Multilateral development Banks (MDBs) have lately focused on infrastructure and its demonstrated effect on achieving sustainable economic growth in developing countries. In this context, and given the scarcity of public resources, PPP arrangements are increasingly viewed as important mechanisms capable of bridging the public resource gap, whilst meeting the infrastructure need. The growing popularity of the PPP concept is also due to other contextual factors, particularly in the developing world. They are: i) the exponentially growing populations; ii) the widely observed urbanization phenomena; and iii) the increasingly ambitious economic growth aspirations. For most MDBs, PPPs are of great relevance, and several feature PPPs explicitly either in stand-alone strategy documents or as integral part of sectorial/corporate strategies. Despite the strategic relevance of PPPs, it is difficult to judge the magnitude of support that PPPs have received collectively by MDBs-because of the lack of a consistent PPP definition and system to capture the share of operational activities devoted to PPPs.
Across the MDBs, the World Bank and the three Regional Banks (AsDB, AfDB, and IaDB) have PPP approaches that recognize the importance of upstream as well as downstream support. In particular, the World Bank Group recognizes the importance of upstream work given the role it plays in policy and sector reform work to create the necessary regulatory and legal frameworks. In addition, it runs IFC advisory services as Government-facing service in structuring PPPs, with positioning the World Bank group at the center of the financial consortium (with a MIGA guarantee).
Based on the AsDB evaluation of PPPs, the institution seems to be rethinking its approach to PPPs. Another study at the AsDB referred to the infrastructure financing aspect of the institution associated with high levels of project cancellations. Leadership in developing PPP projects is essential to maximize the chance for full disbursement and implementation.25 The AsDB has created a separate PPP department to enhance their development contribution. This contrasts with the EBRD approach which focuses mostly on downstream transactions. The EIB is different in that the bulk of its transactions are in the EU, which has fairly well- developed institutional frameworks and thus focuses on finance and stimulating peer learning between its member countries. Compared to its peers, the World Bank Group offers the widest and deepest set of services and products, a conclusion corroborated by IEG's nine country missions (2014).
Organizationally, a best practice for managing PPPs has yet to emerge. MDBs take different approaches to delivering their PPP response, from rather central approach with one unit managing the PPP agenda to an explicit matrix approach, such as at the AsDB or the World Bank Group.
The interdependency of PPPs' success and an enabling environment emerge as common success factors. The work of all MDBs either acknowledges the significance of or directly supports the creation of an enabling environment, including policy and sector reform. With regard to improving access to finance, MDBs' financing in developing countries is usually undertaken in conjunction with other development banks. Several MDBs are contemplating project financing facilities to catalyze financing for PPPs. Some of this is being triggered by the urgent needs for infrastructure many regions face and the need to open up new approaches to finance.
With regard to implementing these strategic plans, some have come up with specific roadmaps and matrix management structures. In particular, the AsDB undertook an evaluation of PPPs that has triggered a rethinking of the institution's approach to PPPs and has moved to make the process more strategic and less opportunistic. Its 2012-2020 operational plan for PPPs26 turns strategy in implementation more readily. The four pillars27 of its operational plan also help define the PPP instruments the AsDB will offer.
Similarly, the Bank developed an operational framework for the participation of the private sector in funding the infrastructure investments (as PPIs or PPPs) in conjunction with its private sector development strategy, where PPPs figure prominently. Furthermore, the Bank has helped Nigeria Government in 2013 to establish a PPP hub aimed at building capacity on the public side. This has helped establish a stronger legislative base for PPP initiatives in the country. At present, three PPP hubs are managed by the Bank are located in Pretoria for Southern Africa, Nairobi for Eastern Africa and Abuja for the Western part of Africa. The Bank intends to manage more hubs located in the different regions.
According to IDEV´s "Lessons learned: Public-Private Partnerships" 28 which uses independent Development Evaluation department of the Bank's "Evaluation Results Database" for drawing lessons and recommendations29, the main lessons/recommendations are:
Policy and Strategy Levels
• The Bank should make use of PPPs to simultaneously aid the improvement of the business climate, the upgrading of the private sector through capacity building, training and advice, along with the provision of financial services. Policy should define how to encourage PPP building on the comparative advantages of each sector.
• The Bank should act as a catalyst by promoting PPPs, which can mobilize greater resources and improve service delivery. Good strategic planning should aim at maximizing the contribution to the local economy and upper level outcomes, such as regional integration, tourism development or urban mobility.
• The Bank, along with governments and other donors should ensure that wider societal targets are not undermined in partnerships, given that PPPs are typically oriented towards financial issues. Effective and efficient PPPs should rely on common goals, where the private partner acquires a sense of social responsibility on one hand and the public actor a sense of managerial culture on the other.
• Replication of successful PPP models from other regional settings should fully take into account local characteristics and conditions. Even the so-called "good practices" within a country or a region cannot be directly transferred to other countries, as the factors having an impact on the adoption and implementation of PPPs within the domains of politics, the economy, administration, and the legal system vary across substantially countries, and developed and developing regions.
• PPP projects should be complemented by the Bank's policy work, technical know-how and post transaction support. Especially in developing countries, it is necessary to support the development of a second type of infrastructure, the so-called "soft infrastructure" in order to take full advantage of physical infrastructure. Its aim is to improve human capital, namely attitudes, knowledge and soft skills.
Project Level Recommendations
• In the design of water and sanitation projects, the Bank should consider including more PPPs, supported by effective competition between operators and an effective regulatory system30. In this context, non-lending assistance needs to be invigorated and enhanced in order to further improve the enabling environment for PPPs. This can pave the way for private sector financing of infrastructure projects, particularly those that have an economic advantage in the regional spread.
• Factors associated with less successful PPPs or outright failures included: poor contract preparation; inadequate risk management; absence of competitive and transparent tendering procedures; poor or inadequate monitoring and enforcement of covenants; inadequate skill and absorption capacity (more on the public, though occasionally also on the private sector side). Such factors on the 'downstream' side are not infrequently accompanied or even amplified by deficiencies on the 'upstream' side, including: inadequate legal, regulatory and arbitration frameworks; enforceability of covenants; corruption and political instability; local labor market constraints eventually exacerbated by restrictive visa procedures for required expat staff; inadequate local supply base coupled with import restrictions.
• On the positive side, the promising factors include: availability of services through PPPs earlier than via the public sector financing avenue; higher budget discipline (i.e. a lesser propensity for cost-overruns); expedient procurement process; efficiency and effectiveness gains associated with the private sector input; technology and know-how transfer expectedly more distinct; demonstration effects to other communities; pricing of services reflecting market/economic costs (a blessing in disguise) and reduced 'free-rider positions'.
The PPP evaluation can thus extend the conclusions of available evaluative documentation further into the relevancy, policy alignment, development effectiveness, value for money and additionality. The value for money proposition, in particular, presents considerable challenges. In this regard, as any credible assessment needs to take into account factors that are not always explicit even in standard forms of procurement (e.g., quality of the service provision and the overall costs and associated risks). Higher explicit costs might occur in some of PPPs underlying components, such as transaction costs, relative costs of finance, and those related to monitoring and supervision.
Another aspect to examine is ongoing discussion currently taking place by various bilateral and multilateral donor of using blending in PPP projects. Blended PPP projects involve financing schemes which include private funds (debt/equity) and contribution from funds (grants / financial instruments). Preliminary findings from Europe point to benefits being project delivery on time and on budget, innovations in asset and service delivery, greater professionalism in project management and implementation, new risk mitigation mechanisms and bridging market gaps through the provision of additional liquidity and financial viability to projects31.
Within this context, the Bank might also consider devising and implementing the most appropriate ex-ante and ex-post tools to ensure that a credible and workable future assessment process might take place to dig deeper into development results.
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24 Excerpt from the Evaluation of the Utilization of PPP Mechanism: A stocktaking exercise (January 2016)
25 Institutional Comparative Review of AsDB's private sector operations, June 2016.
26 Public-Private Partnership Operational Plan 2012-2020: Realizing the Vision for Strategy 2020:The Transformational Role of Public-Private Partnerships in Asian Development Bank Operations, 2012
27 Pillars of Public-Private Partnership Operational are the following: Advocacy and capacity Development, enabling environment, project Development, and project Financing.
28 http://idev.afdb.org/sites/default/files/documents/files/2015%20Lessons%20Learned%20PPPs.pdf
29 This information was drawn from the "Evaluation Results Database", covering the period 2001 to 2012, and extracted from 11 documents of 5 different types, featuring 12 countries and over 6 sectors, using the keywords "public-private partnerships", "public-private" and "PPP".
30 Consultations with Bank staff from OWAS revealed that the Bank has no PPPs in the Water sector.
31 PPP Concessional financing types should however be treated with transparency and in a targeted manner. This issue will be treated in the in-depth literature review, in particular the risk of misallocation of resources when injecting grants in PPPs that would otherwise not be financially feasible.