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July 2014

Pensioners Paying for Projects: A new meaning for PPP in Latin America?

Daniel Pulido's picture
Also available in: Español
Follow the author on Twitter: @danpulido
 
Public-Private Partnership (PPP) projects in infrastructure have traditionally been financed by banks. However, interest in new funding sources is increasing as long-term money from banks has become more difficult and expensive to get, while the assets held by pension funds and other institutional investors have continued to soar. In a context of low bond yields, pension funds are looking for attractive long-term investment opportunities to diversify their holdings and meet their long-term payment obligations. Realizing an opportunity to match supply and demand, governments and investors in the developed and developing world have turned their attention to Project Bonds, debt instruments issued by PPP project companies in the capital markets as a way to fund infrastructure investments.

These “Project Bonds” mostly target institutional investors - including pension funds, and have generated a great deal of interest among investment bankers, lawyers and investors. All this hype raises a number of questions: Are these “Project Bonds” really living up to expectations? Can governments really rely on Pensioners Paying for Projects (a newfound meaning for PPPs!)? What do we need to do to turn these instruments into a significant source of financing and close the infrastructure investment gap?

Roads and the Environment: Lessons from the Yiba Expressway

Chris Bennett's picture

My last project in China before transferring to Europe and Central Asia in 2008 was the Yichang-Badong (Yiba) expressway. This was a US$ 2.2 billion expressway through very challenging terrain, including the ‘Three Gorges National Park’. 
 
It was massive—as evidenced by the following:

  • 172 km of expressways and 35.4 km of inter-connecting roads
  • 148 bridges for a total length of 70 km
  • 75 tunnels for a total length of 61 km
  • 3.75 million m3 of earthworks
  • US$ 12.6 million/km
Faced with these challenges, including the longest tunnel of 7.5 km, the Hubei provincial government was concerned about the potential negative environmental impact of the project. These concerns were echoed by some at the Bank who I recall saying ‘why on earth would you want to put an expressway through a national park?’

The answer was quite simple. The expressway was going ahead with or without the World Bank’s involvement. The Hubei government wanted the Bank to assist them in making the project an example of how to construct an expressway through an environmentally sensitive area with minimal impacts. Management fully supported this and I was tasked with helping realize this vision, although unfortunately I was not involved with the implementation.

São Paulo and Mumbai: Improving Mass Transit in Two BRIC Megacities

Jorge Rebelo's picture
Mumbai and São Paulo are two mega metropolitan regions (MMR and SPMR) in the BRICs with about 20 million inhabitants each. They are the economic engines of their respective countries and act as a magnet for rural, low-income populations seeking employment opportunities, growing at a rate that puts tremendous pressure on their transport infrastructure and other public utilities.

As population and income rise, car and motorcycle ownership quickly increased in both megacities while mass transit is not developing fast enough, with serious consequences on traffic congestion, accidents and pollution. São Paulo has 150km+ traffic queues daily and losses of productivity, wasted fuel, health impacts and accidents estimated at around 2% of Brazil’s GDP in 2013, with three fatal deaths daily in motorcycle accidents alone. Mumbai, in addition to all-day road traffic jams, have an astounding six deaths daily from riders hanging and falling from packed trains which circulate with open doors to avoid reducing carrying capacity. The city comes to a standstill when the rail right-of-way is flooded by heavy monsoon rains. 

Access to jobs and basic services in both mega-cities is extremely difficult – particularly for the poor, who often live far from major employment centers. The two cities need to act quickly and take drastic measures to improve mobility and access... But this is easier said than done: expanding the transport infrastructure in these megacities requires careful planning, massive investment,  and may also involve relocating large numbers of people and businesses.