It takes a lot to do a first Public-Private Partnership (PPP) well. In the past 12 months, we witnessed the successful financial close of two landmark PPPs: the Tibar Bay Port PPP—a first for Timor-Leste, one of the youngest countries in the world—and the Kigali Bulk Water project in Rwanda, considered the first water build-operate-transfer project in Sub-Saharan Africa.
To make these projects happen, deal teams, sponsors, and financiers did outstanding work in difficult environments. The Public-Private Infrastructure Advisory Facility (PPIAF) also earned some bragging rights and a share of the battle scars along with these actors.
Tomas Castelazo | Wikimedia Commons
La revista colombiana Dinero, una de las publicaciones económicas más reconocidas de América Latina, recientemente publicó un estudio del Banco Mundial en el que clasificaba a Colombia como el segundo país más competitivo del mundo—detrás de un empate entre Gran Bretaña y Australia—para financiar obras de infraestructura bajo el modelo de Alianzas Público-Privadas (conocidas como APP). De igual manera, este puntaje (de 83 puntos sobre 100) fue también compartido por las naciones de Paraguay y Filipinas.
A primera vista, este es un virtuoso reconocimiento—por lo menos en papel. En la práctica diaria en la región latinoamericana, así como en la mayoría de las economías emergentes, la complejidad administrativa de los órganos gubernamentales aún representa uno de los más altos retos que demanda de atención inmediata para que las APPs puedan alcanzar su potencial máximo. Hacer esto correctamente integraría realmente el modelo de PPP en el motor de desarrollo económico y social requerido para competir en una economía globalizada.
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.
Recently, I published a book about infrastructure public-private partnerships (PPPs) in the most challenging developing countries—a private sector perspective on what is required to bring investment and expertise to partner with governments in providing vital infrastructure services.
There is already a substantial body of work on the potential of PPPs and how to design, finance, and implement them—even in countries where there are limited legal and regulatory frameworks on which to build. What compelled me to write my book is the urge to share, as a practitioner over two decades in some of the most challenging markets, common pitfalls I’ve seen and what appear to be the critical elements of success in creating successful and replicable PPPs.
In a previous blog, I used the metaphor of marriage to explore the dynamic of public-private partnerships (PPPs) as relationships created between two parties with often very different expectations and methods of communication.
Today, we explore PPP cancellations, the what and why— further stretching the marriage metaphor.
The worst reconciliation is better than the best divorce – Miguel De Cervantes Saavedra
BRJ INC | Flickr
In the 18th century, muskets were produced by skilled craftsmen, one piece at a time. Each component was individually forged, filed, and worked—like a piece of art—until they could all be put together into a single weapon.
Today, the limitations of this approach are apparent. The cost and time required to produce each musket were high, and replacement parts had to be made by hand. This method was replaced by production with interchangeable parts in the early 19th century, a process advanced by Eli Whitney, an inventor who produced arms for the U.S. government.
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.
Photo: torstensimon | Pixabay
In the context of strained public finances and limited borrowing capacity for developing countries, there is growing debate on the roles of public and private actors to deliver the trillions of dollars of infrastructure necessary to achieve the Sustainable Development Goals (SDGs). On one hand, high-profile public-private partnership (PPP) project failures have cast doubt about the viability of the model. On the other hand, while public authorities are ultimately responsible for the delivery of public services, deficient infrastructure services in some countries have raised concerns about the ability of the public sector to deliver on its own.
This is not a black-and-white issue. Public and private finance are complementary, with different objectives and characteristics suitable in different contexts and sectors. The recently published 2018 report of the Inter-Agency Task Force on Financing for Development, to which almost 60 agencies and international institutions have contributed, explores this debate while analyzing financing challenges of SDGs 6 (clean water and sanitation), 7 (affordable and clean energy), 11 (sustainable cities and communities), and 15 (life on land/ecosystems).
Photo: Michiel van Nimwegen | Flickr Creative Commons
Just ahead of this year’s anniversary of the Indian Ocean tsunami of 2004, I visited the Tsunami Honganji Vihara site in Sri Lanka where upwards of 2,000 people died when their train was destroyed by the force of the waves. Shortly after my visit, Sri Lanka was faced with an unusually large tropical cyclone that pummeled the capital of Colombo, and caused extensive flooding, power failures and infrastructure damage. And, a few thousand miles away, Bali’s highest volcano, Mount Agung, was threatening to erupt, causing considerable anxiety in Colombo that it could trigger another tsunami event of the same magnitude of the 2004 disaster.
Upon my return to the United States I learned of the raging wildfires in California causing massive damages.
This year’s seemingly never-ending adverse weather events, exacerbated by climate change, along with adverse natural events such as earthquakes, are negatively impacting critical infrastructure globally. Some might describe 2017 as a global “annus horribilis” for adverse “force majeure” events.
Photo: GotCredit| Flickr Creative Commons
Whether an infrastructure project should be pursued through government funding, official development assistance (ODA), a Public-Private Partnership (PPP), or a hybrid, is a matter of finding the solution that best meets a government’s objective given a set of constraints and the risks presented by each option.