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Submitted by Patricia Sulser on
Threshold Decisions are Critical. A private sector perspective: I think Jeff makes a great point about the various critical early decisions that can be decisive in the success of a PPP. First, is the decision to engage the private sector at all for the delivery of the proposed public service (i.e., a proper value-for-money analysis for the particular sector and project). The second is the selection of a quality private sector developer/operator—ideally one that has a solid track record of delivery and trust with other governments. For both of these decision points, governments (especially fragile and conflict affected countries) should indeed engage competent financial, technical and legal advisors. (The WBG and others have many financial and other resources available to governments to do so).

Proposed Phased Approach to Risk Allocation. The risk allocation as among the private and public stakeholders is, as several of our colleagues have pointed out, critical, and governments should again retain competent international advisors whom the government trusts to provide properly benchmarked advice, including “difficult” advice. Government also needs to be prepared to implement that difficult advice. At least for PPP projects for which an international developer/operator or consortium is selected as the winning bidder, I propose that neither the WB nor its member countries reject, out of hand, the assumption of political/country risks or changes in law etc by governments that do not have an established track record of attracting and rewarding private international investors/operators. Instead, I respectfully observe, continuing the marriage analogy, that one should think of the allocation of risk as a phased arrangement as in marriage—at first, the government may need to accept more risk than it might ultimately like in order to build trust and confidence in its commitment to the private sector (including committing to private sector making a reasonable return on its investment if it has performed as expected and committed) and to its citizens. (Naturally the building of trust goes both ways and development milestones and key performance indicators go a long way to aligning the private sector’s interests with the governments’). After having built the confidence of the private sector (which can take years), a government may be able to roll back on the protections it is willing to assume.

Value of Getting a Few Early and Quick Wins. It is extremely valuable for a government wishing to attract the private sector to simply get a few success stories on its books, even if the risk allocation is not “ideal” from the public sector’s perspective or comparable to the risk allocation in other countries (which may, incidentally, be farther along in sector reforms and have a track record of PPPs or other private sector projects).

WBG Additionality. Perhaps as important (if not more important) as is the “perfect” allocation of risks from the public sector’s perspective, I support the WB, consistent with the Cascade, in its focus on how to support governments not only with our own and mobilized capital, but especially on the provision of political and country risk products, and on mobilizing blended and concessional (and local currency) finance pieces to leverage the financing and commercial structures of a PPP, where necessary. The WB and others have relevant PRI products, some of which do not require back-to-back government indemnities. There are also some excellent blended finance and concessional pieces that can be brought to bear, including through the Private Sector Window. Finally, the WBG’s financing of actual projects can be an extremely effective way (possibly the most effective way) to identify the obstacles to private sector engagement in a country or sector and a wonderful opportunity for the WBG to crowd in the necessary legal, regulatory and policy (and general business enabling environment) support a government may need, independent of any upstream work being done outside the context of a particular project.

Good Will and Flexibility/Creativity. Finally, like all good marriages, a PPP requires all parties to accept each other’s legitimate interests/perspectives and to assume good faith of each other (and to act in good faith), and to remain flexible to resolve the inevitable challenges that arise and creativity to come up with solutions that may require compromise on all sides and a realistic view on the best alternatives to the PPP itself.

Patricia Sulser
Chief Counsel, Global Legal Team Leader
IFC, IFC InfraVentures