A self-help guide for PPPs two years into the pandemic

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A self-help guide for PPPs two years into the pandemic
Engineer work on railway | © Viewfoto studio, Shutterstock

The past two years have brought a lot of uncertainty for how the COVID-19 pandemic would affect PPPs: What would be the impact on projects in preparation and pipelines? How does it affect investor sentiment? What would the fiscal implications be for countries? And how would governments respond as they also struggled with an unprecedented public health crisis?

While not fully behind us, we now have the benefit of hindsight to help answer some of these questions. 2021 turns out to have been not as bad as expected for private participation in infrastructure (PPI) in emerging markets. After all, there was no way but up after the lockdowns of 2020 fomented lows in closed PPI deals not seen since 2004. In the first half of the past year, investments in Latin America and the Caribbean as well as Europe and Central Asia were already back to pre-pandemic levels. Sub-Saharan Africa also fared well, posting $3.6 billion in investments in 15 countries.

The Public-Private Infrastructure Advisory Facility (PPIAF) canvassed 38 developed and developing country markets about the impact of COVID-19 on PPP programs last year. Their view and the analysis, available on the PPIAF website, found that—while the pandemic had significant impacts on operational PPPs, especially in the transport sector—it had not led to widespread cancelation of projects as first feared. 

And, although the year saw prominent projects under procurement looking like they may be canceled or indefinitely postponed—for example, the nearly three-year unsolicited bid negotiations between the Philippine government and potential developers for the modernization of the capital’s airport—there were also airport project transactions that successfully closed despite the uncertainty in travel and drops in industry revenues. An example is the International Finance Corporation (IFC)-led concession of Bulgaria’s Sofia Airport that attracted strong competition, was awarded to an experienced consortium, and reached financial close.

So, 2021 could have been worse for PPI. Can 2022 be better?

While predictions are hard with this pandemic, we can make some observations about the projects that showed resilience in 2021 and pipelines that attracted investors despite the challenging environment.  The points read like a bit like a self-help guide for PPPs.

  1. Rely on good habits, not just motivation

Rallying support for a PPI program should not depend on a crisis-recovery committee. Successful programs reflect a country’s macro-economic management, a level of competence in project execution, and a political environment that is not overwhelmingly disruptive to business. This makes 2022 the year to invest in institutions.

Many of the programs that saw success last year invested in strengthening their PPI institutions over previous years. For example, the Bulgaria airport was already in the works; past tenders failed to attract bidders because of gaps in the concession agreement. In 2018, a new concessions law became effective, transposing EU-compliant conventions and international standards into the national legal framework and paving the way for better contract bankability.

  1. Go for quality

Because of fiscal constraints and the urgency to stimulate the economy, governments may be tempted to take shortcuts and favor short-term gains in favor of sustained service. This might manifest in opting for direct negotiations rather than competitive tenders or in over-emphasizing the size of concession fees paid in the selection of a PPP partner.

If the crisis taught us anything, it is that strong sponsors are better able to navigate difficult situations and withstand shocks. In addition to finding a strong partner, a focus on quality and not only on the fees paid avoids negative impacts to other project stakeholders—for example, users of the service, who would eventually face higher costs.

We need to remember that quality infrastructure begins with quality processes and partners. Governments do well to choose a qualified partner through a competitive process, for example, using a balanced or rated criteria.

  1. Trim the fat and stay flexible

COVID-19 is still with us and already we see at play the pandemic’s secondary effects discussed here. This makes sizing and timing capital investment challenging. Infrastructure capacity that remains unused is expensive for governments, users, operators, and financiers. The pandemic is helping us think of more dynamic mechanisms of approaching infrastructure outputs including service key performance indicators (KPIs) and risk management.

2022 will likely see plans and contract provisions make way for more flexibility, which could introduce complexity. To avoid pitfalls, governments can focus on clear processes and triggers in place of rigid requirements. Many contracts already introduce more parametric provisions, whether to control KPIs or make payments. This is good trial practice for meeting other challenges, such as navigating climate change’s uncertainty.

At the same time, time-honored principles of transparent, timely, and good faith communication between counterparties are fundamental. This habit deepens with regular reporting; good contract management; early warning, audit, and verifications systems; and alternative forms of dispute resolution (like the use of expert review boards) to settle technical matters.

  1. Pick yourself up when you fall

The crisis has shone a light, albeit harsh, on cracks in PPP agreements and programs. Many countries realized they do not have a good handle on the contingent liabilities that systemic shocks can trigger. The good news is that countries are plugging gaps by establishing better information systems, adjusting contract clauses for new projects to anticipate similar events, and reinforcing PPP program capacity and resources.

Since the pandemic has affected sectors differently, priority shifts could be in order. Lessons from PPPs in traditional sectors can be applied to sectors for which demand has increased, such as health and digital development. 2022 is not the time to retreat, but to redouble efforts in PPPs as infrastructure recovery programs can definitely benefit from additional private investments. 

  1. Work with a support group

Similar to making a personal change, seeking support from others not only brings more resources but also helps fortify commitment to reform. All 15 countries in Sub-Saharan Africa that closed deals in 2021 benefited from PPIAF support in strengthening their legal and institutional frameworks, while the Sofia Airport transaction benefitted from the Global Infrastructure Facility (GIF), IFC, and European Bank for Reconstruction and Development (EBRD).

Beyond working with development partners, engaging stakeholders on adjustments to a PPP project or program increases chances that solutions benefit from a wide base of support that can usher success many years beyond 2022.

Review our Stocktake of government responses to the impact of COVID-19 on PPP projects and Assessment of the Impact of COVID-19 on PPP Pipelines and Projects in Preparation to learn more.


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Jemima Sy

Program Manager, Public-Private Infrastructure Advisory Facility (PPIAF), World Bank

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