On June 26, Chinese Premier Wen Jiabao concluded his tour of Latin America by offering a US$10 billion loan program for infrastructure projects in the region. A commitment of this size will undoubtedly have wide ranging benefits for productivity and growth, although when one compares the size of the pledge to the region’s estimated $200 to $250 billion infrastructure gap, it’s clear that even more needs to be done to meet peoples’ needs.
One way to fill the gap is through public-private partnerships or “PPPs.” PPPs are long-term contracts between a public-sector body and a private-sector entity for the design, construction operation and maintenance of public infrastructure. Finance is usually provided by, and significant construction, operation and maintenance risks transferred to, the private-sector entity. The public-sector body remains responsible for policy oversight and regulation, with complete control generally reverting to them at the end of the contract term. When structured effectively, PPP contracts can serve as a vehicle for attracting private sector finance, reaping benefits from private sector management capacity and allocating risks effectively between public and private sector partners. Yet, in today’s economy, PPP activity has decreased due to tightened credit markets and difficulties raising debt financing for projects.
Below, I outline a new MIF Program to support PPPs in the region. Given the drop in PPP activity, you might ask, “Is this the appropriate time to unveil a new initiative?” For us, the answer is definitely “yes.” Financial markets will improve and governments will continue to see the value of private participation in infrastructure. After all, both public and private resources must be leveraged to close the infrastructure gap and better ensure low income populations’ access to improved infrastructure and basic services.
Therefore, perhaps a more appropriate question is not whether PPP activity will increase, but when? In the meantime, it is important to support increased government capacity, improved enabling environments and the identification and preparation of quality PPP projects.
Blazing New Paths in Support for Public-Private Partnerships
Last November the MIF and the Mexican Secretary of Finance and Public Credit hosted the PPPAmericas conference in Guanajuato, Mexico. The event convened three hundred and fifty people from twenty-five countries, a clear sign of the interest in and importance of PPPs, and there was an array of sessions all designed to build public and private sector capacity to implement PPPs in infrastructure and basic services. During the conference, I participated in bilateral meetings with government officials to discuss potential MIF PPP technical assistance programs. (The MIF has developed extensive expertise in supporting the development of government PPP programs and institutions during the last decade.) At PPPAmericas, the governments we met with sought support for training, awareness raising, and legal, regulatory and institutional support traditionally provided under MIF projects. Moreover, there was at least as much demand for project pre-feasibility and feasibility studies. PPPs are constrained by a lack of funding for such studies, which are necessary to prepare viable projects and critical for attracting private investors. At the time, we were obliged to inform our colleagues in government that MIF projects principally involve training and institutional strengthening but not downstream support for the preparation of actual PPP projects. This is no longer the case.
On July 11, the MIF approved the “Regional Public-Private Partnerships Advisory Services Program.” Under this program, expert consultants will provide targeted advisory services not only in the areas MIF has traditionally supported (e.g., PPP capacity building and institutional strengthening) but also, for the first time, PPP project selection and preparation. The MIF Program will focus on the national governments in small and less developed countries and other governments at the sub-national level that lack capacities. Project preparation support will focus on “green” PPPs with environmental benefits and social sector PPPs supporting health and education.
Building government capacities in PPPs and generating information on bankable projects will enable governments to more effectively attract private-sector participation in the provision of infrastructure services, thus contributing to a narrowing of the infrastructure gap.
What do you think should be priority action areas for governments committed to improving infrastructure and basic service provision through public-private partnerships?