A year helping governments roll with COVID-19’s punches to infrastructure PPPs: What we’ve learned

When the COVID-19 pandemic began to emerge, my immediate thoughts were about how to minimize the disruption that a few months of potential travel restrictions could have on our ongoing work to support developing countries as they leverage private sector participation and finance for infrastructure development. I had no idea in those first few weeks just how fundamentally the support governments need—and how we deliver it—would change.

As supply chains were disrupted, customer demand fell (precipitously in some sectors), and health regulations forced a change in the way business is conducted; I felt almost helpless in the face of the unprecedented impact on the infrastructure sector.

Once that initial shock wore off, we just had to roll up our sleeves and figure out how to help our client countries navigate the pandemic and keep infrastructure services operational. Thanks to the flexibility and support of Public-Private Infrastructure Advisory Facility (PPIAF) donors, the World Bank quickly established the COVID-19 PPP Rapid Response Umbrella Program, aimed at providing remote, targeted technical advice to undertake a fast assessment of the impact of COVID-19 on government PPP programs.

When infrastructure projects are delivered through PPPs, they face unique challenges due to long-term contractual commitments between counterparties, including third-party lenders and investors.  In contrast, when projects are entirely publicly funded and operated, governments can unilaterally decide to absorb increased costs or reduced revenues on their balance sheet or adjust service standards and reduce maintenance regimes.

Therefore, authorities managing infrastructure PPPs need to get ahead of anticipated developments through a rapid assessment of their portfolios in order to identify risks, estimate their costs, and inform decisions on options and actions. 

Over the last year, our Rapid Response Program has provided tailored support to 10 countries, including the Philippines, Peru and South Africa, in various sectors to assess the impact of COVID-19 on their operational PPP programs and provide international benchmarks.

To ensure we capture lessons learned and share knowledge and current practice widely, the World Bank has produced a Practice Note on Assessing the Impact of COVID-19 on Operational PPP Projects and Programs. This note discusses key operational considerations when trying to maintain services during the COVID-19 crisis and recalibrating a PPP project in the short-term.  It builds on early lessons from the pandemic response and provides general guidance to assist governments when assessing their policy and legal options for addressing COVID-19 impacts on PPP projects already underway.

Keeping in mind that there is a wide range of aspects to assess and specific sector, policy, and legal considerations that will drive a government’s decision making process regarding a particular PPP project, some key principles are emerging:

• Identify stress points early through the prompt examination of information, stress testing, and assessment of contract rights and obligations to determine the appropriate level of government action.
   
• Take a proactive approach involving all parties rather than waiting for the private partner to make claims and potentially end up in dispute. This kind of engagement is critical to determine the private partner's assessment of COVID-19 risk to projects and its plans for addressing such risk.
   
• Measures should be time-bound or temporary in nature, based only on COVID-19 impacts and not broader issues relating to the project. They may need to evolve as the longer-term impact on project fundamentals becomes clearer.
   
• If financial support is needed the rationale should be transparent with a degree of pain/gain sharing between the parties, to ensure there’s no windfall (or perceived windfall) to private operators in order to avoid a backlash against PPPs.

As we move into our second year still grappling with COVID-19, its longer-term impact will begin to emerge. We expect to shift our focus again from immediate rapid response to better understand how the systemic change to our behaviors post-pandemic will impact demand for services and infrastructure needs.

It is certainly true that the only thing constant is change. As 2021 unfolds will keep you informed of important findings that can guide the smart and sustainable use of PPPs in infrastructure service provision.

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