Leveraging the link: Public Investment Management and Public-Private Partnerships

Jordan is my second home, as I have worked there, off and on, since the late 1990s. I have watched Amman grow from a relaxed city into a hustling, bustling regional business and financial hub. Even though my Arabic is still rusty, there is no shortage of development partners and government officials ready to talk in our common language — the vocabulary of public investment management (PIM) and public-private partnerships (PPPs).
 

Recently I was invited to speak at Public Investment Management (PIM): Best Practices Workshop hosted in Amman, Jordan by the World Bank Group’s regional Governance team, led by Emmanuel Cuvillier. My job there was to show the linkages between public investment planning (PIP) and PPPs. As I prepped for my speaking engagement, I realized how little progress we, the global PPP community, have made in developing an integrated approach for undertaking investment projects.

One obvious reason for this is that PIMs are not fully integrated in the planning functions by most governments. And PPP projects that follow privatization programs have adopted many of the habits of the privatization programs — for example, only work on a list of selected entities, and establish an ad-hoc commission/committee tasked to undertake evaluation and tendering — with the ultimate aim of obtaining private investment.

But there’s an important difference in the case of PPPs. We are not selling assets, we are creating assets. The project does not end when the public and private parties sign the contract, as is the case in privatization; in fact; the project begins at that point, and has to be monitored over many years for performance and delivery. Typically, the project reverts back to the public sector at the end of the PPP agreement term. And finally, unlike the case with privatization, the public sector almost always commits to various kinds of fiscal commitments (real or contingent) in PPPs.

The link between PPP and PIP
So while governments (including Jordan) are now being “encouraged” by development partners to set up proper PIMs, integrating PPPs in PIM makes it possible for governments to expedite the process. After all, they want to build a robust and credible pipeline of potential PPP projects as quickly as possible, and also to avoid randomness in the selection of PPPs (such as politically motivated projects, or “low-hanging fruits”).

But as I said at this meeting, it is important to establish up front that a PPP is not the automatic choice, and that in fact a PPP is just one form of implementing a public investment project. PPPs, like all investment projects, must meet certain criteria. Specifically, investment projects should be:

• Screened for compatibility and consistency with national policies;
• Economically viable;
• Technically and legally feasible, environmentally compliant, socially sustainable, and economically viable;
• Aligned with  fiscal priorities; and
• Appraised on their ability to address a need and for their potential value against the cost of the required investment.

Based on analysis that follows answers to the points above, it is determined if a project is worth undertaking as a public investment project. Its suitability as a PPP is assessed based on the following questions:

• Does the project include a significant investment component and a need for ongoing operations and maintenance spread over several years? Is it possible to integrate up-front design and construction with ongoing operations and maintenance under the responsibility of one entity?
• Is the investment value sufficient to justify PPP transaction costs?
• Does the project address a long-term, predictable public service need? And does the project provide a long-term solution to that need? Will there be incentive for the private sector to carry out each function in a way that minimizes total lifetime project cost?
• Could the required outputs be contractually specified without compromising service quality?
• Could a PPP generate private sector interest? Does the private sector have the required experience and expertise? Can private sector performance be linked to incentives and compensation?

Developing a unified approach
Because a PPP is a form of public investment, it is logical that there should be a unified approach to assessing suitability of projects: first as a worthy public investment, and second as a potential PPP. Diagram 1 (below) illustrates how the decision-making process would unfold, and potential roles for the ministries of planning and finance.
 

The above diagram recommends that a PIM unit is set in the Ministry of Planning, and a PPP unit is set up in the Ministry of Finance. In practice, however, they must collaborate closely, as PPPs have a direct impact on fiscal management and PPPs generate fiscal commitments.

A model similar to the one above has been outlined in the recently enacted PPP Law and its draft Regulations in Jordan. The World Bank Group provided support to the Government of Jordan in developing this PPP legislation, which is being established along similar lines in Ghana as well. It would be useful to know of other examples where similar structures are under discussion, so that those implementing plans can compare notes and build on the lessons learned from closely related approaches. 

As I wrap up my time in Amman, bidding “Shukran” (thank you) to my hosts at the Public Investment Management (PIM): Best Practices Workshop, I am confident that our new shared vocabulary of PIMs, PIPs, and PPPs will grow into projects on the ground, helping those who need these services most.  With a unified approach — tailored to the country and backed up by global lessons learned — Jordan’s PPP agenda is well positioned to tackle the hustle and bustle that will greet future visitors.