PPPs to Bridge Infrastructure Gaps

This article was written by Ignacio Fombona and Meyly Valdez.

The public sector has limited resources and many needs to meet, and therefore, acting alone will not increase investment levels to improve quality and maintenance of existing infrastructure. Therefore, in the coming years, it will be vital to influence public-private partnerships in order to involve the private sector in the development of the required infrastructure.

Estimates suggest that the region will need to double infrastructure investment to around 5.0% of its annual GDP in order to achieve sustainable growth and close the gaps between the region and the most advanced economies in water, sanitation, transport and electricity.

Faced with resource constraints and increasingly pressing infrastructure needs, the private sector has been playing an increasingly vital role in financing and/or co-financing projects, as well as in the tasks around infrastructure service management.

Financial advice to the public sector is increasingly relevant and gives nations greater access to private funds through public-private partnership (PPP) bidding processes and their implementation, while providing investment opportunities for the private sector by structuring financing of infrastructure projects under a limited resource scheme.

The most relevant issue, and the common factor for all PPP systems, is the appropriate allocation of risks between the public and private sectors, determining which party is most capable of taking on and managing such risks.

Through financially well-structured PPPs, nations can increase their ability to provide quality services to the population, take fewer risks and defer payment of construction, unlike public works schemes.

For CAF, supporting countries of the region by providing financial advice is a priority, to assist them in developing projects under PPP schemes, helping them structure them appropriately in terms of technical, legal, socio-environmental and financially viable projects; and that result in attractive contracts for the private sector, which enable the public sector to provide goods and services efficiently.

In this vein, CAF has decided to provide financial advisory services to the public sector under a non-refundable technical cooperation scheme. Under this scheme, the beneficiary of the advisory services will not have to pay for services provided by CAF, but will recognize the market value of such services as a CAF contribution to its development through technical assistance resources received in kind.