Do PPPs have a future?

The World Bank
David Baxter

Photo Credit: Thomas Hawk via Flickr Creative Commons

In September, a whirlwind of meetings took place with agencies and development banks in Washington, D.C., and Europe that were focused on the current and future implementation of public-private partnerships (PPPs) across the global market. The healthy debate on the topic exposed the participants to interesting insights provided by proponents and naysayers of PPPs.

Many PPP experts that I met shared ideas on the changing context of PPPs and how these changes will impact the implementation of PPPs across regions and sectors in the near and far future. All agreed that the long-term consequences of future political, economic and societal changes are particularly difficult to predict.

As PPP project periods of performance get longer there is also a serious discussion taking place in how one prepares for future project risks, which are currently unclear or even unpredictable. This conversation is particularly relevant when one considers that current PPP agreements are structured with current contexts in mind, yet could be expected to perform under unknown conditions in 50+ years (there are examples of PPP agreements that have a 99-year performance period being structured).

The potential disconnect between the present and the future compelled me to ask myself, “What will PPP contract agreements structured in the present look like in 50 or 100 years from now?”

The current debate is vigorously examining the current context of PPPs and the validity of the fundamentals of PPP practice that were established over 20 years ago, when implementation challenges were not part of the equation. New approaches to, and the selection criteria of PPPs, now include anthropological and environmental concerns superimposed on political, social and economic concerns that drive the expectations of stakeholders and partners as never in the past.

In addition to these new layers of consciousness impacting the relevance of PPPs, the changing world is also requiring that the fundamental commitments of COP21 and the Sustainable Development Goals (SDGs) also become serious project selection and development criteria.

As a consequence, planning teams that conceptualize PPP projects for ministries around the world now no longer consist of only engineers, financial experts, and lawyers. New faces have elevated the debate on practice and context to new exciting levels. It is important to note that the debate is not restricted only to the public sector but is also taking place in the private sector, which is becoming increasingly concerned about responsible practices and sustainable development.

Evolving discussions on relevancy criterion for evaluating PPP desirability, selection, and implementation have also opened doors to innovative ideas and PPP alternative financing models that will allow PPP contract performance terms to be articulated that will answer the need for longevity of long-term projects.

Some of the new ideas I heard include:

The practice of PPPs is alive and evolving, and there are efforts underway to recalibrate the standard definition of it, which currently narrowly focuses on infrastructure provision, by introducing service provision as well as weaving in references to climate resilience as defined by the COP21 and SDGs.

A new generation of practitioners - with new priorities - are focusing on determining resilience of PPP projects through a new lens. The struggling financial climate of the last few years is also driving a renewed debate on how projects are to be modeled while taking risk (and environmental and societal concerns) into consideration in a seemingly less predictable and at times volatile world.

Levels of economic development of countries is also center to the current debate and is often overlooked when determining the best approach to the selection of PPP models. In developed economies, PPP projects are typically focused on improving existing infrastructure. This brownfield approach to PPPs is in stark contrast to the emerging economies, where projects are more likely to be Greenfield projects, which require a different approach to the implementation of PPPs.

Infrastructure and service sectors are also evolving. Part of the innovation applicable to PPP practice and implementation over the next decades will be an increasing focus on providing services in certain economies rather than building infrastructure that is not critically needed or is possibly unaffordable.

There is also no doubt that innovation, especially in new technologies is going to change the way PPPs are delivered and implemented. New project and risk management e-programs are making it easier to predict and manage risk - hence resulting in a change in the ways projects are being tested for feasibility. As a consequence, in some instances, risk is being seen as a new opportunity - a new business growth area - that has the potential to improve the implementation of PPPs through innovative financing.

Evolution of new financing models and PPP models and blended financing that combines funds from both governments and the private sector is also becoming more prevalent, especially in countries where the public sector has less access to private funding. Many public sectors are now exploring the ideas of public-public private partnerships (4Ps) for example.

The growing interest in the commitments of COP21 and the SDGs is also driving innovation into PPPs. PPPs that are modeled to include these commitments are most certainly going to be embraced by advocates of smart cities for example. Smart cities, which are focused on including climate resilient design, will be increasingly funded by advocates of responsible growth and the adoption of PPP practices that are receptive of green bond requirements, for example.

PPPs for smaller projects are also an ongoing focus of development agencies. Not all countries want and can afford mega-sized PPP infrastructure projects. As a result, there is great interest in seeing how the funding needs of small PPP projects can be accommodated.

New technological developments may make existing PPP projects irrelevant in a way that could not be determined in the past. It is prudent to debate scenarios that discuss what to do when 50 years into a PPP project that has a 99-year agreement, for example, there is the determination that the project or the technology being used is redundant and the project has no reason to exist anymore.

Political shifts affecting economic trading blocs could impact countries’ abilities to service the development of infrastructure.

Changing economic and demographic factors in emerging African economies will lead to a healthy demand for PPP projects. Africa’s unique sectorial and financing demands will also introduce new challenges and demand innovation.

I have no doubt that PPPs are here to stay in the short - and long-term. They have been around for hundreds of years already albeit in other forms. The practice will morph and adjust to changing circumstances, but not disappear.

Read the full-length version of this blog on David Baxter’s LinkedIn page.