the ultimate aim of obtaining private investment.

But there’s an important difference in the case of PPPs. We are not selling assets, we are creating assets. The project does not end when the public and private parties sign the contract, as is the case in privatization; in fact; the project begins at that point, and has to be monitored over many years for performance and delivery. Typically, the project reverts back to the public sector at the end of the PPP agreement term. And finally, unlike the case with privatization, the public sector almost always commits to various kinds of fiscal commitments (real or contingent) in PPPs.

Government choice and donor competition - a catalyst for doing development differently?

Nick Manning's picture

The Aid Transparency Initiatives and the focus on the use of country systems, emphasized in the Paris Declaration, encourage donors to publish what they fund and to use existing country public financial management systems. However, this focus on the how of development assistance somewhat distracts from the what. The bigger question really is why donors and governments focus on those particular areas and why those donors are the right partners to begin with.

 

Land Transparency – what makes for a good initiative? A case for a responsible investment index

Michael Jarvis's picture

Rice paddiesWith preparations for the G8 Summit in June in full swing, British Prime Minister David Cameron has made clear that transparency will be a key theme and within that a focus on transparency not just in the extractives sector but around land more broadly. This is in large part a response to concerns around the proliferation of large scale land acquisitions – the “land grab” phenomenon. Certainly that topic dominated discussion at the World Bank’s annual Land and Poverty conference this month.