Caribbean Infrastructure PPP Roadmap
March 2014
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© 2014 Public-Private Infrastructure Advisory Facility (PPIAF)1818 H Street, NWWashington, DC 20433www.ppiaf.orgE-mail: [email protected] The findings, interpretations, and conclusions expressed in this report are entirely those of the authors and should not be attributed in any manner to the Public-Private Infrastructure Advisory Facility (PPIAF) or to The World Bank Group, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent.
Neither PPIAF nor The World Bank Group guarantees the accuracy of the data included in this publication or accepts responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this report do not imply on the part of PPIAF or The World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. For questions about this publication or information about ordering more copies, please refer to the PPIAF website or contact PPIAF by email at the address above.
Rights and Permissions The material in this work is subject to copyright. Because PPIAF and The World Bank Group encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes, as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street, NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: [email protected]. Cover photos: Dominic Chavez / World BankCover design: TM Design, Inc.
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SECTIONTITLE
TABLE OF CONTENTS
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1 . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2 . Rationale for PPPs in the Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3 . Caribbean Experience with PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
4 . Emerging PPP Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.1 TransportSector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.1.1 Airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.1.2 Ports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.1.3 OtherMaritimeTransport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.1.4 Roads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4.2 ElectricitySector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.3 WaterSector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 4.4 TelecommunicationsSector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 4.5 SocialandGovernmentInfrastructureSectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
5 . Learning from Experience: PPP Constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.1 ImplementationChallenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 5.2 BarrierstoPPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
6 . The Way Forward: PPP Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 6.1 PPPArchitecture:PolicyFrameworks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 6.2 PPPArchitecture:InstitutionalCapacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.3 PPPProjectsandPipelines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 6.4 SequencingofActionsandImplementationChallenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
AppendicesAppendixA:CaribbeanPPPExperience—ExistingPPPsintheCaribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
TablesTable4.1: ElectricitySector—StructureandPerformance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Table4.2: PotentialElectricityPPPProjects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
FiguresFigure0.1: CaribbeanPPPPipelinebySector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Figure0.2: LimitedPPPPolicyandInstitutionalArchitectureintheCaribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Figure0.3: PPPActions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Figure3.1: PrivateInfrastructureInvestmentExperienceintheCaribbean. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Figure3.2: PPPProjectExperienceintheCaribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Figure3.3: PPPPolicyandInstitutionalArchitectureintheCaribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Figure4.1: NumberofCurrentandPlannedPPPProjectsintheCaribbeanbyCountry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Figure4.2: CurrentandplannedPPPProjectsintheCaribbeanbySector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Figure5.1: ConstraintsArisingfromLimitedPPPPolicyandInstitutionalArchitecture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Figure5.2: SummaryofBarriersandImplicationsforPPPOutlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27Figure6.1: TypicalPPPProgramFunctionsandResponsibilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Figure6.2: TypicalPPPProjectDevelopmentProcess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32Figure6.3: SummaryandSequencingofActions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
BoxesBox2.1: PPPsand“FiscalSpace” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Box3.1: DefiningPPPSuccess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Box4.1: HowthePPPPipelineProjectswereIdentified. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Box4.2:TheChallengesofRegionalProjects:OECSRegionalFastFerry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Box6.1: PPPPoliciesandLaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Box6.2:HowCouldaRegionalPPPUnitWork? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
TABLE OF CONTENTS
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ACKNOWLEDGEMENTS
ACKNOWLEDGEMENTS
ThisreporthasbeenpreparedbytheLatinAmericaandCaribbeanSustainableDevelopmentDepartment(LCSSD)oftheWorldBank.TheworkwasledbyHelenMartin,Consultant(LCSSD)—leadauthorofthisreport—undertheoverallguidanceofSophieSirtaine,WorldBankCountryDirectorfortheCaribbean,andCeciliaBriceño-Garmendia,LeadEconomist(LCSSD).TheteamandcontributorsincludedDavidBotBaNjockoftheInternationalFinanceCorporation(IFC)’sC3PAdvisorypractice,andDavidEhrhardt,AlfonsoGuzmán,BrianSamuel,andIkepoOyenugafromCastalia.InitialconclusionsofthereportwerepresentedattheCaribbeanPPPForumheldinBarbadoson19-20November,2013,forvaluablefeedbackfromparticipatinggovernmentofficialsanddevelopmentpartners.
TheteamwishestothankpeerreviewersDanielPulido,PierreNadji,andTomVis;aswellasotherWorldBankGroupcolleagueswhoprovidedcomments,includingRichardCabello,FranciscoGalraoCarneiro,JamesClose,GlenKierse,CristinaMariaLadeiraFerreira,AlessandroLegrottaglie,CliveHarris,RuiMonteiro,GylfiPalsson,GalinaSotirova,MariaAngelicaSotomayor,SatheeshSundararajan,SonaVarma,andJunZhang.Finally,theteamwishestoacknowledgethegeneroussupportforthisactivityfromthePublic-PrivateInfrastructureAdvisoryFacility(PPIAF).
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ABBREVIATIONS
ABBREVIATIONS
ESCO EnergyServiceCompany
EU EuropeanUnion
ICT Informationandcommunicationstechnology
IDB Inter-AmericanDevelopmentBank
IFC InternationalFinanceCorporation
IMF InternationalMonetaryFund
IPP Independentpowerproducer
LNG LiquidNaturalGas
MIF MultilateralInvestmentFacility
NRW Non-RevenueWater
OECS OrganizationofEasternCaribbeanStates
PPA Powerpurchaseagreement
PPIAF Public-PrivateInfrastructureAdvisoryFacility
PPP Public-privatepartnership
WB WorldBank
WBG WorldBankGroup
1EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Executive Summary
There is growing interest in the Caribbean in using public-private partnerships (PPPs) to provide infrastructure. Infrastructureinvestmentneedsaresignificantacrosstheregion,toboosteconomicgrowthandresilience.ManyCaribbeangovernmentsareincreasinglyturningtoPPPstomeetthoseneeds,drivenbyacombinationoftightfiscalconstraints,andgrowingappreciationoftheroleoftheprivatesectorindeliveringpublicservices.Thisinclinationreflectsglobaltrendsandexperience.ManycountrieshavefoundthatPPPs—whenselected,structured,andmanagedwell—canhelpmakethebestuseofthefinancialandtechnicalresourcesofthepublicandprivatesectorstoprovideimprovedinfrastructureassetsandservices.
Experience with PPPs to date in the Caribbean has been mixed. PPPsarenotnewintheregion,havingbeenusedtodeliverneworimprovedroads,ports,airports,bulkwatertreatmentfacilities,andelectricitygenerationplants.ManyPPPprojectshaveoperatedsuccessfullyforyears,deliveringhigh-qualityinfrastructurefacilities.Othershavefacedchallenges.Inmanycases,thecomplexityofthePPPdevelopmentandimplementationprocesshasmeantlongdelaysindeliveringprojects;othersresultedinquestionablevalueorunexpectedcoststogovernmentsorconsumers.AllPPPprojectstodatewereimplementedwithoutoverarchingPPPpolicyframeworks,asdescribedinmoredetailbelow.
This raises a question: How can Caribbean governments navigate the challenges to make the best use of PPPs to deliver improved infrastructure assets and services? This“CaribbeanInfrastructurePPPRoadmap”seekstoanswerthisquestion.ItreviewstheoutlookforPPPsintheregion,by:identifyingPPPprojectopportunitiesinelevenCaribbeancountries1;constraintsorbarrierstosuccessfuldevelopmentofthoseprojectopportunities,basedonpreviousexperience;andpossibleactionstoovercometheseconstraints.TheRoadmapwasdevelopedbytheWorldBankGroup,withinputsfromCaribbeangovernments,privateinvestors,andotherdevelopmentpartners,andsupportfromthePublic-PrivateInfrastructureAdvisoryFacility(PPIAF).
PPP OPPORTUNITIES
This Roadmap identified a potential PPP “pipeline” of 33 projects that are being actively developed as PPPs across 11 Caribbean countries,withatotalestimatedinvestmentvalueofUSD2to3billion.Theseareprojectsthatareactivelyunderdevelopment,albeitinsomecasesatanearlystage,andthatappearpotentiallyviableasPPPsfromaprimafacieassessment—fromtechnical,economic,commercial,legalandregulatory,andpoliticalperspectives—althoughdetailedappraisalisneededinmostcases.Assuch,thispipelineprovidesareasonableestimateofthepotentialforPPPintheCaribbeaninthenexttwotofiveyears.
This pipeline represents a significant planned increase in the use of PPPs in several countries:notablyJamaicaandTrinidadandTobago(whichtogethercontributehalfthepipelineprojects);Suriname;andsomeOrganizationofEasternCaribbeanStates(OECS)memberssuchasSaintLuciaandGrenada.Ontheotherhand,somecountrieswithmorePPPexperiencearemovingawayfromPPPgoingforward.ParticularlyintheDominicanRepublic,challengeswithearlyPPPsinsomesectorshaveledtopoliticalandpublicskepticism.
1TheRoadmapcoversthefollowing11countries:AntiguaandBarbuda,Dominica,theDominicanRepublic,Grenada,Haiti,Jamaica,SaintKittsandNevis,SaintLucia,SaintVincentandtheGrenadines,Suriname,andTrinidadandTobago.ThesewereselectedasWorldBankGroup(WBG)clientcountriesforwhichaninitialdeskreviewprovidedprimafacieevidenceofinterestinPPP.Inpractice,severalnon-WBGclientcountriesintheregionhaveexpressedanintentiontomakegreateruseofPPP.Assuch,theRoadmapdoesnotpresentacomprehensiveoutlookforPPPacrosstheCaribbeanregion,butcouldbeconsideredtoprovidearepresentativepicture.RegionalactionspresentedintheRoadmapcouldinpracticeapplytoawidergroupofcountries.
2
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Transport and power opportunities remain significant—although new PPP sectors are also emerging.Figure0.1belowshowsthesectordistributionofthe33pipelineprojects.Transportprojectsincluderoads(bothtollroadsandlong-termrehabilitationandmaintenancecontracts);amajorportconcessionforJamaica’sKingstonContainerTerminals;passengerferryandcruiseshipfacilities;andfiveproposedairportconcessions.Intheenergysector,thefocusinondiversifyingenergysources,withseveralPPPsindevelopmentforrenewableenergygeneration.WhiletelecommunicationsservicesaremostlyprivateintheCaribbean,potentialPPPsintheICTsectorcompriserolloutofhigher-speedbroadbandnetworks,aswellasgovernmentITsystems.ViewsonPPPinthewatersectorremaincircumspect,outsidebulkwaterandwastewatertreatmentprojectsbeingconsideredinJamaica.Finally,severalcountriesareconsideringPPPprojectsforsocialandgovernmentinfrastructuresuchashealthandeducationfacilities—althoughtheaffordabilityofsuchprojectsremainsaquestioninthefaceoftightfiscalconstraints.
Figure 0.1: Caribbean PPP Pipeline by Sector
Source: Authors, based on Castalia and World Bank research, and inputs from relevant governments
Most of these projects are at a very early stage.SubstantialfurtherworkisneededtoassesswhethertheprojectsareviableandrepresentattractivePPPopportunities;andforthosethatdo,totaketheseprojectsthroughtofinancialcloseanddeliverimprovedinfrastructureontheground.Ofthe33projectsidentified,16remainattheconceptstage;13areundergoingmoredetailedfeasibilityanalysisorduediligence;andtransactionsareunderwayforonlyfourprojects.Manyhavebeenreceivingsupportfromdevelopmentpartners,includingtheWorldBankGroup,theInter-AmericanDevelopmentBank(IDB)anditsMultilateralInvestmentFund(MIF),theEuropeanUnion(EU),andtheBill,Hillary&ChelseaClintonFoundation,amongothers.
Policy Law Detailed Guidelines Defined Roles
Dedicated Units(s)
Staff with PPP Experience
Dedicated Project Prep Funding
Jamaica 4(2012)
6 Underway 44
(DBJ&MOF)6
Trinidad & Tobago
4(2012)
6 Underway 44
(MOF)6
Dominican Republic 6 6 6 6 6 6
Haiti 6 6 6 64
(MOF)6
Suriname 6 6 6 6 6 6
OEC States 6 6 6 6 6 6
PPP CONSTRAINTS
Experience in the Caribbean suggests that governments may face some constraints in turning this potential PPP pipeline into successful projects on the ground. CaribbeancountrieshaveimplementedPPPs,andseveralaresuccessfullyprovidingimprovedinfrastructureservices.However,othershaveexperiencedproblemsinimplementation.Theseproblemshaveincludedunexpectedfiscalcosts;questionablevalueformoney;andlongdelaysinclosingdeals.Manyadditionalprojectshavesimplyfailedtolaunch,asevidencedbythelargenumberofpipelineprojectsthathavebeenunderdiscussionforsometime.Inparticular,regionalprojectideashavestruggledtogetoffthegroundinthefaceoflimitedmechanismsforregionalcooperation.
Many of these past problems can be traced back to the lack of “PPP architecture” across most of the Caribbean.Inotherwords,thesearethetypesofproblemsthatcountrieswithsuccessfulPPPprogramshavetypicallysolvedbyintroducingPPP-specificpolicyandinstitutionalframeworks—definingclearprocessesformanagingPPPsthatensurethoroughprojectduediligenceandpreparation;definingresponsibilitiesforcarryingoutthoseprocesses;andbuildingcapacitytodoso(bothinternal,andthroughtheuseofwell-qualifiedadvisors).WhileafewCaribbeancountrieshavemadesignificantrecentprogresstowardsestablishingPPPpoliciesandinstitutions—particularlyJamaicaandTrinidadandTobago,asshowninFigure0.2below—significantgapsremainacrosstheregion.
Figure 0.2: Limited PPP Policy and Institutional Architecture in the Caribbean
4Inplace(date)6 AbsentLowModerateHigh;DevelopmentBankofJamaica(DBJ);MinistryofFinance(MOF)Source: Authors, based on Castalia and World Bank research
3
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
In addition to these constraints on implementing pipeline projects that appear viable, there are additional barriers to greater use of PPP in the Caribbean—thatis,tofurtherexpansionofthepipeline.Inafewcases,particularlyintheenergysector,completionofon-goingsectorreformprocessesisneededto“unlock”opportunitiesforPPP.Inseveralothers,apparentlyviablePPPopportunitiesappearunlikelytobepursuedintheneartermduetoalackofpoliticalinterestinPPPincertaincountriesandsectors—abarrierthatislikelytobemoreintransigent,althoughitmayerodeovertimeinthefaceoflocalPPP“successstories.”
Ultimately, the small scale of infrastructure needs at the country level—particularly for smaller islands—may limit the extent of “marketable” PPP projects. Flexibleapproacheswillbeneededforcountriestomitigatethisinherentbarrier.Ontheonehand,thiscouldincludegreaterregionalcooperation—whetheronregionalprojectsinsectorssuchasenergyandtransport;oraregionalapproachtodevelopingandmarketingPPPpipelinesthatcouldhelpelicitgreaterinterestfrominternationalinvestors.CaribbeangovernmentscouldalsoconsidertargetingawiderrangeofPPPinvestors—includingeducatingandencouraginglocalentrepreneurstogetintothebusiness,andfindingregionalplayersthatmaybeinterestedinsmaller-scaleprojects.
THE WAY FORWARD: PPP ACTIONS
Capitalizing on the PPP potential in the Caribbean will therefore require building more robust PPP architecture, as well as moving forward with PPP projects, as summarized in Figure 0.3.Pursuingtheseactionsinparallelwillhelpensureinstitutionsandprocessesarefoundedonexperienceandpracticalrealities,andbuildpoliticalandmarketmomentumbehindPPPprogramsbymovingforwardwithdeals.Thiscouldincludeacombinationofcountry-levelandregionalactions.SincemanyCaribbeancountriesfacesimilarneeds,collectiveactionattheregionalleveltosupportPPPmakessense:toachieveeconomiesofscaleandavoidreinventingthewheel;helpfosteraregionalPPPmarketthatisbetterabletoattractinvestorinterest;andenablepursuitofregionalprojects.
Figure 0.3: PPP Actions
4 EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Caribbean countries that intend to make significant use of PPPs going forward would benefit from introducing guiding policy frameworks. Asdescribedabove,ofthecountriescoveredbythisRoadmap,onlyJamaicaandTrinidadandTobagohaverecentlyintroducedPPPpolicies,althoughseveraladditionalgovernmentshaveexpressedinterestindoingso.Whileeachcountrywillneedtodevelopandbuildconsensusarounditsownpolicyorlaw,regionalcooperationonPPPpolicyframeworkscouldinvolvedevelopinga“model”policy,processmanual,andtoolsfromwhichcountriescoulddrawfornationalPPPpolicies.
Building the institutional capacity needed to effectively implement PPP policies and projects could involve actions at both the national and regional level. Theseactionscouldinclude:• Designating “PPP focal points” at the national level byidentifyingteamsorindividualstoplayacoordinatingroleforthePPPpolicyand
projects,andtobearepositoryofexperienceandknowledgeonPPP.JamaicaandTrinidadandTobagohavebothestablishedPPPUnitstothisend,intheDevelopmentBankandMinistryofFinancerespectively.
• Reviewing the case for a regional “PPP Unit,” giventhelimitedscaleofPPPprograms,particularlyonsmallerislands,whichmaymakeitinefficientforeachgovernmenttobuildadedicatedPPPteam.
• Training and capacity building forgovernmentstaffatalllevelswillbeneeded—anotherarearipeforregionalcooperation.AregionalPPPcapacity-buildinginitiativeaimedatgovernmentofficialsinvolvedinPPPscouldaddressimmediateneeds;overtime,thiscouldexpandtoworkingwithregionaleducationalinstitutionstoequipyounggraduatesforfuturerolesinPPPs,whetheronthepublicorprivateside.
At the same time, Caribbean governments can move forward with developing priority PPP projects and pipelines. Intheabsenceofwell-establishedprocessesandinternalcapacity,cautionwillbeneededtoensureearlyPPPprojectsestablishsuccessfulprecedents.Thesupportofexperiencedadvisorswillbecrucial,andgovernmentsneedtobepreparedtoinvestsubstantialresourcesindevelopingPPPswell.GovernmentsmayalsowanttotakeamoresystematicapproachtodevelopingPPPpipelinesbyscreeningprioritypublicinvestmentprojectsforPPPpotential.ThiscanhelpidentifythemostpromisingprojectsforearlyPPPsuccesses,aswellasthelikelyscopeofaPPPprograminthemediumterm.Whileprojectandpipelinedevelopmentintheneartermislikelytofocusatthenationallevel,introducingsuchpipelinestothemarketinacoordinatedway—forexample,througharegionalPPPForum—couldhelpcreatearegional“PPPmarket”andgenerategreaterinvestorinterest.
Experience suggests that undertaking these actions is likely to require external support, whilegovernmentsintheregionbuildtheinternalcapacityandconsensusneededtomovePPPprogramsforward,andtoovercomechallengesofregionalcoordination.TheWorldBankandIFCarealreadysupportingthedevelopmentofPPPprojectsandprogramsinseveralCaribbeancountriesandsectors,asareotherdevelopmentpartnerssuchastheIDBanditsMIF—goingforwardtheseeffortscouldincreasinglybecombinedandcoordinated.“Quickwins”couldincludeworktoharmonizenationalPPPpolicies,buildcommontools,anddeveloparegionalcapacity-buildingprogram.
Going forward, a lasting regional PPP support mechanism could be considered. Thiscouldtaketheformofaregional“PPPFacility,”comprisingaregional“PPPunit”thatprovidesbothupstreamanddownstreamtransactionimplementationsupporttoCaribbeangovernmentsfornationalandregionalPPPprojects—workingwithdevelopmentpartners,andexperiencedexternaltechnicaladvisorsasneeded—andarevolving“PPPpreparationfund”tosupporttheactivitiesofthisregionalteam.Thesuccessofsuchafacilitywoulddependheavilyonthelevelofdemandandcommitmentfromgovernmentsintheregion.Afirststepwouldthereforebetodevelopabusinessmodelforthefacility,asthebasisforconsultationandagreementamongparticipatinggovernmentsandpotentialmultilateralandbilateralpartners.
5EXECUTIVE SUMMARY
6
INTRODUCTION
INTRODUCTION
1
A public-private partnership (PPP) is a long-term contract between a private party and a government agency for providing a public asset or service, in which the private party bears significant risk and management responsibility.2 Thisdiffersfromotherformsofprivate-sectorparticipationininfrastructure,suchasprivatization,wheretheownershipofanassetistransferredtoprivatehands(oftenunderregulation),orajointventure,wheretherelationshipbetweenthepublicandprivatepartiesisdefinedinashareholders’agreement.
There is growing interest in the Caribbean in using PPPs to provide infrastructure. Infrastructure investment needs are significant across the region, to boost economic growth and resilience.ManyCaribbeangovernmentsareincreasinglyturningtoPPPstomeetthoseneeds,drivenbyacombinationoftightfiscalconstraintsandgrowingappreciationoftheroleoftheprivatesectorindeliveringpublicservices.Thisinclinationreflectsglobaltrendsandexperience.ManycountrieshavefoundthatPPPs—whenselected,structured,andmanagedwell—canhelpmakethebestuseofthefinancialandtechnicalresourcesofthepublicandprivatesectorstoprovideimprovedinfrastructureassetsandservices.
Experience with PPPs to date in the Caribbean has been mixed.PPPsarenotnewintheregion,havingbeenusedtodeliverneworimprovedroads,ports,airports,bulkwatertreatmentfacilities,andelectricitygenerationplants.ManyPPPprojectshaveoperatedsuccessfullyforyears,deliveringhigh-qualityinfrastructurefacilities.Othershavefacedchallenges.Inmanycases,thecomplexityofthePPPdevelopmentandimplementationprocesshasmeantlongdelaysindeliveringprojects;othersresultedinquestionablevalueorunexpectedcoststogovernmentsorconsumers.
This raises a question: How can Caribbean governments successfully navigate the challenges to make the best use of PPPs to deliver improved infrastructure assets and services?This“CaribbeanInfrastructurePPPRoadmap”seekstoanswerthisquestion.ItreviewstheoutlookforPPPsintheregion,by:identifyingPPPprojectopportunitiesin11Caribbeancountries3; constraintsorbarrierstosuccessfuldevelopmentofthoseprojects,basedonpreviousexperience;andpossibleactionstoovercometheseconstraints.TheRoadmapwasdevelopedbytheWorldBankGroup,withinputsfromCaribbeangovernments,privateinvestors,andotherdevelopmentpartners,andwithsupportfromthePublic-PrivateInfrastructureAdvisoryFacility(PPIAF).This report presents the “Caribbean Infrastructure PPP Roadmap,”asfollows:• Section2explainstherationaleforPPPsintheCaribbean—itdescribeswhyandhowPPPscanaddvaluebydeliveringneeded
infrastructureeffectivelyandefficiently;• Section3presentsexperiencewithprivate-sectorparticipationininfrastructureandPPPinthe11countriescoveredbytheRoadmap;• Section4reviewsemergingPPPopportunities:apotentialPPPpipelineof33projectsthatarebeingactivelydevelopedasPPPsacross
these11countries;• Section5drawsonexperiencewithPPPintheregiontoidentifypossibleconstraintsonsuccessfuldevelopmentoftheseprojects,and
barrierstogreateruseofPPP;and• Finally,Section6setsoutconcreteactionsthatCaribbeangovernmentscantake—individually,andcollectively—tobuildsuccessfulPPP
projectsandprograms.
2Thereisnosingle,internationallyaccepteddefinitionofPPP,andthetermisoftenusedtodescribearangeofcontracttypes.Thisreportadoptsabroaddefinition,asusedintheWorldBankInstitute’s“PPPReferenceGuide,”availableonlineat:http://wbi.worldbank.org/wbi/news/2012/04/10/now-available-public-private-partnerships-reference-guide-version-10.3TheRoadmapcoversthefollowing11countries:AntiguaandBarbuda,Dominica,theDominicanRepublic,Grenada,Haiti,Jamaica,SaintKittsandNevis,SaintLucia,SaintVincentandtheGrenadines,Suriname,andTrinidadandTobago.ThesewereselectedasWorldBankGroup(WBG)clientcountriesforwhichaninitialdeskreviewprovidedprimafacieevidenceofinterestinPPP.Inpractice,severalnon-WBGclientcountriesintheregionhaveexpressedanintentiontomakegreateruseofPPP.Assuch,theRoadmapdoesnotpresentacomprehensiveoutlookforPPPacrosstheCaribbeanregion,butcouldbeconsideredtoprovidearepresentativepicture.RegionalactionspresentedintheRoadmapcouldinpracticeapplytoawidergroupofcountries.
7
RATIONALE FOR PPPS IN THE
CARIBBEAN
RATIONALE FOR PPPS IN THE CARIBBEAN
2
Rationale for PPPs in the Caribbean
Many Caribbean governments face common challenges in delivering the quality, efficient, accessible infrastructure needed to support sustainable and inclusive growth.EnergycostsinmanyCaribbeancountriesareamongthehighestintheworld,andvulnerabletooilpriceshocks.Transportservices,crucialforcompetitivenessofsmallislandnations,aretypicallyexpensive—oftenreflectingdiseconomiesofscale,butalsounder-investmentandinadequatemaintenance(exacerbatedbyexposuretonaturaldisasters),andoperatinginefficiencies.Whiletelecommunicationsmarketsarecompetitive,gapsinservicessuchashigh-speedbroadbandconstraindevelopmentofnewindustries.Mostgovernmentsareaimingtoovercomethesechallengesinthefaceoftightresourceconstraints.
Caribbean governments are increasingly turning towards partnerships with the private sector to meet these infrastructure challenges. There are two main motivations for this.First,cash-strappedCaribbeangovernmentsseePPPsasameanstocreatemore“fiscalspace”formuch-neededinfrastructureinvestment.Second,thisexigencyisaccompaniedinsomecasesbyashiftinperceptionoftheroleofgovernment—fromhistoricallystate-leddevelopmentmodelstowardsgreateremphasisonprivate-sector-ledgrowth.Inthiscontext,governmentsareinterestedingreaterprivate-sectorinvolvementinprovidinginfrastructurethroughPPPswithaviewtoachievingimprovedperformanceandefficiency,particularlyinthecontextoflimitedmanagerialresourcesinthepublicsector.BoththesemotivationsforPPPintheCaribbeanareborneouttosomeextentbyinternationalexperience.
In some cases, PPPs can mobilize additional resources for infrastructure—although certainly not always, as described further in Box 2.1 on page 9.CareisneededtoensurePPPsdonotsimplymaskthefuturecostofinfrastructureinvestments.PPPstypicallyreplaceupfrontcapitalexpenditureswithlong-termcommitmentsorcontingentliabilities,oracombinationofthetwo.Thecostofthesefiscalcommitmentsneedstobecarefullyassessedandmanaged,particularlyinthecontextoftightfiscalconstraints.WhileinternationalnormsforcapturingPPPsingovernmentaccountsarestillevolving,thereisageneraltrendtowardsrecognizingsomeorallPPPprojectsasconstitutingpublicassetsandliabilities—suchthattheimpactondebtmeasures,forexample,canbethesameunderbothaPPPandadebt-financedtraditionalpublicprocurement.
PPPs can help governments get more value out of resources spent on infrastructure.PPPscanbringprivate-sectorexperienceandinnovationtobearindeliveringinfrastructure,andprovidetherightincentivestoimproveperformance.PotentialadvantagesofPPPcaninclude:• On-time, on-budget completion of investment projects.ManypublicinfrastructureprojectsintheCaribbeangooverbudgetandare
deliveredlate.SomecountrieshavefoundPPPscanreducetheseproblems,becausetheprivatecompanyisonlypaidoncetheassetisoperational—creatingastrongincentivetodeliverontime.41
• Accountability for improved service delivery. Well-structuredPPPstypicallysetclearstandardsforserviceperformance,andfinancialpenaltiesforfailuretodelivertothesestandards.Thiscreatesclearaccountabilityandincentivesforperformancethatcanbehardtoreplicateinthepublicsector,particularlywheremanagerialresourcesareconstrained.
• Reducing whole-of-life costs.PPPstypicallyintegrateup-frontdesignandconstructionwithon-goingoperationsandmaintenanceundertheresponsibilityofoneprivatecompany(ratherthanaseriesofcontracts),creatinganincentivetodobothinawaythatminimizestotalprojectcost.IntheCaribbeantherearesignificantopportunitiestominimizewhole-of-lifecosts—suchasbydesigningmoreenergy-efficientschools,governmentofficesandwaterutilities,andbyreducingroadmaintenancecoststhroughhigher-qualityinitialconstruction.
4IntheUnitedKingdom,forexample,theNationalAuditOfficefoundin2003thatwhereas73percentoftraditionalprojectsranoverbudget,theproportionwasjust22percentforPPPprojects.Seventypercentoftraditionalprojectswerelate,whereasonly23percentofPPPswerelate.(SeeFinlay,Browne,Cham-bers,andRatcliffe,underthedirectionofRichardEales,NationalAuditOffice,2003,“PDI:ConstructionPerformanceReportbytheComptrollerandAuditorGeneral.”)SimilarresultshavebeenfoundinAustralia—seeforexample,InfrastructurePartnershipsAustralia,2007,“PerformanceofPPPsandTraditionalProcurementinAustralia.”
8
RATIONALE FOR PPPS IN THE CARIBBEAN
RATIONALE FOR PPPS IN THE CARIBBEAN
2
• Sustained maintenance and service delivery. PublicinfrastructureacrosstheCaribbeanisplaguedbyinadequatemaintenance,creatingabuild-neglect-rebuildcyclethatgreatlyincreasesthetotalcostofinfrastructureserviceprovision.PPPscanhelpcurtailthiscycle.Becausetheprivatepartneronlygetspaidiftheservicecontinuestobeprovidedatthecontractuallyspecifiedlevel,operatorsseektoensurethecontractprovidessufficientfundsformaintenanceovertheprojectlife,andthatthismaintenanceiscarriedoutinpractice.
• Increased resilience.InfrastructureprojectsintheCaribbeanareparticularlyexposedtothehighwindsandheavyrainfalloftropicalstorms—risksthatwilllikelyintensifyincomingyearsduetotheeffectsofclimatechange.Asaresult,assetsoftendeterioraterapidly.PPPscanbringinnovation,incentivesandexperienceneededtobuildresilientinfrastructureprojects.Becausetheircapitalwilltypicallyonlyberecoverediftheassetisoperating,privateinvestorswillcarefullyassessclimate-relatedrisks,andidentifyinnovativeandprovenapproachestomanagerisks.Forinstance,highwaysaremorelikelytobebuiltwithproperdrainage,andrenewableenergyinstallationswillberesistanttohurricanes.
To achieve these performance and efficiency benefits in practice, PPPs must be carefully chosen and developed.MostbenefitsofPPPrelyonprovidingtherightincentivesfortheprivatepartytobringtobearexperienceandinnovationindeliveringinfrastructurebetteroratlowercost.Theseincentivesdependonawell-structuredcontract,withclearly-identifiedperformancerequirementsandriskallocation.PPPsthereforeworklesswellwheretheoutputsrequiredaredifficulttospecifycontractuallyandmonitor—forexample,insectorswhereneedscanchangerapidly.Thepotentialadvantagesofon-timedeliveryandincreasedresilienceonlyapplyiftheprivatesectorbearstherisksassociatedwithcostoverrunsandclimate-relatedevents,respectively.
Moreover, PPPs can create their own risks.Theirrelativecomplexityraisestheriskofproblemsinthecontractingprocess—suchasfailuretoattractqualifiedbiddersifaprojectisnotwell-structured,orlegalchallengestotheprocess.Governmentscanalsobetemptedtoeschewcompetitiveprocessesandnegotiatedirectlywithpotentialinvestors—makingitdifficulttobesureaprojectisprovidinggoodvalue.Furthermore,asdescribedabove,thefiscalcostsofPPPsaretypicallylessclearthanthoseoftraditionallyprocuredprojects(beinglongterm,andoftencontingent).Governmentscanunderestimatethesecosts—leadingtounexpectedfiscalcosts,oratworst,over-specifiedprojectsthatdonotprovidegoodvalueformoney.Section5belowon“PPPconstraints”describesexamplesofsomeofthesechallengesexperiencedintheCaribbean.
Developing and managing PPP contracts successfully is therefore demanding and resource-intensive.AchievingthebenefitsandavoidingtherisksofPPPscomeatthecostofmorecomplexcontractpreparation,procurement,andmanagement—bothforthegovernmentandforbidders.Thesecostsaresomewhatfixedirrespectiveofprojectsize—meaningtheymaysimplynotbejustifiedforsmall-scaleprojects,aconstraintthatmaybiteformanypotentialCaribbeanPPPs.Governmentswillalsoneedtothinkcarefullyaboutwhetherandhowtheycanensurecapacitytodesign,procure,andmanageaPPPisinplacebeforeembarkingonaproject,asdescribedfurtherinthesectionsthatfollow.
9
RATIONALE FOR PPPS IN THE
CARIBBEAN
RATIONALE FOR PPPS IN THE CARIBBEAN
2
Forsomeprojectsandundersomecircumstances,PPPscanexpandtheresourcesavailableforinfrastructureinvestment.Specifically,PPPscanhelpmobilize:• Additional revenues. SomePPPs—suchastollroads—introducefeesthatreflectthevalueofservicesprovided;otherscan
helpreduceleakageincollectionofexistingcharges.Inprinciple,governmententitiescouldchargefeesandcollectrevenuesefficiently—inpractice,incentivestodosotendtobeweakerinthepublicsector.Privateoperatorscanalsobecreativeinfindingadditionalwaystouseafacilitytogeneraterevenue.Forexample,in2003theVancouverAirportServicesConsortiumtookoveroperationsofSangsterInternationalAirportinMontegoBay,Jamaica,undera30-yearconcession.Theconcessionairedoubledairportcapacityandcreated43newretailspacesatnocosttothepublicpurse.Retailrevenuespartiallyoffsetthecostofexpansion—increasingtherevenuestothegovernmentfromconcessionfees
• Additional capital. Sometimesgovernmentswanttofundprojects,butdonothavethecashorborrowingcapacitytofinancethecapitalexpenditure,evenwhentherevenuegeneratedfromtheinvestmentwouldexceedthecostofdebtservice.Inthesecircumstances,aPPPcanunlocktheinherentcapital-raisingabilityoftheassetinquestionbytakingitoutoftheconstrainedsphereofgovernmentfinance.Asanexample,intheearly90s,theGovernmentofGrenadawasnotabletoinvestinexpandingandimprovingelectricityassetsbecauseoffiscalconstraints.ItsoldacontrollingstakeinGRENLEC—thepowerutilityinGrenada—toaprivatecompany,whichputcapitalintothecompany,allowingittomakeneededinvestmentsinimprovingthesystem.
However,while“mobilizingresources”iscommonlygivenasakeyadvantageofPPPs,therealityishighlycase-specific.Forexample,socialinfrastructureprojectsinvolvingavailabilitypaymentsfromthegovernment(oftencalled“government-pays”projects)donotcreateanyadditionalfundingtopayforinfrastructure.Suchprojectsmaytakeupless“fiscalspace”intheshorttermbyturninganupfrontcapitalexpenditureintoalong-termpaymentcommitment,butultimatelythecostoftheinvestmentisbeingmetfromthepublicpurseeitherway.
Moreover,suchprojectsmaynotreallymobilizemorecapitalthanthegovernmentcouldsimplybyborrowing—inbothcases,financiersarelookingtothefiscalcapacityofthegovernment,toservicedebt,ormakeavailabilitypaymentsovertime.SuchPPPsmaymakesense,iftheyreducecostsorincreaseassetutilizationcomparedtoconventionalprocurement;carefulassessmentisneededofaffordabilityandtherationaleforPPP.
WhereaPPPhasitsownrevenuestream(“user-pays”projects),thereisagreaterlikelihoodthataPPPapproachmaytrulymobilizeadditionalcapitalbeyondwhatthepublicsectorwouldbeabletoprovide,particularlyintheborrowing-constrainedcontextoftheCaribbean.Nonetheless,suchprojectsoftencreatecontingentliabilities,intheformofguaranteesorcontractualclausesunderwhichthegovernmentbearssomerisk.Particularlyinthecontextofhighindebtedness,thepossiblecostsandsustainabilityofacceptingtheseliabilitiesneedstobeassessedandmonitored.
WhileinternationalnormsforcapturingPPPsinpublicaccountsandnationalstatisticsarestillevolving,thereisageneraltrendtowardsrecognizingPPPprojectsascreatingpublicassetsandliabilities—particularlyfor“government-pays,”butalsoinsomecasesfor“user-pays”PPPs.Thismeanstheimpactonnationaldebt,forexample,maybethesameunderaPPPandadebt-financedtraditionalprocurement.ForCaribbeancountriesunderInternationalMonetaryFund(IMF)programs,thetreatmentofPPPliabilitiesunderprogramtargets—todatedefinedonacountry-by-countrybasis,butincreasinglyrequiringrecognitionofsomeorallPPPproject-relatedliabilities—willbeimportantindelineatingthefiscalspaceavailableforinvestmentthroughPPPs.
Box 2.1: PPPs and “Fiscal Space”
10
CARIBBEAN EXPERIENCE WITH PPP
CARIBBEAN EXPERIENCE WITH PPP
3
Caribbean Experience with PPP
Private investment in infrastructure is not new in the Caribbean.Inthelast20years,privateinfrastructurecompaniesandlendershaveinvestedmorethanUSD8.5billionininfrastructureassetsinthe11countriesincludedinthisstudy,withtheDominicanRepublicandJamaicatheleadingdestinationsforinvestment.Thiscomprisesanannualaverageofabout0.7percentofGDPforthese11countriesoverthepast20years,comparedtoanannualaverageof1.2percentofGDPfortheLatinAmericaandCaribbeanregionasawholeoverthesameperiod.AsshowninFigure3.1,thisinvestmenthasbeenconcentratedinthetelecommunicationsandelectricitysectors;attheotherendofthespectrum,therehasbeenrelativelylimitedinterestinattractingprivateinvestmentinthewatersector.
Figure 3.1: Private Infrastructure Investment Experience in the Caribbean
Source: Authors, drawing from Castalia research and World Bank PPI Database
All the countries included in the Roadmap have attracted private infrastructure investment, although most commonly through structures other than PPPs.Thesehaveincludedprivatizationsofpublicutilities,regulatedgreen-fieldprivateinvestments—particularlyinthetelecommunicationssector,whichhasbeenliberalizedinmostCaribbeancountries—andafewjointventures.Thissuggeststhatfortherightprojects,theCaribbeanisanattractiveinvestmentdestination.However,PPPexperienceisrelativelylimited—ofthe95infrastructureinvestmentprojectsrecordedinthese11countries,fewerthanhalfwerethroughsomeformofPPP.
The use of PPPs has been more concentrated by both country and sector, as shown in Figure 3.2 below.MorethanhalfofcurrentPPPprojectsinthecountriesandsectorscoveredbythisRoadmapareintheDominicanRepublic,andonlysevenofthe11countrieshavemadeuseofthePPPmodalityforcoreinfrastructure.51Electricityandtransportsectorprojectsdominate,primarilycomprisinginvestmentsinelectricitygenerationbyindependentpowerproducers(IPPs),andPPPsforrehabilitation,upgrade,orafewnewinvestmentsinroads,ports,andairports.AhandfulofwatercontractsincludeexperimentswithtechnicalassistanceandleasecontractsinHaiti,aswellasfourbulkwatertreatmentplantselsewhere.Noneoftheprivateinvestmentininformationandcommunicationstechnology(ICT)hastodatebeenunderaPPPstructure.AppendixAprovidesalistofthesepreviousPPPs;CaribbeanPPPexperiencebysectorisalsodescribedfurtherinSection4.
5AfewadditionalexamplesinothersectorsincludegovernmentbuildingsinSaintLuciaandTrinidadandTobago.
11
CARIBBEAN EXPERIENCE WITH PPP
CARIBBEAN EXPERIENCE WITH PPP
3
Figure 3.2: PPP Project Experience in the Caribbean
Source: Authors, drawing from Castalia research and World Bank PPI Database
The results of previous PPP experience in the Caribbean have been mixed.WhiledefiningsuccessforaPPPisnotstraightforward—seeBox3.1below—thereareseveralPPPprojectsintheCaribbeanthatcouldreasonablybeconsideredsuccessful.ThesePPPprojectshaveoperatedforyears,providingquality,reliableinfrastructureassetsandservicesatareasonablecost,andoftenwithoutattractingmuchattention.Theseinclude,forexample,Suralco,theCaribbean’soldestPPP—a185MWhydroplantbuiltbyAlcoaAluminumin1958,whichcontinuestosupplyupto60percentofSuriname’selectricityundera75-yearpowerpurchaseagreement(PPA).Atamuchsmallerscale,WindWattNevis,amicro-generatorwithaninstalledcapacityof2.2MW(equivalentto20percentofNevis’demandforelectricity),commencedoperationsin2010undera25-yearPPAandhasoperatedreliablysince.
Box 3.1: Defining PPP Success
WhatdoesitmeantosaythataPPPissuccessful?Inpractice,thismaydependonthenatureoftheproject,andwhatwastherationaleorexpectedbenefitsfromdeliveringtheprojectasaPPP.Ingeneral,asuccessfulPPPcouldbedefinedasoneinwhichtheassetand/orserviceprovidedbytheprivatepartymeetsitsobjectivesovertheprojectlifetime,anddoessoinawaythatprovidesbettervalueformoneytothegovernmentandserviceusersthanthealternatives.
AssessingthesuccessofaPPPinmeetingitsobjectivesisrelativelystraightforward—albeitonlyultimatelypossibleoncethecontractisconcluded.Forexample,thiscouldincludeconsideringwhether:constructionorrehabilitationwascompletedontime;thePPPassetorassetsarecontinuouslyavailableattherequiredstandards;anticipatedserviceperformancelevelsorimprovements(forconcessionsofexistingassets)materializeandaresustained;andtheassetorservicecontinuestocontributetomeetinggovernmentobjectivesinthesectorinquestionoverthecontractlifetime.
AssessingthesuccessofaPPPinprovidingvalueformoneyisharder,becausedirectcomparatorsarerarelyavailable.Nonethelessitispossibletoassesssomeindicatorsofsuccess.Forexample,aPPPthatendsupcostingthegovernmentmorethanexpected(thatis,wherecontingentliabilitiesrealize)maybeconsideredunsuccessfulindeliveringvalueformoney.Itisalsopossibletoassesswhetherconditionsconducivetoachievingvalueformoneywereinplace—forexample,whetherthetransactionprocesswastransparentandcompetitive.
12
CARIBBEAN EXPERIENCE WITH PPP
CARIBBEAN EXPERIENCE WITH PPP
3
Not all Caribbean PPPs have achieved sustained success.Problemshaveincludedunexpectedfiscalcosts,questionablevalueformoney,andsignificantimplementationdelays—whilemanyadditionalpotentialPPPprojectshavesimplyfailedtolaunch.ThesechallengesaredescribedinmoredetailinSection5below,whichlooksattheconstraintsonthesuccessfuluseofPPPintheregion.
None of the existing Caribbean PPPs was implemented under an overarching PPP policy or legal framework.AsshowninFigure3.3,afewgovernmentshavesincebeguntodevelopspecificpolicyandinstitutional“architecture”toguidetheuseofPPPs.JamaicaandTrinidadandTobagobothintroducedPPPpoliciesin2012,establishingguidingprinciples,criteria,processes,androlesformanagingtheirPPPprograms.BothhavealsocreateddedicatedPPPteams—inJamaicathesecompriseaPPPUnitintheDevelopmentBankofJamaica(DBJ)andaPPPNodeintheMinistryofFinanceandPlanning;inTrinidadandTobago,aPPPUnitintheMinistryofFinance.APPPUnitwasalsoestablishedinHaiti’sFinanceMinistryin2012,althoughwithoutaguidingpolicy,theroleandmandateofthisunitremainssomewhatunclear.
Caribbean countries still lack institutional capacity to develop and implement PPPs. GiventhelimitedPPPprojectexperienceoutsidetheDominicanRepublic,relativelyfewgovernmentshavestaffwithexperienceimplementingPPPs.Moreover,wheresuchexperiencedoesexist,itisforthemostpartdistributedamongresponsiblegovernmententities.InJamaica,TrinidadandTobago,andHaiti,effortsareunderwaytoconsolidateandbuildexpertiseindedicatedPPPteams—inthecaseofJamaica,withthebenefitofbuildingonanexistingprivatizationteamatDBJ.DespitethelackofinternalPPPcapacity,governmentshavealsoprovedreluctanttoconsistentlyallocatesufficientfundingtocoverthecosts(whichcanbesignificant)ofexperiencedexternaladvisorysupportneededtopreparehigh-qualityPPPprojects.
Figure 3.3: PPP Policy and Institutional Architecture in the Caribbean
4Inplace(date)6 AbsentLowModerateHigh;DevelopmentBankofJamaica(DBJ);MinistryofFinance(MOF)Source: Authors, based on Castalia and World Bank research
Policy Law Detailed Guidelines Defined Roles
Dedicated Units(s)
Staff with PPP Experience
Dedicated Project Prep Funding
Jamaica 4(2012)
6 Underway 44
(DBJ&MOF)6
Trinidad & Tobago
4(2012)
6 Underway 44
(MOF)6
Dominican Republic 6 6 6 6 6 6
Haiti 6 6 6 64
(MOF)6
Suriname 6 6 6 6 6 6
OEC States 6 6 6 6 6 6
13
EMERGING PPP OPPORTUNITIES
EMERGING PPP OPPORTUNITIES
4
Emerging PPP Opportunities
A ramp-up of PPP activity in infrastructure is planned across much of the Caribbean. Asdescribedinsection2,thedriversofinterestinPPPsvary.Insomecasesthistrendreflectsashiftintheperceivedroleofgovernment,andthepotentialefficiencyandperformancebenefitsofengagingtheprivatesectorininfrastructuredelivery.However,aprimarydrivingconcerninalmostallcasesisthepressingneedforinvestmentinthecontextoftightfiscalconstraints.SincetheabilityofPPPstogenuinelyincreasetheresourcesavailableforinfrastructurevariesbyproject—asdescribedinBox2.1above—thisfiscalimperativeisreflectedinthetypesofPPPsthatarelikelytobesuccessfulacrossmuchoftheCaribbeanintheshorttomediumterm.
The PPP Roadmap identified a potential PPP pipeline of 33 projects being considered or developed as PPPs across 11 Caribbean countries, with a total investment value of more than USD 2 billion.TheprocessandcriteriaforidentifyingthispipelinearedescribedinBox4.1.Broadlyspeaking,theseareprojectsthatareactivelyunderdevelopment—albeitinmanycasesatanearlystage—and,frominitialassessmentbasedonexperienceandavailableinformation,appearviableandimplementableasPPPsinthenearterm.Assuch,thispipelineprovidesareasonableestimateofthepotentialforPPPintheCaribbeaninthenexttwotofiveyears.
Box 4.1: How the PPP Pipeline Projects were Identified
This pipeline represents a significant planned increase in the use of PPP in several countries,asshowninFigure4.1:notably,Jamaica,TrinidadandTobago,Suriname,andsomeOrganizationofEasternCaribbeanStates(OECS)membercountriessuchasSaintLuciaandGrenada.JamaicaandTrinidadandTobagotogethercomprisealmosthalfofthePPPpipelinebynumberofprojects.Theapproximatetotalinvestmentvaluerepresentedbythispipeline,ofmorethanUSD2billion,wouldcomprisearoundtwopercentofGDPinthese11countries;orfourpercentofGDPexcludingtheDominicanRepublic,wherenosufficientlyfirmpipelineprojectswerefound.
FewgovernmentsintheCaribbeanhavewhatcouldbecalleda“PPPpipeline.”BothJamaicaandTrinidadandTobagoareestablishingaprogrammaticapproachtoPPP,whichhasinvolvedsystematicallyscreeningpotentialPPPprojects.Inthesecases,thepipelinepresentedinthisreportisbasedonconsultationwiththeresponsibleofficials,andcapturesthepipelineprojectsthatareinactivepreparation.Intheremainingninecountries,thepipelinepresentedherewasdevelopedforthisroadmap.AwidersetofpotentialPPPswasidentifiedthroughacombinationofdeskresearch,meetingswithgovernmentofficials,privateinvestorsanddevelopmentpartners;andreviewofanyavailableprojectdocumentation.Thesewerescreenedagainstthefollowingcriteria,basedonexperienceand(limited)availabledata:• Prima facie assessment of technical and economic viability of the project—theprojectwoulduseproventechnologytoaddressa
clearly-identifiedserviceneedthatisinlinewithdevelopmentandpublicinvestmentpriorities.• Prima facie assessment of viability as a PPP—thePPPwouldfollowestablishedcontractualmodels,andislikelytogeneratea
revenuestreamthatwouldmaketheprojectfinanciallyviableandattractivetoinvestors.WherethePPPwouldinvolvegovernmentpayments,theseappearaffordablegivenfiscalconstraints.
• Political supportforimplementingtheprojectasaPPP.• Project readinessandfeasibilityofimplementationwithinareasonabletimeframe.Forexample,projectstudiesarealreadyunder-
wayorcompleted;andnomajorsectororotherreformsareneededaspre-requisitesforpursuingaPPP.
Theresultantpipelineisfarfromexhaustive,sinceithasnotarisenfromasystematicreviewofgovernmentinvestmentprioritiestoidentifyprojectsthatcouldoffermorevalueasPPP.Ontheotherhand,giventheearlystageofdevelopmentofmanyoftheprojects,thereislikelytobeattritionfromthispipelinewherefurtheranalysisrevealsthatsomeprojectsorPPPsarenotviableinpractice.
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Figure 4.1: Number of Current and Planned PPP Projects in the Caribbean by Country
Source: Authors, based on Castalia and World Bank research and inputs from relevant governments
On the other hand, some countries with more PPP experience are moving away from PPP going forward.ParticularlyintheDominicanRepublic,challengeswithearlyPPPsinsomesectorshasledtopoliticalandpublicskepticism,asdescribedfurtherinSection5onPPPconstraints.InHaititheoutlookismoremixed:withgeneralinterestamongmanygovernmentpartiesinexploringtheuseofPPPgoingforward,butfewspecificpotentialprojectsidentifiedtodateinthefaceofmixedopinionsacrossgovernment,andlimitedcapacitytoidentifyandmoveprojectsforward.
Most of these PPP pipeline projects are at a very early stage. SubstantialfurtherworkisneededtoassesswhethertheprojectsareviableandrepresentattractivePPPopportunities;andforthosethatdo,totaketheseprojectsthroughtofinancialcloseanddeliverimprovedinfrastructureontheground.Ofthe33projectsidentified:• 16 remain at the concept stage—thatis,havenotyetbeensubjecttodetailedanalysis.Pre-feasibilityanalysismayhavebeendone,or
insomecases,unsolicitedproposalsreceivedfrominvestorshavebeenfavorablyreceivedbutareyettobecarefullyassessed.Concept-stageprojectsincludedinthepipelinearethosethattherelevantgovernmentisactivelypursuing—thatis,projectsexpectedtoproceedtothenextstageinthenearfuture.Manymoreprojectideasexistthatarenotyetbeingactivelydevelopedorthatcurrentlyfacebindingconstraints,asdescribedfurtherinthesectorsectionsthatfollow.
• 13 projects are undergoing more detailed feasibility analysis or due diligence.Insomecases,thisworkisfocusedprimarilyonthetechnicalandeconomicviabilityoftheproject,withprocurementandimplementationoptionsyettobeanalyzed;inothers,thisworkalreadyincludesassessmentofPPPoptions.Afewsuchprojectsarerelativelywell-advancedalongthePPPstructuringprocess—suchasaproposedconcessionfortheNormanManleyInternationalAirportinJamaica.
• Only four projects are at the transaction stage—thatis,acompetitivetenderprocessisunderway,orthegovernmentisinnegotiationwithoneormorepotentialinvestorsbasedonproposalsreceived.TheseprojectsareaconcessionfortheKingstonContainerTerminalsinJamaica,forwhichaRequestforProposalshasrecentlybeenissued;ageothermalIPPinDominica;andawindpowerIPPandcruise-shippierinSaintKitts.
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Many of these projects are currently receiving support from development partners,includingtheWorldBank(WB),InternationalFinanceCorporation(IFC),Inter-AmericanDevelopmentBank(IDB)anditsMultilateralInvestmentFund(MIF),EuropeanUnion(EU),theBill,Hillary&ChelseaClintonFoundation,andothers.Inafewcases,thissupportisdefinedtospanthefullprojectdevelopmentprocess;however,inmostcases,furthersupportislikelytobeneededtobringtheprojecttofruition,asdescribedfurtherinSection6.
Transport and power remain significant, reflecting infrastructure investment needs—although new PPP sectors are also emerging.Figure4.2belowshowsthedistributionofthe33pipelineprojectsacrosssectorsandsub-sectors.TheoutlookforPPPintheCaribbeaninthetransport,power,water,ICT,andsocialandgovernmentinfrastructureisdescribedinSections4.1to4.5.6
Figure 4.2: Current and Planned PPP Projects in the Caribbean by Sector
Source: Authors, based on Castalia and World Bank research, and inputs from relevant governments
4.1 TRANSPORT SECTOR
Of the 33 potential PPP projects identified, 13 are in the transport sector—includingairports;portsandothermaritimetransportsub-sectors;androads,describedinturnbelow.Thissizeablepotentialpipelinereflectstheperceivedneedforinvestmentinimprovedtransportservices—bothofgoodsandpeople—tounderpineconomicgrowthintheregion,includinginthecrucialtourismsector.
The economic case for some of these projects is likely to be inter-dependent.Asnotedabove,thepotentialPPPsdescribedinthissectionarisefromthecurrentinvestmentprioritiesoftherespectiveCaribbeangovernments.Thereisarisk,however,thatcountry-levelinfrastructureimprovementspursuedinparallel—particularlyintheportorairportsectors,forexample—couldleadtoover-capacityattheregionallevel.7 Inthiscontext,regionalanalysisandpolicycoordinationcouldbemutuallybeneficialtoavoidover-dimensionedprojects;orconversely,toidentifyopportunitiesthatmakesenseonceregionallinkagesaretakenintoconsideration.Inturn,portandairportinvestmentsmaydriveroadinvestmentprioritiesatthenationallevel.
6WherepotentialPPPprojectsarealreadyinthepublicdomain,theseexamplesaredescribedintherelevantsection.However,itisnottheintentionorremitofthisreporttoannouncePPPprojectopportunitiesbeingconsideredthatarenotyetpublicknowledge.Inthesecasesprojecttypesarementionedwithoutreferencetospecificprojects.7Forexample,“AirTransportintheOECS:FlyingSolo?”WorldBankCaribbeanKnowledgeSeries,June2013,describeshowweakinter-islandairconnectivitycurrentlyprovidesimpetusforeachislandtodevelopairportfacilitiesthatcollectivelyareover-dimensioned.
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4.1.1 AIRPORTS
Virtually all governments in the region want to develop first-class airport facilities—toimproveconnectivityandsupporteconomicgrowth,inparticularpromotingtourism,aswellasforreasonsofnationalprestige.AirportrehabilitationorexpansionprojectscanbegoodcandidatesforPPPs—asstand-aloneassetswithserviceobligationsthatcanbeclearlydefined;withrevenuestreamsthataretypicallysufficienttocoveroperatingandcapitalcosts;theopportunitytocreatevaluethroughbetterconsumerservices,suchasincreasedretailfacilities;andwithawell-establishedPPPmarket,particularlyinEuropeandLatinAmerica.The Caribbean has already seen several successful airport PPPs, reflecting international experiences. JamaicasetaprecedentforprivateparticipationintheairportsectorintheCaribbean,withasuccessfulPPPforitslargestairport,SangsterInternationalatMontegoBay.Underthisconcessionsince2003,airportcapacityhasdoubled,and43newretailspaceshavebeenadded,amongothersystemimprovements.TheDominicanRepublichasaconcessionagreementwithaprivateoperatorinplacesforsixairports—alargelysuccessfulPPPinacountrywherePPPexperienceoverallhasbeenmixed.PuertoRicoalsorecentlyintroducedaconcessionforitsmainairportatSanJuan.
Building on this experience, there is strong interest in additional airport PPPs in the region going forward, with five such projects included in the pipeline of 33 potential PPPs.TheGovernmentofJamaicaiscurrentlypreparingaconcessionforitssecondinternationalairport,theNormanManleyInternationalAirportinKingston.FouradditionalairportconcessionsareunderconsiderationinthecountriescoveredbythisRoadmap.AllappeartoholdthepotentialtobeviableasPPPs,althoughallareatarelativelyearlystage,withfurtherassessmentneededofeconomicandfinancialviability.Asnotedabove,analysisofneedsattheregionallevelcouldhelpavoidcreatingexcesscapacitythatcouldunderminethesuccessofindividualprojects.
Scale limitations may limit the potential for substantial further PPP development in the sector beyond these near-term opportunities.Thesmallsizeofmanyairportsintheregionmeanstheysufferfromdiseconomiesofscale—suchthatexpansionsorupgradesmaynotbefinanciallyviable,evenifeconomicallybeneficial—andmaybetoosmalltoattractinterestfromexperiencedinvestorswithoutprovidingsubstantialincentives(whichmaynotresultinvalueformoneyforthegovernment).Thischallengecaninsomecasesbeovercomebybundling—forexample,thesixairportsintheDominicanRepublicareunderprivateoperationunderonemasterconcessioncontract—butsuchopportunitieswithinCaribbeancountriesarelimited.
Moreover, in some countries, political and public opposition to private operation of airports persists.Airportsaresometimesseenasstrategicassetsthatgovernmentsprefertoretainunderpubliccontrol,particularlyinsmallcountrieswithonlyonesignificantairportfacility.ProjectsthatcouldmakeattractivePPPs—suchasaconcessionforthePortauPrinceairportinHaiti,whereinvestmentneedsarecombinedwithsignificantpassengerflows—areunlikelytoprogressinthefaceoflimitedpoliticalinterest.ThisdynamicmaychangeovertimeastheregionbuildsexperiencewithairportPPPs.
4.1.2 PORTS
The Caribbean port sector consists of facilities of vastly differing sizes and traffic levels, from1.9millionTEUs(standardcontainers)peryearinJamaicatojust19,000TEUsperyearinDominica.Theseportsfaceconcomitantlydifferingchallenges.Largerportswithsignificantglobaltrans-shipmentbusinessarepreparingfortheforthcomingexpansionofthePanamaCanal—whichinmostcaseswillrequireinvestmenttoenableportstohandlelargerships.Formid-sizeandsmallerportsservingprimarilyintra-regionalanddomestictraffic,theprimarychallengeislowefficiency,whichresultsinhighportchargesandimport/exportcosts.Whilediseconomiesofscaleareinevitableinmanycases,thesearetypicallyexacerbatedbyahistoryofunder-investmentandoperatinginefficiencies—particularly,ofhighstaffinglevels.
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Most Caribbean ports remain publicly owned and controlled—in contrast with global trends.Globally,manygovernmentshaveturnedtotheprivatesectortoundertakeportinvestmentandimproveoperationalperformance.Amajorityofportsworldwidearenowunderprivateownershiporcontrol—whetherasfullyprivateentities,orundersometypeofPPP.Incontrast,onlyafewCaribbeancountrieshaveadoptedportPPPstructuresthatinvolvesignificantinvestmentorriskforaprivateoperator—althoughmosthavesomelevelofprivateprovisionofportservices(suchascargohandlingorstevedoring)withinportsthatarepubliclyownedandrun.IntheDominicanRepublic,severalportsareoperatedunderconcessioncontracts,whileonesuchconcessionisinplaceinSurinameforthePortofNieuweHaven.
Going forward, a handful of the Caribbean governments included in this Roadmap are considering port PPPs.PrincipalamongtheseistheGovernmentofJamaica,whichiscurrentlyseekingaprivateportoperatorunderaconcessionarrangementfortheKingstonContainerTerminals(thelargestportintheregion);severalfullyprivateportinvestmentsarealsounderconsiderationaspartofthegovernment’s“LogisticsHub”initiative.Thepipelineof33potentialPPPsincludesonlyoneotherpotentialportprojectthatisunderactiveconsiderationbytherelevantgovernment.
Elsewhere the port sector remains largely in public hands for a combination of reasons, which appear unlikely to change in the immediate future.Primarily,thereappearstobelimitedpoliticalwillinsomecasestocedeportoperationstoprivateinterests,givenwidespreadpoliticalandpublicperceptionthatportsarestrategicassets.TheseviewsmaychangeovertimeasmorePPPportsintheregionareintroducedandaresuccessful.Portreformcanbeespeciallypoliticallychallengingincaseswhereover-staffingisamajorcauseofinefficiencythataprivateoperatorwouldlikelyseektoresolve,particularlygivenastrongunionpresenceinseveralcountries.Finally,asfortheairportsectorasdescribedabove,someofthesmallerportsintheregionaresimplyofaverysmallscale,makingattractingprivateoperatorsdifficult.
4.1.3 OTHER MARITIME TRANSPORT
The outlook for the cruise ship industry in the Caribbean appears bright.AccordingtotheCruiseLinesInternationalAssociation,moderategrowthinglobalcruisepassengernumbersisexpectedin2014,whiletheCaribbeanisexpectedtoextenditsleadasthedominantcruisedestination,witha12percentincreaseincruiseshipdeploymentstotheregion.8 However,thetrendintheindustryistowardslargercruiseships,withthenewgenerationofshipscapableofaccommodatingupwardsof5,000passengers.ManyCaribbeandestinations,althoughpopularwithcruiselines,donothaveadequateberthingandancillaryfacilitiesfortheexpectedincreasesinpassengerarrivals.
Several Caribbean countries have turned to PPPs to develop new cruise ship pier facilities—withsuccessfulprojectsinJamaica,Grenada,andHaiti.CruiseshippierscanmakeattractivePPPs—asstand-aloneassets,withreliablerevenuestreamswithplentyofroomtoaddvaluebyimprovingcustomerservices.Insomecasesinvestorsarecruiseshiplinesseekingtocapitalizeonsynergiesbetweencruiseandpieroperations—suchastheHaitiLabadiePier,andJamaica’snewFalmouthcruiseshippier,bothoperatedbyRoyalCaribbeanCruises.
Several more countries are considering private investment in cruise ship piers under PPPs or similar structures.Onesuchpipelineprojectiswelladvanced:asecondcruiseshippierinSaintKittsandNevis,expectedtoaccommodateupto200,000passengersinitsfirstyear.InSeptember2013,thegovernmentsigneda30-yearconcessionagreementwithmarineconstructioncompanyJayCashman,followingaMemorandumofUnderstandingsignedinMay.Undertheagreement,alocalsubsidiarywillbeestablishedtodesign,finance,build,andmaintainthepier.ThepierwillthenbeleasedbacktotheAirandSeaportsAuthority(SCASPA),whichwillberesponsibleforoperations.Theprojectisnowpursuingfinancialclose,withthefirstcruiseshipexpectedtodockinOctober2014.Basedontheroadmapdiscussions,severalmorecountriesareconsideringenteringintoPPPorsimilararrangementsforcruiseshippiers,butareattooearlyastageforthesetobeconsideredaspipelineprojects.
8CruiseLinesInternationalAssociation“StateoftheCruiseIndustryin2014,”www.cruising.org.
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Another possible area of interest for PPP is in the ferry sector. FerrytransportiscommonbetweenislandsintheCaribbean,andistypicallyfullyprivatelyoperated,underregulationbymaritimeauthorities(thatis,notunderPPPstructures).However,PPPscanberelevantwhereferryprojectsinvolveasignificantinvestmentinland-sideinfrastructure—potentiallyrequiringgovernmentsupport,orrequiringalong-terminvestmentforwhichspecificationofrightsandobligationsofpublicandprivatepartiesisbeneficial.ThiswouldbethecasefortheonepotentialferryPPPprojectincludedinthepipeline,albeitatanearlystageofdevelopment—aproposedfootandvehiclepassengerferryinHaiti,forwhichwharfandterminalfacilitieswouldalsobeneeded.
Given the high cost of intra-regional travel—with air travel the only option on many routes—further development of the ferry sector appears attractive,whetherthroughPPPsorfully-privateregulatedstructures.Forseveralyears,therehavebeendiscussionsandplanstolauncharegionalfastferry,asdescribedinBox4.2.However,theseplanshavenotcometofruition.Thisisanexampleofthechallengesinachievingtheregionalcooperationrequiredtomoveforwardwithprojectsthatcouldbemutuallybeneficial,butlackanobviousprojectchampion.
Box 4.2: The Challenges of Regional Projects: OECS Regional Fast Ferry
4.1.4 ROADS
The vast majority of roads in the Caribbean are publicly run, and free to users.Theonlycountrieswithprivately-runtollroads,operatedunderconcessioncontracts,areJamaicaandtheDominicanRepublic.ThesePPPshavebeenamongthemostdifficult,intermsofriskallocationandunforeseenfiscalcosts.Forexample,theDominicanRepublichasfourexistingroadPPPs,allofwhichhavecreatedunexpectedfiscalcoststothegovernment—inthefaceofthisexperience,thegovernmentdoesnotcurrentlyintendtopursuefurthertoll-roadPPPs.Nonetheless,twogovernmentsareactivelyconsideringintroducingtoll-roadPPPprojects,andtwosuchprojectsarethereforeincludedinthepipeline.Theseprojectswillneedtobecarefullyassessedanddevelopedtoavoidthesamepitfalls.GiventhelowleveloftrafficinmostCaribbeancountries,andlimitedpoliticalinterestinchargingroadtolls,therearelikelytobeverylimitedopportunitiesfor“self-financing”toll-roadPPPs—thatis,tollroadsthatarefinanciallyviablebasedontollrevenue,withoutgovernmentsubsidies.
Road sector PPPs do not have to be fully “self-financing” toll roads.Otheroptionsincludecontractsbasedon“shadowtolls”oravailabilitypayments,underwhichprivatecontractorsbuildorrehabilitatearoad,andmaintainittoaspecifiedqualityoverthecontractlifetime.Suchcontractscanhelpgetthemostvalueoutofpublicinvestmentintheroadsector—forexample,overcomingproblemswithunder-maintenancethatarecommontheCaribbean,bypre-committingtoadequatemaintenanceoverthecontractlifetime.ThesePPPscanalsoincentivizeandprovideroomforinnovationinconstructionthatimprovesresilience,includingtoclimate-relatedrisks(providedthecontractisstructuredsuchthatthecostofsuchrisksisbornebytheconcessionaire)—suchasroaddrainagesystemsthatreducetheimpactofstormrainfall.
FastferryservicesarecommoninmanyarchipelagosofsimilarsizetotheOECS,suchasregionsintheMediterraneanandnorthernEurope.Aregionalfastferryservicecouldpotentiallyprovidecheapertravelthanairservice.Whilesuchaprojectcouldbelargelyprivatelyimplemented,regionalgovernmentswouldberequiredtograntlicenses,regulatesafety,andpossiblyregulatethetariffsoftheprivateoperator(s).
Aprivately-operatedregionalferryservicehasbeendiscussedamongregionalgovernmentsformanyyears,buthasyettocometofruition.Themostrecentinitiativefounderedin2008-09,whenoneoftheseveralgovernmentsinvolveddeclinedtocertifytheproposedvesselsasseaworthy.Thisillustratestheinherentdifficultiesofnegotiatingprojectsamongmultiplegovernments,whichmayhaveconflictinginterestsandfiscalobjectives.NoneoftheninegovernmentsinterviewedforthisstudymentionedthefastferryasapotentialPPPproject.
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A few Caribbean governments have started to transition towards performance-based PPP road contracts.Forexample,theGovernmentsofSurinameandSaintLuciahavebothusedaformofthisarrangementinwhichtheroadisguaranteedoverathree-yearperiod.Goingforward,afewgovernmentsarenowlookingatlonger-termperformance-basedroadPPPcontracts,whereintheprivateoperatorwouldtakeonagreaterdegreeofrisk—foursuchprojectsareincludedinthe33pipelineprojects;allatanearlystage.Aspublicly-fundedprojects,thescopeforsignificantadditionalPPPsinthisareanaturallydependsonthepriorityaffordedtoroadinvestmentbygovernmentsoperatingundersignificantfiscalconstraints.
4.2 ELECTRICITY SECTOR
Electricity prices in many Caribbean countries are among the highest in the world,andasignificantconstraintoncompetitivenessandgrowth9 WhilemanyofthecountriescoveredbythisRoadmaphavehighlevelsofenergyaccessandrelativelyreliablesupply,asshowninTable4.1below,loweringthecostofpowerbydiversifyinggenerationsourcesawayfromexpensivedieselpowerisapriority.HaitiandtheDominicanRepublicareexceptions,inthatexpandingaccess(intheformer)andachievingsufficientgenerationcapacitytoensurereliablesupplyremainchallenges.
Table 4.1: Electricity Sector—Structure and Performance
Source: Authors, drawing on Castalia research using Annual Reports of each Utility; access estimates for 2010 from World Bank Sustainable Energy for All database
9Forexample,theWorldBankGroup’sEnterpriseSurveysidentifyelectricityasoneofthemostseriousconstraintstobusinesssuccessinseveralCaribbeancountries;formoredetailsseewww.enterprisesurveys.org.
Country Private Utility IPPs Independent Regulator Access (%) Peak Demand/
Capacity (%)% from Diesel
Average Retail Tariff (US$/kWh)
A&B 4 88% 60% 100% N/a
Dominica 4 91% 63% 75% 0.43
DR 4 4 98% N/a 53% 0.20
Grenada 4 88% 59% 100% 0.40
Jamaica 4 4 4 92% 76% 95% 0.36
Haiti 4 34% N/a 80% 0.38
Nevis 4 88% 60% 85% N/a
Saint Kitts 88% 56% 85% N/a
Saint Lucia Mixed 88% 67% 100% 0.38
SVG 73% 49% 89% 0.36
Suriname 100% 74% 49% N/a
T&T 4 4 99% 48% 1% N/a
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The Caribbean electricity sector has seen significant PPP activity, as well as other forms of private investment—reflectingabroaderpoliticalacceptanceofprivate-sectorparticipationinenergy,comparedtootherinfrastructuresectorssuchastransportorwater.Of12electricityutilitiesinthecountriescoveredbythisreport,fourareprivatelyowned,asshowninTable4.1.Inthesmallerislands,mostelectricityutilitiesareverticallyintegrated,withjustacoupleofIPPsoperatinginAntiguaandSaintKitts.InthelargermarketsofJamaica,TrinidadandTobago,theDominicanRepublic,andHaiti,governmentshaveliberalizedgeneration,introducingIPPs,and(exceptinHaiti)establishedindependentregulators—althoughtheeffectivenessoftheseregulatorsvaries.AregionalregulatorisintheprocessofbeingestablishedintheOECS,withtwoprospectivemembercountriessofar.10
In this context, there is significant interest going forward in making greater use of IPPs, which in many cases can be considered as PPP arrangements.11 Thefocusisprimarilyonnew-generationtechnologies—particularlyfromgeothermalsources—thatincumbentutilities,whethergovernment-ownedorprivate,maynothavethetechnicalorfinancialcapacitytopursue.Table4.2belowdescribesthefoursuchprojectsthatarebeingactivelydeveloped(albeitatvariousstages)andhenceareincludedinthePPPpipeline.
Table 4.2: Potential Electricity PPP Projects
10TheEasternCaribbeanEnergyRegulatoryAuthority(ECERA)isbeingsupportedbytheWorldBankandtheOECSSecretariat.Formoreinformation,seetheECERAprojectinformationavailableontheWorldBankwebsite:http://www.worldbank.org/projects/P101414/eastern-caribbean-energy-regulatory-authority--ecera?lang=en&tab=overview.11Forthepurposesofthisreport,IPPsoperatingunderPowerPurchaseAgreements(PPAs)areconsideredPPPsincaseswheretheoff-takerisapublicutility,and/orwhereaconcessionagreementwithgovernmentisrequired.ThelatteristypicallythecasewheretheIPPismakinguseofresourcesthatareotherwiseundergovernmentcontrol—suchasgeothermalenergy,orwaste-to-energyplants.IPPscontractingwithprivately-ownedutilitiesarenotconsideredPPPs.
Country Project Description Status Next Steps
Dominica Geothermalgenerationplant
Upto120MWpotentialtobedevelopedin
twophases:10-15MWfordomesticuse;theremainderforexport
Explorationphasecomplete;drillingcontractsignedin
2012forfirstphase(domesticsupply)withdonorfinancing.
Ageothermalbillisbeingfinalizedtorefinesectorlegal
andregulatoryframework
PrepareandprocureaPPPcontractforthefirstphaseelectricitygenerationplant
Saint Kitts and Nevis
GeothermalgenerationplantinNevis
ExplorationMoUsignedin2007withWest
IndiesPowerHoldings(WIPH);potential
estimatedat300MWfrominitialdrilling
Stalledsinceinitialexplorationinfaceoflegalchallenges
Resolveoutstandinglegaldispute;confirmpotentialandtechnology;andassesseconomicandfinancial
caseforproject(wouldinvolveinter-connectionsandexport)
Saint Kitts and Nevis
NorthStarwindenergyprojectinSaintKitts
5.4MWwindfarmwithinvestmentcostofUSD
16.5m
Negotiationsunderwaywithdeveloper(whichhasOPIC
financing)—currentlystalled
Governmenttocompleteevaluationoftermsandconclude
negotiationsaccordingly
Saint Vincent and the Grenadines
Geothermalgenerationplant
Geothermalgeneration—scaleofpotentialunknown
ExplorationcontractsignedwithReykjavikandEmera
EnergyinJune2013—developersgrantedrightto
exploitanyresourcesprovenwithin6months
Ifexplorationsuccessful,negotiateexploitationandpowerpurchaseagreements;introduceenabling
legalframeworkforproject
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While these projects are being actively developed and so are included in the pipeline, they remain for the most part at a relatively early stage,andinthecaseofgeothermal,facesignificantuncertaintyandcomplexity.Oftheproposedgeothermalprojects,Dominica’sismostadvanced,andhasbeenreceivingsubstantialsupportfromdevelopmentpartners,includingtheEuropeanUnionandtheWorldBank.Likewise,theGovernmentofSaintVincentandtheGrenadinesisworkingcloselywiththeClintonInitiativetodevelopitsgeothermalexploration(withpotentialasyetunproven).ThecomplexitiesandcapacitychallengesfacingtheseprojectsarehighlightedbytheexperienceofSaintKittsandNevis,wherebothpotentialenergyprojectsarecurrentlystalled(andinthecaseofthegeothermalproject,havebeenstalledforsometime),givenprocesschallenges.
Several other governments expressed interest in greater use of PPPs in the energy sector, in addition to the projects listed above.Additionalprojectsbeingconsideredarealsolargelyinrenewableenergygeneration,whereunlikesomeothersectors,privateinvestmentappearspoliticallypalatablethroughoutmostoftheregion.However,theseprojectshavenotyetbeenincludedaspipelineprojectsbecauseofthebarriersthatwouldneedtobeovercomeforthemtomoveforward.Theseconsistof:
• Sector-wide barriers—somegovernmentsarestillintheprocessofdevelopingsector-widestrategiesormajorreformprocessesthatwouldneedtoprecedeanyprivateinvestment.Forexample,theGovernmentsofSurinameandGrenadabothexpressedstronginterestinIPPsforelectricitygeneration,butwouldfirstneedtocompleteon-goingorproposedsectorreformprocesses.TheGovernmentofHaitiisalsoconsideringsectorreformoptionsthatcouldinvolvetheprivatesectormorewidelyacrosstheelectricitysub-sectors,asawaytoimproveperformanceandenableinvestment,butthisprocessisatanearlystage.
• Technology barriers—somerenewableenergytechnologiesthatareattractinginterestarenewtotheregion.Inparticular,fourcountriesexpressedinterestinwaste-to-energyprojects,butacknowledgethatthistechnologyisasyetunprovenatscalesthatwouldpertainintheCaribbean.
Furthermore, energy generation and supply is a sector in which there may be significant value from regional solutions, which have yet to be fully explored.Allofthegeothermalprojectsdescribedabove,ifdevelopedtotheirfullpotential,wouldhaveregionalimplications,astheywouldinvolvecross-borderpowersupply(althoughtheviabilityofcableinter-connectionshasyettobeestablished).Otherregionalsolutionshavebeenmooted,inparticulararegionalapproachtosupplyofLiquidNaturalGas(LNG)andconversionofgenerationfacilitiestorunonLNG.Thisideaisatanearlystage,andhasyettogaintractionintheabsenceofaclearchampionoreffectiveregionalcoordinationmechanism.TheIDBissupportingafeasibilitystudyforaregionalapproachtoLNGsupply,comparedtoalternativessuchasgreaterinvestmentinrenewableenergygeneration,withaviewtobuildingconsensusandacoalitionaroundsuchaproject.
There may also be opportunities for PPP in performance-based energy efficiency contracts, although no such projects are currently being pursued.Suchopportunitiestypicallyinvolvegovernmentsworkingwithaprivateoperatortoimprovetheenergyefficiencyofpublicbuildingsandinstallations,particularlywherethesearecurrentlyenergyinefficientorintensive—anattractiveoptioninlightofhighelectricitycosts.Forexample,undersuchamodel,aprivateoperatororenergyservicecompany(ESCO),couldinvestinretrofittingagovernmentbuildingwithenergy-efficientlightingandcoolingsystemsandreceivepaymentsbasedonthereductionsinenergyconsumptionoveramulti-yearperiod.
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4.3 WATER SECTOR
Caribbean water utilities, all publicly owned companies, have generally performed well in terms of access—but are characterized by inefficiencies.12 ExceptinHaiti,morethan80percentofthepopulationinthecountriescoveredbythisstudyhasaccesstoimprovedwaterandsanitation,althoughsupplymaybeunreliable.Keyefficiencyissuesincludeoverstaffing—atypicalCaribbeanwaterutilityhasabouteightstaffper1,000connections,comparedtotheindustrybestpracticeoffewerthanfour.Largelossesareamajorchallenge.“Non-revenuewater”ofabout40to60percentisnormalinCaribbeanwaterutilities—highincomparisontoabout20to30percentachievedbymanyemerging-marketwaterutilities,andbestpracticelevelsofunder20percentinsomecountries.Caribbeanwaterutilitiesalsosufferfromthehighcostofelectricityinmostcountriesintheregion.
Notwithstanding the apparent potential for performance improvements, there is limited interest in private investment or PPP in water and sanitation. Thisismainlyduetopoliticalandpublicoppositiontoprivateinvolvementinthesector,whichisseenasinherently“non-commercial.”ThefewexamplesofPPPorotherformsofprivateinvestmentindeliveryofwaterandsanitationserviceshavehadlimitedsuccess.Forexample:
• InHaiti,anaffermagecontractisinplaceforthecityofSaintMarc,andamanagementassistancecontractwassignedin2011forPortAuPrince.However,experiencewiththesecontractsisnotencouraging.InSaintMarc,theoperatorhasnotbeenabletochargecostrecoverytariffsandisoperatingataloss.InPortauPrince,thecontractor(Suez)hasimprovedqualityofserviceandfinancialperformance,buthasnottransformedtheutilityintoaself-sustainingentity.
• InSaint Lucia,thegovernmentattemptedtointroduceprivateparticipationinthewatersector,butfailed.In2008,thegovernmentcorporatizedWASCOandestablishedaframeworkforpartialprivatizationoftheutility.However,thetransactionwasabortedatthefinishlinewhenalosingbidderthreatenedlegalactionagainstthegovernment,withlackofpublicsupportanexacerbatingfactor.
There may be greater scope for other types of PPP in the water sector that are not customer-facing.TherearefourexamplesofPPPsforbulkwatertreatmentplants—oneeachinAntiguaandNevis,andtwoinTrinidad(thelatterthreebeingdesalinationplants)—ineachcasesellingwaterunderabulkwatersupplyagreementtoapubliclyrunutility.SimilararrangementsarecurrentlybeingconsideredinJamaicaforbothbulkwatersupplyandwastewatertreatmentplants.Thesecomprisethethreewaterprojectsincludedinthepipelineof33potentialPPPs.
Other more limited PPP arrangements could include performance-based contracts for reduction in non-revenue water (NRW), or energy efficiency of water utilities.NRWreductionprojectscanbestructuredinwhichtheprivateoperatorsharesthecostsofreplacementofleakingwaterpipes,inreturnforlong-termpaymentsbasedonreductionsinNRW.Underperformance-basedenergyefficiencycontractswithESCOs,asdescribedinsection4.2above,privatecontractorswouldaudittheenergyconsumptionofwaterutilities(whichintheCaribbeantendtobehigh),andreceivepaymentonreductionsinenergycosts.However,wefoundnoCaribbeangovernmenttobeactivelyconsideringthesetypesofengagementsinthewatersectoryet.
4.4 TELECOMMUNICATIONS SECTOR
Ownership and operation of telecommunications services in most Caribbean countries is already in private hands. Ofthe11countriesinthisstudy,government-ownedtelecommunicationsutilitiesremainonlyinAntiguaandBarbuda,Suriname,andTrinidadandTobago(inallcasesalongsideprivatecompaniesoperatingunderlicenses).Asinmostoftheworld,thesectorhasseensignificantgrowthinthelasttwo
12Source:CastaliabenchmarkingofCaribbeanwaterutilities.
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EMERGING PPP OPPORTUNITIES
decades,particularlyinthemobilesector.Penetrationofmobileservicesisaboutormorethan100percentinalmostallthecountriescoveredinthisstudy,withHaiti(60percent)andtheDominicanRepublic(87percent)asnotableexceptions.13
However, infrastructure gaps remain, which PPP arrangements could help address.Inparticular,broadbandpenetrationremainslow,atbetweenfiveand30percentinthecountriescoveredbythisstudy.ThemotivationforPPPintelecommunicationsisprimarilyinsub-sectorswhereincentivesoranchorpurchasecommitmentsfromthegovernmentmaybeneededtopromptfurtherprivateinvestment.Thiscouldincludedomesticbackbonenetworksforhigher-speedbroadband,submarinecableinfrastructurewithinandacrossborders,andnationalandregionalinternetexchangepoints(IXPs).SeveralgovernmentsintheregionareactivelypursuingPPPprojectsintheICTsector,andfoursuchprojectsareincludedinthePPPpipeline.
The World Bank is supporting the development of ICT infrastructure under PPPs through its Caribbean Regional Communications Infrastructure Program (CARCIP) project.14 CARCIPisworkingwithgovernmentsintheregiontoassessanddevelopICTinfrastructureprojectsaddressingthegapsdescribedabove—bothatthenationallevel,andthosewithregionalimplications.Theprojectalsoincludesdevelopmentofpolicyandregulatoryframeworksneededtosupporttheseinvestments,andsupporttoinnovativeITindustriesthatwouldtherebybeenabled.TheCARCIPprojectiscurrentlyworkingactivelywiththeGovernmentsofSaintLucia,SaintVincentandtheGrenadines,andGrenada,comprisingthreeofthefourpipelineprojectsintheICTsector.ThelackofgovernmentcapacityandprocessesforprocuringPPPs—bothatthenationalandregionallevel—havebeenidentifiedbytheCARCIPteamaspotentialbottlenecksfortheseprojects.4.5 SOCIAL AND GOVERNMENT INFRASTRUCTURE SECTORS
While the focus of the Roadmap is on core infrastructure—transport, power, water and telecommunications—interest in PPP in the region goes beyond those sectors.Globally,somegovernmentshaveusedPPPstodeliverinvestmentprojectsinsocialsectors(suchasschools,healthcarefacilities,orprisons),aswellasgovernmentinfrastructuresuchasofficebuildings.SeveralCaribbeangovernmentsarelookingintothesetypesofPPPprojects.
Most of these projects do not generate revenues from users, and are remunerated by government payments over the contract lifetime.TherationaleforPPPinthesecasesisbasedonmoreeffectiveorefficientprovisionoftheseassetsandservices,drawingonprivate-sectorexpertiseandincentives.ThesePPPsdotypicallyalsochangehowprojectsarereflectedinbudgetsandnationalaccountsinawaythatcanappeartocreatefiscalspace—convertinganupfrontcapitalexpenditurefortraditionalprocurement(oftendebt-financed)intoarecurrentexpenditureovertheprojectlifetime.However,sinceinbothcasesthegovernmentpaysfortheassetinfull,thereisnosubstantivedifferencebetweenthesetwoarrangements.Governmentsmustbecarefultoassessthelong-termcostsofthesetypesofPPPs.15
Six of the 33 pipeline PPP projects are in the social and government infrastructure sectors.Thesecomprisetwohealthcareprojects,twoeducationprojects,onegovernmentofficecomplex,andonesetofcourtbuildings,allofwhicharestillattheconceptstage.Forexample,theGovernmentofTrinidadandTobago,withsupportfromtheIDB’sMIF,isintheprocessofengagingadvisorstoassessthefeasibilityandbusinesscasefor10earlychildhoodeducationcentersandprimaryschools,andthreeimagingandlaboratorydiagnosticcenters,bothunderPPPcontracts.
13Source:http://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx,accessedJanuary2014.14FormoreinformationonCARCIP,seehttp://www.ctu.int/carcip/143.15WhileinternationalnormsforcapturingPPPsinpublicaccountsarestillevolving,thereisageneraltrendtowardsrecognizingsuchprojectsasconstitutingpublicassetsandliabilities.Inthiscasetheimpactonnationaldebt,forexample,isthesameunderbothaPPPandadebt-financedtraditionalprocurement.
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Learning From Experience: PPP Constraints
Experience suggests Caribbean governments may face constraints in developing successful PPP projects and programs,notwithstandingthehighlevelofinterestandpromisinginitialPPPpipelinedescribedinSection4.Theseconstraintsareoftwobroadtypes.ThefirstareimplementationchallengesthatCaribbeangovernmentsmayfaceinturningthepotentialPPPpipelineintosuccessfulprojectsontheground.Thesecondarebarriersconstrainingfurtherexpansionofthatpipeline—thatis,limitingthenumberofviablePPPprojectsintheregion.Thissectionexplorestheseconstraints,withaviewtoidentifyingwhetherandhowtheycouldbeovercomebygovernmentstoenablesuccessfuluseofPPPintheCaribbean.
5.1 IMPLEMENTATION CHALLENGES
Experience in the Caribbean suggests that governments may face implementation challenges in turning the potential PPP pipeline into successful projects on the ground.CaribbeancountrieshaveimplementedPPPs,asdescribedinSection3,andseveralaresuccessfullyprovidingimprovedinfrastructureservices.However,othershaveexperiencedproblemsinimplementation.Itisworthlearningfromthisexperience,tounderstandwhatconstraintsmaybefacedindevelopingthepotentialPPPpipelineprojectspresentedinSection4above.PreviousimplementationproblemsforPPPsintheCaribbeanhaveincluded:
• Fiscal surprises.ThereareseveralexamplesofPPPprojectsgivingrisetofiscalsurprises,orunexpectedfiscalcosts—includingforexamplethewell-documentedcasesoftollroadsintheDominicanRepublic,andthefirstphaseoftheHighway2000inJamaica.Thesesurprisescanariseforseveralreasons.Firstly,insufficientlyrigorousprojectduediligenceandplanningcanmeanaprojectissimplypoorlyspecified.Second,governmentsmayhaveacceptedrisksthattheymaynotbebest-placedtomanageandthatcouldhavebeentransferredtotheprivatesector.Finally,evenwhererisksacceptedbygovernmentsarereasonable,insufficientfiscaloversightcanmeantheserisks(andinsomecases,evendirectprojectliabilities)areacceptedwithoutcarefulassessmentoftheircostsandpotentialfiscalimpacts.
• Questionable value for public money.Wherefiscalsurprisesarosefrompoorprojectspecificationandriskallocationdescribedabove,thisimpliesnotjustthatthecostwasunplanned(creatingfiscalchallenges),butalsothatitmaynothavebeenthebestuseofgovernmentresources.Asecondproblemwithvalueformoneymayariseintheprojectdevelopmentprocess:manyPPPprojectsintheCaribbean—includingfiveofthoseinthecurrentpipeline—originatefromunsolicitedproposals.Theseareoftenreceivedatahighpoliticallevel,thendirectlynegotiatedwiththeoriginatinginvestor.Insuchcircumstances,withoutcompetitivepressure,itisveryhardtoknowwhethertheprojectprovidesvalueformoney.
• Deal closing delays.Manyprojectsenduptakingsignificantlylongerthanoriginallyexpectedtoreachfinancialclose.ChallengesalwaysariseinthecourseofdevelopingPPPs—thequestioniswhetherthesecouldhavebeenanticipatedanddealtwithmoreefficientlyiftheprocesswerebetterdefined,andduediligenceandprojectpreparationmorecomprehensive.Insomecases,lackofexperienceinPPPdevelopmentmaygiverisetomisunderstandings,resultinginchallengesordelaystoprocesses,suchasthoseexperiencedinbothIPPprojectscurrentlybeingdevelopedbytheGovernmentsofSaintKittsandNevis.
In addition to these implementation problems, there are many more potential PPP projects that have simply failed to launch—evidencedbythenumberofPPPconceptsthatremaininthepipelinedespitehavingbeenindiscussionforsometime.ManygovernmentsareinterestedinPPPsandhaveideasforprojects(someoriginatingfromtheprivatesectorthroughunsolicitedproposals),buthavenotsucceededinmovingtheseprojectsforward.Thiscanbesimplyduetoalackofclarityonhowbesttodoso,intheabsenceofdefinedprojectselectioncriteria,processes,andresponsibilities,particularlygivenlimitedPPPexperienceamonggovernmentstaffatalllevels.Lackofregionalcoordinationmechanisms,inparticular,hasresultedinverylittleprogressonpotentiallybeneficialregionalPPPprojectsthatlackanobviouschampion.
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Many of these PPP implementation problems can be traced back to the lack of “PPP architecture” across most of the Caribbean,asillustratedinFigure5.1below.Inotherwords,thesearethetypesofproblemsthatcountrieswithsuccessfulPPPprogramshavetypicallysolvedbyintroducingPPP-specificpolicyandinstitutionalframeworks—bydefiningclearprocessesformanagingPPPsthatensurethoroughprojectduediligenceandpreparation;definingresponsibilitiesforcarryingoutthoseprocesses;andbuildingcapacitytodoso(bothinternal,andthroughtheuseofwell-qualifiedadvisors).Section6belowdescribesactionsthattheCaribbeangovernmentscouldtake—individuallyandcollectively—toovercometheseconstraintsandmoveforwardsuccessfullywiththepipelineprojectsdescribedabove.
Figure 5.1: Constraints Arising from Limited PPP Policy and Institutional Architecture
5.2 BARRIERS TO PPP
PPP constraints in the Caribbean go beyond implementation challenges, to barriers that may limit the extent of viable PPP projects—thatis,constrainfurtherexpansionofthepipeline.Theseincludetheneedformajorsectorreformasapre-requisitetoimplementingPPPs;lackofpoliticalsupportforprivateinvestmentininfrastructure,whetherinparticularsectorsorinacountryasawhole;andlimitedmarketabilityofsmaller-scalePPPprojects.Thesebarriers,andtheirimplicationsfortheoutlookforPPPsasawhole,aredescribedinturnbelow.
Need for major sector reformSuccessful PPPs need conducive and stable legal, regulatory, and policy environments in the relevant sectors.Insomecases,thismeanstheuseofPPPsinasectorisdependentonabroadersectorreformprocess.ThisappliestotheelectricitysectorinafewCaribbeancountries,asnotedinSection4.2above.Forexample,whereapublicly-ownedutilityisloss-makingduetotariffsfallingbelowcost-recoverylevels,tariffreviewandreformmaybeneededtoenablethatutilitytobeacrediblepublicpartnerforIPPinvestorsinnew-generationassets.PPPopportunitiesalsodependonthesectorstructure.InsomeofthesmallerCaribbeanstates,theelectricityutilitywasprivatizedasavertically-integratedmonopoly—creatingalegalbarriertotheuseofPPPsinthesectorthatinterestedgovernmentswouldneedtoworkwithincumbentoperatorstoovercome.InHaiti,asnotedabove,clarityonbroadersectorreformisneededbeforespecificPPPopportunities(whetherindistributionorgenerationorboth,forexample),couldbeidentified.
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The need for legal and regulatory reform need not always be a barrier to pursuing a PPP. Insomecases—typicallyforone-offPPPprojectssuchasconcessionsforexistingassetsornetworks—theprocessofdevelopingaparticularPPPprojectcanincludemakingchangestoasectorlaworregulatoryframework.Thiscancausedelaysifnotcarefullyplanned—fortheSangsterInternationalAirportconcessioninJamaica,forexample,theneedtoamendsectorlegislationemergedduringprojectpreparationandtookseveralyearstoresolve—butinthecontextofaclearsectorstrategy,andprovidedthereispoliticalsupportforsuchchanges,itdoesnotnecessarilyconstituteabarriertopursuingthePPP.
Lack of political supportA further barrier to the greater use of PPPs in the Caribbean is the level of political interest in private-sector involvement in infrastructure.Whereasthe33projectsinthePPPpipelinepresentedinthisRoadmapallappeartohavesupportfromtheirrespectivegovernments,therearemanymoreprojectideasorpotentialareaswherePPPscouldmakesensebutwheretheylackpoliticalsupport,orindeedfacepoliticalopposition.Thisdearthofpoliticalwillhasmanyroots,includingskepticismofindividualprojectsandforeigninvestorsingeneral.However,therearetwobroaderreasonswhypotentiallybeneficialPPPprojectsmaynotattractpoliticalsupport:• Experience with PPPs that did not work as hoped.Forexample,thereluctanceofthecurrentadministrationintheDominicanRepublic
todomorePPPprojectscanbetracedlargelytobadexperienceswithpreviousprojects—unexpectedfiscalcostsfromtollroads,asdescribedabove,andperceivedhighcostsofelectricityfromIPPs.Inthiscase,amoredetailedreviewofPPPexperiencescouldhelp—toidentifywhatwentwrong,andwhetherandhowtheseproblemscouldbeovercometoenableasuccessfulreturntousingPPPsinthefuture.
• Policy preference for state-directed development and public ownership.ThereisalongtraditionofstateownershipofutilitiesandotherinfrastructureintheCaribbean,andinsomecountriesandsectors,thereisstillapoliticalconsensusinfavorofthestate-ownershipmodel.Forexample,politicalandpublicpreferenceforpublicownershipanddeliveryofwaterservicesremainswidespreadintheregion.
This barrier, although currently a binding constraint in some countries and sectors, may erode over time as experience with PPPs in the Caribbean grows. Attemptsto“push”PPPsabsentbroadpoliticalandpublicsupportarerarelysuccessful.Nonetheless,internationalexperiencesuggeststhatprojectsuccessesinsomesectorsandcountriescancreate“demonstrationeffects”elsewhere—graduallychangingpoliticalandpublicperceptions,andperhapsopeningthedoortotheuseofPPPswherethesecouldhelpmeetinfrastructuregoals.
Limited marketability of smaller-scale PPP projectsCaribbean countries have managed to attract private-sector investment in infrastructure, notwithstanding their small size.Section2listedexamplesofprivateinfrastructureprojectsacrossthe11countriesincludedinthisstudy,mostofwhichhavebeensuccessful.LargercountriessuchastheDominicanRepublic,Haiti,andJamaicahaveattractedlargeinternationalinvestorsandoperatorstoPPPsintheelectricity,water,androadssectors.Smallercountrieshavealsoseeninfrastructureinvestmentbyinternationaloperators—particularlyinmobiletelecommunications,wheresimilaropportunitiesexistedacrossmultiplecountriesintheregion.
However, as the “big” deals are picked off, reduced interest from investors in smaller-scale PPP investments could become a barrier to further expansion of the pipeline.Forexample,accordingto“rulesofthumb,”manyCaribbeanportsandairportsarebelowthescaleusuallyconsideredviableforPPP.WhileCaribbeancountriescannotovercomethechallengesforinfrastructureprovisioninherentintheirsmallsize,theymaybeabletomitigatetosomeextenttheresultantlimitationsonthegreateruseofPPPsintheregion.
Regional approaches to PPP could help overcome this barrier.Insomesectorssuchasenergyandtransport,therecouldbesignificantvaluefromregionalprojects,asdescribedintherelevantsectionsabove,whichhaveyettobefullyexplored.Moreover,evenforprojectsatthenationallevel,aregionalapproachtodevelopingandmarketingPPPpipelinescouldhelpengagegreaterinterestfrominternationalinvestors.
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Binding constraint(s) Significant constraint(s)
Transport
• LackofpoliticalsupportfortransportPPPsinsomecountriesandsub-sectors
• Limitedmarketabilityofsmaller-scaleprojects
• Needforregionalcoordinationonsectorpolicy,particularlyinseaandairtransport
Energy
• Needforsectorreforminsomecountries
• Needforregionalcoordinationtoenablepossibleregionalprojects
Water • LackofpoliticalsupportforwaterPPPsinmanycountries
• SectorreformsmaybeneededtoenablePPPsinfutureifpoliticalinterestchanges
ICT• Needforpolicyclarityatthenational
level,andregionalcoordinationinsomecases
More opportunities could emerge if regional coordination is strengthened; demonstration effects may help address mixed political perspectives
More opportunities could emerge if regional coordination is strengthened; demonstration effects may help address mixed political perspectives
More opportunities could emerge if regional coordination is strengthened; demonstration effects may help address mixed political perspectives
More opportunities could emerge if regional coordination is strengthened; demonstration effects may help address mixed political perspectives
Implications for Sector PPP Outlook
However,bothcaseswouldrequirealevelofregionalcooperationthathasprovedchallengingtodate.Section6belowdescribesactionsattheregionallevelthatcouldhelpimprovecoordinationandenableregionalPPPsolutions.
Caribbean governments could also consider targeting a wider range of investors—includingeducatingandencouraginglocalentrepreneurstogetintothebusiness,andseekingregionalplayerstoelicittheirinterest.Forexample,whentheGovernmentofTurksandCaicoswantedtoprivatizeitselectricityutility(whichwaslosingmoneyandwasunder-maintained),itapproachedWRB,theFlorida-basedcompanythatsuppliedandmaintainedtheutility’sgenerators.ThegovernmentaskedWRBifthecompanywouldliketotransitionfrommaintainingthegeneratorstooperatingthewholeutility.WRBagreed—andlaterdevelopedintoaregionaloperator,investinginandmanagingtheutilitiesinDominicaandGrenadaaswell.
Summary: Implications of barriers for PPP outlookThese barriers are of varying severity, and apply to different extents across sectors and countries.Forexample,country-levelelectricity-sectorreformsareon-goingthatcouldunlockmorePPPopportunitiesintheshortterm,whilesupportisalreadyinplaceforregionalanalysisintheelectricityandtelecommunicationssectors(asdescribedinmoredetailinSection4above).Ontheotherhand,negativepoliticalandpublicperceptionswilllikelytakelongertoovercome.Figure5.2summarizestheimplicationsofthebarriersdescribedaboveforthePPPoutlookbeyondthecurrentpipelineinthecoreinfrastructuresectorsintheCaribbean.
FigueFigure 5.2: Summary of Barriers and Implications for PPP Outlook
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The Way Forward: PPP Actions
There is clearly growing interest in using PPPs to deliver infrastructure in the Caribbean, and a significant potential pipeline of PPP projects thatappearimplementableintheshorttomediumterm.Goingforward,thispipelinecanbeexpectedtoexpand,particularlyifbarrierssuchastheneedforsectorreformcanbeovercome(althoughotherconstraintssuchaslackofpoliticalsupportforPPPsmaybemoreintransigent).However,CaribbeancountrieshaveinthepastexperiencedchallengesinturningPPPpipelineideasintosuccessfulPPPprojects.AsdescribedinSection5,theseproblemscanlargelybetracedtomissing“PPParchitecture”—thatis,thepolicies,institutions,andcapacityneededtomanagePPPswell.
Capitalizing on the region’s PPP potential will require actions on two fronts: building “PPP architecture,” and moving PPP projects forward.Formanycountries,itwillmakesensetoadvanceonbothfrontsatonce.Thisparallelapproachhelpsensurethatinstitutionsandprocessesarefoundedonexperience,needs,andpracticalrealities.ItalsohelpsbuildpoliticalandmarketmomentumbehindPPPprogramsbymovingforwardwithdeals.Whilethisstrategyinvolvessomecompromises,riskscanbemitigatedbybringingintrustedadvisorswithexperienceinselectinganddevelopingPPPs.Advisors’experiencecanserveasasubstituteforfullydevelopedprocessesandinstitutions,andallowthecountrytolearnbydoing.
Regional approaches to support PPPs are worth considering, given that interest in PPPs, potential constraints, and likely solutions are common across many Caribbean countries.ActingattheregionalleveltosupportPPPsintheCaribbeancouldmakesenseforseveralreasons:• Achieving economies of scale and efficiency.Giventhatthelackof“PPParchitecture”iscommontomostCaribbeancountries,many
governmentswillfacesimilarneedsindevelopingPPPpoliciesandtools,andinbuildingthecapacityneededtoimplementPPPswell.Addressingsomeoftheseneedscollectivelycouldmakesense,to:overcomediseconomiesofscaleatthenationallevelwhenitcomestoinvestinginbuildingPPPcapacity;avoidre-inventingthewheel’andenablegovernmentstolearnfromeachother’sexperiencesindevelopingPPPprojects.
• Creating a regional PPP market.AsdescribedinSection5above,thesmallscaleofCaribbeanPPPprogramsandprojectsmakeithardertoattractqualifiedinvestors.CoordinatedeffortsonPPPcanhelpfosteraregionalPPPmarket,withamoresubstantialpipeline,creatingamoreattractiveprospectforinternationalcompanies,aswellasfordevelopmentpartnersseekingtosupportPPPinitiativesintheregion.
• Enabling regional projects.SomeoftheCaribbean’sinfrastructureconstraintscouldbemoreeffectivelyaddressedbyprojectsattheregionallevel,asdescribedinSection4above,toovercomediseconomiesofscaleininfrastructureprovisionatthenationallevel.However,todatetherehasnotbeenaneffectivecoordinationmechanismforbringingsuchmutuallybeneficialprojectstobear.AregionalapproachtoPPPcouldprovidesuchamechanism.
Sections6.1to6.3belowdescribetheactionsthatCaribbeangovernmentscantake—individuallyandcollectively—todevelop“PPParchitecture”(comprisingpolicyframeworksandinstitutionalcapacity)andmoveforwardsuccessfullywithPPPprojects.Finally,Section6.4describesthesequencingoftheseactionsandpossibleimplementationchallenges,andhowdevelopmentpartnerscouldworktogetherinaregionalapproachtosupportPPPintheCaribbean.
6.1 PPP ARCHITECTURE: POLICY FRAMEWORKS
Summary of Actions to establish and strengthen PPP policy frameworks:• Develop a “model” PPP policy for the region, based on existing examples, supported by a set of common guidance material and tools; and• Draw on this model to implement national-level PPP policies or laws that reflect country-specific institutional structures and PPP
program needs.
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Most countries with a successful PPP program have built that program on a sound PPP policy framework.PPPpoliciesguidegovernmentagenciesandmarketparticipantsonhowPPPswillbedone.AsdescribedinSection3above,ofthecountriescoveredbythisstudy,onlyJamaicaandTrinidadandTobagocurrentlyhaveaPPPpolicyinplace.AnyotherCaribbeancountrythatwishestomakesignificantuseofPPPsgoingforwardwouldbenefitfromintroducingaguidingpolicyframework;severalgovernmentshavealreadyexpressedinterestindoingso.
PPP policy frameworks are typically established in an overarching policy document or law that sets out at a high level the key parameters of the PPP program.ThesecanincludethescopeandprioritiesforPPPprojects;theguidingprinciplesbywhichPPPswillbedeveloped;thecriteriaandprocessesbywhichPPPprojectswillbeidentified,developed,andimplemented;andtheresponsibilitiesfordoingso.Experiencevariesastowhetherthisguidingdocumentisapolicyoralaw,oracombinationofthetwo,asdescribedinBox6.1.
Box 6.1: PPP Policies and Laws
PPP policies or laws are often supplemented with guidance material, or regulations, setting out PPP processes in more detail.SuchprocessesmaycoverhowtoselectaprojectfordevelopmentasaPPP,howtoselecttheprivatepartnerfortheproject,andhowtomonitortheprivatepartner’sperformance.BothJamaicaandTrinidadandTobagoarecurrentlyintheprocessofdevelopingPPP“manuals”andassociatedtemplatesandtoolstosupporttheirPPPpolicies.
Policies are clearly country-level decisions. Nevertheless, there are opportunities to benefit from regional cooperation in developing policy frameworks. HarmonizedpolicieswithsimilarPPPdevelopmentprocesseswouldhelpfosteraPPP“market,”withtheadvantagesdescribedabove.Moreover,processmanualsandtoolswouldlikelybesimilarformanycountries,meaningthatgovernmentscouldsavetimeandmoneybydevelopingandusingcommonmaterials.Forexample,regionalcooperationonPPPpolicyframeworkscouldinvolvedevelopinga“model”policy,processmanual,andtools—basedonexistingexamples,suchasthoseinJamaicaandTrinidadandTobago—fromwhichcountriescoulddrawwhenintroducingnationalPPPpolicies.
DifferentcountrieshavedifferentapproachestoestablishingPPPpolicyframeworks—theguidingprinciples,processes,andinstitutionalresponsibilitiesforimplementingPPPs.Manycountriesintroducea“PPPLaw”orotheroverarchinglegislation;othersrelyonaPPPPolicy,implementedthroughacabinet-leveldecision.
Theapproachdependstosomeextentonthelegalsysteminthecountry.Countrieswithcivil-lawsystemstypicallyuselawstoprescribegovernmentbehavior.MostLatinAmericancountries’PPPprogramsarebasedonPPPorConcessionLaws;HaitiandtheDominicanRepublic,forexample,wouldlikelyrequireasimilarapproach.Incommon-lawcountrieswithWestminster-stylesystemsofgovernment,whichincludemostoftheEnglish-speakingCaribbean,PPPframeworksmaybeestablishedthroughpoliciesratherthanlaws.ThisistheapproachtakentodateinJamaicaandinTrinidadandTobago,anditbuildsonpracticesdevelopedintheUnitedKingdom,AustraliaandNewZealand.
Therearealsopracticaladvantagesanddisadvantagestoeachapproach.APPPLawcanbeconsideredmorebindingthanapolicyandmorelikelytoendurechangesingovernment—providinggreatercomforttoinvestors.Atthesametime,alawishardertochangeinresponsetoexperienceortheevolvingneedsofaPPPprogram.Forthelatterreason,well-designedPPPlawstypicallyfocusonenduringprinciplesratherthandetails,andapolicymayworkbetterintheearlydaysofaPPPprogram.
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6.2 PPP ARCHITECTURE: INSTITUTIONAL CAPACITY
Summary of Actions to build the institutional capacity needed for successful PPPs:• At the national level, designate PPP “focal points” to coordinate the PPP program;• Consider establishing a regional “PPP unit”—to support governments in implementing PPP transactions (including by hiring and
managing experienced technical advisors), and to be a regional repository of PPP experience and knowledge; and• Coordinate regional PPP training initiatives: both immediate training programs for current government officials likely to be involved
in a PPP; and education in relevant skills for future generations of public- and private-sector employees.
Developing and implementing PPP projects is a demanding process for governments.ItrequiresexpertiseinstructuringPPPcontracts(andmanagingexternaladvisorysupportindoingso),tomatchtheexperiencebroughttothetablebypotentialprivatepartners.Italsorequirescoordinatedinputs,reviews,andapprovalsfrommanyentitiesacrossgovernment—asistypicalforpublicinvestmentprojects—toensuretheprojectalignswithprioritiesandfiscalconstraints.
To help meet these demands, many governments designate a specific team to support and coordinate the development of PPP projects,andtoactasarepositoryofexperienceandknowledgeonthesubjectofPPPforthegovernment.Commonrolesofsuch“PPPUnits,”aswellastheotherentitiestypicallyinvolvedinthePPPprojectlifecycle,arehighlightedinFigure6.1below.
Figure 6.1: Typical PPP Program Functions and Responsibilities
PPP Program Functions Typical Responsibilities
Approving PPP projects CabinetorParliament(parallelswithpublic-sectorinvestmentplanning)
Coordinating PPP policy PPPUnit
Managing fiscal implications MinistryofFinance(MOF)
Identifying PPP projects Ministries,Departments,andAgencies(MDAs)—withPPPUnitand/orMOFsupport&input(parallelswithpublic-sectorinvestmentplanning)
Guiding PPP development Project‘steeringcommittee’underMDA
Undertaking due diligence (with advisors) MDA-ledprojectteamwithPPPUnitsupport
Implementing transactions(with advisors) MDA-ledprojectteamwithPPPUnitsupport
Managing PPP contracts Varies:PPPUnit/MDAs
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Three such PPP Units currently exist in the Caribbean. InJamaicaandTrinidadandTobago,therolesandresponsibilitiesoftheseunitswereestablishedintheirrespectivePPPPolicies,asdescribedinSection3above.InJamaica,themainimplementingteamforthePPPprogramisaPPPUnitintheDevelopmentBankofJamaica(DBJ),whichworksintandemwithaPPPNodeintheMinistryofFinanceandPlanning.InTrinidadandTobago,aPPPUnitwasestablishedintheMinistryofFinance.APPPUnitwasalsoestablishedinHaiti’sFinanceMinistryin2012,althoughwithoutaguidingpolicy,theroleandmandateofthisunitremainssomewhatunclear.
Other Caribbean countries that intend to make greater use of PPPs will likely also benefit from establishing a clear “focal point” for their PPP programs.Thelocationofthisfunctionineachcountrywilldependonexistinginstitutionalcapacitiesandmandates.Forexample,inJamaicathePPPUnitwaslocatedintheDevelopmentBankofJamaica,tocapitalizeontheexperienceofanexistingprivatizationteam.Manycountries,suchasTrinidadandTobago,choosetolocateaPPPUnitwithintheMinistryofFinance—takingadvantageofthisministry’sexistingroleincoordinatingeconomicpolicyandexpendituredecisions,andthefinancialliteracyofitsstaff.
However, given the limited scale of PPP programs, particularly on smaller islands, it may be inefficient for each government to build a dedicated PPP team. WherepipelinescomprisejustahandfulofPPPprojects,itmaynotmakesenseforgovernmentstodesignatededicatedteamswiththefullrangeofexpertise—legal,economic,andfinancial—typicallyfoundinfull-fledgedPPPUnits.Inthesecases,itmaymakemoresensetoassignresponsibilityforPPPstoanexistingteamorindividualtoactasa“focalpoint,”andtorelymoreheavilyonoutsourcingtoexperiencedPPPadvisorsforspecificprojects.ThisalsoraisesthequestionofwhetherbuildingcapacityattheregionallevelcouldbeanefficientapproachfortheCaribbean—tothisend,Box6.2belowexplorestheideaofaregional“PPPUnit.”
Box 6.2: How Could a Regional PPP Unit Work?
CaribbeangovernmentsfacecommonchallengesinimplementingPPPs—centralamongtheseisthechallengeofbuildingandsustainingsufficientcapacitytoimplementPPPprojectswell,givennecessarilylimitedPPPpipelines.Moreover,governmentscanfinditdifficultorbereluctanttoinvestinengagingexperiencedexternaltechnicaladvisorysupporttopreparePPPprojects.
Inthiscontext,itmakessensetoconsiderbuildingthiscapacityattheregionallevel.Thiscouldtaketheformofa“regionalPPPunit,”whichcouldprovidesupporttonationalgovernmentsinimplementingPPPtransactions,includingbyengagingandmanagingspecialisttechnicaladvisorstosupportthatprocess.Arevolvingfundhousedwithinsuchaunitcouldalsoprovideasustainablesourceoffundingforfundingtransactionsandcontractingadvisors,bychargingsuccessfeestowinningbidders.
SuchaunitwouldpartlymimictheroleofPPPimplementationunitsthatareoftenestablishedatthenationallevelbycountrieslookingtoimplementsignificantPPPpipelines.Thatsaid,aregionalPPPunitcouldnotreplacetheneedforoversightofPPPprojectimplementationatthenationallevel—forexample,therelevantgovernmentwouldneedtodeterminetheconsistencyoftheprojectwithnationalandsector-levelstrategies,fiscalprioritiesandconstraints,andapprove(ornot)aprojectonthatbasis.Theroleofaregionalunitcouldbetomanagetheday-to-day,detailedtransactionpreparationandimplementation,bringingtobearthespecificskillsandexperienceneededtodososuccessfully. (continued on page 32)
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The approach to staffing PPP “focal points” will likely vary by country, and could involve both building and hiring in skills and expertise.Thenumberoffull-time-equivalentstaffneededwilldependontheexpectedscaleofthePPPpipeline.WhereexistingstaffhaverelevantskillsandcanbemadeavailabletofocusonthePPPprogram,thiscouldprimarilyinvolvetrainingonPPP-specifictopicstoenablethosestafftofulfiltheirnewroles.Wherestaffingconstraintsaretight,thiscouldinvolvehiringininternationalexperts,whetherascoordinatingstafforasresidentadvisors.
In either case, given limited experience to date with PPPs in the Caribbean, governments will need to invest in building capacity to implement PPPs.ThisshouldincludetailoredtrainingforstaffacrosstherangeofentitiesinvolvedinPPPs,toenablethemtofulfiltheirrolesasshowninFigure6.1above.OfficialsdirectlyinvolvedinpreparingandimplementingPPPprojects,suchasPPP“focalpoint”andlineministrystaff,mayneedtrainingontechnicalmatterssuchasfinancialanalysis,riskallocation,andcontractdrafting.OfficialsmakingdecisionsonPPPprojectsandpoliciescouldbenefitfromhigher-leveltrainingontopicssuchasprojectselection,thebenefitsandpitfallsofPPPs,meansforensuringappropriategovernance,andstakeholderconsultation.
16Ata“CaribbeanPPPForum”convenedinBarbadosinNovember2013,theCDBexpressedinterestinbuildingsuchaPPPsupportfunction,andgovernmentrepresentativesinusingitsservices.However,furtherworkisneededtoestablishdemandandfleshoutthebusinessmodel.
ThefigurebelowillustratesapossiblestructureformanagingatypicalnationalPPPprojectwiththesupportofaregionalPPPunit.
Sucharegionalunit’sactivitiescouldalsoextend“upstream”:forexample,supportinggovernmentstoimplementPPPpolicies,buildcapacity,andidentifyandscreenpotentialPPPpipelineprojectsfromamongnationalinvestmentpriorities.However,suchactivitieswouldnotberevenue-generating,sowouldrequireadditionalfunding.
Finally,aregionalPPPunitcouldactasachannelfordevelopmentpartnersseekingtosupportthedevelopmentofPPPsintheregion—bothforfundingandtechnicalassistance.TheCaribbeanDevelopmentBank(CDB)appearsanaturalhomeforsuchaunit,givenitsmandateandtheskillsetofexistingstaff—althoughinvestmentwouldbeneededinbuildingPPP-specificskills.16
Box 6.2: How Could a Regional PPP Unit Work? (continued from page 31)
33
THE WAY FORWARD: PPP ACTIONS
THE WAY FORWARD: PPP ACTIONS
6
PPP training is another area where governments could benefit from regional cooperation.Theneedforcapacity-buildingiscommonthroughouttheCaribbean—includingincountriesthathavealreadyestablishedinstitutionalstructuresforPPPs.Sometrainingonspecificskills,suchasprojectfinanceandfinancialmodeling,isavailableexternallyfromacademicorcommercialproviders.However,addressingthefullrangeofcapacity-buildingneedswilllikelyrequirecommissioningspecificprogramsthataredeliveredlocally.Governmentsintheregioncouldbenefitfromdoingsojointly—tobenefitfromeconomiesofscale;complementthecommonprocessesandtoolsdescribedabove;andbuildnetworksandlearnfromeachother’sPPPexperiences.Goingforward,thiscouldincludeworkingwithregionaleducationalinstitutionstointroducePPPconceptsandskillstofutureemployeesofboththepublicandprivatesectors.
6.3 PPP PROJECTS AND PIPELINES
Summary of Actions to develop and implement PPP projects and pipelines:• Invest in comprehensive support from experienced advisors for early-mover PPP projects;• Consider a more systematic approach to developing PPP pipelines; and• Cooperate to present projects and pipelines in a coordinated way to attract greater investor interest.
At the same time as developing PPP architecture, Caribbean governments can move forward with developing priority PPP projects.DoingsoinparallelwithdevelopingPPPpoliciesandinstitutionalcapacitymakessense,asdescribedabove,becauseitensuresthosepoliciesandinstitutionsarefocusedonpracticalends,andbuildonhands-onexperience.However,intheabsenceofwell-establishedprocessesandinternalcapacity,governmentswillneedtoproceedwithcautiontoensurethatearlyPPPprojectsavoidthepitfallsdiscussedinSection5,andestablishsuccessfulprecedentsonwhichPPPprogramscanbuild.
The support of experienced advisors will be crucial.Figure6.2belowshowsthetypicalstagesinvolvedindevelopingaPPPproject,includingthetypeofadvisoryassistanceusuallysoughtateachstage.Alow-costinitialscreenofpotentialprojectscanhelp“sense-check”PPPsuitabilitybeforeinvestingsignificantresourcesindetailedfeasibilitystudiesandduediligence,transactionpreparation,andimplementation.Thelattertypicallyrequiresinputsfromarangeofspecialistadvisors—technical,legal,andfinancialconsultants,amongothers.Full-servicetransactionadvisorstypicallyprovidethisrangeofinputs,aswellasstrategicadvicetogovernmentsthroughouttheprocess.
Governments need to be prepared to invest substantial resources in developing PPPs well.Thetotalcostoftransactionadvicetypicallyrunstoseveralmilliondollars,orafewpercentofthefinaltransactionvalue.Aportionofthiscostcanbecoveredbysuccessfeeschargedtowinningbidders.However,governmentsshouldbewaryofcreatingincentivestopushthroughdealswithoutthoroughpreparationandduediligence,andensureappropriate“breakpoints”forreviewsandapprovalsthatareinformedbythisappraisalwork.Inadequateresourcingatthesestagescanbeaseriousfalseeconomy—creatingdelaysduringtheprocess,orworse,fiscalsurprisesorquestionablevalueformoneyfromtheprojectitself.
34
THE WAY FORWARD: PPP ACTIONS
THE WAY FORWARD: PPP ACTIONS
6
Figure 6.2: Typical PPP Project Development Process
Governments may also want to take a more systematic approach to developing PPP pipelines.ThePPPprojectideasthatcomprisethepotentialpipelinepresentedinSection4havearisenonasomewhatad-hocbasis.Goingforward,interestedCaribbeangovernmentscouldinitiateamoresystematicscreeningofprioritypublicinvestmentprojectstoassesswhethertheycouldprovidebettervalueasPPPs,againstcriteriasimilartothoseusedforthisstudy(seeBox4.1above).ThiscanhelpidentifythemostpromisingprojectsforearlyPPPsuccesses,andalsothelikelyscopeofthePPPprograminthemediumterm—andthereforethelikelyresourcesneeded,bothhumanandfinancial.ThisapproachhasbeenusedwithsomesuccessinJamaicaandTrinidadandTobago.
Caribbean governments may also benefit from presenting PPP pipelines to the market in a coordinated way—with a view to generating greater investor interest (and hence competition and value) than each country pipeline would do individually. Forexample,thiscouldincludeinstitutingaregularpublic-private“PPPforum,”atwhichinvestorscaninteractwithofficialsandpotentialpartnerstonetwork,andlearnfromeachother’sexperiencesandaboutpotentialopportunities.TheannualCaribbeanRenewableEnergyForum(CREF)providesapossiblemodel.SinceCREFstarted,ithasmadeamajorcontributiontoknittingtheCaribbeantogetherintoasinglemarketplaceforrenewableenergydevelopments—somethingthatwaspreviouslyfarfromthecase.
6.4 SEQUENCING OF ACTIONS AND IMPLEMENTATION CHALLENGES
This section set out several actions that Caribbean governments could take to further the successful use of PPPs to deliver infrastructure in the region—todevelopsoundPPPpolicyandinstitutionalframeworks,andtomoveforwardwithpriorityPPPprojects.Theseactionsare
Concept
Feasibility &“Business Case”
Tender
Implementation
REVIEW AND APPROVAL
REVIEW AND APPROVAL
REVIEW AND APPROVAL
1
2
3
4
16Projects
STAGE # OF PROJECTS DESCRIPTION TYPICAL SUPPORT
13Projects
4Projects
• Develop concept and “pre-feasibility” analysis• Initially screen against PPP appraisal criteria— “sense check” of PPP suitability prior to major investment in project development• Prioritize for development as PPP and allocate necessary advisory resources
Develop initial PPP structure:• Identify risks• Allocate risks and responsibilitiesDetailed appraisal of proposed project and PPP:• Detailed project feasibility• Commercial viability of PPP• Whether PPP will provide value for money• Whether PPP is fiscally responsible
• Prepare transaction in detail—design PPP contract and prepare RFP• Implement transaction—qualification and bid processes• Finalize contract and reach financial close
• Establish contract management structures• Monitor and manage PPP delivery and risk• Deal with change
Project screening support
‘First phase’ transaction advisory assistance
Transaction advisory assistance (often success-fee-based)
35
THE WAY FORWARD: PPP ACTIONS
THE WAY FORWARD: PPP ACTIONS
6
summarizedinFigure6.3below.Someoftheseactions—suchasintroducingPPPpolicies,andinitiallyscreeningpotentialPPPpipelines—canbeundertakenintheshorttermbyinterestedgovernments,andindeedarealreadyunderwayinafewcountriesintheregion.Others,suchasbuildingcapacity,willtakelonger,andbuildonprojectexperienceandsuccesses.
Figure 6.3: Summary and Sequencing of Actions
Several of these actions would benefit from cooperation at the regional level.“Quickwins”attheregionallevelcouldincludecoordinatedworktoharmonizenationalPPPpoliciesbasedonacommonmodel,anddevelopingcommonbasicguidancematerialandtools(whichmayberefinedovertime).AregionalPPPcapacity-buildingprogramforgovernmentofficialsinvolvedinPPPscouldefficientlyaddressimmediateneeds,althoughbuildingcapacitywillbeanon-goingprocess—forexample,thiscouldexpandtoworkingwithregionaleducationalinstitutionstoequipyounggraduatesforfuturerolesinPPPs,whetheronthepublicorprivateside.
Going forward, a lasting regional PPP support mechanism could be considered. Thiscouldtaketheformofaregional“PPPFacility,”comprisingaregionalPPPsupportteamthatprovidesbothupstreamanddownstreamtransactionimplementationsupporttoCaribbeangovernmentsfornationalandregionalPPPprojects—workingwithdevelopmentpartners,andexperiencedexternaltechnicaladvisorsasneeded—andarevolving“PPPpreparationfund”tosupporttheactivitiesofthisregionalteam.Thesuccessofsuchafacilitywoulddependheavilyonthelevelofdemandandcommitmentfromgovernmentsintheregion.Afirststepwouldthereforebetodevelopabusinessmodelforthefacility,asthebasisforconsultationandagreementamongparticipatinggovernmentsandpotentialmultilateralandbilateralpartners.
Experience suggests that undertaking these actions is likely to require external supportwhilegovernmentsbuildtheinternalcapacityandconsensusneededtomovePPPprogramsforward,andtoovercomechallengesofregionalcoordination.SeveraldevelopmentpartnersarealreadyactivelysupportingthePPPagendaintheCaribbean—workingwithearly-movergovernmentstodeveloppolicyframeworks,andprovidingtechnicalassistancetosupporttheappraisalanddevelopmentofPPPopportunitiesattheprojectorsectorlevel.Goingforward,thereisanopportunitytocombinetheseefforts,inacoordinatedregionalapproachtoPPPsupportintheCaribbeanthatcouldbemorethanthesumofitsparts.
Introduce PPP policies (where needed)
Develop tools
Screen & prioritizepipeline projects Appraise, prepare, and implement transactions
Policies
Institutions& Capacity
Projects ProjectSuccesses
Country Level Regional
Shorter Term Actions On-going/Long Term Actions
Develop and assess regional “PPP Unit” model
Train technical sta� and build stakeholder awareness
Define & sta� government PPP “focal points”
Build regional PPP Unit
36
APPENDIX A
APPENDIX A: CARIBBEAN PPP EXPERIENCE—EXISTING PPPS IN THE CARIBBEAN
Country Sector Subsector Name Description Year Type
Antigua and Barbuda
Electricity Generation
AntiguaPowerCompany
Limited(APCL)(Independent
PowerProducer)
Build-own-operate-transfer(BOOT)contractforconstructionandoperationofinitiallya27MWdieselgenerationplant,witha50.9MWexpansion,underapower-purchaseagreementbetweenAPCLandAntiguaPublicUtilitiesAuthority(APUA).APUAhasconsistentlyfailedtopayAPCL,resultinginalongstandinglitigationbattle,whichwasfinallysettledbythePrivyCouncilinfavorofAPCLinJuly2013.
1996 PPP
Water ProductionSembcorp
desalinationplant
WatersupplycontractbetweenSembcorpandAPUAtodesign,build,financeandoperateadesalinationplant.Theplantsupplies65percentofAntigua’spipedwater.AsofFebruary2013,APUAowedSembcorpUSD7.6millionforwateralreadysupplied.
1991 PPP
Socialinfra-structure
HealthMountSt.JohnMedicalCenter
Five-yearcontractbetweenAmericanHospitalManagementCompanyandthegovernment-ownedMountSt.JohnMedicalCentertoprovidenon-medicalsupportservicesatthenewhospitalfacility
2010 PPP
Dominican Republic
Transport RoadsAutopistadel
Nordeste
Concessioncontractforthedesign,construction,andoperationofa106-kilometertollroadconnectingSantoDomingowiththeSamanápeninsula.DevelopedbytheColombianconcessionaireGrodcoandOdinsa.InvestmentvalueUSD162million.
2001 PPP
Transport RoadsSanPedroMarcori-LaRomanaandLas
Americas
Concessioncontractawardedin1999,renegotiatedin2002andtransformedintoa30-yearconcessioncontractforexpansion,operationandmaintenanceoftheSanPedroMarcori-LaRomanahighway,andoperationandmanagementoftheLasAmericastollroadbuiltbytheDominicanGovernment.ConcessionaireisCODACSA;InvestmentvalueUSD62million.
2002 PPP
Transport RoadsBoulevardTurístico
delAtlántico
Concessioncontracttodesign,build,finance,andoperatea123-kilometertollroadfor30yearsintheSamanáPeninsula.ConcessionaireisColombianGrodcoandOdinsa,andDominicanConsortiaRemix.InvestmentisUSD150million.
Ongoing PPP
Transport Roads Viadom
Concessioncontracttodesign,finance,rehabilitate,construct,operate,andmaintain500kilometersofhighways.ConcessionaireisColombianOdinsa,ItalianGhella,ArgentineanIECSAandDominicanConsortiaRemix.InvestmentisUSD471million.
2012 PPP
Transport Ports PortofRioHaina
Concessioncontractforoneofthetwoportterminalsthathandle70percentofthecountry’strade.HIT’sinvestments(TerminalHainaOriental)includedreconstructionofthepatio,docks,dredging,andinstallationofcranes.HainaInternationalTerminalistheconcessionaire.TotalinvestmentforthefourportconcessionslistedinthistableisUSD469million.
2001 PPP
Transport/Tourism
PortsPortofSanto
Domingo
Concessioncontractforrehabilitationandoperationofthestate-ownedtouristport.ConcessionairecompanyisSanCouciTourismInvestment(ITSS).TotalinvestmentforthefourportconcessionslistedinthistableisUSD469million.
2001 PPP
Transport Ports PortofCaboRojo
Concessioncontractforoperationandmaintenanceofthisindustrialportspecializedintheexportoflimestoneandbauxiteaswellasintheimportofclinker(aninputincementproduction).ConcessionaireisDominicanIdealDominicanaandColombianCementosAndinos.TotalinvestmentforthefourportconcessionslistedinthistableisUSD469million.
2001 PPP
Caribbean PPP Experience—Existing PPPs in the Caribbean
37
APPENDIX A
APPENDIX A: CARIBBEAN PPP EXPERIENCE—EXISTING PPPS IN THE CARIBBEAN
Country Sector Subsector Name Description Year Type
Dominican Republic
Transport Ports PortofManzanillo
Concessioncontractforoperationandmaintenanceofthisport,focusingontheexportofrefrigeratedcontainerscargoandtheimportofgeneralcargo(contractwasrevokedin2012).ConcessionairecompanywasCorporacionPortuariadelAtlántico.TotalinvestmentforthefourportconcessionslistedinthistableisUSD469million.
2001 PPP
Transport AirportSixstateownedairportsinthe
country
Concessioncontractformanagement,operation,maintenance,renovation,andexpansionofthesixgovernment-ownedairports:AeropuertoInternacionalLasAméricas,SantoDomingoAeropuertoInternacionalGregorioLuperón,PuertoPlataAeropuertoInternacionalPresidenteJuanBoschAeropuertoInternacionalLaIsabela,SantoDomingoNorteAeropuertoInternacionalMariaMontez,BarahonaAeropuertoArroyoBarril,Samaná.TotalinvestmentUSD350million.
1999 PPP
Electricity Generation
Variousthermalpowerplants
acrossthecountry(14projectsin
total)
Since1999,14PPPshavebeenawardedintheelectricitysector,totalingUSD2.5billioninprivateinvestment.Around2,800MWoftheelectricitygenerationcapacityintheDRisprivatelyowned.IPPssellelectricityunderlong-termPPAs.Investorsarevarious,includingHaina,Itabo,UnionFenosa,AES,MonteRio,Metaldo,andLaesa.
Since1999
PPP
Electricity DistributionEdeNorte,EdeSur,
andEdeEste
Performance-basedmanagementcontractsforthreepublicelectricitydistributioncompanies.Thecontractshaveexpiredandthepublicsectorhasregainedcontrolofthepowerdistributioncompanies.
UnknownManage-
mentcontract
Haiti
Electricity Generation E-Power
AnIPPof30MWheavyfueloil-poweredplantinPort-au-Prince,sellspowertoEdHundera15-yearPPA.InvestorsareHaitian,EastWestPower,IFC,andtheDutchDevelopmentBank(FMO).InvestmentvalueUSD56million.
2011 PPP
Electricity GenerationLaSociétéGénérale
d’EnergieS.A.(SOGENER)
AnIPPthatoperatesthreemobiledieselgenerationunitsthroughoutHaiti(VarreuxI,IIetIII)andsellstoEdHunderPPAcontracts.InvestorisVorbeGroup.InvestmentvalueUSD50-60million.
2002 PPP
Electricity GenerationHaytrac(Haitian
Tractor)
AnIPPthatoperatesmobiledieselunitsthroughoutHaiti(Petit-GoâveandLesCayes,totalinstalledcapacityof12MW)andsellstoEdHunderPPAcontracts.InvestorsareHaitian.InvestmentisUSD20-30million.
2009 PPP
Transport/Tourism
PortPierOperating
Company
ConcessionContracttobuild,finance,manage,andoperatetheLabadiepier,aprivateresortinthenorthofthecountry(closetoCapHaitien).Resortleasedtoconcessionaireuntil2050,inexchangeforaUSD6paymentpertourist.ConcessionaireisRoyalCaribbeanCruise(RCI);investmentisUSD50million.
2009 PPP
WaterProduction,distribution
NationalDirectoratefor
DrinkingWaterandSanitation
Underatechnicalandoperationalassistancecontract,theconsortiumprovidesassistancetothePort-au-Princemetropolitanregionwaterutility.TheconsortiumiscomprisedofSuezLyonnaisedesEaux,Agbar,andUnitedWater.InvestmentismorethanUSD10million.
2011Technicalassistancecontract
Water DistributionLaSociétédes
EauxdeSaint-Marc(SESAM)
Underanaffermagecontract,managementofwaterservicewasdelegatedinHaiti.Awardedin2009toSESAMafteraninternationaltenderingprocess.A15-yearcontractfortheoperation,restructuringandlong-termconsolidationprogramofthewatersector.InvestorisLYSAandinvestmentisoverUSD5million.
2009 PPP
Caribbean PPP Experience—Existing PPPs in the Caribbean (continued)
38
APPENDIX A
APPENDIX A: CARIBBEAN PPP EXPERIENCE—EXISTING PPPS IN THE CARIBBEAN
Country Sector Subsector Name Description Year Type
Jamaica
Transport Airport
SangsterInternational
AirportinMontegoBay
VancouverAirportServicesConsortiumtookoveroperationsofSangsterInternationalAirportinMontegoBayundera30-yearconcession.Airportcapacitywasdoubled,and43newretailspacescreated,suchthatrevenuesfromvaluableretailspacepartiallyoffsetthecostofexpansion.InvestmentvalueUSD180million.
2003 PPP
Transport RoadsHighway2000concession(tollroad)Phase1A
A45-kilometertolledexpresswaylinkingKingston/PortmoretoSandyBay.Developedunderadesign,build,operateandtransferPPPbetweenGoJ(representedbyNROCC)andTransjamaicanHighway(TJH),aspecialcompanyestablishedbyBouyguesTravauxPublics,aFrenchconstructioncompany,whichwasgranteda35-yearoperatingconcession.Investmentvalue$324million.ThiscontractgaveTJHtherightoffirstrefusaltofurtherplannedphasesofHighway2000.
2001 PPP
Transport RoadsNorth-South
LinkextensionofHighway2000
A68-kilometerfour-laneextensionofHighway2000underanimplementationandconcessionagreementwithJamaicaNorthSouthHighwayCompanyLtd.(JNSHC),aspecialcompanyestablishedbyChinaHarbourEngineeringandConstructionCompany(CHEC).EstimatedinvestmentvalueUSD600million.
2012 PPP
Saint Kitts and Nevis
Electricity GenerationWindWattNevis
LimitedApowersupplyPPP,undera25-yearPPAtosupplyupto2.2MWtoNEVLEC.InvestorisWindWattCanadaPowerIncorporated.
2010 PPP
Water Production BEADLimitedAbulk-waterPPP,undera10-yearcontracttosupplyonemilliongallonsofbulkwaterperday.InvestorisBedrockExplorationandDevelopmentLtd.
2007 PPP
Transport Airport PrivateJetPortBuild,operate,andtransferconcessionforaUSD15millionprivatejetportattheRobertL.BradshawAirportinSaintKitts.InvestorisVeilingofMauritius.
2013 PPP
Suriname
Electricity GenerationSuralco(Suriname
AluminumCompany)
Alcoabuilta185MWhydroelectricplantin1958,andsellssurpluselectricitytothenationalgridundera75-yearPPA.InvestorisAlcoaUSA.
1958 PPP
Transport PortIntegraPort
Services(IPS)
DubaiWorldacquired60percentofSuriname’sleadingterminaloperator,IntegraPortServices(IPS).IPShasaconcessionforcontainerandbreak-bulkcargooperationsinNieuweHavenPort.InvestmentisUSD31million.
2011 PPP
Trinidad and Tobago
Electricity GenerationPowergen
(IndependentPowerProducer)
Trinidad’sstate-ownedutility(T&TEC)divesteditsgenerationassetsin1994toPowerGen,whichsuppliestheT&TECunderaPPA.T&TECremainsthemajorityshareholder,alongsideMaruEnergyofGeorgia(39%),andAmocoofTexas(10%).PowerGen’sthreegas-firedpowerstationsnowhavetotalinstalledcapacityof1386MW.
1994 PPP
Water Desalination
DesalinationCompanyofTrinidadand
Tobago(Desalcott)
Adesign,build,finance,andoperatePPPforaUSD200milliondesalinationplant,DesalcottsellsdesalinatedwatertoTrinidad’sWaterandSewageAuthority(WASA).OriginallyajointventurebetweenTrinidadiancompanyHKESL(60%)andGeneralElectric(40%),in2012HKESLpurchasedGE’sshare,makingDesalcott100%locallyownedandoperated.Afterexpansion,itisproviding50milliongallonsofwaterperday.
1999 PPP
Water Desalination SevenSeasAbuild,own,operate,transferPPPwithUS-basedSevenSeasforanewdesalinationplanttoprovide4.6milliongallonsofwaterperdaytoTrinidad’sWaterandSewageAuthority(WASA).
2013 PPP
Caribbean PPP Experience—Existing PPPs in the Caribbean
ENABLING INFRASTRUCTURE INVESTMENT
PPIAF is a multi-donor trust fund that provides technical assistance to governments in developing countries to develop enabling environments and to facilitate private investment in infrastructure. Our aim is to build transformational partnerships to enable us to create a greater impact in achieving our goal.