4.34 The use of PPPs for the delivery of basic services by state and municipal governments would be stimulated by the provision of central funds to support their payments under PPPs. Any additional funding of PPPs should be complemented by a more rapid development of capacities to monitor the fiscal costs of PPPs.
4.35 The detailed design of such a PPP fund, including the type of support, project eligibility criteria, selection mechanism and how the quantum of support for a project is determined is beyond the scope of this report. A significant effort would have to go into this to ensure that it is well targeted and efficiently used. There is considerable experience internationally with the use of subsidy funds for the expansion of infrastructure services such as telecommunications and power, where government funds complement user fees. These are relatively straightforward, with a competition for funds typically being done on a minimum subsidy basis, for example per new connection to be made. A fund that spans different sectors and also allows for different structures (for example where governments are the sole purchasers of PPPs under contracts rather than government funds being used to supplement user fees) would be more challenging to implement. Consultation with lenders, sponsors and state governments will be an important step in improving the design whilst at the same time ensuring that key central government concerns are met.
4.36 It will be important to ensure that projects supported by the fund are priorities for the contracting governments. A substantial matching contribution from the state/municipal government contracting for the PPP would be important to provide commitment to the project and indicate that the project was a priority. It would however be important to clarify what, out of different possible forms of government support (e.g. land grants, tax breaks, risk-bearing, cash subsidies), would represent a matching contribution.
4.37 It will be equally important to ensure that competition is used to reduce the demands for public funds. It would be far more difficult to size subsidies - and also less transparent - were projects first awarded by state governments on the basis of particular criteria and then subsequently developers approached the fund for support. Otherwise a promoter could "low-ball" on the tariffs for a project to succeed in getting a project awarded, and then access monies from the PPP fund to make up the difference.
4.38 Project design, risk allocation, affordability and value-for-money should also be assessed for these projects to ensure that the center is supporting well-designed PPPs, as noted above. This could be done by the central PPP unit - though there might be conflict of interest concerns if this unit received a success fee from working on transactions, in which case the involvement of others would be necessary in clearances.