Given the large infrastructure deficit in countries around the world, many governments are increasingly turning to the private sector for support. In this environment, public-private partnerships (PPPs) can accelerate infrastructure programs by tapping into the private sector’s financial resources, as well as its skills in designing, building, and operating infrastructure on a whole life-cycle cost basis. In fact, institutional investors with substantial assets under management, are seeking long-term investment opportunities. Despite the apparent fit of demand for and supply of private-sector participation, too few projects get off the ground.
The reason for this paradox—especially in emerging countries—is the “project preparation gap,” the lack of well-prepared, bankable PPP projects in which investors are sufficiently confident in the commercial and technical feasibility, risk allocation, and public sector’s contractual commitment and capacity, as well as the institutional and legal framework. Furthermore, several of the PPPs that have been implemented were plagued by delays, cost overruns, or renegotiations as a result of a suboptimal preparatory phase.
“Strategic Infrastructure: Steps to Prepare and Accelerate Public-Private Partnerships,” a new World Economic Forum report, developed in collaboration with The Boston Consulting Group, outlines government best practices for overcoming the challenges of preparing PPPs. Citing case studies of past projects, the report presents a detailed discussion of the set of preliminary actions that the organizers of a PPP need to undertake. Four best-practice areas come under scrutiny: managing a rigorous project-preparation process, conducting a bankable feasibility study, structuring balanced risk allocation and regulation; and creating a conducive enabling environment. For each of the four areas, the report identifies six specific success factors, covering subjects ranging from political-leadership buy-in to project preparation funding, demand forecasting to environmental and social safeguards, contract design to risk allocation, and building public-sector capacity to anticorruption measures. Although the report focuses on issues of PPP preparation, many of the best practices presented are also applicable to projects procured under traditional delivery and financing models.
While a successful PPP program also depends on cost-benefit-based project selection, as well as rigorous value-for-money analysis to determine the suitability of a PPP, governments can use this framework to optimize their PPP preparation process and accelerate individual projects toward bankability. Such a well-designed PPP approach offers both developed and developing countries a great opportunity for boosting their infrastructure, increasing competitiveness, and achieving major socioeconomic advances.
The original version of the report was published by the World Economic Forum.
Meeting the Infrastructure Challenge with Public-Private Partnerships: Bridging the Gap, an earlier BCG report, also examines aspects of PPPs beyond the preparation phase.