Hybrid PPPs: Turning risk into viability

The problem: When well-structured isn’t enough

Imagine a government meticulously planning a vital infrastructure project, such as constructing a much-needed road. All the key elements for a successful public-private partnership (PPP) seem in place—the project’s overall benefits to society outweigh its cost and a PPP is the most efficient delivery option. Yet, there’s a major hurdle: the projected cash flows fall short of covering debt obligations. Investors, wary of the financial risks, question the project’s financial viability, particularly in the construction phase, which strikes them as particularly high risk. These shortfalls could stop the initiative in its tracks.

While private sector participation and PPP models offer a pathway to leveraging private capital and expertise, they can’t proceed when projects aren’t financially sustainable. Even when the private sector might be willing to invest, the "viability gap"—the difference between the project’s expected revenues and costs—can make the project commercially unviable, leaving many essential infrastructure projects as mere aspirations.

The solution: Hybrid PPPs with Viability Gap Funding

To make projects bankable and affordable, governments can deploy Viability Gap Funding, which provides capital or operational subsidies to bridge the gap and turn these aspirations into reality.  When combined with some or all concessional financing, the initiative becomes a Hybrid PPP—a partnership that enhances the viability of economically sound but financially challenged projects. Hybrid PPPs use concessional financing to cover capital and/or operational costs, enabling countries where public budgets are already stretched thin to attract private capital and move forward with critical infrastructure projects that might otherwise remain unfeasible.

A collaborative "One World Bank" approach

Countries can call on the World Bank Group to mobilize its full suite of tools, including concessional financing from the World Bank and transaction advisory services from IFC, to ensure the project is not only financially viable, but also well-prepared and aligned with international standards. Thereby, Hybrid PPPs overcome not only financing but also project preparation barriers, allowing countries to maximize their budgets and pursue vital infrastructure for the millions of households left behind.

Why not call every PPP hybrid?

The term "Hybrid PPP" might raise questions—after all, every PPP inherently involves a mix of public and private sector involvement. However, what distinguishes Hybrid PPPs is its unique blend of financing mechanisms. On top of public and private involvement, Hybrid PPPs leverage concessional financing from the World Bank or other sources to cover capital and/or operational costs. These partnerships represent a deeper level of collaboration, blending public, private, and concessional resources to ensure that projects are both well-planned and financially viable.

The bigger picture

Hybrid PPPs represent the next evolution of PPPs, addressing the critical challenges that traditional PPPs face when financial gaps threaten to derail essential infrastructure projects. By blending expertise of the public and private sectors with concessional financing and structuring support from institutions like the World Bank Group, Hybrid PPPs provide a viable solution to some of the most pressing infrastructure challenges of our time.

The World Bank Group’s Hybrid PPP Initiative represents a new frontier in infrastructure finance, which is particularly critical in today’s challenging economic environment. As we look to the future, the ability to mobilize private investment for public good will be a key driver of sustainable development. The next time you hear about a "Hybrid PPP," remember it’s not just a name. It’s a powerful tool for turning ambitious visions into reality.

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