SGs can be used for PPP policy purposes. Some examples are set out below.
- Building up confidence in a PPP market and demonstrating Government commitment - In the initial stages of development of a PPP market (or indeed an individual programme within an otherwise mature market), a Government might use SGs to signal commitment to its PPP initiative, build momentum or steer private funds towards PPPs. Emerging PPP markets, or even emerging programmes in established markets, may face particular difficulties in attracting sufficient private sector interest. For instance, the private sector may be unwilling to commit to long-term PPP arrangements with the public sector as it has a limited understanding of the risks involved. There may also be an insufficient number of financiers able to lend on terms (e.g. pricing, loan tenors, local currency) which would make the PPP projects affordable and value for money. The use of SGs can encourage private sector participation and help it organise itself to better meet the business opportunities arising out of PPP programmes.
- Accelerating the implementation of investments - Even in well-established markets, PPP transactions can entail long and complex procurement, due diligence and negotiation processes; in particular where the funding is provided through project finance. By providing SG cover for the elements of risk that give rise to protracted discussion or due diligence issues, the Government can simplify and shorten negotiations and therefore accelerate the commencement of project works.
- Safeguarding the credibility of a PPP programme - The failure of a PPP project or the stalling of negotiations on a flagship PPP project can be perceived as the collapse of an entire policy. SGs can be used to avoid this, although this is only relevant if the PPP programme as a whole would be damaged by the failure of a single project and if the programme is of sufficient political importance that protecting its integrity is imperative.