At the Global Infrastructure Facility (GIF) Advisory Council Meeting in March, we talked about construction risk and the way it shapes the delivery environment early in a project’s investment life. As a practicing engineer accustomed to attacking construction risk at the granular level, I enjoyed the broader discussion, particularly from the banking and credit perspective (meeting outcomes).
Unfortunately, construction risk realization will continue to be the norm. Perhaps we need to consider taking the longer view to reach potential investors by aligning the risk environment with risk tolerance.
Here are three ways to do this:
Photo: Pressmaster / Shutterstock.com
In the aftermath of the global financial crisis, policy makers focused on improving access to finance, missing the crux of the problem: governance.
In pursuit of achieving the Sustainable Development Goals through the 2015 Addis Ababa Action Agenda on financing for development, the Regional Roundtables on Infrastructure Governance* were created to promote a community of practice comprising government officials and the international development community to strengthen capacities within developing countries and establish good practices in infrastructure governance across various government sectors.
The inaugural roundtable, hosted by the Development Bank of Southern Africa, will take place in Cape Town on November 2-3, 2017, and aims to emphasize that for the commercial financing of infrastructure to be a viable option, governance reforms must happen.
The data revolution is upon us and the benefits, including improving the efficiency of corporations, spurring entrepreneurship, improving public services, improving coordination, and building profitable partnerships, are becoming more evident.
For public services, the potential gains are impressive. Globally in the electricity sector, an estimated $340 – 580 billion of economic value can be captured by providing more and better data to consumers to improve energy efficiency, and to operators for streamlining project management and the operation of their facilities. Even larger gains ($720 – 920 billion) could be captured in the transport sector.
Exploring the benefits of open data in the solid waste sector has been slower than for other services, however, if you take a closer look, the benefits may be substantial. Solid waste services have a lot to gain – with low service coverage and a lack of modernization in most parts of the world; solid waste services can be costly, representing 10 – 50% of municipal budgets in many developing countries; and it is directly dependent on many actors. To be effective, citizens, institutions, and private companies need to be informed and involved.[Download: What a Waste: A Global Review of Solid Waste Management]
Some examples of what making better quality data available on solid waste services could do include:
The best laid plans… have data. With average waste collection rates of 41% and 68% for low- and lower middle-income countries, respectively, and less than 10% of the corresponding waste disposed in a sanitary manner, many municipalities in the world lack solid waste services. The introduction of modern solid waste systems in these areas represents a monumental organizational change and logistical challenge. It necessitates the introduction of collection services for, among others, each household, and every commercial building and supermarket; the coordination with, informing, and incentivizing all the actors in recycling; the operation of transport services; and the operation of effective disposal or treatment options for the daily, relentless influx of waste. Systematically collecting quality data will help municipalities to undertake strategic planning, integrate service planning into urban planning, and make the necessary decisions that allow them to establish a solid waste system that is properly dimensioned and cost-effective.
The post-2015 Sustainable Development Goals (SDGs) are an ambitious set of targets that aim to support a comprehensive vision of sustainable development that embraces economic, social, and environmental dimensions. Solid waste plays an important role in several of these goals, including providing sanitation for all, making cities and human settlements sustainable, encouraging sustainable consumption, and reducing climate change.
In the planning undertaken by Multilateral Development Banks (MDBs) to help achieve these goals, one glaring fact stood out: the financial resources needed are not only expected to be substantial, in the “trillions” of dollars annually, but they far outweigh the current “billions” of dollars annually in financial flows from development institutions. Considering this information, it was agreed at the Hamburg G20 Summit that a new approach would be needed to unlock, leverage, and catalyze other sources of financing, including private sector resources.
The approach would more systematically prioritize private financing solutions when they are feasible. That is, private solutions that are already working would be considered as a first option; followed by encouraging private investment by reducing policy and regulatory gaps and risks that currently discourage participation; and, finally, as a last option, when private solutions cannot fulfill all the demands of the sector, public resources could be strategically used.
Considering the successes and challenges of private sector involvement in solid waste, it is an opportune moment to begin to ask: what are the key issues that need to be addressed to better leverage the private sector to provide sustainable solid waste management solutions?
[Read: World Bank Brief on Solid Waste Management]
Have solid waste laws done enough? Regulations and policies have progressed significantly, with many countries establishing new solid waste laws that replace decades-old sanitation or public nuisance legislation. Have these reforms gone far enough to specifically encourage the private sector? Are there functional mechanisms for cost recovery, and is there sufficient flexibility for the private sector to pursue a variety of contractual and financing arrangements? Are the laws truly motivating investment into modern facilities by providing enforceable requirements and standards for the establishment of landfills, closing dumpsites, and establishing recycling facilities? Are the financing schemes predominantly focused on public financing, or do they cater to what the private sector financing needs? It is worth a second look at how these laws respond to these and other issues, and learning from those countries that have taken them on.
“I walk through three farm plots of my fellow farmers every day to examine the crop growth and occurrences of pest attacks or crop failure. I send photo alerts via my smart phone to Cropin, which sends an advisory within a few minutes to remedy the problem, said Pratima Devi, a climate smart village resource professional in Manichak village in the Barachatti block of Gaya district in Bihar, India.
Cropin Technology Solutions Pvt. Ltd, a private software and mobile apps company, has developed digital applications to advise farmers on ways to achieve optimal harvests, depending on weather conditions, soil and other indicators. In less than a month, Pratima Devi completes a visit to all the farm plots in her village that are registered to get agro-advisories. “Women farmers appreciate my efforts and have started trusting my advice because they see a positive difference on their farms,” she adds.
Ramchandra Prasad Verma has the status of a master trainer of climate-smart village resource professionals in the same Barachatti block. He succinctly explains how data on weather parameters, such as rainfall, temperature and humidity, provided by the Automatic Weather Station (AWS), which was installed by another private Indian company, Skymet, helps farmers make smarter decisions in the village. “When the AWS shows temperatures of 35-40 degree Centigrade, farmers will wait for cooler temperatures before transplanting paddy mat nurseries into the field. Otherwise, there is a fear of losing crops in high temperatures”, said Verma. Earlier farmers relied on traditional wisdom alone, but now digital information can help them make faster and better decisions on the times of sowing and harvesting.
When Verma was a village resource professional, he had raised the maximum number of alerts in Bihar and received many advisories from Cropin on sowing, soil health, seed treatment, and weather forecasts that benefitted farmers. Over time, he developed skills to interpret technical advisories, train farmers to apply information on their fields, and interact with Cropin and Skymet professionals, which earned him the status of a master trainer.
Developing resilience in agriculture to regular weather shocks in the short-term and to climate change in the medium- to long-term is one of the biggest challenges facing Indian farmers today. Large-scale pilots are being implemented in four districts of Bihar and Madhya Pradesh to test the effectiveness of digital apps to generate climate resilient solutions for farming needs. This was made possible through a public-private partnership between the State Rural Livelihood Missions in Bihar and Madhya Pradesh with Cropin Technology and Skymet. These pioneering digital tools are being developed and utilized as part of the Sustainable Livelihoods and Adaptation to Climate Change (SLACC) Project associated with the Government of India’s National Rural Livelihoods Project (NRLP).
Investing in an energy-efficient street lighting system can be a game changer for municipalities.
On one hand, switching to modern street lighting schemes based on light-emitting diode (LED) technology presents an opportunity for city governments to lower energy consumption, operation and maintenance costs while reducing the overall carbon footprint.
At the same time, reliable bright street lighting can have a range of socio-economic benefits: well-lit streets make people feel safe and reduce accidents while boosting economic and social activity after sunset.
Given these benefits, switching from outdated systems to modern technology is a win-win solution for many municipalities worldwide, but high upfront costs can be a deterrent. Attracting private capital via Public-Private Partnerships that secure efficiency and high technical standards in the long run.
Infrastructure is expensive, important and difficult to get right. For both the members of the Organisation for Economic Co-operation and Development (OECD) as well as other countries, infrastructure exposes shortcomings in country systems that may undermine our ability to identify, develop and procure good projects that are sustainable, affordable and legitimate. But there is no alternative—businesses rely on modern infrastructure to remain competitive, and society depends on good infrastructure to ensure equal opportunity and access to services for citizens.
With sufficient access to finance, .
In response to this challenge, investors, regulators, members of the public and private sectors, and decision makers from across levels of government, expertise, and regions, gathered at the 2nd OECD Forum on the Governance of Infrastructure in Paris in March to discuss the impact of infrastructure governance on productivity, jobs and wellbeing.
Without further ado, let's see what he has...
Finance fuels economic growth and development. Yet, it is also clear that traditional funding sources – public finances, development assistance or banks loans – will not be sufficient to finance the Sustainable Development Goals.
Both and to attract private sector financing, investment and expertise.
so that emerging market countries can meet their financing needs to fund strategic objectives, such as improving infrastructure.
We estimate that the amount of infrastructure financing covered by the private sector could be more than doubled, if countries harness the full potential of local capital markets.
At the World Bank Group, we are committed to marshal our expertise to increase the use of capital markets for investment financing. Helping countries develop government debt markets is vital to our goals of eliminating extreme poverty and boosting shared prosperity.
In several economic infrastructure sectors, India enjoyed a strong track record of harnessing Public-Private Partnerships (PPPs). Private sector investments in infrastructure more than tripled from the 10th Plan Period (2002-07; INR 2 trillion) to the 11th Plan (2007-12; INR 7.3 trillion). Between these plan periods, private sector share in infra investments increased from 22% to 38%. For a considerable period of time, on the score of mobilizing infrastructure investments through private participation among developing countries, India ranked 1st in Energy and Transport sectors and 2nd in Telecom (behind Brazil).
This erstwhile success of India’s PPP program is attributable to well-crafted reform efforts by the government, and ably executed by the private sector, banks and other financial intermediaries. Following the economic liberalization initiated in the early 1990s, the government has created an enabling environment for private participation through several sector-specific and cross-sectoral initiatives, e.g., relaxing entry norms, tax concessions, independent regulation in telecom and power, mobilization of additional revenues through tolls and cess on fuel, establishment of a viability gap fund mechanism and India Infrastructure Financing Company Limited, etc. The financial intermediaries, too, quickly moved up on a steep learning curve to cater to this new and challenging mode of delivering infrastructure services. Private sector responded enthusiastically and seized these opportunities to develop their own capabilities and progressively build larger and complex projects. Today, private sector operators are serving more than 90% of the mobile phone users, owning ~40% of the power generation capacity, built and operating a substantive portion of arterial network of national highways, besides world-class airports in four metros and container handling facilities at many ports.