Airport Expansions, Water Sanitation, Telecom Among Areas of Opportunity for PPPs

Major challenges and opportunities relating to public and private sector partnerships were among the main discussion topics on the opening day of the 44th Annual Board of Governors Meeting of the Caribbean Development Bank (CDB), Wednesday, May 28.

A seminar on Public Private Partnerships (PPPs) in the Caribbean: Building on Early Lessons highlighted how the Region could embrace PPPs as a more effective development tool.  While some countries have moved in this direction, early experiences have not been even and costly missteps have made.  Against this backdrop, one of the key objectives of the exercise was to provide a platform to discuss best approaches to structuring PPPs and to build on early lessons from regional and global stakeholders.

While the CDB launched a publication on PPPs dubbed, ‘Public Private Partnerships in the Caribbean: Building on Early Lessons’, representatives from the World Bank’s International Finance Corporation (IFC), CIBC First Caribbean, Jamaica and Guyana provided a range of  perspectives as panelists.  

It was noted that while macroeconomic fundamentals were beginning to move in the right direction for most countries in the Caribbean region, public sector balance sheets continue to be relatively fragile.  However, fiscal consolidation programmes designed to shore-up public finances have restricted public sector investment levels.   

A wide range of potential PPP opportunities were identified in airports expansion and renovation, telecoms, water and sanitation, energy and renewable energy, health and education with global and regional private sector expressing interest in the Region.

Among the challenges identified were limited fiscal space being a constraint for PPPs in some sectors; small country and or project sizes make it more challenging to structure viable and bankable projects, given the cost of preparatory work and monitoring. There is also the need for funding to structure PPP transactions and to further develop government capacity to execute PPPs.

According to Mr. Richard Cabello, Manager, Infrastructure Advisory, Latin America (IFC), these partnerships are important tools to help address the infrastructure gap by mobilizing private sector expertise and investment.

PPPs focus on performance based delivery of infrastructure and services, he said, not only on construction but are about improving efficiency by transferring risk to the private sector, rather than zeroing in principally on financing.

He notes that while PPPs have been applied in traditional infrastructure such as energy, transport and water, as well as in social sectors of health and education, they are now being employed in new sectors of agriculture and buildings.

They are not however a panacea for all infrastructure development, but can be an important tool for development.

Mr. Cabello identified key elements for success as transaction design, bankability with proper risk allocation (performance risk vs. regulatory and political risks), project finance structure and access to private financial markets on adequate terms and conditions.

Other major takeaways from the seminar included the need to ensure that the region builds out the appropriate legal and regulatory environment conducive to PPPs; and capacity building at both the public and private sectors being required to foster PPP-related success.  

For his part, Ivan Anderson of Jamaica’s National Road Operating and Constructing Company (NROCC) said among the lessons learnt from the Highway 2000 project were the importance of starting with a good project.

“It is tempting to prepare a laundry list of projects, but if you don’t understand the financial benefits and costs of your project, it is unlikely that a potential developer will,” he said.

It was equally important to have public sector support at all levels.  

“For example, are there other non-financial incentives (tax, duty, lands etc) that can be provided? Yet you must ensure that support to be provided is limited (as revenue/guarantees can be unlimited in the downside). Predicting long-term revenues and costs are almost impossible,” he said.

CDB has committed to give strong support to its Borrowing Member Countries in installing the requisite capacity and it has taken a lead role in establishing a donor funded-Unit within the Bank to move the process forward.