Document Sample
IFC Powered By Docstoc
					     Public Private Partnerships for
    Development & Conflict Mitigation

                            Beirut, Nov. 11th, 2008


         Conflict Environments

        Public Vs. Private Sector

       Public Private Partnerships

    IFC in Conflict-Affected Countries

      IFC in Africa and Afghanistan
    Characteristics of Conflict Environments

         Weak Government/Control

         Rapidly changing security, political, social and
          business environment

         Wide range of immediate needs

         Resources constraints

    Why Private Sector?

         The State/Donors have many priorities and limited

         The Private Sector is often more agile and can
          mobilize rapidly

         Private Sector is often more able to assess and
          address risk

         Private Sector (if managed carefully) can be more cost
          efficient and manage resources more efficiently

    Private Investment is Strongly Associated
    with Economic Growth

    Poverty Reduction is Closely Associated with
    Economic Growth

    Poverty Reduction Associated with
    Private Investment
     IFC Objective: “To fight poverty with passion and
      professionalism for lasting results. To help people help
      themselves and their environment by providing
      resources,sharing knowledge, building capacity, and forging
      partnerships in the public and private sectors.”
     Private Sector provides:
          More Jobs
          Efficient Processes
          Access to financial resources
          Access to improved varieties
          Increased Competition
          A Stimulus to Growth
     Private Sector is a significant contributor towards sustainable
      Poverty Reduction

    Roles of Public and Private Partners
     Main role of the private sector partner: to assure the project
      financial parameters

     Main role of the public sector partner: to assure the public
      interest determining goals, quality and pricing policy

     Public Private Partnership (PPP): A Partnership between the
      Public and Private sector to deliver a project or service
      traditionally provided by the public sector.

    Bringing Public and Private Sectors Together
    - PPP
                       Continuing Public Spending Support

                                     PUBLIC SECTOR
                                  • Specify requirements

                         services            USERS
                                                           payments for
                                           (the public)    performance

                                     PRIVATE SECTOR
        expertise                 • Build facilities                      skills
                                  • Support services

    Source: PriceWaterHouseCoopers, 2002
     Convergence of Government Expectations
     and Private Sector Requirements
     Government Expectations                                       Private Sector Requirements
 Alleviation / Removal of State‟s role                            Assurance of profitability
         Alleviation of fiscal burden                                   Balanced allocation of risk
         Transfer risks to private sector                               Appropriate tariff level for financial equilibrium and
         Private sector: Financing of infrastructure; assuming           ROI
          debt; paying concession fees / tax                             Access to concessional finance

 Social Benefits                                                        Supply guarantees
                                                                         Quality and volume of demand
         Reasonable tariffs
                                                                         Exclusivity, enforcement of collection
         Minimize costs related to retrenchment
                                                                   Protection from risks
 Maintaining Control through                                            Safeguard for contingent and environmental
         Bidding process design                                          liabilities
         Contractual package                                            Fair risk allocation (contract)

 Increase in quality of service                                   Enabling environment
         Defend concept of public service                               Clear, reliable Government commitment to reform
         Increase access to services by population                      Adequate legal and regulatory framework

 Affordable tariffs                                                     Enforceable contracts
                                                                         Transparency
         Apply principle of cost recovery for the sector
         Respect consumers‟ affordability to pay
         Manage consumers‟ willingness to pay

     Public Sector vs. PPP Procurement Models

      Traditional Government                 PPP Procurement
 Capital and operating costs are        The public sector only pays over
  paid for by the public sector.          the long term as services are
 Risk of cost overruns and late
  delivery.                              The private sector funds itself
                                          using a large portion of debt plus
                                          shareholder equity.
 Public Sector might not have the
  budget to support the large capital
  and operating costs required.          The returns on their equity will
                                          depend on the quality of services,
                                          therefore, an incentive to provide
                                          higher quality.

     Why are PPPs taking front stage?

      Availability of public capital remains constrained due to
       deficits and/or prudent fiscal management

      Availability of private capital also constrained: investors
       generally more risk-aware and less willing to take risks in
       emerging markets

      Yet huge capital needs remain in infrastructure, education
       and health care, for development and for competitiveness

      Efficiency gains from private sector involvement are
       believed to be considerable.

      Pros of PPPs

      Competitive process;
      Increased transparency;
      Balance sheet consideration;
      Private sector efficiencies and innovation;
      Well designed risk allocation and transfer of project risk
       to the private sector;
      Improved levels of service;
      Enhancement of revenues:
         PPPs may set user fees that reflect the true cost of
          delivering a particular service.

  Pros of PPPs - Risk Allocation

"Risks should be allocated to the party best able to manage them"

     Public               Shared                       Private

   Planning               Volume risk          Detailed planning
   permission             Inflation risk       permission
   Regulatory Risk        General regulatory   Design
                          risk                 Construction
                           Force majeure       Commissioning
                                               Operating performance
                                               Project finance
                                               Technology obsolescence
 Pros of PPPs - Value for Money (“VFM”)


                          Risks retained by
                            Public Sector

                            Cost of finance

                          Whole life cost of
                          procuring services

     Pros of PPPs - Value for Money (“VfM”)

      Two independent UK studies found VfM
       benefits of between 3% and 20% on UK
       projects (i.e. up to $15 billion) produced by:

          faster procurement of asset
          risk transfer to private sector
          “whole life” approach to
          innovations in design/service delivery

     NAO Report of 2003
     UK’s National Audit Office report on PPP

     Improved        Non PPP         PPP Procurement
     Project         Procurement     (2002 Survey)
                     (1999 Survey)

     Overruns              73%       22% (mostly client

     Overruns              70%        24% (only 8% > 2

      Cons of PPPs

      Complexity;
      High transaction costs:
           Large tendering and contracting costs;
             • For some projects, total tendering costs can equal around 3% of total
               project costs as opposed to around 1% for conventional procurement.
           Significant legal costs in contract negotiation;
      Higher borrowing costs than public financing;
      Skill deficit for administration;
      Structuring risks;
      Public perception that critical “public” assets are controlled
       by private sector;
      Difficulties in ensuring good performance, especially with
       respect to “soft” performance dimensions.
     IFC in Conflict-Affected Countries

      Conflict-Affected Economies are different than other
           Lack of basic and strategic Infrastructure
           Perception of relatively High Risk
           Huge Fiscal Burdens on the Government
           Less Access to Financing
           High Reconstruction and Rehabilitation needs
      IFC can help:
           Global resources enable quick launch
           Encourage Private Sector to enter these economies
           Expertise in key areas: Infrastructure, Access to Finance etc.
           Ability to leverage IFC investments and work through partnerships.

     IFC in Conflict-Affected Countries

      IFC is active in 52 countries that have been classified by the
       World Bank Group as „conflicted-affected.‟

      Since 2000, IFC has made over US$ 5 billion in investment
       commitments to countries affected by conflict.

      Beginning of Fiscal Year 2008,
         Total committed exposure = $3.3 billion,

         Outstanding exposure = $2 billion.

     IFC in Conflict-Affected Countries: Advisory
      Fiscal Year 2007 - Advisory activities in 97 countries, with the
       majority of the projects in low-income or high-risk areas.

      Of the 35 conflict-affected member countries, IFC has advisory
       projects committed in 23.

      Advisory Services is organized in 5 business lines:
         Business Enabling Environment

         Access to Finance

         Environmental and Social sustainability
         Infrastructure
         Value addition to firms

     IFC in Conflict-Affected Countries:
     Advisory Services
                                                       Central and
                          Number of Projects         Eastern Europe
                       Sub-Saharan                       (CEU)
                       Africa (CAF)                       2%
                           20%                                         East Asia and
                                                                       Pacific (CEA)

             Southern Europe
             and Central Asia
                  (CSE)                                                  Latin America &
                   19%                        Middle East and            Caribbean (CLA)
                          South Asia (CSA)   North Africa (CME)                7%
                                5%                  13%

                                  Total Funding         Central and
                                                      Eastern Europe
                                                          (CEU)           East Asia and
           Sub-Saharan                                     5%             Pacific (CEA)
           Africa (CAF)

                                                                            Latin America &
                                                                            Caribbean (CLA)
                     Southern Europe
                     and Central Asia                                     Middle East and
                          (CSE)                                          North Africa (CME)
                           20%                      South Asia (CSA)            6%
IFC in Conflict-Affected Africa
IFC has a current/planned advisory services portfolio of $42m in 15 conflict
affected countries in Africa, and an investment portfolio of $370m in 11
                                        ADVISORY                 INVESTMENT                        CONFLICT
                                      Value of Advisory      # of     Value of IFC                         Year Conflict
                                        Services ($m)     Companies Investments ($m) Intensity of Conflict    Ended
   1   Angola                                       0.3             4            35.5 High                     2004
   2   Burundi                                      -               2             0.8 High, intermediate       2006
   3   Central African Republic                     0.5           -               -   High, intermediate       2006
   4   Chad                                         8.4             3            15.2 Intermediate             2006
   5   Cote D'Ivoire                                -              13            48.6 High                     2004
   6   Congo Republic                               -             -               -   Intermediate             2002
   7   Congo, Democratic Republic                   6.5             5          108.4 High                  2005, current
   8   Eritrea                                      -             -               -   Intermittent             2003
   9   Ethiopia                                     0.3           -               -   Intermediate             2006
  10   Guinea                                       1.0             3            35.1 Political                2001
  11   Guinea-Bissau                                0.1             1             0.4 Political                1999
  12   Liberia                                      3.4             2             4.3 High                     2003
  13   Rwanda                                      12.4             5            16.8 High, intermittent    1994, 2002
  14   Senegal                                      0.8            11            74.9 Intermittent, high       2004
  15   Sierra Leone                                 3.8             3            29.4 High                     2001
  16   Somalia                                      0.1           -               -   High, intermediate       2006
  17   Sudan                                        4.7           -               -   High                    Current
                                Total              42.1            52          369.4

     IFC in Conflict-Affected Africa:
     Lesotho Hospital
      As part of the Health Sector Reforms, the referral system in the
       health sector needed to be greatly improved to meet the clinical
       needs of the country
      The New Referral Hospital would provide a higher level of
       service and quality
      The benefits of the hospital would be felt throughout the health
       sector in the country due to high quality of specialist care thus
       reducing the referrals to neighboring South Africa, and training
       of health workers
      A Public Private Partnership was the preferred route to the
       provision of the new referral hospital
      IFC is advising the government on the structure of the deal.

         Lesotho Hospital:
         Current Situation vs. PPP Project
                Current Situation                                 PPP Project
        Hospital Capacity – does not meet current    Hospital Capacity – designed for maximum
         standards for modern medical practices,       flexibility and operational efficiency to meet
         basic infection control and patient needs     staff and patient needs
        Equipment availability - zero to 50%, no     Equipment availability – 100% or penalties
         recourse when non-functional                  imposed
        Maintenance                                  Maintenance
             Not performed                              Regular maintenance schedule with

             Not budgeted                                 contracts in place
                                                         Included in cost (annual unitary
        Staffing
                                                      Staffing
           Chronic shortages
                                                          Full staff in place from opening
           Little training
                                                         Training in place
        Budget – no cap
                                                      Budget – contractual with inflation index
        Accountability – no recourse,
                                                      Accountability – contractual, with monitoring,
         no measures                                   penalties and performance bonds;
                                                       Accreditation requirement (Lesotho and
     IFC in Conflict-Affected Afghanistan

      Investments: US$ 60 million in 4 projects
      Advisory Services: US$ 1.5 M in 5 projects
      Close coordination with donors, initiatives building on
       existing knowledge and experience
      Close cooperationg with the World Bank Group
           Co-location in the World Bank Office
           Sharing Staff: IFC Country Officer / WB PSD Officer
           Established synergies in project design and implementation

 Afghanistan:Horticulture Export
 Development Project
  Project supports raisin and pomegranate producers in Kandahar
   to improve production and participate in high value, international
        Improve productivity: Introduced new production technologies - 300%
         increase in production capacity
        Enhance Quality: Assisted wholesalers to provide “embedded” extension
         services to farmers - Trained 10 extension workers and 600 farmers
        Find New Markets: Assisted wholesalers to identify export markets
  Rapid engagement in sensitive area, in economically vital sector
  Designed on basis of knowledge and experience of other donors
  Shared consultants with WBG in project design, resulted in key
   synergies with WB Emergency Horticulture & Livestock Project
  WB finances the scale-up of new production technologies in
   second project phase