|Alternative procurement options such as direct negotiation must be designed to prohibit corruption and get the best value for the public. Mechanisms for prohibiting corruption might include: imposing stricter penalties on civil servants who accept bribes; penalizing firms that paid the bribe and prohibiting them from contracting with the government for a specified period; and encouraging local and international NGOs, as well as the media, to play a ‘watchdog’ role in the procurement arena. Mechanisms for ensuring good value might include benchmarking costs against the similar provision of services in other cities, and providing for periodic cost renegotiations.
IV Basic Guidelines for Entering into a PPP
While PPPs by their nature are dynamic and tend not to conform to a simple model, for the purposes of generating some basic guidelines it is helpful to view the PPP development process in four stages:
Analysis of different PPP options.
Soliciting private sector participation.
Establishing a durable partnership.
A. Project Preparation
The government should assess the current infrastructure service. This type of analysis will include an internal review of the following: (1) existing assets including infrastructure, capital and tariff regimes; (2) current service coverage; (3) general customer satisfaction; and (4) current balance sheet (revenues vs. costs).
The government should outline broad goals for improvements. These include setting coverage objectives and service standards, as well as ensuring transparency, efficiency and customer satisfaction.
If it appears that private sector participation might be an option, the next step should be the development of a multidisciplinary review team. The review team should then conduct a more thorough evaluation of the current system and evaluate the technological, financial, social, political and legal feasibility of various solutions. It is important that the review team identifies and actively involves key stakeholders such as local residents, NGOs, development committees, and community organizations in a meaningful way throughout the process. It is also of the utmost importance that this process be transparent and that the views of all stakeholders be actively solicited.
Smaller municipalities may need to contract out some of these assessment services. Such contracts should be issued using a competitive bidding process when possible to help ensure the government is getting the best possible advice.
B. Analysis of Different PPP Options
Once the assessment is complete, the review team should establish a clear set of feasible infrastructure improvement priorities. It is important that the goals of broad coverage, affordable services, transparency, efficiency, and customer satisfaction be kept in mind throughout this process. The review team can then evaluate various PPPs options against these lists. This process may involve the use of cost/benefit models.
When exploring different PPP options, governments should engage in open dialogues with a range of potential private sector partners. Traditional public procurement requirements can sometimes serve as barriers to this type of communication. Where this presents a problem, governments should consider alternative forms of procurement.
Governments may want to consider a possible role for third parties. Third parties can act as a catalyst for or facilitator of the project development. They often provide a vehicle for developing a trust and confidence level between the public and private sector parties that helps to resolve problems. Third parties also provide increased transparency and mitigate the likelihood of corruption, as all decisions must be justified to them. Many experts agree that the more people that are accountable for a decision, the less likely corruption is to occur. Third parties can also teach governments about the successes and challenges faced by other governments struggling with similar problems.
C. Soliciting Private Sector Participation
Soliciting private sector participation generally involves procurement procedures. This means that governments will have to determine what type of procurement process will get them the best value for the best service, while avoiding corruption. Presently, the two main options are competitive bidding and direct negotiations (see Section III.E. for a more complete discussion of the limitations of various contract procurement options).
In any PPP procurement, every effort must be made to ensure that all guidelines encourage innovation and reward creativity to the greatest degree possible. One way to encourage innovation is to minimize specific requirements in bidding documents while specifying the desired end goal of the project or service – allowing the private sector to develop the best possible ideas for meeting the goals.
One concern with performance-based design criteria is that the government may not be able to discern which projects will be the most effective at actually meeting the standards. Finding ways for governments to evaluate multi-factor design proposals is an issue that needs closer analysis. In the short-term, however, third parties and expert review panels can greatly assist the government in making such decisions. In addition, one inherent benefit of joint ventures is that prospective private sector partners are not likely to propose projects that they do not firmly believe will work, as the private sector partner is not just a contractor with the government, but a financial partner. As such, if the proposed project fails, the private sector partner gets no return on its investment.
While finding ways to encourage innovation is good for the project if it builds capacity, it may not be viewed as good by private sector partners who may fear that they will not be compensated appropriately for their ideas or “intellectual property” in the event they are not awarded the contact. Procurement processes must address the issue of intellectual property rights. Often this is done by compensating private sector organisations if the government uses their idea, even if they are not awarded the contract.
D. Establishing a Durable Partnership
Governments clearly want to establish PPPs that are sustainable over time. Essential ingredients of durable PPPs include:
Resource Commitments: All partners should have to commit resources (financial, human, capital) to increase their interest in seeing the partnership succeed.
Participation and Transparency: The interests of all major stakeholders must be reflected in project development. Special attention should be paid to meeting the needs of the poor. Broad participation in the collaborative process must be sought at strategic points to maximize the acceptability and sustainability of the solution developed. Transparency on the basic features of the project (framework, fees, and ownership) is key.
Capacity Building: Projects requiring substantial institutional change or large capital investments will require capacity building of all stakeholders: (a) consumers on the nature of the service they are receiving and the costs associated with its provision; (b) providers, particularly local organizations, on entrepreneurial skills; and (c) governments on adopting the frameworks for and overseeing the provision of the services.
Patience: Projects requiring substantial institutional change or large capital investments require lots of time. Careful attention must be paid to the balance between responding rapidly to the most pressing crises and developing integrated solutions that will last. Political cycles and the desire for immediate improvement in crisis situations often lead to the development of time frames that are too short. These short time horizons lead to unrealistic expectations and unsustainable solutions. Major institutional change (such as building regulatory capacity) and major private investments both take time. It is not realistic to expect that private sector involvement will quickly overcome public institutional and operational inefficiencies and immediately compensate for a history of insufficient public sector resources.
Flexibility: All partnerships are context-based and locally distinct. Partnerships should draw from other experiences, but be opportunistic about exploiting the comparative advantage of local resources. Over the long-term, changes in investment plans, technology choices, and priority actions will be necessary in response to unforeseen circumstances. Including clear procedures for making such changes over the life of the project will reduce the chance they will have a negative impact on the partnership.
Social responsibility: Infrastructure services provide goods that should be available to everyone. Improving infrastructure services is about making people’s lives better, especially those of the urban poor. Governments should always make changes that promote increased access and better quality service. An emphasis on social responsibility will also increase political gain, as better service will lead to greater political acceptance.
Environmental Responsibility: PPPs must also take seriously the importance of environmentally responsible service provision. Urban infrastructure services are directly linked to issues of environmental quality. Water is a scarce resource. To ensure long-term sustainability, efforts must be made to ensure it is provided in a way that does not substantially impact local ecosystems. Similarly, wastewater must be treated in a manner that ensures minimal impacts on the environment. Waste collection and disposal must also minimize environmental harms. Although mechanisms to ensure environmental responsibility often involve more substantial initial investments, the benefits to society – public health protection, ecosystem sustainability, and responsible use of scarce resources – generally more than justify these capital outlays. Assurances for environmentally responsible service provision and the use of “eco-efficient” technologies should be built into all contractual agreements.
It is often easier to stay on the paths we know. Governments working with governments, private businesses with other private businesses. Whether you are coming from the public or private sector, PPPs may not seem like a desirable solution at first. However, a closer look at the benefits such relationships can offer provides a strong argument for their use. Through PPPs, the advantages of the private sector – dynamism, access to finance, knowledge of technologies, managerial efficiency, and entrepreneurial sprit – are combined with the social responsibility, environmental awareness, local knowledge, and job generation concerns of the public sector. In cities throughout the world, governments have found that private sector involvement can greatly improve the quality of their infrastructure services while expanding coverage and lowering costs, thereby improving the lives of their citizens.
VI Additional Readings
Cointreau-Levine, S. 1994. Private Sector Participation in Municipal Solid Waste Services in Developing Countries. Volume 1: The Formal Sector. Urban Management Programme. The World Bank, International Bank for Reconstruction and Development.
Gidman, P., Blore, I, Lorentzen, J. & Schuttenbelt, P. 1995. Public-Private Partnerships in Urban Infrastructure Services. UMP Working Paper Series 4, Nairobi: UNDP/Habitat/World Bank.
Idelovitch, E. and K. Ringskog. 1995. Private Sector Participation in Water Supply and Sanitation in Latin America. The World Bank.
Organizacion Panamericana de la Salud. 1997. Modelos de Privatization del Manejo de Residuos Solidos Urbanos en America Latina. Organizacion Panamericana de la Salud, Oranizacion Mundial de la Salud, Division de Salud Y Ambiente.
Rivera, D. 1996. Private Sector Participation in the Water Supply and Wastewater Sector: Lessons from Six Developing Countries. The World Bank.
World Bank. 1997. Tool Kits for Private Participation in Water and Sanitation. The World Bank.
Public-Private Partnerships for the Urban Environment
United Nations Development Programme
Bureau for Development Policy
One United Nations Plaza - New York, New York - 10017 USA
Telephone: +1 (212) 906-5367 - Fax: +1 (212) 906-5896
To find out more information on PPPUE or to access the PPPUE databases, downloadable technical reports and research papers, please visit PPPUE on the Web at: http://www.undp.org/pppue
The United Nations Development Programme (UNDP) helps people in 174 countries and territories to help themselves, focusing on poverty eradication and democratic governance. In support of these goals, UNDP is frequently asked to help create and implement policies that are more responsive to the needs of ordinary people, and to help societies rebuild in the aftermath of war and humanitarian emergencies. UNDP is also an advocate for increased development assistance and a more inclusive global economy.
The views expressed in this publication are those of the author and do not necessarily represent those of the United Nations or UNDP.
Engaging the Private Sector Through Public-Private Partnerships
The Honourable J. Hugh Faulkner, P.C.
Executive Chairman, Sustainable Project Management
This article focuses on case studies of public-private partnership projects. It outlines features of those projects, such as selection criteria for project sites, selection criteria for private sector partners, and larger networks of support, which seem to contribute to the success of such projects. Several specific sites are described in brief as are some auxiliary programs which serve to encourage and support these site-specific efforts. A list of some lessons learned from these seminal public-private partnership projects provides some guidance for the future.
The United Nations Conference on Environment and Development (UNCED) in 1992 signaled the start of a new era. The conference adopted Agenda 21, a far-ranging program of reform, and 150 government leaders from around the world approved other important outcomes. The degree of change agreed to for the global economic, political, and social system was so fundamental that the process risked foundering in inertia.
One clear message from Rio was that the task ahead was too much, and too important, for governments alone. New partnerships had to be forged—and the business community, among others, was enjoined to get involved. Conference participants were very clear that the private sector had to engage actively in implementing the sustainable development agenda.
Agenda 21 talked boldly about new roles through new partnerships: business and industry “should be full participants” in the post-Rio process, the public and private sectors “should strengthen partnerships to implement the principles and criteria for sustainable development,” and the public sector “should establish procedures” to allow an “expanded role” for the private sector. In short, UNCED urged the public sector—governments, UN agencies, international financial institutions—to put aside its traditional suspicion, even distrust of business, and work with it as a full-fledged partner in implementing Agenda 21. This represented a sea change in attitude: recognition, at last, that the private sector has a powerful contribution to offer at three levels:
• by improving corporate environmental performance throughout business and industry;
• by creating, through a policy dialog with government, the right framework conditions; and
• by becoming actively involved in specific projects that support sustainable development goals.
The first two had, and still have, their difficulties. But the third was always likely to be a particular challenge. The traditional approach to bringing the private sector into public projects has not been successful in financial, social, or human terms. This is particularly true in urban areas. There, despite huge investments in new infrastructure, cities and towns in developing countries and emerging economies are overwhelmed by seemingly intractable problems of waste, poor sanitation and sewerage, air pollution, and inadequate water supplies. This experience demonstrated that ways must be found for enlisting the private sector in implementing successful sustainable development projects.
UNCED’s urgent insistence that the private sector should have an expanded role in moving Agenda 21 forward, in collaboration with the public sector, provided the key to unlocking the door to a completely different approach: the concept of public-private partnerships (PPP). The immediate post-Rio challenge was moving PPP from concept to action.
After Rio, the Business Council for Sustainable Development (BCSD)—which had produced a major report, Changing Course, for UNCED—decided its work had to continue. As its Executive Director, I was charged with developing a new BCSD work program for approval at the Council meeting in December 1992. The UNDP and other international agencies were invited to explore ways in which to work together. It became clear quickly that there were real institutional barriers to forging partnerships. Despite the goodwill and enthusiasm of Rio—even the determination to change—each “house” had its own rules, administrative procedures, objectives, and priorities, and each expected the other potential partner to do business on their terms. Even today, “institutional barriers” and an apparent lack of “political will” to reform them remain the most stubborn and powerful obstacles to real change.
Fortunately, UNDP was prepared to experiment and initiated efforts to create the framework to allow a partnership with BCSD and the private sector to happen. BCSD, as a Secretariat, had far fewer constraints because we were new and small, had no history of administrative buildup, and had the flexibility to be as “entrepreneurial” as needed.
The UNDP-BCSD discussions focused on where we could cooperate most effectively. We decided to start on urban infrastructure problems—water, waste, and energy efficiency—in the developing world, which were more likely to worsen before they improved. There was, we agreed, an urgent need to mobilize new sources of finance, technology, and management. We decided to develop the Public-Private Partnership model.
Sustainable Project Management (SPM) was set up in 1994 specifically to initiate this approach. During that year, SPM became an important activity within BCSD, working with UNDP on developing pilot demonstration PPP projects through the ground-breaking Public-Private Partnerships for the Urban Environment (PPPUE) program. The initial response to these projects convinced BCSD and UNDP to move more aggressively in developing the model. In January 1995, SPM became an independent, not-forprofit enterprise.
Today, SPM is involved in more than 20 projects worldwide— some of them with UNDP, some others with ODAs directly, and the rest involving SPM and private partners—that are focused on ecoefficiency, technology cooperation, and capacity building. Crucially, the private sector is participating in them through viable new public- private enterprises. And SPM’s experience to date shows that public-private partnerships work, bringing a badly needed infusion of technology, finance, and management to tackle desperately serious urban problems.
WHY PUBLIC-PRIVATE PARTNERSHIPS?
Water, waste, and energy services in developing countries have traditionally been the exclusive responsibility of public authorities. But these agencies cannot, on their own, meet the continually expanding demand for services.
They lack the funds to improve and develop services. They have difficulties identifying and affording new, eco-efficient technologies. They lack the skills to manage the services efficiently. They cannot cope any longer. Also, while traditional development assistance plays a vital role in enabling governments to meet urban and other environmental challenges, the international flow of official development assistance (ODA) is a fraction of what is needed. There is an urgent need to find new sources of financing, as well as technology and management.
The private sector has financial, technological, and management resources as well as a proven track record of providing lower production costs, delivering services more efficiently, maintaining capital equipment at a higher standard, making decisions faster than public bureaucracies, and offering consumers greater choice. So, why not privatize the services? Certainly, this is an option, but it has its limitations. Governments need to remain involved in providing these essential services. Their involvement guarantees a degree of public accountability, preserves the public service ethos, ensures the protection of all sections of society, and underwrites the delivery of social and environmental, as well as economic benefits; that is, it meets sustainable development as well as purely financial goals.
The public-private partnership model—where the public and private sectors assume co-ownership and co-responsibility for providing high-quality city services—is an alternative to both a publicsector monopoly (traditionally delivering substandard services) and full privatization.
NEW PUBLIC-PRIVATE ENTERPRISES
Through the PPP initiatives, SPM in partnership with UNDP is translating the concept of public-private partnerships into action by creating new enterprises, owned jointly by public authorities and private companies, to deliver reliable, affordable, profitable, ecoefficient urban infrastructure services. These enterprises pool the best features of the two sectors: the dynamism, access to finance, knowledge of technologies, managerial efficiency, and entrepreneurism of the private sector with the social responsibility, environmental awareness, local knowledge, and job creation concerns of the public.
Community participation is a central element, from a project’s conception to its management. Capacity building—training local people to adapt, develop, and operate clean technologies—is another key component.
One fundamental point is that these new public-private enterprises are bringing business solutions—not aid or debt—to urgent urban problems. SPM and UNDP agreed at the outset that if the private sector was to be involved, the structure had to have a proper business dimension. This meant finding ways of turning those problems into viable businesses. So the new mixed-capital enterprises are intended to be profitable companies, charging users an economic, not a subsidized, price for their services. Their survival will depend on profitability and quality of performance—powerful incentives for them to supply services of the right standard and at the right price.
THE SPM-UNDP APPROACH
The new for-profit public-private enterprises represent an innovation in tackling urban problems. Similarly, the process leading to their formation also represents a dramatic break with past approaches. Every SPM-UNDP project has to meet clear and specific criteria:
• be demand-driven and address a priority problem;
• fully involve the public and private sectors from the outset;
• demonstrate a strong potential for attracting private-sector participation, including the possibility of reasonable profit ability;
• use eco-efficient technologies;
• provide an opportunity for improving local social conditions through job creation, training, and overall improvement of city services and urban living conditions;
• respect local cultural values and established traditions; and
• involve local stakeholders, non-governmental organizations (NGOs), and community groups in its development.
Private-sector partners must also meet sharply defined criteria before they qualify to be involved in projects. They must:
• be willing to contribute to the cost of the project’s feasibility studies from the outset;
• be prepared to invest in the new company when it is formed;
• preferably have experience operating the eco-efficient technologies to be used by the new company;
• in the case of international firms, have experience operating in a developing country;
• have the support of its own government’s development agency; and
• strongly support and advocate eco-efficiency and local participation.
SPM-UNDP projects are small to medium-scale—typically between $5 million and $30 million—but vital to making a real difference in ordinary people’s lives by tackling some of the most urgent urban environmental problems in developing countries. Most of the PPP projects have been found through the BCSD regional network, private-sector initiatives, local as well as international, local UNDP country offices, and ODA agencies. They are focused on the areas of water and sanitation, waste management, energy services, and the eco-efficient use of natural resources, and they address a range of issues—water pollution, inadequate water supply, insufficient sanitation infrastructure, excessive waste of natural resources in industrial production processes, inadequate or nonexistent waste management procedures, environmentally unsound technologies, lack of environmental education, lack of environmental considerations in development initiatives, and ineffective and wasteful energy sources and technologies. The intention is that they are replicable, that is, they address problems of common concern to other cities in the region, and even beyond, and can be easily transplanted there.
The new public-private companies running the projects include a mix of partners: national, regional, and municipal authorities; national development banks and utilities from the public sector; and from the private sector, local and international companies, banks, entrepreneurs, equipment manufacturers, technology suppliers, management groups, chambers of commerce, trade unions, NGOs, and consumer organizations. But these direct investors represent only the tip of a much bigger iceberg. One striking feature of the UNDP-SPM program has been its rapid expansion into an international network—including four global networks that SPM and UNDP have cultivated in order to forge a unique collaboration between scores of public and private institutions, committed to tackling urban challenges in a comprehensive way.
This network is composed of:
• scientific, academic, and technology institutes, chaired by the Massachusetts Institute of Technology;
• NGO communities in both developing and industrial countries that are willing to work with the public-private partnership approach;
• governments, national development agencies, UN agencies, and multilateral financial institutions; and
• BCSD chapters and other private-sector organizations or corporations committed to sustainable development.
The current PPPUE program includes projects in Latin America, Africa, Asia, and Eastern Europe. Following is a sample of these. In each, the most important feature is that they are making an important impact and are successful because of the partnership between
the public and the private sectors:
The city of Manizales is at the center of one of the most important coffee-producing regions in Colombia. Consisting mostly of small coffee producers using outdated coffee washing technologies, the region represents a challenge to the authorities. The main challenge was coping with the polluting effects of this industry so vital to the Colombia economy.
Armed with a better locally-developed technology, local managerial talents, and local finance, the project partners proceeded to design one of the most interesting and well integrated projects of the PPP.
The Manizales project originated in a wide-ranging attempt to address critical issues related to water supply and quality, including the problems caused by coffee producers using a traditional, highly polluting coffee washing process, in which washing 1 kilo of coffee beans generates 40 liters of highly toxic water that is generally poured back into the rivers and streams on the plantations. Soil erosion through deforestation and domestic waste pollution of rivers were other issues. With the assistance of SPM and UNDP, a new company was registered and capitalized to examine the business potential of a new, water-economical coffee-washing process, to manage a reforestation program, and to provide an urban domestic waste collection service to outlying municipalities. The shareholders include the government of Caldas state, the departmental water supply and distribution companies, the electricity utility, the local cooperative of coffee growers, and a provincial financial institution. The company, called Agua Pura SA, was set up in late 1994. It has developed a business plan for a full domestic solid waste collection, disposal, and recycling operation, covering 21 municipalities (50,000 households) and 5,000 commercial businesses, with an initial investment of $3.5 million. Agua Pura SA expects sales in year one of $1.4 million.
The Manizales project has considerable potential for replicability. Five other cities in the state of Caldas are interested in undertaking similar initiatives. So, too, are five other Colombian states. In addition, other coffee-producing countries, including Honduras and Costa Rica, have expressed interest in replicating the development of the coffee-washing project. One of the most attractive features of the Manizales project is that it has consisted of an exclusively country-driven initiative in which UNDP and SPM were only catalysts and brokers. The capital, the management talents, and the technology were purely national.
The project in Harare envisages the creation of an energy-environment management enterprise to bring eco-efficient technologies to the Willowvale Industrial Park, an industrial area just six miles from the center of Zimbabwe’s capital, in order to improve energy and water management practices there. There are about five industrial parks in the area of Harare and additional parks are in the process of development. This represents a great challenge to the authorities since, if unchecked, the pollution at these industrial parks could render them major environmental hot spots. The fact that there are other industrial parks in the process of development presents both challenges and opportunities to the government. The opportunities are that the present project, if successful, could provide a basis for replicability in other industrial parks.
The Willowvale park is surrounded by high-density, low income suburbs with growing populations. These growing populations, the proximity to the center of the city of Harare, and the need to address the problem of deteriorating services for this important constituency, drove the authorities in Zimbabwe to explore the alternative of public-private partnerships being promoted by SPM and UNDP as a way to address the growing environmental problems of the city. A pre-feasibility study involved 25-30 companies in the park, together with the City of Harare (water supply), the power utility (ZESA), and the local Industrial Development Corporation, alongside five companies physically in the Industrial Park, as well as the Confederation of Zimbabwe Industry. A shadow company has been formed, and a leading German investment and development company (DEG) is funding a full technical and economic feasibilitystudy paving the way, in due course, for a business plan and bankable document, and the creation of a company in which the major shareholders are the government entities participating in the project and a selected number of private companies interested in joining. The Zimbabwe Government, with three ministries signing the original statement of intent, is firmly behind this project, which could be replicated at other existing industrial areas and be used for major new industrial park developments.
OSTRAVA, CZECH REPUBLIC
Ostrava is an example of an existing private company—needing to expand but lacking the resources to do so, looking for financial partners, and being prepared to consider a PPP—combined with keen interest by the public sector in investing in the new partnership. The existing company produces plastic protection for underground electric cables, using recycled plastic from municipal solid waste. There is a fast-growing demand for its products. Three municipalities and 13 towns in the district are interested in participating in a new mixed-capital enterprise because they see the project as a test for possibly developing waste management solutions on a regional basis. Certainly, the opportunities exist along with the need to tackle the problem of substantial urban waste in the area—the legacy of intense industrial activity there. Other private companies are reportedly willing to become involved too.
SPM and UNDP have proposed a regional development company, which—if the plastic recycling project works—would initiate other activities, either to rationalize existing waste management practices, and/or to introduce new ones, such as composting, fly ash transformation, and hazardous waste incineration.
SPISSKA NOVA VES, SLOVAK REPUBLIC
In the municipality and region of Spisska Nova Ves, a new company, the Spisska Regional Environmental and Energy Company (SREEC), will become the vehicle for PPP. It is a joint venture between the municipality (40%) and a Slovak private company, Pluralité-Mega (60%). Supported by SPM and the Swiss and Canadian governments, SREEC will create subsidiaries, or operating companies, with local and international partners and investors to implement projects in district heating and energy efficiency, forest management linked with housing development, a capacity building center for community development, and solid waste management.
SREEC is a regional business development tool committed to eco-efficiency and PPPs. By combining local investors with international technology companies, it becomes a vehicle for technology transfer. It is a flexible investment instrument capable of responding to local concerns and opportunities.
It was district heating problems that brought SPM into Spisska. Once there, and after discussions with the Mayor and others, new projects began to emerge. SREEC became the instrument for developing these opportunities into new businesses. In all our projects, we create these PPP development companies early in the process. The new district heating company is now operational, with two international investors. The old district heating company has been merged into the new one. Now efforts are under way to replicate the model in the region and in neighboring companies. The housing company project is now under way too.
METAP III: PUBLIC-PRIVATE PARTNERSHIPS
The Public Private Partnerships Programme, and SPM, have been retained as the main advisory agent in the implementation of the World Bank/UNDP-funded PPP initiative of Phase Three of the Mediterranean Environmental Technical Assistance Programme (METAP). So far, SPM and UNDP have conducted project-finding missions to Jordan, Turkey, Lebanon, Morocco, Egypt, and Tunisia and have identified urban waste collection and recycling, as well as industrial waste collection and disposal, as just two promising areas.
These missions have shown that while the economic, political, legislative, and operating environments of the different countries inevitably pose problems and challenges specific to each country, the PPP potential throughout the METAP region is significant. By establishing sustainable business partnerships, PPP projects will provide a real opportunity to build on the thorough and farreaching environmental technical assistance already provided in Phases One and Two of the METAP program, and the extremely promising replication and capacity building potential would tie in with other METAP regional activities.
SPM and UNDP now have enough experience under their belts to draw some important lessons from the PPP approach.
CHOOSE THE RIGHT PROJECTS
There is no shortage of potential projects for the PPP approach. Early meetings invariably produce a long shopping list of possibilities. The key is to choose the right project, one that meets the criteria set out earlier, and has real commitment from the public and private sectors locally to make it succeed. This is especially important when it is the first project in the country and therefore the first exposure to the new PPP model.
EVERY PROJECT NEEDS A CHAMPION
Ideally in fact, every project needs two champions—one from each sector. High-level local political commitment is particularly important. For example, the progress achieved with the Manizales project owes much to the fact that it had a high-profile champion, the former Governor of the Department of Caldas, at an early stage. But without private sector involvement, the new company could not be a success.
LOCAL SUPPORT IS CRITICAL
Identifying local support has been extremely important to the success of SPM projects to date. The local UNDP office—the Resident Representative—has proved an invaluable ally in leading on the ground by advising on local priorities, contributing contacts, and offering a “visiting card” link to government and NGOs. The collaboration with NGOs can be particularly fruitful. This is certainly the situation with the Southern Centre for Energy and the Environment in Harare and with Fundacolon and ANDI in Manizales.
EACH PROJECT NEEDS HAND-HOLDING ALL THE TIME
Normally, this is an SPM role. SPM’s task is also to find a dynamic, committed local project development manager to ensure onsite follow-up on each project and to keep the momentum going. Otherwise, the project can slip for many reasons associated with the novelty of the process. We really need a local partner, an extended arm of SPM.
PACKAGE THE PROJECTS PROPERLY
Small or medium-sized projects need to be packaged to attract investor interest. Larger projects have their own dynamic. Smaller ones have disproportionately higher transaction costs and political risks. If you add in the innovation of securing eco-efficiency goals and waste minimization, the crucial importance of packaging, brokering, negotiating, persuading, and convincing becomes clear. Current public institutional tendering procedures for smaller projects make little economic sense in terms of both cost and delay. Nor has the process satisfactorily shown that all interests are necessarily fully protected. We have to develop new ways of securing the alleged benefits of tendering without the costs in time and money.
PM\UNDP\ODAs expect to produce some recommendations on this shortly.
THE PROCESS TAKES TIME
There are no short cuts to a PPP project. The host government has to be persuaded of the concept. Projects have to be identified. SPM’s catalyst role has to be understood. The process needs to be explained carefully at the outset. Private investors have to be found. Public and private partners have to be brought together. It is a complicated and time-consuming jigsaw to piece together and it begins with careful groundwork and preparation. But proper preparation is the essential ingredient to the political and economic viability of the project.
RECONCILE DIFFERENT CULTURES
Administration cultures (the public sector) and entrepreneurial cultures (the private sector) are fundamentally different. The former is procedure/process driven; the latter, results driven. Issues like the cost of time delays or indecision can be important barriers to partnership and have handicapped public projects using the old, traditional approach. Yet there is no inherent reason why the public sector should be less efficient than the private sector. The PPP model is designed to cut through this problem by stimulating the public sector into understanding that it shares responsibility, and the cost of issues like delay and indecisiveness.
BUILDING MUTUAL TRUST IS VITAL
The public and private sectors have little experience of working together except on the basis of supplier and customer. Normally, they are not working partners who share ownership of, as well as responsibility for, a successful project. The PPP model, in which SPM acts as catalyst, marriage broker, and midwife for the project, provides the vehicle for developing a trust and confidence level that helps to iron out problems and avoid the traditional adversarial posturing between the two sectors. Getting both sides to the table to consider problems together and identify joint solutions is a critical first step. This gives them a shared interest in the success of the new company. Through working together they come to understand each other’s constraints and expectations.
A key step in the process is to get both parties to sign a Memorandum of Interest with a budget and an Executive Committee to manage the feasibility stage. Getting the partners into a legal structure early on in the process, and requiring them to agree on objectives and invest a modest amount of capital up front, is an important test of intent. This process provides three key ingredients: joint ownership, commitment, and management structures Partnership leads naturally into the new operating company.
BUILD A PLATFORM FOR POLICY CHANGE
Shared project experience can become a platform for policy change at the government level. Subsidized services are a case in point. When governments are investors in an operating company, which must pay wages and debt obligations, as well as return a profit, they look at user fees with a fresh perspective.
OTHER PUBLIC-PRIVATE PARTNERSHIPS
CAPACITY BUILDING CENTERS
SPM’s Capacity Building Centers (CBC) initiative brings the public-private partnership model to bear on finding a new approach to capacity building that goes beyond training by integrating technology adaptation and other eco-efficiency services.
Each CBC involves partners from both the public and private sector, supported by the same global network of private companies, scientific and academic communities, international financial institutions (including development banks and agencies), and NGOs that is part of the PPPUE program. The sector-specific CBCs provide practical capacity building programs for large, medium, and small companies and/or industries, focused on eco-efficient principles, practices, and technologies —including technology transfer—and also support the creation and management of small, self-sustaining community enterprises. This approach aims to remove the sources of frustration inherent in current training practices. To train an individual without engaging the employer’s commitment to that person’s future activity is frustrating for the employee. Similarly, to restrict capacity building to the training of individual employees is likely to frustrate employers. To be effective, capacity building must focus as much on the company (or institution) as the individual. More important, the company must feel and have a sense of ownership of the program. The days of free training programs are, or should be, numbered. If it is worth doing, it is worth paying for.
The SPM initiative is being supported by two Canadian entities, Interel and Pluralité International, by the World Business Council for Sustainable Development, and by the International Secretariat for Water. Examples of CBCs are found in Pereira, Colombia, and in Hanoi, Vietnam.
FINANCE FOR MICRO AND SMALL ENTERPRISES
Another SPM initiative within the framework of public-private partnerships is the establishment of two new entities in India to help micro and small enterprises move to eco-efficiency: the Indian Micro Enterprises Development Foundation (IMEDF) and the Indian Micro Enterprises Development Finance Corporation (IMEDFIN), a non-banking finance company. The aim is to leverage eco-efficiency change by micro enterprises, supported and provided by IMEDF, through credit provided by IMEDFIN.
This approach has a number of innovative features:
• Public-private partnerships are central from the outset.
•Credit is linked with eco-efficient technology.
• The focus is on using credit to introduce eco-efficient technologies to the micro enterprise sector to generate surpluses to make the enterprises sustainable.
• Credit will be an important vehicle for achieving vertical and horizontal linkages among the micro, small, medium, and large sectors—for example, through financing the development of ancillaries in the small and micro sectors.
• Credit will be integrated with technical and management support services to ensure business success.
• Commercial and social objectives will be integrated. IMEDF and IMEDFIN will meet a real need in a sector where appropriate market instruments have not been designed. In mobilizing the resources to get them operational, however, we have encountered the view among the public and private sectors, social activists, and NGOs that the small and micro sectors are still a government problem, risk is high while return is low, and there are no opportunities for a competitive return on investment. We need to change this thinking.
The need for urban infrastructure projects is enormous, and the demand for PPP projects is growing among both municipal authorities and prospective private investors. As a result, the Public-Private Partnerships for the Urban Environment program is to be expanded into a second worldwide phase. Under the leadership of UNDP, a Project Development Facility (PDF) is being created to provide the mechanism for identifying and developing more projects. The aim is to raise $10 million in contributions from the donor community to finance the initial phase of 30-50 projects over a five-year period. Some governments have already committed to support the PDF. SPM and UNDP anticipate that within this period the PDF will become self-financing and eventually become an independent corporation operating under the management and supervision of its participating shareholders. The PDF will experiment with a number of activities designed to raise income, such as endowment funds, consultancy services, dividends to the Facility, royalties, and revolving funds.
The new program will retain the key essentials of the pilot phase, including the PPPUE network of partners—governments, NGOs, local communities, academic and training institutions, technological institutes, and of course, the private sector—coordinated by a small, core management team provided by SPM and UNDP.
The public-private partnership model initiated by SPM and UNDP through the PPPUE program, is fully in tune with Agenda 21’s call for more private-sector participation in reform in cooperation with the public sector. UNDP says that it is “one of the most promising forms of cooperation now emerging for sustainable development.”
The PPPUE program, in particular, has led to four specific innovations:
IT USES ODA TO LEVERAGE PRIVATE SECTOR INVESTMENT
Through a relatively small amount of initial “risk” capital, governments involved in the program can create an attractive opportunity to involve private business at a much more substantial level. A front-end expenditure of development assistance funds to initiate a potential project can catalyse public- and private-sector investments many times greater.
IT ESTABLISHES LINKAGES BETWEEN INVESTMENT AND CAPACITY BUILDING
One drawback of private-sector investments is they lack an enabling environment—human skills, strong institutions, legal framework. So they often fail. Conventional development projects also fail to produce effective enterprises or institutions able to generate sufficient revenues to sustain themselves over time. Public-private partnership ventures link the best investment practices of the private sector with the experience of development practitioners in creating an effective enabling environment with all the supporting mechanisms in place to make the projects sustainable.
IT IS A NEW TYPE OF PROJECT MANAGEMENT
The program is a pioneer in sustainable project management— one that emphasizes eco-efficiency, stakeholder participation, replicability, and a more comprehensive and sustaining approach to development. The focus and priorities are different and so are the results.
IT ACCELERATES TECHNOLOGY TRANSFER
Municipal authorities have no experience of what eco-efficient technologies are available, let alone which to choose. SPM, supported by its international network, overcomes this problem by facilitating the identification of the technology choice for each particular PPP project and negotiating the terms of its transfer between the public and private sectors. In essence, the public-private partnership model offers a real opportunity to cut through much of the inefficiency and waste of the traditional approach to urban problems, and provides workable solutions that meet urgent major needs.