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One question, eight experts, part four: Richard Abadie

Richard Abadie's picture
Photo: Wikimedia Commons

To gain a better understanding of how innovation in public-private partnerships (PPPs) builds on genuine learning, we reached out to PPP infrastructure experts around the world, posing the same question to each. Their honest answers redefine what works — and provide new insights into the PPP process. This is the question we posed: How can mistakes be absorbed into the learning process, and when can failure function as a step toward a PPP’s long-term success?

Our fourth response in this eight-part series comes from Richard Abadie, who leads the Capital Projects and Infrastructure Group at PwC

Having worked in the infrastructure sector for nearly 20 years, I’ve had time to reflect on what success and failure look like in infrastructure PPPs. Mistakes have been, do, and will continue to be made when using PPPs. It is not perfect — nor is its application — but what in life is?

There are so many horror stories around non-PPP construction cost overruns, delays in completion, poorly specified contracts, weak tender management, corruption, failure to run transparent competitive processes, lack of project readiness, significant post-contract variations, and sporadic asset maintenance and management. PPPs eliminate many of the above structural weaknesses, which rightfully earns it its place as a challenging but effective procurement approach.

The chief criticisms of PPP — that it takes longer to procure and is less flexible than conventional procurement — have some validity. Getting price certainty does take time and requires clear contractual risk allocation through the life of the contract.

Protecting Your PPP: Stabilizing partnerships in uncertain times

Waleed Youssef's picture
Uncertainty is inherent in developing and operating complex infrastructure and services projects, and it is for this very reason that government officials seek public-private partnership (PPP) partners to mitigate the most complex of risks. Yet legal and regulatory frameworks, in place for legitimate reasons (especially in emerging markets), often dampen the private sector’s ability to address in an optimal manner the challenges that can and often do arise during the term of a concession.

It is important to distinguish between projects that exceed expectations — and therefore generate greater than expected financial returns to both parties, yet require additional, unanticipated capital investments — and struggling projects where there is an urge by the developer to reduce ongoing investment and maintenance.
 
Istanbul Ataturk Airport. 
Photo: Wikimedia Commons

“Successful PPPs are all alike…”
To paraphrase Tolstoy, successful PPPs are all alike, but every unsuccessful PPP is unsuccessful in its own way.

Successful projects are easier to manage owing to positive cash flows, and could additionally incorporate an obligation by the developer to increase its investment according to certain capacity-related triggers on the basis of floor and ceiling for project returns. This could also be supplemented by sponsor commitments to co-investment or to extend the concession terms based on minimum returns, as well as a sponsor sinking fund to ensure independence from the uncertain and tedious public budgeting process. Very often, concession agreements focus on what to do when things go wrong, but not how to continue to meet demand when things go well, especially toward the end of the concession term.

One question, eight experts, part three: David Bloomgarden

David Bloomgarden's picture

To gain a better understanding of how innovation in public-private partnerships (PPPs) builds on genuine learning, we reached out to PPP infrastructure experts around the world, posing the same question to each. Their honest answers redefine what works — and provide new insights into the PPP process. This is the question we posed: How can mistakes be absorbed into the learning process, and when can failure function as a step toward a PPP’s long-term success?

Photo: Wikimedia Commons

Our third response in this eight-part series comes from David Bloomgarden, Chief of the Basic Services and Green Growth unit of the Multilateral Investment Fund of the Inter-American Development Bank.

U.S. General George S. Patton famously said, “Take calculated risks. That is quite different from being rash.” This quote summarizes how countries should absorb risks into the learning process of a public-private partnership program.

Governments know that complex projects never go exactly as planned. PPPs are among the most complex of all infrastructure projects, because they involve multiple stakeholders in the public and private sectors and tend to be used to procure large infrastructure. Starting a new PPP program requires that governments learn to master the regulatory, institutional and technical challenges involved in planning, designing and implementing a PPP.

Few governments — and especially those of developing economies — can afford failure in the delivery of critical infrastructure and services given the scarce resources and enormous human needs.