Transcript Document 7252320

Public Private Partnerships for
Development & Conflict Mitigation
Beirut, Nov. 11th, 2008
1
Agenda
Conflict Environments
Public Vs. Private Sector
Public Private Partnerships
IFC in Conflict-Affected Countries
IFC in Africa and Afghanistan
2
Characteristics of Conflict Environments
3

Weak Government/Control

Rapidly changing security, political, social and
business environment

Wide range of immediate needs

Resources constraints
Why Private Sector?
4

The State/Donors have many priorities and limited
resources

The Private Sector is often more agile and can
mobilize rapidly

Private Sector is often more able to assess and
address risk

Private Sector (if managed carefully) can be more cost
efficient and manage resources more efficiently
Private Investment is Strongly Associated
with Economic Growth
5
Poverty Reduction is Closely Associated with
Economic Growth
6
Poverty Reduction Associated with
Private Investment
 IFC Objective: “To fight poverty with passion and
professionalism for lasting results. To help people help
themselves and their environment by providing
resources,sharing knowledge, building capacity, and forging
partnerships in the public and private sectors.”
 Private Sector provides:






More Jobs
Efficient Processes
Access to financial resources
Access to improved varieties
Increased Competition
A Stimulus to Growth
 Private Sector is a significant contributor towards sustainable
Poverty Reduction
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Roles of Public and Private Partners
 Main role of the private sector partner: to assure the project
financial parameters
 Main role of the public sector partner: to assure the public
interest determining goals, quality and pricing policy
 Public Private Partnership (PPP): A Partnership between the
Public and Private sector to deliver a project or service
traditionally provided by the public sector.
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Bringing Public and Private Sectors Together PPP
Continuing Public Spending Support
PUBLIC SECTOR
• Specify requirements
services
expertise
USERS
(the public)
PRIVATE SECTOR
• Build facilities
• Support services
finance
Source: PriceWaterHouseCoopers, 2002
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payments for
performance
skills
Convergence of Government Expectations
and Private Sector Requirements
Government Expectations
 Alleviation / Removal of State’s role



Alleviation of fiscal burden
Transfer risks to private sector
Private sector: Financing of infrastructure; assuming
debt; paying concession fees / tax
 Social Benefits

Reasonable tariffs

Minimize costs related to retrenchment
 Maintaining Control through

Bidding process design

Contractual package
 Increase in quality of service
 Assurance of profitability

Balanced allocation of risk
Appropriate tariff level for financial equilibrium and
ROI

Access to concessional finance

Supply guarantees

Quality and volume of demand

Exclusivity, enforcement of collection

 Protection from risks

Safeguard for contingent and environmental
liabilities

Fair risk allocation (contract)
 Enabling environment

Defend concept of public service

Clear, reliable Government commitment to reform

Increase access to services by population

Adequate legal and regulatory framework

Enforceable contracts
Transparency
 Affordable tariffs

Apply principle of cost recovery for the sector

Respect consumers’ affordability to pay
Manage consumers’ willingness to pay

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Private Sector Requirements

Public Sector vs. PPP Procurement Models
Traditional Government
Procurement
 Capital and operating costs are
paid for by the public sector.
 Risk of cost overruns and late
delivery.
 Public Sector might not have the
budget to support the large capital
and operating costs required.
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PPP Procurement
 The public sector only pays over
the long term as services are
delivered.
 The private sector funds itself
using a large portion of debt plus
shareholder equity.
 The returns on their equity will
depend on the quality of services,
therefore, an incentive to provide
higher quality.
Why are PPPs taking front stage?
 Availability of public capital remains constrained due to
deficits and/or prudent fiscal management
 Availability of private capital also constrained: investors
generally more risk-aware and less willing to take risks in
emerging markets
 Yet huge capital needs remain in infrastructure, education
and health care, for development and for competitiveness
 Efficiency gains from private sector involvement are
believed to be considerable.
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Pros of PPPs
 Competitive process;
 Increased transparency;
 Balance sheet consideration;
 Private sector efficiencies and innovation;
 Well designed risk allocation and transfer of project risk
to the private sector;
 Improved levels of service;
 Enhancement of revenues:
 PPPs may set user fees that reflect the true cost of
delivering a particular service.
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Pros of PPPs - Risk Allocation
"Risks should be allocated to the party best able to manage them"
Public
Planning
permission
Regulatory Risk
Shared
Volume risk
Inflation risk
General regulatory
risk
Force majeure
Private
Detailed planning
permission
Design
Construction
Commissioning
Operating performance
Project finance
Technology obsolescence
Pros of PPPs - Value for Money (“VFM”)
Value/
“price”
Conventional
Procurement
Model
PPP
Procurement
VfM
Risks retained by
Public Sector
Cost of finance
Whole life cost of
procuring services
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Pros of PPPs - Value for Money (“VfM”)
 Two independent UK studies found VfM
benefits of between 3% and 20% on UK
projects (i.e. up to $15 billion) produced by:
faster procurement of asset
 risk transfer to private sector
 “whole life” approach to
construction/maintenance
 innovations in design/service delivery

16
NAO Report of 2003
UK’s National Audit Office report on PPP
Improved
Project
Delivery
17
Non PPP
Procurement
(1999 Survey)
PPP Procurement
(2002 Survey)
Price
Overruns
73%
22% (mostly client
changes)
Time
Overruns
70%
24% (only 8% > 2
months)
Cons of PPPs
 Complexity;
 High transaction costs:

Large tendering and contracting costs;
• For some projects, total tendering costs can equal around 3% of total
project costs as opposed to around 1% for conventional procurement.

Significant legal costs in contract negotiation;
 Higher borrowing costs than public financing;
 Skill deficit for administration;
 Structuring risks;
 Public perception that critical “public” assets are controlled
by private sector;
 Difficulties in ensuring good performance, especially with
respect to “soft” performance dimensions.
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IFC in Conflict-Affected Countries
 Conflict-Affected Economies are different than other
economies:





Lack of basic and strategic Infrastructure
Perception of relatively High Risk
Huge Fiscal Burdens on the Government
Less Access to Financing
High Reconstruction and Rehabilitation needs
 IFC can help:




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Global resources enable quick launch
Encourage Private Sector to enter these economies
Expertise in key areas: Infrastructure, Access to Finance etc.
Ability to leverage IFC investments and work through partnerships.
IFC in Conflict-Affected Countries
 IFC is active in 52 countries that have been classified by the
World Bank Group as ‘conflicted-affected.’
 Since 2000, IFC has made over US$ 5 billion in investment
commitments to countries affected by conflict.
 Beginning of Fiscal Year 2008,
 Total committed exposure = $3.3 billion,
 Outstanding exposure = $2 billion.
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IFC in Conflict-Affected Countries: Advisory
Services
 Fiscal Year 2007 - Advisory activities in 97 countries, with the
majority of the projects in low-income or high-risk areas.
 Of the 35 conflict-affected member countries, IFC has advisory
projects committed in 23.
 Advisory Services is organized in 5 business lines:
 Business Enabling Environment
 Access to Finance


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Environmental and Social sustainability
Infrastructure
Value addition to firms
IFC in Conflict-Affected Countries:
Advisory Services
Number of Projects
Sub-Saharan
Africa (CAF)
20%
Southern Europe
and Central Asia
(CSE)
19%
South Asia (CSA)
5%
East Asia and
Pacific (CEA)
34%
Middle East and
North Africa (CME)
13%
Total Funding
Sub-Saharan
Africa (CAF)
34%
Central and
Eastern Europe
(CEU)
2%
Central and
Eastern Europe
(CEU)
5%
Latin America &
Caribbean (CLA)
7%
East Asia and
Pacific (CEA)
19%
Latin America &
Caribbean (CLA)
9%
Southern Europe
and Central Asia
(CSE)
20%
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South Asia (CSA)
7%
Middle East and
North Africa (CME)
6%
IFC in Conflict-Affected Africa
IFC has a current/planned advisory services portfolio of $42m in 15 conflict
affected countries in Africa, and an investment portfolio of $370m in 11
countries
ADVISORY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
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Value of Advisory
Services ($m)
Angola
0.3
Burundi
Central African Republic
0.5
Chad
8.4
Cote D'Ivoire
Congo Republic
Congo, Democratic Republic
6.5
Eritrea
Ethiopia
0.3
Guinea
1.0
Guinea-Bissau
0.1
Liberia
3.4
Rwanda
12.4
Senegal
0.8
Sierra Leone
3.8
Somalia
0.1
Sudan
4.7
Total
42.1
INVESTMENT
CONFLICT
# of
Value of IFC
Year Conflict
Companies Investments ($m) Intensity of Conflict
Ended
4
35.5 High
2004
2
0.8 High, intermediate
2006
High, intermediate
2006
3
15.2 Intermediate
2006
13
48.6 High
2004
Intermediate
2002
5
108.4 High
2005, current
Intermittent
2003
Intermediate
2006
3
35.1 Political
2001
1
0.4 Political
1999
2
4.3 High
2003
5
16.8 High, intermittent
1994, 2002
11
74.9 Intermittent, high
2004
3
29.4 High
2001
High, intermediate
2006
High
Current
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369.4
IFC in Conflict-Affected Africa:
Lesotho Hospital
 As part of the Health Sector Reforms, the referral system in the
health sector needed to be greatly improved to meet the clinical
needs of the country
 The New Referral Hospital would provide a higher level of
service and quality
 The benefits of the hospital would be felt throughout the health
sector in the country due to high quality of specialist care thus
reducing the referrals to neighboring South Africa, and training
of health workers
 A Public Private Partnership was the preferred route to the
provision of the new referral hospital
 IFC is advising the government on the structure of the deal.
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Lesotho Hospital:
Current Situation vs. PPP Project
PPP Project
Current Situation

Hospital Capacity – designed for maximum
flexibility and operational efficiency to meet
staff and patient needs
Equipment availability – 100% or penalties
imposed
Maintenance
 Regular maintenance schedule with
contracts in place
 Included in cost (annual unitary
payment)
Staffing

Full staff in place from opening
 Training in place
Budget – contractual with inflation index
Hospital Capacity – does not meet current 
standards for modern medical practices,
basic infection control and patient needs
Equipment availability - zero to 50%, no 
recourse when non-functional

Maintenance
 Not performed
 Not budgeted




Staffing
 Chronic shortages
 Little training
Budget – no cap

Accountability – no recourse,
no measures

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

Accountability – contractual, with monitoring,
penalties and performance bonds;
Accreditation requirement (Lesotho and
COHSASA)
IFC in Conflict-Affected Afghanistan
 Investments: US$ 60 million in 4 projects
 Advisory Services: US$ 1.5 M in 5 projects
 Close coordination with donors, initiatives building on
existing knowledge and experience
 Close cooperationg with the World Bank Group



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Co-location in the World Bank Office
Sharing Staff: IFC Country Officer / WB PSD Officer
Established synergies in project design and implementation
Afghanistan:Horticulture Export
Development Project
 Project supports raisin and pomegranate producers in Kandahar
to improve production and participate in high value, international
markets



Improve productivity: Introduced new production technologies - 300%
increase in production capacity
Enhance Quality: Assisted wholesalers to provide “embedded” extension
services to farmers - Trained 10 extension workers and 600 farmers
Find New Markets: Assisted wholesalers to identify export markets
 Rapid engagement in sensitive area, in economically vital sector
 Designed on basis of knowledge and experience of other donors
(USAID/UNDP)
 Shared consultants with WBG in project design, resulted in key
synergies with WB Emergency Horticulture & Livestock Project
 WB finances the scale-up of new production technologies in
second project phase
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