Public-Private Partnerships (PPP) in transport infrastructure can offer significant efficiency gains compared to public procurement options—in the right circumstances. The gains accrue from allocating to the private sector those risks they are better able to handle than the public sector, such as those associated with construction costs.
Data backs this up: findings in Construction Risk in Infrastructure Project Finance from EDHEC show that for a large number of transport infrastructure PPP projects, (including roads), construction overruns are significantly lower at 3.3 percent on average compared to public procurement projects, with a 26.7 percent overrun average.
Photo: HAC/Croatian Motorways
The state of Croatia’s road sector poses a unique challenge compared with more typical World Bank projects where road assets either need to be developed or require significant rehabilitation. If you've ever had the chance to experience Croatian roads you'll quickly realize the country has a well-developed motorway and state road network, in relatively good condition. This begs the question: how can the World Bank help improve a sector with already high-quality assets in a middle-income country like Croatia?
Around the world, roads remain the dominant mode of transport and are among the most heavily-used types of infrastructure, accounting for about 80% of the distance travelled for individuals and 50% for goods.
Despite this intensive use, the funding available for road maintenance has been inadequate, leaving roads in many countries unsafe and unfit for purpose.
To make matters worse, roads are also very vulnerable to climate and disaster risk: when El Niño hit Peru in 2017, the related flooding damaged about 18% of the Peruvian road network in just one month.
It is no surprise then that roads are the sector that will require the most financing. In fact, the G20 estimates that roads account for more than half of the $15 trillion investment gap in infrastructure through 2040.
- Climate Change
- Financial Sector
- Law and Regulation
- Private Sector Development
- Public Sector and Governance
- Urban Development
- Sustainable Communities
- sustainable transport
- sustainable mobility
- maximizing finance for development
- roads and highways
- road safety
- climate change adaptation
- climate resilience
- climate risk
- infrastructure financing
- infrastructure financing gap
- Disaster Risk
- disaster risk management
- public-private partnerships
- private participation
- private participation in infrastructure
- investment guarantees
- Multilateral Investment Guarantee Agency
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Photo: Dominic Chavez / International Finance Corporation
In the early 1990s, Colombia’s road infrastructure was a maze of poorly maintained roads and bad highways. Difficult geography—the Pacific coast jungle and the Andes branching out into three chains—made it harder to improve road conditions and connect isolated communities. Conflict, corruption, and short-term political priorities contributed to the problems plaguing Colombia’s road system. But just as influential were the problems with the nation’s existing concession contracts that had wrong incentives, created opportunities for renegotiating signed contracts, and assigned unproportioned demand risk to the Government of Colombia.
Let’s look at the case of India where 500,000 km of rural roads have so far been built by the country’s flagship rural roads program (PMGSY). These roads, connecting some 120,000 settlements, have already started transforming the rural areas of the country.
These roads form part of a core network of 1.1 million that India is seeking to build through its ongoing $35 billion PMGSY program to provide about 179,000 rural settlements with road access. The project has been designed to deliver high-quality, sustainable roads in a timely and cost-effective manner. PMGSY’s main source of funding is a special tax on diesel. Since the PMGSY began, the World Bank has been working closely with the Indian government through a series of projects and knowledge initiatives, with funding of about US$1.8 billion.
In several economic infrastructure sectors, India enjoyed a strong track record of harnessing Public-Private Partnerships (PPPs). Private sector investments in infrastructure more than tripled from the 10th Plan Period (2002-07; INR 2 trillion) to the 11th Plan (2007-12; INR 7.3 trillion). Between these plan periods, private sector share in infra investments increased from 22% to 38%. For a considerable period of time, on the score of mobilizing infrastructure investments through private participation among developing countries, India ranked 1st in Energy and Transport sectors and 2nd in Telecom (behind Brazil).
This erstwhile success of India’s PPP program is attributable to well-crafted reform efforts by the government, and ably executed by the private sector, banks and other financial intermediaries. Following the economic liberalization initiated in the early 1990s, the government has created an enabling environment for private participation through several sector-specific and cross-sectoral initiatives, e.g., relaxing entry norms, tax concessions, independent regulation in telecom and power, mobilization of additional revenues through tolls and cess on fuel, establishment of a viability gap fund mechanism and India Infrastructure Financing Company Limited, etc. The financial intermediaries, too, quickly moved up on a steep learning curve to cater to this new and challenging mode of delivering infrastructure services. Private sector responded enthusiastically and seized these opportunities to develop their own capabilities and progressively build larger and complex projects. Today, private sector operators are serving more than 90% of the mobile phone users, owning ~40% of the power generation capacity, built and operating a substantive portion of arterial network of national highways, besides world-class airports in four metros and container handling facilities at many ports.
Photo Credit: Flickr user highwaysagency
Infrastructure often makes headlines – and the sentiment is not always positive. Major projects must navigate a minefield of potential problems. One that is frequently overlooked is how the local community will react to the physical and environmental disruption that comes with major construction projects.
Achieving consensus and winning the ‘hearts and minds’ of stakeholders and affected communities for the construction of major infrastructure schemes can be challenging, but it is essential to deliver a successful project that benefits everyone in the community.
Gary Sargent, an engagement director from CJ Associates, is involved in a two-year consultation program for a major highway scheme in the United Kingdom and helped the authority design an integrated stakeholder engagement, communications and consultation strategy.
Here is Sargent’s advice:
On the streets of Shimla, residents stare at a strange group of visitors. The group looks and acts different from other tourists to this hilly capital of India’s mountain state of Himachal Pradesh.
Not Indian, and definitely not the usual European retirees. Oh, and even stranger, the group starts taking photos of parking lots, trash cans, and the tiny alleys that snake up and down the city.
That was how a group of global experts in a gamut of urban matters appeared to the citizens of Shimla. It was the group’s first day in a town they had never seen, nor ever imagined they would visit.
But here they were - experts at solid waste management, urban parking, public transportation, IT and city planning - at the request of the government of Himachal Pradesh (HP). HP is renowned for its pleasant climes, verdant forests and snow-clad peaks that not only act as a carbon sink for India’s burgeoning economy but also serve as a source of five perennial rivers that sustain the lives of million in the teeming plains below.
The inspiration for the experts’ visit came from the highest levels of the state government. Dr. Shrikant Baldi, the state’s additional chief secretary, had visited Korea to attend a global green growth conference sponsored by the World Bank. There he saw the real-life application of strategies that his government needed to take their own green growth agenda forward.
GoPro videos have become ubiquitous among mountain bikers. The more adventurous the journey the better. Go viral on social media, and you have a winner. You might even get a payout from YouTube. But we want to discuss another way to make money. Money for local roads in the Philippines. We want to discuss a way that officials and citizens could make a GoPro-type movie, convert it into a digital map, and possibly receive a payout from the Department of Budget and Management under a new program called Kalsada.
It’s More Fun in The Philippines!
The Philippines is a tropical archipelago of over seven thousand islands, making for many jewel destinations. The country’s tourism slogan “It’s More Fun in the Philippines” tries to capture the spirit of a friendly, welcoming and fun-loving people which the adventurous tourist will experience. Palawan was recently voted as the planet’s best island destination by a top travel magazine. In search of fun, we tried to visit one of its towns, Port Barton, two years ago. But chronic infrastructure means that sometimes you are in for a rough ride. Confronted with bad roads, we were only able to actually make it to this idyllic destination many months later.
This ambitious target can only be achieved through a concerted effort that involves all major stakeholders: national and local governments, multilateral development banks, bilateral donors, civil society, and the private sector. The latter, a key stakeholder in this agenda, can contribute the knowledge, resources, and innovations that are required to accelerate progress and decisively change existing trends.
The insurance industry is also a key part of this coalition. Already playing an important, if somewhat hidden, role in the road safety agenda, the industry insures almost 1 billion vehicles globally, helping to reduce the costs of road crashes to society and the economy.
Improvements in road safety benefit the public as well as the insurance industry. Broad-based insurance coverage makes sure that health and property costs for victims of road crashes are protected, but it also benefits insurance companies by expanding their market. In the same vein, reducing the number or severity of crashes benefits all of us, while it also reduces the volume of claims to insurance firms.
In fact a huge motivator to create good road safety practices lies in the sense of personal responsibility. A driver who wants to achieve a safe record is far more likely to avoid accidents than a driver who has no care for safety. If insurance is both well designed and implemented, it can have an enormous impact for improving road safety.