Civil engineers are discussing on a construction site. (Shutterstock)
Investors routinely lament there are too few bankable public-private partnership (PPP) projects to drive the increased private investment that is critically needed if we are to meet growing demands for infrastructure.
This highlights a core challenge facing countries who want to raise private investment in infrastructure: effectively preparing PPP projects. And this challenge can become a practical barrier to using PPPs. As a consequence, governments are increasingly focusing on how to more systematically support PPP project preparation.
Project development funds (PDFs), dedicated vehicles that fund project preparation, are seen as a tool that can increase the pool of bankable PPPs. More and more evidence from established PDFs proves this is the case.
PDFs have supported:
Building PPP pipelines. For example, Mexico's national infrastructure trust fund, FONADIN, has supported more than $413 million of project preparation costs across 76 projects and the Philippines’ Project Development and Monitoring Facility (PDMF) support of 45 projects has coincided with a large increase in the PPP pipeline, growing from 10 projects (valued at $3 billion) to 50 projects (valued at $25 billion).
Improving project bankability through better PPP structuring. PDFs have contributed to increasing the number of PPP projects that reach financial close and access private finance. For example, as of mid-2022, Indonesia’s PDF had supported nearly half of the PPP projects that reached successful closure. In India, a series of PPP interventions, including its India Infrastructure Project Development Fund (IIPDF), led to a quadrupling in the value of private investment in PPPs from 2006 to 2012.
Encouraging broader consideration of PPPs by implementing agencies. PDFs also help to drive PPP policy, and in turn build PPP capacity. In South Africa, the increased awareness and understanding of PPPs drove a cultural shift: familiarity with PPPs generated more ideas for PPP projects, creating a virtuous cycle that that supported PPP program growth.
Although PDFs are not new—the Philippines established its first in 1999, South Africa in 2004 and India in 2007—their use has not been widespread, leaving governments with limited information to draw from to support the design of successful PDFs.
However, a new World Bank report PDFs – Supporting project preparation to structure successful PPPs: A Primer aims to change this.
This PDF primer is intended to help practitioners interested in supporting PPPs at an early stage in their development—one which is critical to unlock much-needed private investment. The primer complements an existing set of tools and knowledge products the Bank makes publicly available to guide practitioners in developing and implementing successful PPPs.
Stressing there is no one “right” way to design a PDF, the primer highlights relevant experience in different contexts across a wide range of topics, from legal status and governance to sustainability and operation. It builds on this experience to tease out considerations for PDF design and implementation.
Much of the primer is focused on different aspects relevant for PDF design with clear takeaways highlighted to enable quick access to key lessons.
Key topics include:
- The structure and establishment of PDFs: including how and where they are established, administered, and governed, with a particular focus on how to facilitate the functionality they require to be effective.
- How PDFs are funded: addressing how much funding they need to operate, who provides those funds, and whether they can be financially self-sustaining.
- How PDFs support PPP project preparation: delving into what drives the projects, activities, and implementing agencies they support and highlighting the importance of when a PDF engages in the project development process.
- Key PDF operational issues: including how they generate demand for their services and different approaches to the procurement and management of PPP advisors, the latter of which is a core function for many PDFs.
The primer also supports practitioners by identifying a number of overarching lessons relevant for those considering PDFs. Chief among these is that PDFs are only a tool and their effectiveness depends on how well they meet the needs of their users, both at the time of establishment and also as users and project preparation challenges evolve.
Other key lessons the primer highlights include:
- The importance of the broader PPP enabling environment. It often underpins a PDF’s structure, administrative model and scope and is critical in ensuring that well-prepared projects can be successfully financed and implemented as PPPs.
- The significance of country context in identifying the specific project preparation challenges and practical financial management considerations that drive effective PDF design.
- The central role that government funding plays in ensuring PDFs can sustainably support PPP project preparation.
- The need to ensure there are sufficient resources allocated for PPP project identification and prioritization to generate demand for PDF services.
Access the guidance here, and feel free to leave comments below about your experience with PDFs to help deepen our growing understanding of them in different contexts.
Carrie Farley and Andrew Jones were the main authors of the primer working on a team led by Mikel Tejada Ibanez and Rupinder Kaur Rai.
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