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.
Are PPPs an infrastructure procurement method whose moment has come? 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:
Landscape of renewables as PPPs
With the Scaling Solar program, and renewables more broadly, we’ve seen a decrease in prices, making solar not only a cleaner source of energy but more affordable and accessible. In Senegal, we saw record-breaking low tariffs less than 4 euro cents per KwH—rates unheard of only a few years ago. In Madhya Pradesh, the Rewa Ultra Mega Solar project achieved tariffs low enough to make solar energy as cheap as coal for the first time in India—changing the country’s approach and thinking in the power sector. Renewables have opened up as a sector, and governments are seeing PPPs as a tool to better deliver and maintain infrastructure that’s vital for their economies.
Related to climate, I’ve seen a shift towards private sector involvement in the water, waste-water, and sewage treatment sectors as well. Governments are increasingly looking at new ways to combine public and private financing to solve environmental challenges in fiscally sustainable ways—such as developing a series of PPPs for sewage treatment plants to clean up and rejuvenate the Ganges River in India.
Maximizing finance for development
There’s an acceleration of countries looking to maximize private-sector finance for developing economic and social infrastructure. Governments are actively seeking where they can best use private sector capital and innovation to leverage public funds. And there’s growing recognition of the importance of having national infrastructure plans and governance structures. By looking at the needs of a project—affordability, maintenance, and reinvestment, for example—in the context of an entire sector before deciding on a delivery mechanism, governments can decide where a PPP best fits their needs, or where the public sector is best placed to deliver.
For IFC’s PPP team, we’ve been working in this space for some time. In fact, this month, we will have been helping governments in developing countries maximize private finance and expertise for 30 years.
Taking this to the next level, we can collaborate with the World Bank Group more closely to manage risks related to PPPs, such as fiscal and capacity risk related to the management of contingent liabilities and long-term contracts. While PPPs share many of the same risks of other public procurement options, they have their own complexities, and by working holistically we can help governments understand, quantify, and manage these risks from the start.
Programmatic approaches to infrastructure
Lastly, I’ve been very excited by recent successes in 2018 related to delivering PPPs on a programmatic level instead of as individual projects. This involves working closely with governments to assess market failures across a sector and designing sustainable, affordable programs for closing infrastructure gaps with standardized project documents—like what Clean Ganges did in India and Scaling Solar has delivered.
Countries are now looking to PPPs to help solve big development challenges by going to scale. For example, in Bhubaneswar, Odisha, a pilot public street lighting project led to the installation of 20,000 lights. By replicating the approach across three states, municipal governments in India have improved lighting for over a million people, reduced greenhouse gas emissions through more efficient lighting, and saved their cities massively on energy bills.
An exciting moment for PPPs
These are just some examples I saw over the last few years that emerged more prominently in 2018. As an organization, we’re committed to helping governments make informed decisions about improving access and quality of infrastructure and services. This includes using PPPs when appropriate.
I note an entrepreneurial spirit towards working with the private sector in traditionally public sectors. Looking forward to this upcoming year, I think we’ll see:
- The World Bank Group working with governments and other multilateral development banks more and more in this sphere, ideally where we can have the greatest impact, including in fragile and very poor countries.
- Adapting Scaling Solar’s success along the lines of the trend towards programmatic approaches. This means taking time to develop clear standards for procuring PPPs and template documents for a specific sector in a country (such as wastewater treatment, waste-to-energy, or street lighting) that can enable a city, state, or national government to scale up its impact.
- Continued demand for renewables, but with increasing emphasis on storage solutions, as well as supporting governments with regulatory changes that encourage the sector to grow.
As the IFC PPP team approaches its 30-year anniversary, it’s fascinating to me to see attitudes and dialogues change around PPPs—from fear of the private sector to governments asking how and where the sector can help them reach development goals.
I look forward to seeing what 2019 brings. In the meantime, please leave me any of your thoughts or observations below.
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