The importance of small public-private partnerships

Local governments are under pressure to provide more and better services. But in most cases, they cannot do this alone. An examination of the World Bank Group’s PPI database and the PPP databases of some key countries reveals that while there is a preponderance of larger public-private partnerships (PPPs), several small-scale PPPs with promising results have also been undertaken, especially at sub-national levels of government and by autonomous bodies affiliated with governments.

The PPI database suggests that approximately 40 percent of all projects are valued at less than $50 million, and approximately 25 percent of all projects are less than $25 million (Figure below). However, the database misses out on projects in several emerging sectors at the sub-national level. While non-traditional sectors are captured in country and sub-national databases, few of these databases are readily available in the public domain.Source: Ahmad, A. and Shukla, S., A Preliminary Review of Trends in Small-Scale Public-Private Partnerships,World Bank Group 2014.

Small but Mighty
Let’s look beyond the data and address the real question we seek to explore here: Do we as PPP practitioners put the required effort forward when it comes to small projects? As a profession, we seem to be attracted to large, complex infrastructure transactions, and there are certainly funds galore catering to developing and nurturing these. Since the industry often measures success in “billions” and increasingly “trillions,” with less attention to the quality and nature of the constituent elements, it makes sense for practitioners to dream of high profile transactions.

But experience tells us that while large PPPs may be sometimes required, small PPPs can make a huge difference to people’s lives. And contrary to popular belief, small PPPs demand more inherent talent and ingenuity – brainpower as well as willpower – to structure, finance, and implement.

This has certainly been true in India’s second wave of PPPs. The first wave consisted of the larger and more visible airport, port, and road projects, but the second wave now includes renewed attention to the incremental follow-on results that effect change in urban services. For example, as municipalities realize waste must be removed regularly, streets must be lit to reduce crime, parking must be provided, and gardens must be maintained. Imagine an alternative scenario, where citizens and visitors to the country whizzed past passport control, retrieved baggage in less than a second, and returned home in 10 minutes on the new highway -- only to get mugged a dark, garbage-strewn alley in one’s own neighborhood. That’s what skewed development looks like, when attention is paid only to “marquee” projects and the small, quieter PPPs with equal potential to improve quality of life are ignored.

In Poland, a relatively better-off country with huge amounts of EU funding, there are similar examples. Local government units have been the most vocal on the need for private participation because those are the bodies that bear the most onerous responsibilities for providing a range of services and maintaining infrastructure including schools, health care centers, and roads. But they have little capacity and few resources to meet these needs. A Local Government Investment Facility providing project development funding, as well as financial instruments suited to the needs of small local government projects, would be a sensible solution for Poland. This programmatic approach would work for other smaller, local service-oriented projects which impact people’s lives, not only in Poland but also India or Jordan, which share these problems.

But how often do we think of such facilities as the solution? The majority of proposals seek funds to run large, complex projects.

A PPP Prejudice
The other day, a Canadian PPP official stated very clearly that they do not like to do PPPs that are below $20-30 million, and he personally did not like to do projects below $50 million. Why? He asserted that the time, effort, and cost as a proportion of the value of the project is simply too high. This is worth considering. After all, small projects often do not provide value for money. The same long processes and same documentation requirements on the government as well as the private side to get deals done creates a situation nobody wants to be in -- especially a situation where after all of the effort there is no guarantee you will find interested investors.

We want to find a way to make small PPPs more feasible, because we believe the benefits justify the work involved. Perhaps there’s a way to reduce or simplify bid documentation, while cutting down on time and transaction costs. We have examined some of these issues in our publication “A Preliminary Review of Trends in Small-Scale Public-Private Partnerships”.

This preliminary review looks specifically at 10 projects of value at or below $50 million in the South Asia, Middle East, and Africa regions across a few identified parameters, summarizes the findings, and identifies overarching concerns—including issues and constraints related to policy and institutions, financing, and capacity, which might act as impediments to quick scaling up or replication of these projects as well as project-specific issues that could offer important lessons for future structuring of similar projects.

Other solutions surely exist, and we’d like to brainstorm to uncover them. We invite practitioners from within and outside the World Bank Group to share their experiences and ideas on small PPPs here.