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How national PPP units can influence regional performance: Korea’s experience

Kang-Soo Kim's picture

Kang-Soo Kim is Executive Director, Public and Private Infrastructure Investment Management Center (PIMAC), at the Korea Development Institute (KDI), the Republic of Korea’s leading think tank on national economic development. In this blog entry, he explains how national Public-Private Partnership (PPP) units can influence regional economic performance.

Photo: Wikimedia Commons

What advice would you give governments creating a PPP unit?

First, for a government considering this, the vision for PPP needs to be established and shared with others. Second, clearly distinguished roles and functions must be institutionalized. Third, expertise needs to be developed in fields like law, finance, accounting, economics, development, and engineering. Fourth, active benchmarking of developed PPP economies and cooperation with other PPP units should be encouraged and promoted

Overall, it’s critical to remember that a PPP unit’s expertise and capacity is not built overnight. So my final piece of advice is that while experience is built, remaining patient is just as important as maintaining a clear vision of PPP.

What makes PIMAC effective?

The legal and institutional system that guarantees independence and objectivity to the evaluation body is the most important element here. A PPP unit should not be in any way influenced by other players in a PPP project — whether the budget authority, the competent authority, or the private concessionaire. The government is vulnerable to political influence although the private sector is the project stakeholder. Independent and objective assessment by the PPP unit is therefore all the more crucial. It is important that the government lends its support, and that all decision-making reflects evaluations made by the PPP unit.

Preventing renegotiation, fostering efficiency

Rui Monteiro's picture
Lawyers usually say that “the best contract is the one you never have to pull out of the drawer” — a view that focuses on trust, common understanding and mutual advantages. And then they will add that public-private partnership (PPP) contracts, even with the best government–business relationship, are a bit more complex. That’s because they are based on incentive mechanisms that require not only regular monitoring, but also some degree of cooperation and a modicum of strategic management — the three components of PPP contract management.
Photo: Wikimedia Commons
The ultimate success of a PPP contract depends on effective service delivery under conditions of sustained efficiency. The efficiency comes from linking private operator rewards to performance over the long-term (output focus), and from providing credible commitment by the private partner through private finance (or, as it’s known in some circles, “hostage capital”).
There are many cases, as seen in previous issues of Handshake, of PPPs providing high-quality reliable service to users at a reasonable cost for users and taxpayers. But there is also recognition that, over the long-term, PPP efficiency may be jeopardized by contract renegotiation — by necessity renegotiation under no competitive pressure, with asymmetrical information.

This sort of renegotiation creates a risk of breaking the initial commitment, changing rewards and risk allocation. Though theoretical economists would say 
that “in the long-term” renegotiation of incomplete contracts is unavoidable, PPP practitioners should do their best in order to avoid the need for renegotiation, while simultaneously preparing for renegotiation when it is the best solution in terms of public interest.

PPP Days Dispatch: Day Two

Tanya Scobie Oliveira's picture
The second half of the PPP Days conference in London was devoted to country presentations of priority PPP projects, and a few projects – those most likely to be brought to market in the next six to 12 months – were showcased in detail. It was an inspiring example of collaboration for the greater good, proving that PPPs’ potential is limited only by our imagination. (OK, and budgets. And elections. And good structuring. And the presence or absence of natural disasters. But it all starts with imagination and commitment.)
 
PPP Days participants also exchanged ideas today with people around the world who are engaged in the ongoing Massive Open Online Course (MOOC) on public-private partnerships, via the first-ever PPP MOOC Google Hangout. This was an unprecedented opportunity for the over 23,000 people from more than 190 countries now taking the course to ask their most pressing PPP-related questions to officials and experts attending PPP Days – and for these officials and experts to learn from those in the field.

The PPP MOOC Google Hangout was facilitated by Laurence Carter, Senior Director of the World Bank Group’s PPP Group. Panelists included Julia Prescott, Chief Strategy Officer, Meridiam; Thomas Maier, Managing Director for Infrastructure, EBRD; and Pradeep Singh, CEO of the Mohali Campus and Deputy Dean of the Indian School of Business.
 
World Bank Group #PPPMOOC Google Hangout

PPP Days Dispatch: Day One

Tanya Scobie Oliveira's picture

As your PPP Days Rapporteur, I feel like I should start this dispatch by typing “Dateline: London” on a manual typewriter in a newsroom thick with cigarette smoke. Alas, I am hunting and pecking the tiny keyboard of my phone from Exchange Square, the immaculate, smoke-free home of the European Bank for Reconstruction and Development (EBRD), our hosts for the PPP Days meeting.

Photo: (c)EBRD/Dermot Doorly

“Doing More, Doing Better” is PPP Days’ ambitious-sounding theme. The event’s creators convened the gathering to enhance the collaboration among multilateral development banks (MDBs) that is already strengthening the PPP marketplace. One of the best examples of this collaboration, the PPP Knowledge Lab, launched at the conference this morning. The PPP Knowledge Lab, now live at www.PPPknowledgelab.org, is an online “one-stop-shop” for everything PPP. It’s an important online resource that will continually be refreshed and expanded.

Just as the PPP Knowledge Lab gathers great ideas onto one platform, PPP Days has gathered experts and thinkers in one place. These two days are packed full with talks, presentations, panel sessions, and breakout sessions that chip away at one of the most challenging questions of our day: “What would it take to double the right private infrastructure investment in emerging markets?”