April 4th 2017 Paper 3b : Background Paper: Executive Summary from Inter-Agency Task force Meeting on Public Private Partnerships
Friday, 16 December 2016 (UN Headquarters, New York)
Background and Purpose of this Working Paper
Public-Private Partnerships (PPPs) are attracting renewed attention as a possible mechanism that helps deliver infrastructure services in furtherance of the major global agenda setting initiatives of 2015. The Addis Ababa Action Plan (the Addis Agenda) is a forward-looking framework for financing sustainable development, including the 2030 Agenda for Sustainable Development (the 2030 Agenda), and the means of implementation for the 17 Sustainable Development Goals (SDGs). Both Agendas place importance on sustainable and resilient infrastructure as a pre-requisite to achieving sustainable development.
Energized by these global agreements, countries and key regional and global actors have already embarked on actions to fill the infrastructure gap, including a renewed effort to make PPPs work to this end. Although many civil society organizations consider PPPs as an overvalued and underperforming vehicle for infrastructure development, some may reevaluate the potential of PPPs if stronger public governance of PPPs can be ensured.
Are the current PPP models fit for purpose? If PPPs can be transformed to meet the expectations of the global community, what would they look like and what would drive the transformation?
This Working Paper reviewed twelve PPP guidelines published by major regional or international organizations to understand the drivers, motivations, experiences, and implications of PPPs in the context of the global Agendas. The guidelines were also compared against a set of principles for PPPs extracted from the Addis Agenda. These principles are:
- Careful consideration given to the structure and use of blended finance instruments;
- Sharing risks and reward fairly;
- Meeting social and environmental standards;
- Alignment with sustainable development, to ensure “sustainable, accessible, affordable and resilient quality infrastructure”;
- Ensuring clear accountability mechanisms;
- Ensuring transparency, including in public procurement frameworks and contracts;
- Ensuring participation, particularly of local communities in decisions affecting their communities;
- Ensuring effective management, accounting, and budgeting for contingent liabilities, and debt sustainability; and
- Alignment with national priorities and relevant principles of effective development cooperation.
- The Audience, Nature and Focus of the PPP Guidelines: The guidelines reviewed for this Working Paper generally aim to advise PPP practitioners and are usually informative rather than normative. They also serve the purpose of a reference or source book on respective PPP thematic areas, such as public governance, public sector financial management and budget transparency, risk sharing, disclosure of information, contract provisions, and PPP implementation from start to finish.
Similarities and Differences: Even though some assumptions, values and approaches converge, the areas of divergence outweigh areas of convergence, reflecting the complexity of PPPs. They contain divergent definitions of PPPs – some prefer a narrower approach while others tend to advocate for a broader definition, and may even include CSOs as partners. They also define key concepts, such as “value for money,” differently.
Gaps: On the whole, the guidelines reviewed leave out the viewpoint of the public or noncommercial stakeholders and the need for PPPs to generate public benefit and public good for the country and its people. Too many of the guidelines dedicate their content to public financial management and facilitating the interest of commercial stakeholders. They define concepts such as value for money, cost benefit analysis, and affordability from public sector financial management and efficiency perspective. They fail to explain how different stakeholder groups, particularly vulnerable ones, are impacted by and react to infrastructure. Transparency and accountability mechanisms do not cater to the needs of these stakeholders. Furthermore, the idea of sustainable development as a public good seems to have been left out altogether. The guidelines only partially incorporate environmental, social and governance dimensions of sustainability. Moreover, they are entirely silent on climate change issues. The target audience of the PPP guidelines should not be blind to the most up-to-date advice on climate change and PPPs; for example, some consider the uncertain nature and extent of climate change would render PPPs ill-suited as a vehicle for infrastructure development.
Drivers of Differences and Gaps: Several factors seem to drive the notable differences and gaps. Even though several of the PPP guidelines are strongly influenced by the public governance theme, they are largely driven by a narrower view of public governance that omits a fuller acknowledgment of the role of the public. This approach could limit the ability of PPPs to generate public value through improved infrastructure decisions and delivery, and public good through enhancement of sustainable development. The latest guidelines are influenced by the SDGs and focus on the role of the public more explicitly. Yet all guidelines could benefit from a better articulation of sustainability and climate change considerations, if they are to evolve to the next generation of PPP guidance.
Alignment with the Addis Agenda: The PPP principles in the Addis Agenda are echoed in varying degrees or not at all in the guidelines reviewed but, overall, the guidelines need adjustments to fit the purpose of the Addis Agenda and the 2030 Agenda. “PPP structure and instruments” are only covered at a high level, as most of the guidelines do not act as PPP manuals but more as a source book. Most lack helpful guidance on the circumstances under which PPPs should be used or avoided. It is possible that PPPs are unsuitable for all but the simplest and the most predictable and stable projects, and may not work well in economic infrastructure projects with significant climate change risks. While there is good material on “risk sharing”, few examples illustrate “reward sharing.” “Social and environmental standards” are addressed in a patchy manner, and the guidelines are surprisingly silent on “sustainable development” and the idea of “accessible,” “affordable” and “resilient” infrastructure. “Transparency” and “accountability” coverage leaves out the public. While most guidelines do talk about the importance of “proper management of PPP liabilities”, they are silent about debt sustainability with a couple of exceptions. Finally, the guidelines do not address “national priorities and development cooperation principles.”
Impacts of Guidelines: It is not clear whether the guidelines impact results on the ground since little data is available. Considering the renewed attention to PPPs in the recent years, it is possible that the guidelines could influence public officials in charge of PPPs. At the same time, it is easy to imagine that time-constrained users would prefer shorter materials and interactive tools and shun the lengthy and dense guidelines. Furthermore, if PPPs only work well in limited circumstances, one could question whether the time and resources that go into producing the PPP guidelines could be directed more productively elsewhere, for example, to infrastructure more generally.
This Working Paper also speculates that the value addition of the PPP guidelines may be greater when expert institutions engage with countries or countries engage with each other and analyze and socialize the lessons learned in a holistic learning setting. In addition, if the MDBs finance PPPs explicitly in accordance with their own advice contained in the guidelines, this could also have tangible impacts on the ground.
- Success Factors: The guidelines converge on ex ante success factors but do not shed light on the possible ex post indicators of PPP success that projects should monitor and report on. Impacts and benefits measurement constitutes one of the greatest challenges of the new generation of PPPs. Impacts on people, including vulnerable groups, must be measured in a disaggregated manner. Indicators of public service delivery, such as access, pro-poor aspects, and quality of service, as well as public benefit and sustainability dimensions also must be measured and analyzed consistently in all PPPs.
- The multilateral development banks (MDBs) could actively disseminate sustainability and other policies and studies relevant to PPPs so that they can guide other financial institutions that seek information in these areas.
Hardly any transparency initiatives or accountability mechanisms exist for infrastructure and little caters to the interest of noncommercial stakeholders. Any effort to strengthen transparency and accountability should be mindful of the need to properly align the two.
Guidance on PPP contracts should provide information about the public policy aspects of PPPs and not be driven by bankability considerations alone.
Cross-border PPPs will become a significant challenge in the future and states need guidance on how to manage unexpected aspects of such PPPs.
Sustainability considerations need to be fully reflected in the entire procurement process.
The PPP guidelines are driven by different aspects of “public governance.” They rightly assert the importance of public sector performance though good financial management and efficiency, because public value in PPPs flows from efficient public sector management and performance; however, from this perspective, noncommercial stakeholders are less visible compared to commercial stakeholders. The guidelines pay less attention to the role of the public as beneficiaries and participants in public sector management and decision making, and miss the opportunity to underscore the positive role they play in legitimatizing decisions and improving the delivery and quality of infrastructure. Also absent is the idea that PPPs should create public good through effective enhancement of sustainability and appropriate consideration and management of climate change risks. These gaps indicate that the PPP guidelines do not yet fully align with the Addis Agenda or the 2030 Agenda.
For the organizations that published the PPP guidelines, this is an opportune moment to take stock of areas of improvement in PPP guidance. It would be extremely helpful for the guidance documents to fully spell out the circumstances under which PPPs could be undertaken or avoided. This will ensure that public resources will not go to waste in making a PPP work in a project not suited to PPPs. If PPPs are in fact unsuitable for all but the simplest projects, time and resources could be directed more productively elsewhere, for example to infrastructure more generally, rather than on PPPs. After all, PPPs are but one tool in an infrastructure toolbox. Any new work on PPPs should not be at the expense of broader work in infrastructure development. A more holistic approach to infrastructure development and finance would help us fulfill the ambition of sustainable and resilient infrastructure for all, envisaged in the Addis Agenda and the 2030 Agenda.
Based on the findings, this Working Paper recommends consideration of a new set of PPP guidance for the next generation PPPs. Such guidance could focus on public governance of PPPs that would explicitly incorporate climate change and environmental, social and governance aspects of PPPs alongside economic considerations, and purposefully take on the perspectives of noncommercial stakeholders.
Guidance should be created collaboratively with partners and build on existing guidance and resources to the extent available, as envisioned by the Addis Agenda. Guidance could take the form of one or more documents, an interactive toolbox, a knowledge platform or a combination of these forms, and could be further strengthened by a self-assessment tool, a rating system, a certification mechanism, and/or a venue for sharing lessons or conducting peer review.