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This is one in a series of blogs by Jeff Delmon using the metaphor of marriage (or divorce) to explore the dynamics of public-private partnerships (PPPs) as relationships created between two parties.
“If all parties understood the other’s vantage point,” says the recently CP3P certified Francis Chukwu, “more deals would happen—facilitating more investment, and more successfully executed projects.”
Francis Chukwu had a distinguished career as an international project finance lawyer in Lagos, Nigeria, (with Aluko & Oyebode) and then in Paris, France, (with Clifford Chance) advising mostly equity investors and lenders before joining the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) in 2016. He was offered the chance to become CP3P certified through the APMG PPP Certification Program, and when he took the first Foundation-level exam he thought he could just go in and pass. Not so.
While the World Bank’s resources for low-income countries have never been greater, they still pale in comparison with these countries’ needs. Governments always need to make hard choices between infrastructure needs, social programs, and fiscal discipline. One country was recently able to strike the right balance with the support of World Bank guarantees: Benin.
In 2018, I participated in public-private partnership (PPP) initiatives across the globe: in Albania, Switzerland, Turkey, Saudi Arabia, the United Arab Emirates, Sri Lanka, and the United States. I also engaged with PPP thought leaders from the public and private sectors about trends they saw evolving that would impact the practice of PPPs in the next year or two.
A strange irony persists in today’s infrastructure investment market: private capital waiting to be deployed into the sector is at an all-time high, yet investors seem reluctant to commit. Even in developed countries, few investors are willing to partake in transactions with merchant or construction risks without taking a higher risk premium.
This can make the financing of infrastructure projects more costly—a challenge particularly acute in emerging markets where further investment risks abound.
Before diving into a new year, I like to take some time for reflection. This past year, I’ve seen a real shift in how public-private partnerships (PPPs) are perceived and understood—both their benefits and risks. Many governments are considering PPPs to help them deliver infrastructure and services their citizens need. They also better understand the complexity of PPPs as a procurement method and are more strategic in when to use them.
If so, what must be done to ensure they’re sustainable and deliver on public sector goals? Thinking back on 2018, I saw these developments:
The passage of a public-private partnership (PPP) law is often hailed as a big step, one that allows private sector participation in infrastructure and public services. But that is no guarantee that a successful PPP will be enacted, even when the need is great.
We experienced this firsthand in the Kyrgyz Republic, where it took six years from the passage of the law to the day the country opened its first-ever PPP—a state-of-the-art dialysis clinic. We are extremely proud to have contributed to that effort—one that meets an urgent healthcare need while also demonstrating that well-designed PPPs, with the commitment and support of government, can deliver for both citizens and national development goals.
Using Islamic finance for infrastructure development attracted more attention recently in the quest to maximize finance for development.
At the recent World Bank-IMF Annual Meetings in Bali, the World Bank and the Islamic Development Bank (IsDB) co-hosted a symposium on Islamic infrastructure finance, building on the institutions’ strategic partnership. As we note in Mobilizing Islamic Finance for Infrastructure Public-Private Partnerships, the asset-backed, ring-fenced, and project-specific nature of Islamic finance structures and their emphasis on sharing risks make them a natural fit for infrastructure public-private partnerships (PPPs).
The developing world faces a twin challenge—closing the infrastructure financing gap and changing the composition of infrastructure financing. Given rising global macroeconomic and trade concerns, changing the composition of financing is as important as maximizing infrastructure capital. Changing the composition of capital flow also has the potential to increase the efficiency and sustainability of public finance and infrastructure projects.
The Private Participation in Infrastructure (PPI) Database, with 28 years of data, is a powerful metric for private investment mobilization in infrastructure in emerging markets. Every half-year we report how PPI has fared across these markets and compare it to past periods.
It takes a lot to do a first Public-Private Partnership (PPP) well. In the past 12 months, we witnessed the successful financial close of two landmark PPPs: the Tibar Bay Port PPP—a first for Timor-Leste, one of the youngest countries in the world—and the Kigali Bulk Water project in Rwanda, considered the first water build-operate-transfer project in Sub-Saharan Africa.
To make these projects happen, deal teams, sponsors, and financiers did outstanding work in difficult environments. The Public-Private Infrastructure Advisory Facility (PPIAF) also earned some bragging rights and a share of the battle scars along with these actors.