Photo: Misako Kuniya | Flickr Creative Commons
The time is ripe to explore innovative ways to implement PPPs through a synthesis of sustainable and resilient best practices that progressively improve delivery and outperform original expectations.
During my recent travels as a PPP advisor to Europe, the Middle East, and Southeast Asia, I worked closely with public sector leaders who are increasingly focused on procuring a new generation of PPPs that are meaningful, sustainable, resilient, people-focused, and will support their governments’ goals of achieving the Sustainable Development Goals (SDGs).
A government official from the Balkans had a concern about maturing PPPs in his country. Projects that had been launched at the end of communism were reaching the end of their lifetime and would be in a poor state when returned to the government by under-performing private sector partners who had not met their obligations to ensure the operations and maintenance would guarantee the government received back projects in good working order. Additionally, there was concern that if the perception arose that PPPs had resulted in “privatization of profits and nationalization of debts” that the potential for future PPP projects would be jeopardized.
These projects that could stop delivering once handed back to the public sector because of a lack of financial and human capital resources would set the country’s development agenda back—as it could not afford to build new projects and refurbish old ones at the same time.
What was needed were projects that continued delivering.
The World Region
Photo: AhmadArdity | Pixabay
There are many reasons why infrastructure projects often fail to materialize, meet their timeframe, budget, or service delivery objectives. Important examples include weak and insufficient planning and assessment of affordability as well as uncertainty over the rules of the game.
These issues severely constrain the ability of governments to mobilize finance to deliver key services that help achieve the Sustainable Development Goals (SDGs). The World Bank estimates that achieving the SDGs would require some $4.5 trillion in public and private investment by 2030.
In light of the financing requirements for the SDGs, the World Bank has developed the Maximizing Finance for Development (MFD) approach to help governments and other stakeholders crowd in private sector solutions while optimizing the use of scarce public resources.
The World Bank Group and the African Development Bank, with support from key development partners, have organized the second Infrastructure Governance Roundtable, to be held in Abidjan, Cote d’Ivoire, June 21-22, to foster a robust dialogue on how best to improve infrastructure governance practices to create sustainable infrastructure, and to assist with building capacity in this area.
Photo: Reychelle Ann Ignacio | Marketplace Designers
Sometimes change creeps up on us. And we can step back and realize that the world is different. This rings true currently in the infrastructure space. Here are three examples:
It’s now commonly agreed that we won’t achieve the Sustainable Development Goals without the involvement of private sector solutions: management, financing, and innovation. Involving the private sector is no longer an “if” question. We’re beyond ideology and calls for more aid transfers. Now we’re looking at “how”—and under what circumstances—crowding in private solutions help deliver better access to infrastructure services while being fiscally, environmentally, and socially sustainable.
This is what the World Bank Group’s Maximizing Finance for Development initiative is about, for infrastructure and other sectors as well. Cameroon’s power sector is a good example, where sector reforms have been supported by public loans, which in turn have helped crowd in private and financing from development finance institutions (DFIs) for large investments like the 216 megawatt Kribi gas project.
Photo: RoyBuri | Pixabay
In developed countries, we tend to take infrastructure services for granted. It’s easy to forget, when living in London, Washington, or Singapore, how much lies behind the simple act of switching on the lights. But as a young person growing up in India in the 1960s, I knew what it was like to live with rampant electricity shortages and terrible roads. It was easy to complain about it, and we did. It seemed, then, that the solution was simple: government should simply cough up the money, get to work, and build the infrastructure.
But there was a lot more we didn’t think about.
Solutions to problems
are easy to find:
the problem’s a great
So wrote the Danish poet, inventor, and mathematician Piet Hein. Development finance wasn’t on his mind when he wrote those words. Neither was private sector development. Yet the observation is unmistakably true for the field: To formulate solutions, we must first understand the nature of the problems we are trying to solve.
It helps crowd in private investment to create markets in difficult places. In an era of limited government resources and donor funds, this is key to achieving sustainable development.
Photo: cegoh | Pixabay
In my line of work, we have a Holy Grail that many brilliant people have spoken, written, and toiled to achieve: attracting international institutional investors to infrastructure projects in emerging countries.
Yet, according to the recent World Bank Group report, Contribution of Institutional Investors to Private Investment in Infrastructure, 2011–H1 2017, the current level of institutional investor participation in infrastructure investment in emerging markets and developing economies (EMDEs) is only 0.7 percent of total private participation.
This Bank Group report estimates that emerging countries need to invest $836 billion per year, or 6.1 percent of current service level of existing assets. Meanwhile, the International Monetary Fund (IMF) estimates that more than $100 trillion is held by institutional investors—with around 60 percent of assets held by pension and insurance funds from advanced economies—making the amount mobilized for EMDE infrastructure look even more paltry.
But the siren song still rings clear—
Photo: Andreas Wecker | Flicker Creative Commons
By promoting better standards, methods and benchmarking, development finance institutions can move the mountain that is preventing institutional capital from flowing into infrastructure.
The World Bank Group's initiative to Maximize Finance for Development (MFD) aims to find solutions to crowd in all possible sources of finance, innovation, and expertise in order to achieve the Sustainable Development Goals (SDGs). In the case of infrastructure investment, a significant contribution to long-term sources of private finance is expected from institutional investors such as pension plans, life insurers, and sovereign wealth funds.
These investors have become increasingly interested in infrastructure investment in recent years, in search of new sources of returns, diversification, duration and inflation hedging. However, they cannot be expected to make a substantial and durable contribution to the long-term financing of infrastructure without three important changes:
Photo: only_kim / Shutterstock.com
There are many drivers of climate change, but few would disagree that energy infrastructure built according to “business-as-usual” standards is a major one. Meeting the lofty goals set at the 2015 Paris Climate Accords requires powering our homes, businesses, and government agencies with a cleaner mix of energy that includes more renewable sources. It also requires promoting standards that encourage energy efficiency—for example, for appliances or building codes—as a low-cost and high-impact way to reduce greenhouse gas (GHG) emissions.
The Global Infrastructure Facility (GIF) is playing a positive role by preparing bankable, climate-smart projects that help countries build low-carbon energy infrastructure and encourage greater energy-efficiency measures. The GIF both drives and leverages private sector investments in climate-smart projects by promoting good governance and standardization in project preparation and has a sizeable portfolio of climate-smart projects in the pipeline.
Over the past two decades, rated infrastructure worldwide has grown threefold. Some periods of flatter growth aside, the rise of infrastructure lending for both project finance and corporates has helped steer the sector’s development.
All the while, the infrastructure sector has developed a more robust risk profile compared to companies primarily involved in the production of goods, otherwise known as non-financial corporates (NFCs). And,
Promouvoir l’initiative et l’innovation du secteur privé tout en assurant une mise en concurrence : c’est le dilemme que doivent résoudre les pouvoirs publics qui souhaitent encadrer les offres spontanées dans l’infrastructure. Dans un précédent billet, nous avons souligné qu’il fallait considérer avec prudence les offres non sollicitées, à savoir comme une procédure exceptionnelle pour la passation des marchés publics.
Un pays qui accepte la possibilité d’offres non sollicitées et qui adopte des mesures pour les traiter s’attend à être saisi de ce type de projet par les entreprises. En même temps, il doit s’assurer du juste prix et de la rentabilité du projet proposé. Mais Comment une administration publique peut-elle encourager les offres spontanées, tout en attirant suffisamment de candidatures concurrentes?