When I was in primary school, there was a large construction project happening on the road in front of our house. I remember it was loud, dusty and the subject of constant complaints from our neighbors. However, my most vivid memory is of all the shiny, majestic machinery being delivered by the workers in their bright orange uniforms.
There was an immediate fascination among the children with these powerful and temptingly dangerous machines. Of course our parents all drilled us with the same message – “Do not go near, do not touch, do not interfere with the nice men repairing the roads,” and so we abided, but the curiosity and thrill of potentially touching these metal monsters never entirely subsided. Luckily, working in the transport sector now I get to be around construction equipment all the time!
Public-private partnership (PPP) practitioners are sometimes guilty of thinking that signing the deal is the end of the story. You can’t blame them, really. Making a PPP work is a long-term process with a lot of players involved, each with his or her own priorities. Detailed technical, economic, and environmental and social reviews must be conducted to make sure the project is feasible and bankable. Often, sector reforms are required. Stakeholders – including the public – must be kept fully informed. The competitive bid, critical to any PPP, must be fully transparent so nobody will doubt the legitimacy of the outcome. It’s a long, hard slog to the end, and I can’t blame PPP practitioners from wearily planting the flag, declaring victory, and moving on.
But the signing is not the end; it is the beginning. And you can’t really declare success until the PPP is delivering real results for people. Sometimes, a follow-up PPP adds a new phase to a project, and sometimes new players are brought in. In any case, it’s worth going back and examining the results of PPP projects to see what happened and extract valuable lessons.
It would be hard to find another place on earth where the improvement of transportation is more impactful on the wellbeing of a population than in the eastern region of the Democratic Republic of Congo (DRC). Here, transportation is so severely underdeveloped that travel to other provinces is sometimes nearly impossible, if not downright dangerous.
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.
“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.
Standing by for liftoff
The concession of Galeao International Airport (official name: Rio de Janeiro/Galeão–Antonio Carlos Jobim International Airport) got off the ground in the second round of airport concessions. The first round dates back to early 2012, when the government issued tenders for three major airports: Guarulhos (São Paulo), Viracopos (Campinas) and Brasília.
In mid-2012, following the successful outcome of these three projects, the Brazilian National Development Bank (BNDES) approached IFC to assist with a second round of airport concessions, including Confins airport (Belo Horizonte) and Galeão (Rio de Janeiro). IFC teamed up with the Estruturadora Brasileira de Projetos (EBP), a project preparation company owned by some of the biggest Brazilian commercial banks and BNDES. Together, IFC and EBP were responsible for the financial, technical/economic/engineering, and environmental studies.
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When disaster strikes, air transport is often the only feasible mode of transportation for first responders and urgently needed relief supplies. Following an earthquake, tsunami or hurricane, most roads, rail tracks and even ports become unusable, as they are blocked for days by debris. Airports, on the other hand, are remarkably sustainable and, within hours, usually become operational again.
The main reason of this sustainability is that runways are on open space where debris of a disaster can be removed quickly. Furthermore, a runway usually suffers remarkable little damage even by a strong earthquake, such as experienced last week in Nepal or in Haiti in 2010. And even if there are cracks and holes in the runway, modern relief aircraft like C-130s can operate safely for some time.
However, the challenges of operating relief flights can quickly become overwhelming, especially for airports in developing countries that usually experience only moderate traffic. In Haiti, for example, more than 74 aircraft landed on a single day following the earthquake to unload supplies. Such traffic poses risks in the air; air traffic control, often hampered by inadequate or damaged surveillance installations, can’t cope managing all arriving aircraft. On the ground, where tarmac and taxiways are small, congestion quickly reigns which prevents the arrival of more flights.
The World Bank employs a variety of specialists in different disciplines, often with abstract and hard to understand titles. Not me. When people ask what I do for the Bank I say “I build roads”. This often brings laughs from other Bank staff, but it’s true.