Conclusions

For reasons discussed in preceding chapters, public–private partnerships (PPPs) are unlikely to have major positive impacts on achievement of the Sustainable Development Goals (SDGs) or on the provision of transformational regional infrastructure, as envisioned by the G20. PPPs will continue to play modest but still important roles in the cost-effective provision of infrastructure service in many developing countries, as long as they are well structured, appropriately supported, and carefully monitored and evaluated. But PPPs made sustainable with large measures of concessional finance will do a disservice in the developing world if they distract from the fact that the fundamental causes of poor infrastructure service delivery in developing countries have very little to do with the availability of private investment. Those causes involve things like government policies, institutions, technical capacity, as well as the political economy realities of these countries and their relationships with development partners

Case Study

This chapter presents a case study of the Maputo Corridor toll road concession, linking South Africa with neighboring Mozambique. As the first cross-border transport PPP in SSA, this project is the first PPP in the region with a claim to the kind of “transformational” qualities that the G20 and the African Union have been hoping will dramatically improve infrastructure across the continent. The continent includes many landlocked countries as well as countries that are too small and poor to be able to finance adequate power and transport infrastructure without the collaboration of neighbors. However, this project is still the only cross-border toll road concession ever completed in SSA. Why have no similar projects ever been completed in Africa? What makes the Maputo toll road a unique project? What lessons can we learn from the Maputo project about the likely success of cross-border transformational PPPs in SSA?

Case Studies

This chapter presents case studies of three recent renewable energy independent power producer (IPP) tender programs in Sub-Saharan Africa (SSA), in Uganda, Zambia, and South Africa. Using competitive tenders to select IPP projects is rare in Africa, but is viewed as an effective way of lowering project costs. And with the rapid reductions in the costs associated with wind and solar projects, renewable energy IPP projects may represent the power sector public–private partnerships (PPPs) of the future. These case studies detail the role of development partners in designing and implementing the first two of these programs and compare their performance with that of the South African program, a program designed and managed almost exclusively by South African officials and their advisers. What are the lessons that can be learned from these two distinct approaches? What impact do these kinds of programs have on the “IPP policy dilemma” described in Chapter 8?

SSA’s IPP Policy Dilemma

This chapter focuses on independent power producer (IPP) projects, by far the most successful kind of public–private partnership (PPP) in the developing world. These projects generate more investment in developing countries than all other forms of PPP combined. However, the development community exhibits ambivalence towards independent power producer (IPP) projects. They are supposed to work best in power sectors that are being reformed, where user tariffs are cost reflective and off-taker utilities are creditworthy. Yet, in practice, many influential multilateral development banks (MDBs), development finance institutions (DFIs), and donors are encouraging the use of IPP projects virtually everywhere in the developing world, whether or not sector reforms are taking place. This reflects a policy dilemma: most low-income countries desperately need more generating capacity, but should the development of IPP projects be delayed until progress is made on broader sector reforms? How can these policy dilemmas be resolved? Who can make that happen?

Case Studies

This chapter presents a series of short case studies of the best-known management contracts for water and electricity services in Sub-Saharan Africa (SSA). The studies attempt to identify projects that successfully met the expectations of a wide variety of key stakeholders. But the review finds very few contracts that have achieved this standard of success. Why have governments, particularly in Africa, been so willing to sign these kinds of contracts, despite their consistently poor performance? Why has that performance not appreciably improved after almost three decades of experimentation? Why do donors, development finance institutions (DFIs), and multilateral development banks (MDBs) continue to promote these mechanisms? What lessons have been learned about the pre-conditions necessary for the conventional management contract model to meet expectations? The case studies in this chapter explore these questions and attempt to identify the factors that make such contracts successful.

Management Contracts

In this chapter the discussion turns to management concessions as they have been used in the water and power sectors of developing countries. Because these arrangements are typically short term and involve little or no private investment, they considerably reduce the normal PPP risks faced by private partners. But despite the seeming potential of such contracts for improving the operational efficiencies of infrastructure service systems, as well as the reduced risks of such projects for private partners, these kinds of private–public partnerships (PPPs) have rarely met the expectations of local stakeholders, especially in the poorest countries. Is this criticism fair, or are the objectives of these contracts misunderstood? Hybrid forms of these contracts seem to be emerging in response to disappointment with traditional models. Will these hybrids be successful in achieving the original aims of management contracts?

The Future of PPPs in Low-Income Countries

While PPPs have not been as successful as expected, the various kinds of hybrid PPP project forms that have emerged may suggest ways in which PPPs can sustainably generate some value and meet some stakeholder expectations. These hybrids may indeed be successful, but in what ways do they represent significantly reduced expectations regarding the benefits of PPPs, as these projects were conceived in the 1990s? This chapter discusses what is perhaps the most dramatic compromise, the dominating role now played in most of these projects by subsidized or “blended” finance. Governments and their development partners pay for and manage most basic project preparation work, contribute to the capital costs of projects, and provide guarantees and other risk-mitigation mechanisms insisted on by private partners. How should blended finance like this be justified and managed to ensure against market distortion and wasted resources that could be used more productively elsewhere?

Case Study

This chapter presents a case study of the Nelspruit water concession completed in South Africa’s Mpumalanga Province in 1999. This is generally considered to be the third “classic” brownfield water concession in Sub-Saharan Africa (SSA), involving capital investment in system assets as well as commercial operation of the system by the private partner. The Nelspruit project exhibits most of the risks and shortcomings that helped account for the precipitous decline in private sector interest in such projects after the Asian financial crisis, as documented in Chapter 4. How did these risks and shortcomings materialize in Nelspruit? How were they dealt with and in what manner does the project continue to function after two decades? Why have there been no other prominent examples of similar “classic” water concessions in South Africa or in other SSA countries since 1999?

The Performance of PPPs in Developing Countries

Precisely how have PPPs underperformed? This chapter reviews global evidence relating to: (i) how widely PPPs are actually used in developing countries; (ii) the commercial profitability associated with these projects; (iii) the costs and complexities of project preparation; (iv) the ability of such projects to generate private investment finance; (v) the pro-poor benefits of these projects; and (vi) the institutional and political problems that limit project success. In light of this evidence, how practical are recent efforts by international organizations to promote increases in the number and size of PPPs in developing countries. The G20’s recent advocacy of “transformational” PPPs as mechanisms for dealing effectively with infrastructure challenges in low-income countries is an example of this kind of PPP promotion.

Case Study

This chapter presents a case study of a recent water public–private partnership (PPP) in Rwanda, which has many of the hybrid features discussed in earlier chapters, including the use of blended finance. But the extensive use of blended finance needed to make this PPP commercially viable raises questions about how that blended finance was justified. How much subsidy in support of private finance is too much? Is it possible that a project like this may exceed a threshold beyond which it would be less expensive and more sustainable if implemented as a public project supported by concessional lending, rather than as a PPP with a relatively small measure of private finance (but all the costs and complexities that come with PPPs)? Are there more traditional contracting mechanisms that might work better than PPPs? Countries like India are experimenting with such alternatives to PPPs for less commercial projects in poorer regions.