Learning Curves

IED
April 2010

ADBAssistanceforPPPsin InfrastructureDevelopment

Publicprivatepartnerships(PPPs)havebeengainingrecognitioninmanydevelopingmember countriesasanimportantmeansofmobilizingprivatesectorcapitalandexpertiseforinfrastructure investmentsandserviceprovision.Thespecialevaluationstudy1evaluatestheperformanceofADBs publicandprivatesectoroperationsinsupportofPPPsinthepower,transport,andwatersectors,and thedevelopmentofrelatedpolicy,legal,regulatory,andinstitutionalframeworksinthepasttwo decades(19882008).

forPrivateSectorOperationsDepartment(PSOD)PPP operations,asjustifiedbyunderlyingsatisfactoryratings TheAsianDevelopmentBank(ADB)provided ofdevelopmentimpact,investmentprofitability,work assistanceforPPPsthrough38loanprojectssupporting quality,andadditionality,issuccessful.Thestrategic policydialogueonthedevelopmentoflegal,policy,or positioningofPSODoperationscanbefurther institutionalframeworksforPPPs;performancebased strengthenedthroughbettercoordinationwithpublic serviceormanagementcontractsforADBfundedpublic sectoroperationsandproactiveidentificationofPPP infrastructure;governmentequitystakesinPPP opportunitiesinlinewithoverallcountrypartnership arrangements;complementarypublicsectorinfra strategyobjectives. structureinvestmentsforPPPprojects;developmentPPP ADBsupportforPPPhasnotsubstantially projects;andlongtermfinancing.SeventythreeTA increasedactualPPPtransactionsinmostdeveloping projectssupportedtheidentificationandpreparationof membercountries(DMCs)foranumberofreasons,e.g., pilotprojectsandPPPframeworks,andcapacity unaddresseddeficienciesinthecountrysoverall development.Inaddition,ADBprovideddebtorequity investmentenvironment,lackofinstitutionalcapacity, of$3.1billiononanonsovereignbasisfor33PPPprojects andthelongtimeframerequiredforimplementing andcontributedtothefinancingof9infrastructurefunds, underlyinginfrastructureandpublicsectorreforms. whichinvestedmorethan$0.8billioninprivate WhilePSODprojectshaveperformedtoasatisfactory infrastructureprojects,mostofwhichhadPPPstructures. level,theirimpactonthecreationoffurtherPPP SummaryofFindings projectshasbeenlimitedinDMCsthatdidnotinstitu TheoverallratingforADBspublicsectorassistance tionalizedemonstratedbestpractices.ADBassistance wasmosteffectivewhenitwasfocused,partofalong forPPPissuccessful,albeitonthelowsidebasedon termengagement,andintegratedwithsectorreform satisfactorystrategicpositioning,relevance,and efficiencyratings,butlessthansatisfactorysustainability, initiativesthatweresupportedbyallrelevantstake holders.Sustainedpoliticalwillistheultimate impact,andADBperformanceratingsduetolackof adequatecapacitydevelopmentefforts,limitedfollowon determinantofPPPsuccess. Initiallypromotedstandardbuildoperatetransfer investment,anddesignissuesreflectingcomparatively typemodalitieshaveprovenusefulinmobilizing lowlevelsofPPPstaffexpertiseandresources.ADB additionalinvestmentfundsforpowergenerationand supportfordevelopingpolicyandregulatoryPPP bulkwatersupplyschemes,butdidnothelpaddress frameworkswasratedsuccessful,whereasassistancefor underlyingsectorissuesaffectingdemandfortheir developingPPPprojectshasbeenonlypartlysuccessful. output. AssistanceforPPPsinthepowerandroadssectorswas Someinfrastructuresectorshavebeenmore successful,assistanceforPPPscrosssectorandfor railwaysareborderlinesuccessful,andassistanceforPPPs conducivetoprivatesectorparticipation(PSP)andPPP thanothers.Thepowersectorhasreceivedsignificantly inwaterandportsispartlysuccessful.Theoverallrating Background

Independent Evaluation Department Asian Development Bank

6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444; evaluation@adb.org; www.adb.org/evaluation/

moreprivateinvestmentthanthetransportorwater sectors,whichisreflectedinADBssectorcomposition ofPPPassistance.Thisisduetoarangeofreasons includingbetterpotentialforcostrecovery,higher politicalcommitmentduetothesectorsimportancefor economicgrowth,lowerlevelsofstakeholderresistance toPSP,greaterinstitutionalcapacity,moreprogresswith sectorunbundlingandutilityrestructuring,the centralizednatureofdecisionmakingandfunding,and theavailabilityofestablishedPPPprocurement modalities.Nevertheless,thisdoesnotmeanthatPPPin othersectorsiswithoutprospects.Withappropriate modalities,supportforcapacitydevelopment,and politicalcommitmenttosectorreforms,PPPshave proventobefeasibleinothersectorsaswell. Lessons PPPsarenotauniversalsolutiontounderlying sectorinvestmentandperformanceproblems.The respectivecostsandbenefitsassociatedwithtraditional publicsectorprocurementandtheuseofPPPmoda litieshavetobeclearlyestablishedthroughpublic comparatoranalysisandvalueformoneyanalysis. PPPdevelopmentrequiressustainedpolicy dialogueandsupportforthedevelopmentofsuitable legal,regulatory,andinstitutionalframeworksand assistanceinthedevelopmentofPPPpathfinderprojects. PSPisnotasubstituteforreformorgovernmenteffort. Onthecontrary,manyPPPmodalitiesrequireprior sectorrestructuringandtariffreformstobeeffective.The useofPPPsonalargerscalerequiressubstantial governmentcapacityforprojectidentificationand development,andtheregulationandmonitoringofPPP contractsandtheirfiscalimpact.Supportforpolicy reforms,capacitydevelopment,andpilottransactions canoftenproceedinparallel.Handsonexperience gainedindevelopingandnegotiatingPPPpilotprojects canserveasavaluableinputforthedevelopmentofPPP policyframeworks.Adecisiononwhethertosupport overallorsectorbasedinstitutionalandlegal frameworksforPPPshouldtakeintoconsideration countryconditions.ThefeasibilityofPPPsincountries wherepublicserviceshavebeendevolvedtosubnational andlocalgovernmentshastobecarefullyassessed,as pasteffortsinthisregardhavebeenlesssuccessfuldue tolackofinstitutionalcapacity,economiesofscale,and funds. PPPmodalitieshavetobecarefullychosentoaddress identifiedsectordevelopmentneeds.Overallsystem efficiencieshavetobeconsideredinnetworkdependent infrastructure,particularlyinthewatersector. DevelopmentofroadPPPsusuallyrequiresthe

governmenttoassumedemandrisksand/orprovide financialsupport,asitisusuallydifficulttochargetariffs thatcovercosts. Recommendations TooperationalizeStrategy2020,changesare requiredinADBssupportforPPPdevelopment, suchas(i)strongerlinkagesbetweenPPPsupport andotherADBsectoroperations;(ii)improved assistanceforprojectdevelopment,newPPP modalitiesandrelatedcapacitydevelopment;and (iii)greaterinvolvementinthetransportandwater sectors.Thiswillinturnnecessitategreaterstrategic focus,internalcoordination,incentivesforregional departmentstopursuePPPs,andstrengtheningof staffandconsultantresources.Abankwidestrategy forPPPdevelopmentshouldbepreparedtohelp addresstheseissues. SupportforPPPprojectdevelopmentandrelatedin countrycapacitywillbecrucialforthesuccessof futureprograms.Substantialassistancewillhaveto beprovidedfor(i)sectordevelopmentplanningthat adequatelyconsiderstheroleoftheprivatesectorin infrastructuredevelopment;(ii)valueformoney analysis;(iii)adequate(pre)feasibilitystudies,land acquisition,andsocialandenvironmental assessments;(iv)appropriaterisksharing arrangementsbetweenpublicandprivatesector partners;(v)thedeliveryandmanagementof governmentPPPsupport,andthemonitoringof fiscalimplications;and(vi)advocacyandoutreach programs. Feedback ThestudywascompletedinSeptember2009.ADB Managementsresponseagreedwiththereportfindings andrecommendations.TheChairsSummaryofthe DevelopmentEffectivenessCommittee(DEC) welcomedthemanagementassurancetodrawupaPPP corporatestrategyalongwithacorporatebusinessplan onPPP,whichisreflectedintheCPSs.DECurgedto haveclosercoordinationbetweenregionaldepartments andPSOD.DECsawmeritinquantifyingthebenefitsof PPP,whereverpossible,intermsofpublicresources saved,andusingrelatedindicatorsinthedevelopment resultsframework.
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ADB.2009.ADBAssistanceforPublicPrivatePartnershipsin InfrastructureDevelopmentPotentialforMoreSuccess. SpecialEvaluationStudy.Manila.Available: http://www.adb.org/Documents/SES/REG/SESOTH2009 31/SESOTH200931.pdf

Team Leader: Henrike Feig; Tel +63 2 632 4104; hfeig@adb.org

Learning Curves available @ www.adb.org/evaluation/