Instructor Interview: PPPs are Changing!
This post is part of a series of expert interviews with IP3's accomplished instructors.
About the Instructor
What is the most significant change in PPPs you've seen in recent years?
I've been working in the field of PPPs now for 30 years, going back to the early 1990s when the term "Public-Private Partnership" was brand new. Very few people knew what it meant, so it always had to be explained and defined. In the first global wave of PPPs in the early- and mid-1990s, PPPs were clearly applied to the traditional economic infrastructure sectors like energy generation and transportation and telecommunications. Gradually, by the late 1990s, the second wave of PPPs emerged as they were applied to needed investments in the environmental sectors, like water, wastewater, solid waste management, education, and health care. However, the second wave of PPPs was more challenging, requiring more public sector financial contributions and support to ensure the transactions were bankable and that crucial public services remain affordable to end-users.
The third wave of PPPs, which has emerged since about 2000, has centered around the growth of municipal and local government-level PPPs, including Smart Cities and eGovernment Services, parks and community services, recycling, and even flood prevention. The interesting thing I've seen in most recent times is that it's being applied in nearly every sector with clear public sector priorities, even if it seems difficult to identify where the private partner's revenue stream would come from.
One specific example is PPPs for new flood prevention investments. Floods are becoming more common these days, as urban areas are expanding, and the costs of dealing with floods are rising. Some very innovative PPPs have been structured whereby private partners have undertaken new investments in drainage improvement and flood prevention works. They've been able to design and draft measurable output standards for projects and create new revenue streams payable to these private partners that are backed by a portion of the estimated avoided costs of paying for flood damages and remediation, so it's very innovative.
I have been seeing public-private partnership models applied even to environmental and social infrastructure and service sectors. These are areas in which you'd traditionally think, "Well, since there's no direct source of revenue for these educational, health care, public safety, and environmental services, can we really even do PPPs here?" The answer is, "Yes, you can," but it requires a lot more innovation. Still, it is a very inventive and exciting area of PPPs.
I've also seen in the past few years the revolution in environmental, social, and governance standards (ESG) models applied to PPPs to be more sustainable. While PPPs obviously need to be bankable, the track record has shown that they also must be socially and environmentally sustainable. Around the world, in both high- and in low-income economies, governments, citizens, end-users, and private investors and lenders have shown that they are willing to spend moderately more on the designs and the operations of PPPs, even if it means slightly higher tariffs, to make sure that these PPPs are also environmentally sustainable and socially just and equitable. New sets of ESG standards, best practices, and a lot of modernization are going into adding these components and benefits to PPP transactions.