I recently had the chance to get to know dozens of forward-thinking, dynamic individuals from the public and private sectors. Despite their varied backgrounds, resumes, and perspectives, they shared one thing in common: they have all been influential in shaping the Asia Pacific PPP landscape. Our gathering was part of the IFC PPP Transaction Advisory Services Unit’s four-day Senior Training Program on PPPs and Project Finance, in collaboration with the Harvard Kennedy School in Singapore.
All of the participants – government representatives, donors, private sector clients, World Bank and MIGA staff, as well as senior IFC staff -- offered a different view on how best to combat today’s global PPP challenges. We captured a few key insights from the training program to share with others:
- “Properly Planned Projects” is the acronym of the future. PPPs are extremely complex and multi-faceted, and thus require a renewed focus on appropriate and timely project planning. In the near future, there will possibly be a shift towards calling these deals “Properly Planned Projects” instead of public-private partnerships.
- PPPs are not the universal remedy to all infrastructure challenges. With the rising interest in PPPs, there is a growing perception that PPPs are the best solution to any infrastructure development problem. But PPPs are not a panacea to all infrastructure challenges that countries face today. It is more important than ever to first assess the problem, and then later decide if a PPP is the best or most effective tool for the job.
- Choosing politically = choosing wisely. In today’s ever-changing legal, regulatory, and political environment, the government should minimize political risks within its purview to draw more PPPs to its market. Countries tend to pay more attention to the financial and legal aspects when structuring a PPP project, but a poor understanding of the political landscape can create obstacles to a well-structured PPP.
- Standardization can improve efficiency, but it has its risks as well. A key aspect to attracting private sector investment is ensuring that the entire bidding process is completely transparent, with well-defined criteria for selection. When markets employ consistent procurement processes and clear and comprehensive procurement documentation up front, they develop higher levels of private sector engagement, and price discovery takes place under competitive tension. Developing standard processes and approaches towards structuring contracts, adoption of standard form contracts, risk allocation matrices, and supporting documentation can facilitate certainty in the market. However, over-standardization of PPP contracts, with a view to reducing mediations and negotiations (in the hope of lower bid costs) can backfire. Some key contract clauses can certainly be standardized, along with guidance manuals for their interpretation; indeed, a few countries have done so. But the use of template-type agreements for complex public-private partnership transactions is much less common and not recommended. Other countries have incorporated some standardized elements in their legislation to govern all PPP contracts.
- Monitor, monitor, monitor. In order to have successful PPPs in the future, the public sector should ensure that they engage with the market continuously, be willing to adapt to changes and at the same time, learn from the mistakes made throughout the PPP process.
Akash Deep, Senior Lecturer in Public Policy and co-chair of the renowned Infrastructure in a Market Economy Executive Education program, and Jose A. Gomez-Ibanez, Derek C. Bok Professor of Urban Planning and Public Policy at Harvard Kennedy School, and guest faculty from the Singapore Management University, also discussed case studies that encouraged participants to ask some of the most pressing PPP questions and narrate their experiences in diverse leadership roles. For more information, watch our YouTube video at https://www.youtube.com/watch?v=WlEosHpRpjA.