In many cases, money is no longer the core resource being sought from MDBs. In the case of ongoing projects, MDBs often act as independent mediators between public and private parties when issues develop. For example, issues of corruption and abuse of political power can be addressed by MDBs, which may have the leverage and recognized neutrality to improve the situation. Multilateral banks and other multilateral financial institutions, including subregional banks, can stand up to political pressure and provide informal political risk cover when they act as independent mediators.
"PPP assistance is most effective when it is part of a long-term engagement effort and integrated with broader sector reforms and institutional capacity development. With this in mind, ADB endeavors to play a pro-active role in PPP advocacy along with other key donors and private sector stakeholders." - Joe Yamagata, Deputy Director General of the Private Sector |
The role of international development financial institutions now focuses on improving conditions for private-sector participation through the development of PPP policy, legal, and regulatory frameworks and institutions; improving the overall investment climate; and developing PPP pilot transactions. Recent support has included the development of cross-sector legal, regulatory, and institutional frameworks, which are crucial in building and sustaining the required political commitment and institutional capacity for larger-scale private-sector participation in infrastructure.
The MDBs play an important role in encouraging participation of the private sector in funding infrastructure projects because of their long-term relationship with developing member governments. PPP development requires sustained policy dialogue and support for the development of suitable legal, regulatory, and institutional frameworks and assistance in the development of PPP pathfinder projects-and MDBs can offer an approach to many developing-country governments that allows the private sector a seat at the table. PPPs often require prior sector restructuring and tariff reforms to be effective. The use of PPPs on a larger scale requires substantial government capacity to identify and develop projects and to regulate and monitor PPP contracts. Support for policy reforms, capacity development, and pilot transactions can often proceed in parallel, and MDB involvement can keep all parties in the dialogue.
There are several elements that an MDB can provide that are particularly important for a project to be successful. These include:
∙ sector-development planning that adequately considers the role of the private sector in infrastructure development;
∙ project preparation in terms of adequate feasibility studies, land acquisition, and social and environmental assessments;
∙ delivery and management of government PPP support; and
• appropriate risk-sharing arrangements between public- and private-sector partners.
The feasibility of PPPs in countries where public services have devolved to subnational and local governments, and the potential for PPPs at different government levels have to be carefully assessed. Country-specific conditions need to also be considered, as past PPP projects have been less successful because of a deficiency of institutional capacity, a lack of economies of scale, and insufficient government funds.