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public-private partnerships

​Is infrastructure in emerging markets a good investment?

Laurence Carter's picture
There’s a lot of discussion about attracting more investors to invest in infrastructure in emerging markets. This will be one of the themes of the Financing for Development Conference next week. Last month the PPI Database’s 2014 full year update showed that total investment in infrastructure commitments in emerging markets for projects with private participation in the energy, transport and water and sanitation sectors increased six percent to US$107.5 billion in 2014, compared to 2013.  
 
But what does the evidence tell us about how good those investments might be for investors?
 
One interesting source comes from a Moody’s study based on the performance of over 5,300 projects. This data represents more than 60 percent of all project finance transactions worldwide over 1983-2013. It is broadly representative of worldwide project finance activity by year, industry sector and regional concentration. The data shows that:

Innovative financing: the case of India Infrastructure Finance Company

Anna Roy's picture


Editor's note: this essay was the Overall Winner in the 2015 PPIAF Short Story Competition.


India needs large investments in infrastructure for accelerating inclusive growth aimed at poverty alleviation and improvement in quality of life. Given the fiscal constraints that leave little room for expanding public investment at the scale required, Public-Private Partnership (PPP) has emerged as the principal vehicle for attracting private investment in infrastructure.

However, much of the private capital required for PPP projects has to be raised from domestic financial institutions that do not have the capacity or instruments to provide long-tenure debt for projects having a long payback period. While financial sector reform is a long-drawn process, this essay demonstrates how a well-designed intervention can help in bypassing the extant constraints without compromising on the integrity and prudence associated with debt financing.

By setting up a government-owned financial institution with a mandate to provide about 30 percent of the project debt, a large volume of long-term debt was mobilised while leaving the remaining 70 percent to be financed by the normal banking system. This was perhaps, a first-of-its-kind financial institution which not only lent long-term funds, but also gave a strong signal to the banking system to participate proactively in the financing of infrastructure projects. 

As a result, private investments aggregating about US$114 billion have been facilitated without any dilution in the prudential norms of banking. This essay explains the evolution and success of this initiative.

Sharing PPP experiences across borders

David Lawrence's picture
How valuable are lessons of experience in PPPs from other countries? Legislative and regulatory environments differ, as do market conditions and the overall investment climate. So replicating a successful PPP in another country isn’t a simple as following the same steps or using similar contract or tender documents.
 
But that doesn’t mean lessons cannot be transferred. Even if conditions vary, the underlying principles of PPPs remain the same regardless of where it is executed. For example, a PPP is always a long-term contractual agreement between a government entity and a private company; it must be financially sound if it is to work; and risks must be identified, mitigated and allocated effectively. The details of how these principles are applied will vary depending on the regulatory and market conditions of each country. But the examples remain valid nonetheless.
 
In Ukraine, PPPs have been slow to catch on, initially because the business climate was so weak. The country’s neighbors were all more successful at implementing PPPs: Poland has 65 PPP projects underway according to the Ministry of Economy’s PPP database, and Moldova’s first PPP established a radiology and diagnostic imaging center. But none of Ukraine’s neighbors have done as well with PPPs as its Black Sea neighbor, Turkey.
 
Turkey is a regional PPP powerhouse. The 2014 PPI Global Update, which provides information on private infrastructure investment in emerging markets, puts Turkey in second place globally for the second year in a row with US$12.5 billion. In 2014 alone, 17 new projects were launched in mainly in power and transport. Not surprisingly, Ukrainian officials have been looking with great interest to Turkey’s success.

PPPs in the Caribbean: Filling the gap

Brian Samuel's picture
Prior to about 2005, for many tourists their Jamaican vacation was ruined at the last minute, by the hot and overcrowded conditions inside Montego Bay’s Sangster International Airport. Fast forward 10 years, and waiting for a flight at Sangster is an altogether more pleasant experience. The air conditioning actually works, and the whole environment is infinitely less stress-inducing than before.
 
A new waiting area at Montego Bay's
Sangster International Airport.
Photo: Milton Correa/flickr

What’s the difference? The private sector.

In 2003, the Government of Jamaica finally succeeded in doing what it had been trying to do for a decade: privatize Montego Bay Airport. A private sector consortium, led by Vancouver International Airport, quickly invested millions of dollars in expanding the terminal building, doubling the airport’s capacity and opening dozens of new retail spaces. Since then, the consortium has invested more than US$200 million on expansions and improvements to the airport, all of which has been entirely off the government’s balance sheet.

Jamaica has gone on to implement several more public-private partnerships (PPPs), with mixed results. The second phase of its ambitious highway construction program — the Mount Rosser Bypass — was recently opened, cutting a swath through miles of virgin territory. However, early indications are that traffic levels are not living up to expectations, probably due to the Bypass’ steep eight percent gradient, which is beyond the means of most Jamaican trucks and buses.

In the energy sector, Jamaica is completing three PPPs with a total of 115 megawatts of renewable energy (RE) capacity, putting the country on track to meet its RE target of 12.5 percent of generating capacity by the end of 2015. Lastly, the government is currently completing formalities for the sale of Kingston Container Terminal (KCT) to a consortium of CMA/CGM and China Merchant Marine, a transaction that is expected to result in a US$600 million capital expenditure program by the port’s new owners.

Exploring Value for Money analysis in Low-Income Countries

Irene Portabales González's picture
The World Bank has identified 34 countries that qualify as Low-Income Countries (LICs) for 2015. LICs have a per capita income less than US$1,045 per year, while the world average is US$14,307. These countries face important infrastructure gaps that need to be addressed in order to support economic growth and reduce extreme poverty.
 
Cover of the "Value for
Money" report

Design: Sara Tejada

Public-Private Partnerships (PPPs) have been an important option to develop infrastructure and services.

However, challenges for preparing, procuring and monitoring PPP projects in LICs are huge. Challenges include weak institutional capacity, constraints in fiscal space, shallow capital markets, and lack of access to long-term financing.

Despite these challenges, LICs have made important efforts to implement PPP policies, laws and regulations. As a result, these countries closed 377 PPP deals between 1987 and 2013. Even with this considerable effort, LICs still have important infrastructure needs. This is a good start, but hardly enough to tackle the problem.

During the project selection stage, LIC governments have to discuss whether a particular project should be implemented under a PPP scheme or through traditional procurement. There are several reasons why governments decide to implement a PPP: to accelerate public investment programs, maximize the fiscal space or to try to avoid fiscal controls, for example.

At this key decision point, various options can be considered by governments, including a Value for Money (VfM) analysis.

Public-private partnerships: Promise and hype

Michael Klein's picture
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.

Uncanny resemblance: Greedy bankers and critics of PPPs

Michael Klein's picture
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?

​Environmental conservation, tourism and economic development: an avant-garde Brazilian solution through PPPs

Maria Emília Barbosa Bitar's picture
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.
 
Gruta de Maquiné, part of the Peter Lund 
Cave Route. Photo: Francisco Martins/flickr

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.

Learning PPPs live with Hangouts and Twitter

David Lawrence's picture
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.
 
Some of the #PPPMOOC-tagged tweets during
the Google Hangout. For more PPP-related 
tweets, follow @WBG_PPP.

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.

PPP Days Dispatch: Day Two

Tanya Scobie Oliveira's picture
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.
 
World Bank Group #PPPMOOC Google Hangout

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