Public-Private Partnerships Can Boost Infrastructure but Require Precise Preparation

JOHANNESBURG, SOUTH AFRICA--(Marketwired - May 10, 2013) -  Public-private partnerships (PPPs) have been operating for a long time, but in many emerging countries they have risen to prominence only in the past decade. As the advantages of PPPs have become clearer, so too have the challenges. Many projects either failed or never got off the ground in the first place as a result of ill-suited preparations. To realize PPP advantages while keeping the risks to a minimum, Strategic Infrastructure: Steps to Prepare and Accelerate Public-Private Partnerships, a new report from the World Economic Forum, developed in collaboration with The Boston Consulting Group (BCG), provides a framework and best practices for helping governments excel in the project preparation phase.

The Project Preparation Gap

Constrained by tight budgets, governments today are increasingly looking for private-sector support in financing and delivering new bridges, airports, and electricity grids, which are critical drivers of a country's economic prospects and social well-being. In partnering with the private sector, the public sector can gain access to financial resources, as well as make more effective and efficient use of its limited funds by leveraging private-sector capabilities in designing, building, and operating infrastructure assets.

The private sector is also ready to increase its role in the infrastructure space. For example, institutional investors, with substantial assets under management, are seeking long-term investment opportunities. Despite this apparent fit of demand for and supply of private capital and capabilities, 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.

"The typical preparation issues include insufficient project management and leadership, biased demand forecasts, delayed approvals or land acquisition, insufficient stakeholder engagement, and unbalanced risk allocation," said Philipp Gerbert, a BCG senior partner and one of the report's contributors. "These issues have not only prevented many projects from launching but have also led to many problems later on. High-quality project preparation in turn gives a project a high chance of prospering throughout its life cycle."

The Need for a New Approach

Sponsors of infrastructure projects would benefit from a strong framework for preparing PPPs, and this is what the new report provides. Citing case studies of past PPPs (the failures as well as the successes), 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 a 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 topics ranging from political-leadership buy-in to project preparation funding, from demand forecasting to environmental and social safeguards, from contract design to risk allocation, and from public-sector capacity to anticorruption measures. Although the report specifically addresses issues of PPP preparation, many of the best practices presented are also applicable to projects procured under traditional delivery and financing models.

Unfortunately, getting it right is not so simple: it takes a considerable commitment of skills, time, and resources. "But you end up paying even more if you don't do it properly. Underpreparation is going to cause delays, cost overruns, or renegotiations further down the line," said Jan Justus, a BCG principal. "Particularly in developing countries, one of the key levers is building capacity among public officials, as well as on an institutional level in order to equip those agencies with the diverse skills required to launch PPPs smoothly."

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 towards 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.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Claire Hopkins at +44 207 753 8334 or hopkins.claire@bcg.com.

About The Boston Consulting Group
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