Romero: What lies beneath? A critical assessment of PPPs and their impact on sustainable development

From the Executive Summary:

Public-private partnerships (often referred to as PPPs) are increasingly promoted as a way to finance development projects. Donor governments and financial institutions, such as the World Bank, have set up multiple donor initiatives to promote changes in national regulatory frameworks to allow for PPPs, as well as provide advice and finance to PPP projects.

PPPs also feature prominently in the discussions around the post-2015 and the financing for development agendas. Currently, there is a strong push to increase the involvement of the private sector in the development arena and to promote PPPs as a key tool to reach the soon to be agreed sustainable development goals. This report shows that the last decade has seen a huge increase in the amount of money invested in PPPs in developing countries. From 2004-2012, investments in PPPs increased by a factor of six, from US$ 22.7 billion to US$ 134.2 billion. This has been driven by economic growth and thus the need for infrastructure development, but also by low interest rates in developed countries which has driven investors to ‘search for yield’ elsewhere.

Although investments in PPPs fell in 2013 to US$ 84.4 billion, current estimates indicate that the developing world will experience a new wave of PPPs in the near future. However, it is important to note that despite the promotion of PPPs, private finance only provides about 15–20 per cent of total infrastructure investment. The lion’s share is still provided by the public sector, and this situation is likely to continue. Therefore, questions remain about why so much focus is placed on the private sector rather than improving public sector delivery. This report looks at the empirical and theoretical evidence available on the nature and impact of PPPs, and analyses the experiences of Tanzania and Peru. It critically assesses whether PPPs deliver on the promises of their proponents and gives concrete recommendations for policymakers.

Available for download here.

Advertisements

Kim: Public–Private Infrastructure Cooperative – New Infrastructure Financing Paradigm

ABSTRACT:

A state-level public–private infrastructure cooperative (iCoop) is proposed as an effective means of financing public–private partnership (PPP) transportation projects. iCoop is an independent state-level infrastructure bank dedicated to financing PPP projects and is operated like a banking cooperative with guaranteed minimum returns to its investors. Its ownership is founded on a public–private partnership, and its initial capitalization draws on the state’s noncapital contribution in the form of PPP participation guarantees, private capital contributions from local and global investors, and its own bank deposits. iCoop’s business model eliminates the state’s need for PPP “subsidies” resulting from toll revenue shortfalls and converts them into additional debt capacity with returns for reinvestment. iCoop helps to lower the overall PPP financing costs and reduce perceived risks associated with greenfield construction financing. iCoop is also designed explicitly to mitigate key political risks underlying PPP projects. Through iCoop, the state can effectively increase its infrastructure debt capacity without jeopardizing its current debt limit and do so with no direct capital contributions. For global investors, iCoop provides a new vehicle to access a portfolio of infrastructure assets, thereby offering them the opportunity to further diversify their risks. iCoop gives a face to the much-talked about infrastructure bank idea with a sound business rationale and a clear implementation strategy.

 

Available for download here.

d'Alessandro, Bailey & Giorgino: PPPs as strategic alliances – From technocratic to multidimensional risk governance

From the Introduction:

The main reasons for use of Public-Private Partnerships (PPPs) for infrastructure and related public services are to make use of private capital for public services, stimulate innovation, increase the level and quality of services and improve Value for Money (VfM). However, the approach adopted for implementing PPP schemes is not necessarily aligned with those objectives. In fact, PPPs are outsourcing transactions mainly based on a market approach where all specifications are signed in a contract that is necessarily incomplete. Often, the incompleteness of contracts and the high transaction costs generate disadvantages for the public sector in favour of the private sector and this is partially attributable to the simplistic approach to risk sharing, rooted in a lack of distinction between managing and bearing risk. In order to address that lack of distinction, this study proposes a new interpretation of PPPs as strategic alliances based on risk governance rather than PPPs as outsourcing transactions based on risk transfer.

Available for download here.

Carney: Promoting Ethics when Partnering with the Private Sector for Development

From the Executive Summary:

Development cooperation actors across the globe are increasingly engaging in opportunities with the private sector to achieve development objectives such as reducing poverty, advancing human rights and democracy, promoting health and protecting the environment. In working toward these objectives, actors have certain expectations from their constituents to act in an ethical manner, and have obligations as stewards to their constituents to select and manage partners in a way that promotes widely accepted ethics principles. While many development cooperation actors recognize the role of ethics in guiding their behaviour and actions, a number of questions remain regarding the role of ethics in partnerships with the private sector: What ethics principles have been applied to private sector partnerships? How do development cooperation actors around the world act to promote ethics principles?

Development cooperation actors included in this analysis are those that utilize public resources to achieve development outcomes, and engage as mutual partners with the private sector. The analysis is based on a qualitative review of Organisation for Economic Cooperation and Development (OECD) Development Assistance Committee (DAC) members’ and United Nations (UN) organizations’ published policies and strategy papers and presents which ethics principles development cooperation actors use. The report examines the terms and nature of these principles, and how actors take action to promote ethical partnerships with the private sector for development.

The study revealed six key ethics principles applied to partnerships with the private sector. Development cooperation actors take responsibility for the consequences of their own actions in order to maintain integrity, credibility and accountability. They also focus on fairness by not giving special treatment to special interests; they seek to remain impartial and independent. Development cooperation actors strive to be honest and ensure transparency in their partnerships while avoiding conflicts of interest. Some development cooperation actors make reference to supporting social justice by aiming to ensure the activities they support benefit the poor over the rich. Gender equality, environmental sustainability and human rights also tend to be cross-cutting themes that apply to partnerships with the private sector. Finally, development cooperation actors promote democracy through the application of principles for equitable participation.

 

Available for download here.

Bilal, Byiers, Große-Puppendahl, Krätke, Nubong, & Rosengren: De-coding Public-Private Partnerships for Development

From the Executive Summary:

This background study aims to stimulate discussion on partnerships between public and private actors for achieving and financing sustainable development post-2015. It was prepared to feed into the UN Intergovernmental Committee of Experts on Sustainable Development Financing (ICESDF) Outreach Event on Co-creating New Partnerships for Financing Sustainable Development, in Helsinki, Finland, on 3-4 April 2014.

While Official Development Assistance (ODA) remains relevant and important – for least developed countries (LDCs) and countries in special situations in particular – ODA and other official flows (OOF) represent a declining share of financial flows to developing countries.

Allied with a growing recognition of the potential benefits of working with the private sector to achieve development objectives, aid is increasingly seen as a means to promote partnerships to promote employment, technological advances and other sustainable development outcomes.

Experience from a range of different partnership mechanisms highlights numerous challenges and opportunities for development actors that can inform the post-2015 agenda. This paper seeks to identify these key issues to stimulate discussions on the challenges and opportunities for public and private partnerships to finance and achieve sustainable development post-2015.

 

Available for download here.

Geddes & Nentchev: From Free to Priced Infrastructure – U.S. Roads and the Investment Public-Partnership

ABSTRACT:

Much of microeconomics focuses on price system operation since prices are critical for allocating the demand for and the supply of goods and services. However, the use of major U.S. infrastructure assets remains un-priced (or “free”). Moving to priced provision has redistributive effects that can halt its implementation. Despite severe environmental harms from un-priced transportation infrastructure, economists have offered surprisingly few strategies for addressing such objections, even though pricing creates additional wealth that can help compensate potential losers. We describe a novel approach that relies on basic property laws to enhance the appeal of shifting from un-priced to priced road transportation services. Pricing of previously free road services allows value embedded in that infrastructure to be released. Value can be realized immediately through upfront concession lease payments offered by private operating companies in exchange for receiving the toll revenue from newly priced roads. We propose preserving a portion of the added wealth generated by pricing in a pubic permanent fund and distributing dividends from the fund’s investment income to the infrastructure’s citizen-owners. Dividends mitigate the redistributive effects of pricing and thus facilitate its adoption. Permanent funds are currently used in Alaska, Alberta, Texas, Norway and many other jurisdictions to preserve natural resource wealth. They can be innovatively applied to encourage road pricing, which mitigates a variety of environmental harms.

 

Available for download here.

 

Mostafavi, Abraham & Sullivan: Assessment of policies for innovative financing in infrastructure systems

ABSTRACT:

Infrastructure systems are drivers of the economy in the nation. A dollar spent on infrastructure development yields roughly double the initial spending in ultimate economic output in the short term; and over a twenty-year period, and generalized ‘public investment’ produces an aggregated $3.21 of economic activity per $1.00 spent. Thus, formulation of policies pertaining to infrastructure investment and development is of significance affecting the social and economic wellbeing of the nation. The aim of this policy brief is to evaluate innovative financing in infrastructure systems from two different perspectives: (1) through consideration of the current condition of infrastructure in the U.S., the current trends in public spending, and the emerging innovative financing tools; (2) through evaluation of the roles and interactions of different agencies in the creation and the diffusion of innovative financing tools. Then using the example of transportation financing, the policy brief provides an assessment of policy landscapes which could lead to the closure of infrastructure financing gap in the U.S and proposes strategies for citizen involvement to gain public support of innovative financing.

 

Available for download here.

Blanc-Brude: A roadmap to make long-term infrastructure investment relevant to institutional investors

ABSTRACT:

Institutional investment in infrastructure assets is related to a broader trend to improve portfolio diversification through alternative investments, to invest increasingly outside of capital markets, to find sufficiently long-dated instruments with a more attractive  performance than government bonds, and to invest in inflation-linked securities other than TIPS. One of the most salient feature of these emerging investment choices is the decision to buy assets that are infrequently traded and to hold them until maturity. Below, we highlight a proposed roadmap for the development of long-term institutional investment in unlisted equity, with a focus on infrastructure investment. We argue that substantial investing in unlisted assets creates a demand for performance monitoring that the current delegated model of private equity investment has mostly failed to meet. In response, investors have gradually shifted to direct investment in unlisted equity, but this is unlikely to be a panacea. Instead, a multi-stake holder effort for the development of standardized reporting and benchmarking of unlisted equity investments could preserve the benefits of investment delegation while allowing effective and efficient long-term institutional investment in unlisted infrastructure and other equity portfolios.

 

Available for download here.

Kim: A Public-Private Infrastructure Cooperative – A New Infrastructure Financing Paradigm

ABSTRACT:

A state-level public-private infrastructure cooperative (“iCoop”) is proposed as an effective means to finance public-private partnership (P3) transportation projects. iCoop is an independent state-level infrastructure bank dedicated to financing P3 projects and operated like a banking cooperative with guaranteed minimum returns to its investors. Its ownership is founded on public-private partnership and its initial capitalization draws upon the state’s noncapital contribution in the form of P3 participation guarantees, private capital contributions from local and global investors, and its own bank deposits. iCoop’s business model eliminates the state’s need for P3 “subsidies” due to toll-revenue shortfalls and converts them into additional debt capacity with returns for reinvestment. iCoop helps to lower the overall P3 financing costs and reduce perceived risks associated with greenfield construction financing. iCoop is also explicitly designed to mitigate key political risks underlying P3 projects. Through iCoop, the state can effectively increase its infrastructure debt capacity without jeopardizing its current debt limit and with no direct capital contributions. For global investors, iCoop provides a new vehicle to access a portfolio of infrastructure assets, thereby offering them the opportunity to further diversify their risks. iCoop gives a face to the much talked about infrastructure bank idea with sound business rationale and clear implementation strategy.

 

Available for download here.

LeRoy, Cafcas, McIlvaine, Tarczynska & Mattera (Good Jobs First): Creating Scandals Instead of Jobs | The Failures of Privatized State Economic Development Agencies

Executive Summary:

Three years ago, newly elected governors in several states, most notably Wisconsin and Ohio, decided that the best way to create jobs was to transfer economic development business-recruitment functions to “public-private partnerships.” These experiments in privatization have, by and large, become costly failures.

Privatized development corporations have issued grossly exaggerated job creation claims. They have created “pay to play” appearances of insider dealing and conflicts of interest. They have paid executives larger salaries than governors. They have resisted basic oversight.

State officials cannot say they weren’t warned. In January 2011, Good Jobs First published a report entitled Public-Private Power Grab in which we noted that this approach had already been tried in more than half a dozen states and the track record was far from impressive. In the last three years, the story has grown demonstrably worse, with major problems in both new and old privatized development corporations.

We document here again numerous cases in which the public-private partnerships (PPPs) have become embroiled in scandals involving misuse of taxpayer funds, conflicts of interest, excessive executive pay and bonuses, questionable subsidy awards, exaggerated job-creation claims, lack of public disclosure of key records, and other accountability abuses.

 

Available for download here.