By Chidi K C Izuwah
Jeff Delmon is a Senior PPP specialist with the World Bank; he is a thought leader on PPPs and a well-respected prolific writer. Some of his books include: PPP programs, creating a framework for private sector investment in infrastructure; PPP in Infrastructure- an Essential Guide for decision makers; etc. In his publication for PPIAF (The Public Private Infrastructure Advisory Facility) titled ‘Creating a framework for public private partnership programs – a practical guide for decision makers,’ Jeff provided at the end of the publication, some nuggets for driving PPPs.
Many are common sense maxims and they aim to help unbundle the PPP complexities to make them easier to understand and realize. PPPs are by nature complex legal technical and financial arrangements.
Jeff’s nuggets are reproduced here to help PPP professionals in emerging and African countries (national/sub national) adopt a pragmatic and realistic approach to implementing PPP frameworks to accelerate infrastructure delivery. Jeff’s key messages and nuggets for PPP decision makers are as follows:
• Learn by doing —an important part of identifying gaps in the investment climate is learned while “doing”, i.e. while implementing PPP projects, do not wait until everything is perfect. It will never be.
• Use small steps without being timid—start with easier projects that are clearly financially viable and have political support. But these projects need to provide a signalling effect; they need to be sufficiently substantial and strategic to ensure government buy-in, the interests of private investors and a statement to the market that the framework for PPP in the country is conducive.
• Learn from the experiences of others, without being dogmatic —there is a tendency to try to replicate the successes of other countries. While it is important to learn from the successes and failures of others, it is generally unwise to try to replicate an entire framework wholesale.
• Keep it simple—complex is not necessarily comprehensive or better, the PPP framework needs to be understood by a wide group of stakeholders.
• PPP policies should be clear, comprehensive, yet flexible—periodic updates are a useful way to adopt lessons learned into the PPP program.
• Keep the legal framework simple and clear. Do not confuse complexity with comprehensiveness. Simple is better, and will give more confidence to investors. Detail is best left to secondary legislation that is more easily amended to respond to change.
• Do not use the legal framework to second guess the PPP contract by creating rights and obligations in law that should be addressed in the contract on agreed terms. If the government is keen to establish such terms, standard form documents can achieve this, where the terms can be spelled out in detail.
• Make sure the different roles are allocated and that the system works, ideological purity is less important.
• Institutions are only as good as the people in them, and the funding/ mandate they are given. Real capacity building (not just the occasional training or trip abroad) is key to a sustainable programme. Strong, consistent leadership is key—coordination amongst different institutions and ensuring consistency of practices and focus of efforts generally requires clear direction from the highest levels of government.
• A robust value for money assessment and transparent, competitive procurement can protect the government and the project from ex-post criticism, and can make the project less vulnerable to change, external shocks and the temptation of future Governments to reverse decisions.
• Do not cut corners in procurement. It may seem easier to enter into direct negotiations instead of using competitive procurement, but it isn’t. It takes longer and costs more money. Maximize competition (where possible) through good, transparent, competitive procurement.
• Invest in preparation. PPP preparation takes time and money, if done well.
• Be clear to bidders about what you want. Indicate clearly what results, milestones and indicators you want the investor to achieve, in particular in the bid evaluation criteria and their weighting. Help bidders to give you what you want, don’t make them guess.
• Be cautious when selecting the winning bid. If a bid seems too good to be true (financially, technically or otherwise), then it probably is.
• Select good projects. Garbage-in-garbage-out; say “no” to bad projects
• Select robust, viable projects for PPP, these are more likely to be financed on a competitive basis and are therefore more likely to provide value for money. Projects suffering from bad design, dubious demand or weak fundamentals (even if politically popular) are more likely to fail, and may weaken the entire PPP program in the process.
• If a project needs government support, get approvals early to avoid wasting time and money on projects that do not meet viability and value for money criteria, and the awkward position of government rejecting support for a project only after much effort is spent on its preparation.
• A good, transparent selection process (for commercial rather than political reasons) can reassure investors and increase competition. Projects selected for political reasons or priorities will create a perception of increased political risk amongst investors.
• Prepare the government to play its part from project development to expiration. Even where a comprehensive PPP is envisaged, the government will play an essential role in monitoring and regulating the project and the sector.
• Be ready for challenges. In any long-term relationship, change happens. PPP is, above all, a partnership, and it needs to be designed with challenges, changes and resolution in mind. Problems need to be elevated to appropriate levels of management before they become disputes or worse.
• Consider all stakeholders. PPP will have a direct influence on some stakeholders (in particular employees and management) and may raise political or philosophical concerns amongst many more. While absolute consensus will never be reached, the government needs to consult widely, understand fundamental concerns and address them.
• Be proactive. Establish mechanisms intended to catch disputes as early as possible. Early in the process, options are varied, relative cost is low, and the likelihood of immediate value-added resolution is higher.
• Facilitation can help. Softer processes are designed to use and develop relationships as the basis for finding mutually satisfactory solutions and can work better than more formal processes.
• Renegotiation can be an opportunity, and can improve the PPP arrangements and protect the poor, if it is contemplated in advance, transparent and well managed when needed.
• Get good advice. Do not try to manage disputes or renegotiations with internal staff alone, no matter how good they are. Get the best, external advice. It will cost money, but will save money in the long run.
• Government support can improve financial viability and make a project more attractive for investors, but it will not turn a bad project into a good one.
• Use government support efficiently, in a targeted manner, to ensure government goals are achieved.
• Ensure funding mechanisms are properly resourced and incentivized to avoid political capture or inertia.
• Avoid perverse incentives created by government support—ensure private and public are motivated to make the project a success.
• Contingent support can be a powerful instrument, but the risk borne by the government must be assessed honestly and managed carefully,
• Taking too much risk away from private lenders or enabling reduced equity investment, or over-protecting investors, limits the private investors’ “skin in the game”, so when crisis befalls the project, the investor and lender may be less motivated to help.
Let’s do our best to accelerate development of infrastructure via PPPs in Africa…we must learn by doing. No time wasting no stopping development. God bless Nigeria, God bless Africa.
Engr. Izuwah, is Director General/CEO, Infrastructure Concession Regulatory Commission (The Presidency)