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Regional trade in electricity and other energy products can be a powerful force for market integration and sustainable development. In the Arab world, there are great potential benefits from increasing electricity trade beyond its current, very low level. The potential shared value of trade in electricity in 2020–2030 is estimated at $12 billion. We can expect even greater savings, about $44 billion, from more optimal power systems operation, with a major role for gas as the main fuel for power generation, displacing expensive liquid fuels.
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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.
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:
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).
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.
With support from the World Bank Group, Singapore invested heavily in infrastructure during the early stages of our growth. This included 14 World Bank loans between 1963 and 1975, which financed the development of the deep sea terminal at the Port of Singapore, the doubling of the country’s energy capacity, and the construction of water pipelines to Malaysia—all of which remain a part of our core infrastructure today.
In 2002, Sao Paulo’s embarked in one of the most transformative transport projects of the decade: the construction of Metro Line 4. The new line had big ambitions: it was meant to significantly improve the commuting experience, better connect the south and western regions of the Sao Paulo Metropolitan Region (SPMR) to the center, change the metro system from a radial to a flexible network, and interconnect all transport modes, including buses, suburban trains (CPTM), bicycles, as well as existing and future metro lines.
Line 4 was also the first metro project in Brazil to be designed as a Public-Private Partnership, whereby operation and maintenance (O&M) was concessioned to a private company for 30 years. The project was segmented into 2 construction phases, both of which were technically and financially supported by the World Bank from 2002.
When finished, Metro Line 4 will feature a total of 11 stations along a 14.4-km alignment, 29 trains in operation, four integrated bus terminals, and one dedicated train yard. It will carry nearly 1 million passengers per day. Since the opening of the first segment in 2010, the line has experienced high passenger traffic and allowed for a significant reduction in journey times. In 2012, Line 4 even featured among the 100 most innovative infrastructure projects in the world.
A new station was inaugurated just a few weeks ago, and the line is now just one station away from completion. Once the whole project is operational by 2020, aha resident of Vila Sonia in the western part of the city will need only 20 minutes to reach Luz station at the opposite side of the city, compared to one hour in 2002.Today they can already reach it in 32 minutes!
Now that the Line 4 odyssey has almost concluded, it can teach us a number of valuable lessons about what it takes to implement such complex infrastructure projects in a dense urban area like Sao Paulo.