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Public Private Partnerships for Development & Conflict Mitigation Beirut, Nov. 11th, 2008. Agenda. Conflict Environments. Public Vs. Private Sector. Public Private Partnerships. IFC in Conflict-Affected Countries. IFC in Africa and Afghanistan. Characteristics of Conflict Environments.

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Conflict Environments

Public Vs. Private Sector

Public Private Partnerships

IFC in Conflict-Affected Countries

IFC in Africa and Afghanistan

characteristics of conflict environments
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
Why Private Sector?
  • The State/Donors have many priorities and limited resources
  • 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
poverty reduction associated with private investment
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
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
Bringing Public and Private Sectors Together - PPP

Continuing Public Spending Support


  • Specify requirements


(the public)


payments for



  • Build facilities
  • Support services




Source: PriceWaterHouseCoopers, 2002

convergence of government expectations and private sector requirements
Convergence of Government Expectations and Private Sector Requirements

Government Expectations

Private Sector Requirements

  • Assurance of profitability
    • Balanced allocation of risk
    • Appropriate tariff level for financial equilibrium and ROI
    • Access to concessional finance
    • Supply guarantees
    • Quality and volume of demand
    • Exclusivity, enforcement of collection
  • Protection from risks
    • Safeguard for contingent and environmental liabilities
    • Fair risk allocation (contract)
  • Enabling environment
    • Clear, reliable Government commitment to reform
    • Adequate legal and regulatory framework
    • Enforceable contracts
    • Transparency
  • Alleviation / Removal of State’s role
    • Alleviation of fiscal burden
    • Transfer risks to private sector
    • Private sector: Financing of infrastructure; assuming debt; paying concession fees / tax
  • Social Benefits
    • Reasonable tariffs
    • Minimize costs related to retrenchment
  • Maintaining Control through
    • Bidding process design
    • Contractual package
  • Increase in quality of service
    • Defend concept of public service
    • Increase access to services by population
  • Affordable tariffs
    • Apply principle of cost recovery for the sector
    • Respect consumers’ affordability to pay
    • Manage consumers’ willingness to pay
public sector vs ppp procurement models
Public Sector vs. PPP Procurement Models

Traditional Government Procurement

PPP Procurement

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

Volume risk

General regulatory


Force majeure

Pros of PPPs - Risk Allocation

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





Detailed planning



Inflation risk

Regulatory Risk




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”)
pros of ppps value for money vfm1
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 $15 billion) produced by:
    • faster procurement of asset
    • risk transfer to private sector
    • “whole life” approach to construction/maintenance
    • innovations in design/service delivery
cons of ppps
Cons of PPPs
  • Complexity;
  • High transaction costs:
    • Large tendering and contracting costs;
      • For some projects, total tendering costs can equal around 3% of total project costs as opposed to around 1% for conventional procurement.
    • Significant legal costs in contract negotiation;
  • Higher borrowing costs than public financing;
  • Skill deficit for administration;
  • Structuring risks;
  • Public perception that critical “public” assets are controlled by private sector;
  • Difficulties in ensuring good performance, especially with respect to “soft” performance dimensions.
ifc in conflict affected countries
IFC in Conflict-Affected Countries
  • Conflict-Affected Economies are different than other economies:
    • Lack of basic and strategic Infrastructure
    • Perception of relatively High Risk
    • Huge Fiscal Burdens on the Government
    • Less Access to Financing
    • High Reconstruction and Rehabilitation needs
  • IFC can help:
    • Global resources enable quick launch
    • Encourage Private Sector to enter these economies
    • Expertise in key areas: Infrastructure, Access to Finance etc.
    • Ability to leverage IFC investments and work through partnerships.
ifc in conflict affected countries1
IFC in Conflict-Affected Countries
  • IFC is active in 52 countries that have been classified by the World Bank Group as ‘conflicted-affected.’
  • Since 2000, IFC has made over US$ 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 services
IFC in Conflict-Affected Countries: Advisory Services
  • 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 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 countries

ifc in conflict affected africa lesotho hospital
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
Hospital Capacity – does not meet current standards for modern medical practices, basic infection control and patient needs

Equipment availability - zero to 50%, no recourse when non-functional


Not performed

Not budgeted


Chronic shortages

Little training

Budget – no cap

Accountability – no recourse,

no measures

Hospital Capacity – designed for maximum flexibility and operational efficiency to meet staff and patient needs

Equipment availability – 100% or penalties imposed


Regular maintenance schedule with contracts in place

Included in cost (annual unitary payment)


Full staff in place from opening

Training in place

Budget – contractual with inflation index

Accountability – contractual, with monitoring, penalties and performance bonds; Accreditation requirement (Lesotho and COHSASA)

Lesotho Hospital: Current Situation vs. PPP Project

PPP Project

Current Situation

ifc in conflict affected afghanistan
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
Afghanistan:Horticulture Export Development Project
  • Project supports raisin and pomegranate producers in Kandahar to improve production and participate in high value, international markets
    • 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 (USAID/UNDP)
  • 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