4 steps to improving public-private partnerships

Some PPPs succeed. Some don’t. And many of these partnerships stake their ground somewhere in-between: they are effective but still fall short of a result or two; they deliver but with less efficiency than intentioned; they innovate but not at the scale envisioned.  In other words, PPPs’ potential is being fulfilled, but certain changes need to be made – urgently, and at the highest levels – so these partnerships can achieve their true potential.

How?

I’m glad you asked. Many decades of PPP experience and many conversations over cocktails with colleagues on the public and the private side of these deals has prompted this call to create partnerships that can do an even better job serving people around the world. Here are four areas that must be addressed:

Preparation
A well-prepared project is a successful one; yet, we need more.More funding to prepare projects and to prepare governments for the demands of PPP from start to finish. More time to get things right, especially identifying the right partner and agreeing on how the partnership will work. More technical support for governments, since PPP is a huge leap from their usual business of public service and they therefore need extra help and advice.

There are some technical assistance funds available, but too few, too far between, and providing too little capacity. One interesting approach is to provide funding to existing entities with capacity, with a financial interest in the relevant project. This links the project preparation funding with a clear incentive to bring the project to fruition, and for this reason has achieved some important success in helping to prepare projects.

But it is also beset by a conflict of interest because the party providing the project preparation funding wants the project completed quickly and in the manner that makes that entity the most money. A government’s best interests may differ.  In some cases this approach has caused nervousness among governments and contracting authorities. It also creates frustration among private firms wishing to compete for advisory mandates, but unable to compete with those accessing grant funding.

More is needed from other mechanisms with sufficient technical capacity to help governments from an entirely neutral perspective, and that outsources the majority of the services and funding competitively to private advisory firms.

Training
PPP – a completely new way of procuring infrastructure services – is a huge stretch for governments. It’s so new and different that employees directly involved in the project will need to learn complicated project lessons very quickly and have access to lots of technical support to deliver a robust solution. A solid training program on PPP is key to a smooth process. That’s why the World Bank Group launched a new, free online course on June 1 to outline the role of PPPs in the delivery of infrastructure services and provide participants with the knowledge needed to determine whether PPPs are the right choice. (There’s still time to join.)  Governments, and their development partners, need to make this available to government staff to pave the path to better outcomes.

It is equally important to train the trainers through a certification program that ensures consistency in curriculum and terminology. The World Bank Group, working under the auspices of APMG International, an accrediting institution, and with funding from the Public-Private Infrastructure Advisory Facility (PPIAF), has created such a vehicle: The “Global Certification Program for PPP Professionals: Improving Public-Private Partnership Performance Across Emerging and Developing Economies.”

The case for simplification
PPP needs to be simpler. There is a tendency towards over-lawyered, over-engineered structures – understandable because PPP is risky and in developing countries it inspires nervousness among investors and financiers alike. But as PPPs’ costs and complexity skyrocket, it makes it much harder for local firms and financiers to compete. For the sake of a fair playing field, we must make efforts to simplify as much as possible.

This is particularly important for small-scale PPP projects, which may lack the scale required to attract private sector interest. The treasurer of Victoria in Australia has launched a report to this effect: “Future Directions for Public-Private Partnerships,” stressing the importance of simplification.

Triple bottom line
A project must meet specific financial, environmental, and social criteria (the “triple bottom line”) to achieve its potential. It is tempting to focus completely on the first of the three, and that is often the target of shareholders and even financiers. But this is a key error. Among the arguments for a laser-like look at the triple bottom line is the development of a more sustainable, robust project.

Envision a project that makes money and shares the benefits reasonably, protects environmental assets, addresses social concerns, and takes care of the most vulnerable. This sort of PPP ideal is hard to develop, yet is even harder to criticize; future administrations will have difficulty unwinding such a project for political reasons because it addresses the fundamental needs of citizens. Targeting this triple bottom line should be the resolution of all involved with PPP, for a new look at how to serve people more efficiently.

This article was first published by The World Bank’s Public-Private Partnerships blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Jeff Delmon is a Senior PPP Specialist with the World Bank since 2005, advising globally on infrastructure finance and PPP. 

Image: Labourers work at a construction site near Hongqiao Airport in Shanghai March 11, 2010. REUTERS/Aly Song.