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public-private partnerships

PPP-powered access to water — and much more

Melvin Tan'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.

One of the most salient features of a public-private partnership (PPP) arrangement is the flexibility to use out-of-the-box solutions in resolving the many challenges in day-to-day operations. As a result, the PPP setup gives operators the liberty to come up with innovative solutions for more effective and efficient delivery of the most basic services.
 
Location of Laguna Province in the
Philippines. Image: Wikimedia Commons

In the Philippines, Laguna Water — a joint venture company formed as a result of a PPP between the Provincial Government and Manila Water Philippine Ventures formerly known AAA Water Corporation — is benefitting immensely from that flexibility since it took over the operations of the province-run water system in 2009. Although primarily tasked to improve the provision of water and wastewater in the three cities of Biñan, Sta. Rosa and Cabuyao — collectively known as concession area — Laguna Water’s sustainable business model allows it to participate on matters related to community development (including job generation), as well as programs centered on health, safety and environmental protection.
 
As a staunch advocate of sustainability, Laguna Water takes pride in having significantly improved access to piped, clean and affordable water to 62 percent of the population of the concession area— a far cry from the 14 percent when it started its operations in 2009. The joint venture’s PPP framework has been instrumental in putting in place water infrastructure that provides easier access and better services to customers. Today, Laguna Water is the biggest water service provider in the entire province, and is also ahead in its service-level targets on coverage, water quality and water loss reduction. 
 
Here are some details about our PPP-empowered approach.

​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:

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.

Taming the Terra Incognita of PPPs: The case for data as an exploration tool

Fernanda Ruiz Nunez's picture
Image courtesy of history-map.com
The PPP territory spans the globe, and the debate over its effectiveness as a financing tool to achieve development goals reaches equally far and wide.

​Most recently, the Financing for Development Conference in Addis Ababa, Ethiopia sparked even more discussion about the role of public-private partnerships. The official line, spoken in a multitude of tongues, is that PPPs have an important role to play, and results are dependent on projects being procured, managed and regulated well. But one thing is clear in every language: “results” are based mainly on anecdotal evidence and case studies where attribution remains dubious, and findings cannot be generalized as they depend on the particular characteristics of the specific projects.
 
We can do better. As economists, development professionals, finance experts, and explorers of new and creative solutions to solve the problem of poverty, we must do better. And we will – with better data.
 
Lack of data has constrained the empirical literature on PPPs, in turn constraining our ability to tap the territory of PPPs and its potential to transform markets. After all, what do we really know about the economic impact of PPPs? Our first-ever literature review, underway now (the first draft is available at https://www.pppknowledgelab.org/ppp_document/2384), has laid an initial foundation for knowledge, and we have made the first draft available so that colleagues and interested individuals and organizations can contribute their data.

​Housing the next generation of Kenya’s leaders: A PPP that makes the grade

Evans Kamau's picture
Many university students learn Newton’s third law: for every action, there is an equal and opposite reaction. At one Kenyan university, two very positive actions – narrowing the backlog of students admitted after high school graduation, and a 2002 government bill declaring free primary education for all – led to the nation’s first public-private partnership (PPP), a most unexpected reaction. 
 
Existing student hostel at Kenyatta University

Kenyatta University (KU) has 50,000 students, and because of the national momentum on education, enrollment is expected to increase to 70,000 in the next two years. The only problem with this huge step forward has been housing all of these new students; currently, the university’s 22 hostels house only about 10,000 undergraduate students. KU’s status quo-shattering PPP will result in housing for 10,000 more students, at the same time marking it as the first public institution to deliver a PPP project under Kenya’s Public Private Partnership Act of 2013. 
 
For the 10,000 graduate and undergraduate students who will now be able to live on campus, this PPP earns an “A” for a different reason – it’s the first time these students will have access to regulated, fairly priced accommodations with no commute or accompanying transportation charges to class. And by living on campus, these students can safely study long into the night at the library and other university facilities – which is critical to the intellectual development of this next generation.
 
The right time + the right partner + the right place = the right PPP
Until recently, Kenyan students graduating from high school were typically forced to wait two years before registering at universities, due to backlogs created in the late 1990s as a result of student unrests and lecturer strikes that led to long closures of educational institutions. In the past few years, however, the University Joint Admission Board, working through government, decided to reduce the backlog by one year.  Numbers tell the rest of the story: nationwide, university student enrollments grew from 96,000 to 160,000 in 2015.  In addition, the free primary education introduced in 2002 tripled the number of students in primary schools, which also energized enrollment. Predictably, these two positive developments stressed the capacity of university facilities, and Kenyatta University has been struggling to meet the need for students’ accommodation.

​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.

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