Public resources can be used to achieve a number of different goals associated with PPP projects or programs. The nature of the Government support instruments chosen will depend on the intended impact of that support, the volume and currency of liquidity (or other funding) available to the Government, the fiscal position of the Government and the financial gaps identified in the relevant PPP projects or program. Government support can:
• Improve access to and quality of services provided creating financial incentives to achieve Government strategic priorities (see Box).
• Improve quality of projects, which in turn improves competition, drives down prices and increases the likelihood of success of the PPP program. Funding mechanisms for project development are important to a successful PPP program, enabling and encouraging Government agencies to spend the amounts needed for high quality advice.
• Increased use of PPP. The benefits of PPP (efficient procurement, lifecycle improvements, well planned maintenance and service improvements) may not be captured by the relevant contracting agency. Government support can provide the incentives required to motivate even reluctant users to implement PPP effectively.
• Reducing the amount of private finance needed.
• Improve opportunities for specific parties, for example local lenders and local equity investors, smaller investors and new/poor consumers.
| Key Messages for Policy Makers |
| • Government support can improve financial viability and make a project more attractive for investors, but it will not turn a bad project into a good one. • Use Government support efficiently, in a targeted manner, to ensure Government goals are achieved. • Ensure funding mechanisms are properly resourced and incentivized to avoid political capture or inertia. • Avoid perverse incentives created by Government support- ensure private and public are motivated to make the project a success. |
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| Box 5.2: Targeted Support |
| Output or performance based subsidies or aid makes a clear link between the intended results and payment.a While requiring evidence of the ultimate output (e.g. healthier children or improved industrial output) is impractical for a number of reasons, Governments can require the project company to perform a task or provide a service that achievets a stated objective before aid or subsidies are paid out, for example a specified number of additional poor households connected to the electricity grid and using the service. These outputs need to be targeted to ensure they achieve the desired impact (e.g. connections alone will not create an output unless the service delivery is sustainable).b |
| a Brook and Petrie, Output-based aid: Precedents, Promises and Challenges, http://www.gpoba.org/docs/05intro.pdf. b See generally www.gpoba.org. |
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| Box 5.3: Project Development Funds (PDFs) |
| South Africa: The PDF began operations on 21 October 2003. It is a single-function trading entity (public account), created within the National Treasury. Disbursed funds may be recovered from the successful private party bidder when the PPP reaches financial close, as a "success fee". The PDF is exposed to the full risk of the project not reaching financial closure. The PDF is capitalized by the South African Government, as well as donors. India: The "India Infrastructure Project Development Fund" is a revolving fund which is replenished by the re-imbursement of investments through success fees earned from successful projects. The project development fund will cover up to a maximum of 75% of the project development expenditures incurred by the contracting agencies. The fund is capitalized by contributions from the Government of India and multilateral institutions. |