Keeping the public and private in PPPs

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Tomas Castelazo | Wikimedia Commons

The Colombian magazine Dinero, one of the most respected economic publications in Latin America, recently published a story about a World Bank study that placed Colombia as the second most competitive country in the world—behind a tie between Great Britain and Australia—to finance infrastructure projects under the public-private partnership model (known as PPPs). This score (83 points out of 100) was also shared by Paraguay and the Philippines.

At first glance, this is a virtuous recognition—at least on paper. However, in daily practice in the Latin American region, like most emerging economies, the administrative complexity of government bodies still presents enormous challenges that demand immediate attention if PPPs are to reach their full potential. Getting this right would truly integrate the PPP model into the economic and social development engine required to compete in a globalized economy.

While many governments in emerging economies, such as Honduras or Kenya, have taken strong steps to improve the process of bidding and managing PPPs, these processes still tend to be long and often slow. These delays often result in the expiration of environmental licenses and building permits that have already been secured,  bringing the project to complete paralysis.

I was pleased to see that, in a recent study by the World Bank’s International Development Association (also known as IDA), private participation in renewable energy infrastructure projects accounted for 70% of all energy projects in 2017 in emerging economies, a significant increase compared to 38% in 2013.

As entrepreneurs in the energy industry, this encourages us to use PPP mechanisms whose structures have already been enhanced, like in Colombia or the Philippines. Just as renewable energy projects are a global necessity of the 21 st century, solid platforms that facilitate their development are also de rigueur . 

Many deficiencies in the management of PPPs are due to governments’ lack of real understanding of the partnership model. By this, I mean that governments repeatedly tweak the balance to impose their processes on the private sector— diluting the alliance’s true meaning. In honoring a bureaucratic tradition of mechanisms and protocols, the advantages, discipline, and expertise that the private sector brings to the PPP table are dimmed. 

This is where we need to really re-balance the necessities of the two partners in PPPs. The speed and flexibility provided by the private sector is an added value that injects confidence in the investment and development of infrastructure projects.

At the same time, these elements should be complemented with the long-term security the public sector offers. In Colombia, for example, this equilibrium has been put into action by laws that reflect the core basis of PPPs, such as the PPP Law of 2012 and the establishment of the National Infrastructure Agency, a public entity manages PPP projects in the transportation sector.

As president of an energy infrastructure development company, I see how the global demand for renewable sources is increasing tremendously. This has not only aroused the interest of new actors, but amplified international competition to access these sources. The speed of technological advances asks us, more than ever, to be innovative and seek alternatives to new challenges. Many models from the past simply no longer meet the demands of our globalized world. This is an ideal scenario to double-down on PPPs to introduce efficiency and innovation in some obsolete or inefficient public services.
We know this model very well at ININCORP since all our projects are designed to offer solutions that align public needs with feasible and viable capacities contributed by the private sector.
Having a PPP framework that has been applauded by the World Bank, as in the cases of Colombia, Paraguay, or the Philippines, should encourage an acceleration in the development of PPP projects in these countries. Regrettably, their systems also provide obstacles that may lead to a decrease in the completion of such initiatives.
Governments are right to ensure good projects that are sustainable, affordable, and deliver excellent service to their people. But we must guard against consequences that are likely unintended but slow down the objectives for which these alliances were forged.
Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.
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