Infrastructure Project Preparation Facility

Background

Large infrastructure financing gaps in EBRD countries of operation have long been identified as a key challenge and opportunity for the Bank. EBRD estimates COOs annual infrastructure investment need at close to $500bn, well in excess of current levels. The World Bank Group estimates that only about half of an annual global investment need of $2000bn is now being met. Many IFI initiatives thus seek to scale up private finance mobilisation by improving enabling environments, strengthening project preparation facilities to build bankable pipelines, and designing new financial instruments to help bridge project risks and financier risk appetite.

The EBRD IPPF was a high profile initiative approved by the Board in October 2014 to scale up infrastructure support, especially for private investment. An additional 30 projects were expected to be prepared over 20152017, including both public and privately financed infrastructure using PPPs, and across all countries of operation. The IPPF was allocated €40mn from the Shareholders Special Fund (SSF) for the period.

On approval of the IPPF, the Board requested a stock taking after three years. This interim review by the Evaluation Department is intended to assess IPPF’s performance against its wider objectives, identifying any early results and difficulties, and its potential to be a co-investment multi-donor fund for specific countries and sectors.

Main findings

Performance has differed substantially between the sovereign and private windows. Sovereign support is well in excess of private, although initial allocations anticipated a 50/50 split.

The SSW has 27 projects as of July 2017, against its current target of 15. The SSW is working well at mobilising consultant teams; and the average time from initiating project preparation to expected signing is 1.1 years, although virtually all projects use traditional public sector foreign currency loans.

On the other hand, demand for PPPs and use of the PPW has been much less than expected. Only two PPW projects were under preparation as of end 2017, rather than the seven to ten forecast in the business plan. Three new PPW projects have been signed but execution is doubtful in the envisioned timeframe.

Different cost-sharing arrangements used by the two windows drive different results. Under the SSW clients contribute in kind at 3 per cent of the total TC, but the TC itself is non-reimbursable. Under the PPW clients pay 10 per cent of IPPF’s costs.

Public sector clients are unwilling to pay project preparation costs when they have ready access to non-reimbursable TC from other donors.

However, the PPW also faces direct competition from the SSW as governments can access this window for free. PPW contracts present additional risk because early termination means all consulting costs must be reimbursed.

Because PPW contracts are time-bound (three years), the only way the IPPF can recover its money is by reaching financial close within this timeframe, irrespective of the readiness of the project.Locating the IPPF inside MEI reduces its potential benefits and effectiveness. Access to streamlined project preparation is not open to other departments such as ICT, P&E and E2C2 that would benefit. Embedding a PPP advisory function in a business unit primarily focused on sovereign lending is clearly sub-optimal; MEI does traditional foreign currency public sector lending, with limited private external finance. Perceived conflicts of interest from MEI’s operational status undermine its ability to contribute to policy formulation and engage with its clients.

IPPF’s policy dialogue element has supported a variety of activities but does not appear overall to make an appreciable contribution, for several reasons.

Policy dialogue has been mainly conference/seminar attendance, which perhaps raises awareness but does little to build capacity  a key need; IPPF support may substitute for capacity development within governments.

Conferences cover both commercialisation and investment related topics, but without apparent linkage to downstream project outputs and outcomes.

EBRD has little leverage over municipalities to effectively manage the assets or collect data on output performance; Public Service Contracts are meant to mitigate risks, but in practice these contracts cannot be enforced by EBRD.

IPPF policy dialogue does not appear to have resulted in any new commercial or regulatory structures.

IPPF’s focus on infrastructure should make it directly relevant to corporate and country strategies, but there is little cross-connection. IPPF outputs do not seem to contribute to country strategies, and project selection is driven by IBG business priorities.

IPPF transition indicators include skills transfer and changes to market structure to increase the delivery and replicability of priority infrastructure. However they assume a base of three separate projects within a single country; this has not been accomplished for PPPs but rather for sovereign projects likely to add little that is new.

While IPPF’s demonstration effects may have some impact, there are a wide range of hard constraints preventing government agencies from contracting with the private sector that are a much more important issue. Wider experience confirms the central importance of developing risk mitigation instruments and other forms of government support needed to make PPP projects bankable.