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PublicPublic Private Partnerships for Private Partnerships for Development & Conflict MitigationDevelopment & Conflict Mitigation

Beirut, Nov. 11th, 2008Beirut, Nov. 11th, 2008

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IFC in Conflict-Affected Countries

AgendaAgenda

IFC in Africa and Afghanistan

Public Vs. Private Sector

Public Private Partnerships

Conflict Environments

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Characteristics of Conflict Environments

Weak Government/Control

Rapidly changing security, political, social and business environment

Wide range of immediate needs

Resources constraints

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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

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Private Investment is Strongly Associated with Economic Growth

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Poverty Reduction is Closely Associated with Economic Growth

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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

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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.

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USERS (the public)

Bringing Public and Private Sectors Together - PPP

Continuing Public Spending Support

PUBLIC SECTOR• Specify requirements

PRIVATE SECTOR• Build facilities• Support services

finance

expertise skills

services payments forperformance

Source: PriceWaterHouseCoopers, 2002

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Convergence of Government Expectations and 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

Government Expectations Private Sector Requirements

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Public Sector vs. PPP Procurement Models

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.

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.

Traditional Government Procurement

PPP Procurement

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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.

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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

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

General regulatoryrisk

Public Private

Planning permission Regulatory Risk

Force majeure

Volume riskInflation risk

Detailed planningpermissionDesignConstructionCommissioningOperating performanceProject financeTechnology obsolescence

Shared

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Pros of PPPs - Value for Money (“VFM”)

Value/“price”

Conventional Procurement

Model

PPPProcurement

Whole life cost of procuring services

Cost of finance

Risks retained by Public Sector

VfM

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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 assetrisk transfer to private sector“whole life” approach to

construction/maintenanceinnovations in design/service delivery

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NAO Report of 2003UK’s National Audit Office report on PPP

Improved ProjectDelivery

Non PPP Procurement (1999 Survey)

PPP Procurement (2002 Survey)

Price Overruns 73% 22% (mostly client

changes)

Time Overruns 70% 24% (only 8% > 2

months)

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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.

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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.

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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.

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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

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Total Funding

Sub-Saharan Africa (CAF)

34%

Southern Europe and Central Asia

(CSE)20% South Asia (CSA)

7%

Middle East and North Africa (CME)

6%

Latin America & Caribbean (CLA)

9%

East Asia and Pacific (CEA)

19%

Central and Eastern Europe

(CEU)5%

Number of Projects

East Asia and Pacif ic (CEA)

34%

Central and Eastern Europe

(CEU)2%

Sub-Saharan Africa (CAF)

20%

Southern Europe and Central Asia

(CSE)19%

South Asia (CSA)5%

Latin America & Caribbean (CLA)

7%Middle East and

North Af rica (CME)13%

IFC in Conflict-Affected Countries: Advisory Services

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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

ADVISORYValue of Advisory

Services ($m)# of

CompaniesValue of IFC

Investments ($m) Intensity of ConflictYear Conflict

Ended1 Angola 0.3 4 35.5 High 20042 Burundi - 2 0.8 High, intermediate 20063 Central African Republic 0.5 - - High, intermediate 20064 Chad 8.4 3 15.2 Intermediate 20065 Cote D'Ivoire - 13 48.6 High 20046 Congo Republic - - - Intermediate 20027 Congo, Democratic Republic 6.5 5 108.4 High 2005, current8 Eritrea - - - Intermittent 20039 Ethiopia 0.3 - - Intermediate 2006

10 Guinea 1.0 3 35.1 Political 200111 Guinea-Bissau 0.1 1 0.4 Political 199912 Liberia 3.4 2 4.3 High 200313 Rwanda 12.4 5 16.8 High, intermittent 1994, 200214 Senegal 0.8 11 74.9 Intermittent, high 200415 Sierra Leone 3.8 3 29.4 High 200116 Somalia 0.1 - - High, intermediate 200617 Sudan 4.7 - - High Current

42.1 52 369.4

CONFLICT

Total

INVESTMENT

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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.

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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

Maintenance Not performed Not budgeted

Staffing 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

Maintenance Regular maintenance schedule with

contracts in place Included in cost (annual unitary payment)

Staffing 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)

Current Situation PPP Project

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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

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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