Infrastructure

Public-private partnerships (PPPs)

Public-private partnerships (PPPs) play a crucial role in the world’s search for the expanded and better quality delivery of infrastructure.

One definition of a PPP is a long-term contractual relationship between a state or state owned entity (SOE) and a private-sector entity whereby the latter delivers and funds public services using a capital asset, sharing the associated risks with the state or SOE.

PPPs exist in various permutations characterised by the level of risk and responsibility transferred to the private sector. The risk and responsibility may include design, construction, operation, maintenance and financing of the asset or service.

The underlying mechanism for PPPs relies on the private sector providing not just much needed commercial financing but also efficient management for new and improved infrastructure assets for a cost that is lower, on an overall life-cycle risk-adjusted basis, than the traditional public sector alternative.

When designed and procured well, private participation in infrastructure provision can promote new technologies, deliver higher accountability, establish more cost-effective operations and achieve financial sustainability for infrastructure undertakings.

Under the right conditions, PPPs deliver a higher quality service at a lower cost. The EBRD aims to help its public sector clients achieve those right conditions.

And yet, while the PPP market in developed nations has grown significantly in recent years, the development of infrastructure PPPs in emerging markets has been slower, despite the existence of broad theoretical liquidity across financial markets.

According to the World Bank’s PPI database, which comprised over 8,700 infrastructure projects with private participation since 1984, the investments in emerging and developing economies fall sharply in 2016 in terms of amount, number of projects, and percentage to GDP.

On the other hand, multilateral development banks (MDBs) and bilateral institutions (DFIs) participated in 21% of all deals, higher than the annual average of 17% from 2011 to 2015. 

This demonstrates a growing importance of MDBs’ role in private sector participation globally.

The EBRD accelerates its promotion of private sector involvement and is particularly keen to expand the level of PPP activity in the regions of its operations and is playing an active role, alongside its IFI partners, to mobilise additional fresh private capital.

The EBRD participated directly in more than 40 PPPs. Typical PPP transactions in Transport and Municipal and Environmental Infrastructure, which the EBRD has financed, amount to €1.8 billion and their total project costs stand at €13.5 billion as of the end of 2017 (as per the list below). The list includes 9 projects signed in 2016 and 2017.

The EBRD focuses on the key issues relevant for the development of PPPs and explore potential solutions to mitigate possible problems. To varying degrees, all of the countries where we work face challenges that prevent more PPPs being delivered, from incomplete legal frameworks to institutional weakness and embryonic capital markets. Such conditions create risk levels for prospective PPPs that, if left unattended, prevent projects succeeding.

The EBRD's approach thus supports public sector clients in preparing PPPs, which require complex documentation requirements and tender processes, and finances private winners of tenders directly.

Among the factors common to successful PPP development and its sustainability are legal frameworks, institutional capacity, political will, market size, payment ability, funding stability, financing and local private sector capabilities.

Typical infrastructure deals in the portfolio of Infrastructure Business Group (IBG)

The EBRD’s IBG team helps clients create conditions where PPPs can be credibly prepared, successfully tendered, and competently monitored to achieve value for money for the societies in which they take place.

As part of these activities the EBRD’s Infrastructure Project Preparation Facility was created in 2015 to prepare PPPs and other strategic infrastructure for the countries where it works.