Authored by: Nadir Mohammed, Yara Salem, Mikel Ibanez and Lorenzo Bertolini
Public-Private Partnerships (PPPs) enable governments to procure and deliver public infrastructure/services and leverage the resources and expertise of the private sector – through risk-sharing arrangements. When properly designed and executed, PPPs can create social value through on-time and on-cost delivery, generating efficiency gains and offering innovation in project design, incorporation of global expertise, and accessing new sources of capital. Conversely, poorly designed and executed PPPs can fail to deliver on these promises.
Scaling up and sustaining a successful pipeline of PPP transactions over time, requires attention to critical building blocks across the project cycle. These include inter alia: i) a robust policy, institutional & regulatory framework, including on assessment and management of fiscal risks and contingent liabilities; ii) an extended pipeline of bankable projects, identified through clear processes prioritize and screen projects for PPP suitability; iii) solid project preparation and structuring capacity (considering commercial viability and risk allocation government support and affordability); and iv) strong transaction support and contract management capacity. The expectation is that well-designed PPP frameworks would facilitate the mobilization of infrastructure financing and the optimal allocation of risks, and ensure sound public investment management (e.g., proper integration on the overall country public investment strategy, adequate management of contingent liabilities and fiscal risks, etc.).
Over the last decades, countries worldwide increasingly adopted dedicated PPP laws and established dedicated PPP units (with varying responsibilities, jurisdiction, and location within government) — with the intent of: (i) locking-in government commitment and securing resources over time, (ii) introducing rigorous screening and consistent processes, enabling systematic learning and efficient contract management, (iii) building scarce capacity required by the development of complex transactions, and (iv) encouraging a sustained deal flow (including through the mobilization funding for project preparation).
In practice, a sound PPP legal and institutional framework is but one of many complex drivers for the success of PPP programs, and the exact contribution of each critical factor is difficult to determine a priori. The World Bank has recently studied in detail these issues under the initiative Building Stronger Institutions to deliver better PPPs that resulted in the publication of six practice notes, one of them focusing on the role of the PPP framework.
However, the claim that PPP laws or the creation of a PPP unit bring little to no value and unnecessary delays, should not be assumed. Countries with historically successful PPP programs and extensive pipelines (e.g., South Africa, Chile, Brazil, Australia, South Korea) have developed over time robust legal frameworks in place (whether PPP-standalone or non-PPP specific legislation). Based on all this understanding and experience, the World Bank has also developed the Guidance on PPP Legal Frameworks with practical advice on drafting PPP-specific primary and secondary legislation.
In conclusion, it is essential to take a comprehensive approach to creating a supportive environment for PPPs and the contribution of PPP laws and units will vary depending on country context and design conditions. International experience offers useful insights in this regard:
- PPPs Units or PPP laws alone cannot substitute the need for political commitment and broader reforms to resolve underlying infrastructure governance issues.
- The development of a PPP legal framework and the creation of PPP units needs to be accompanied by sector strategies and reforms to ensure impact and create momentum and generate interest, particularly on procuring entities (line ministries/departments/agencies).
- A robust legal framework needs to be accompanied by adequate institutional arrangements. A well-resourced and staffed PPP Unit and a clear role for both the Ministry of Finance and procuring entities increases the chances of building a strong pipeline and accelerate its implementation.
The World Bank is acutely aware of these challenges to fully leverage private sector participation in the development of infrastructure. PPP transactions do not automatically follow regulatory reforms as can be seen when comparing results from the Benchmarking Infrastructure Development analysis of PPP regulatory quality and the Private Participation in Infrastructure database. An update to the former of these two World Bank global public goods is ongoing and will precisely highlight this aspect. Moreover, the World Bank can support countries to better address these challenges by, for example, assessing existing biding constraints to private participation in infrastructure through country diagnostics; support the creation of an enabling environment for private participation in infrastructure through the adoption of tailored PPP regulatory reforms; assist with the development of a pipeline of bankable PPP projects to mobilize private capital, and help with managing infrastructure PPPs during the project life cycle including adequately considering their fiscal commitments and contingent liabilities as well reinforcing the capacity of governments to manage PPP contracts.