Business World, 5 August 2012
People have been wondering why there has been so much emphasis on public-private partnership (PPP). Given the total investment (or even just the infrastructure) needs of the economy, the enthusiasm seems out of proportion to the total amount of projects that may be expected from the program. The Official Development Assistance (ODA) program certainly looks much larger, at least for the moment. Direct government implementation on its own is also quite substantial.
Quite a few attribute this attention to its potential for solving budget limitations. There was certainly a time when this was a tantalizing prospect for government managers. The first time I was at the National Economic and Development Authority (NEDA) in 1991, when the initial build-operate-transfer (BOT) law was first passed, we were quite attracted by its potential for advancing large but critically needed projects in the face of the very dire budget picture then.
MORE THAN FINANCING
My appreciation of the approach has changed, however, as I have observed it more recently. As we moved the PPP Center to NEDA, making it ready for more effective project development given NEDA’s role in investment programming and the project approval process, I became aware of the ground work that is needed for a successful PPP program and facilitation center.
At the same time, we have become aware of the advantages of the approach for governance in general and for infrastructure in particular.
PPP is more than just the financing.
It also exploits the efficiencies, the speedy and timely decision making, the single-mindedness and nimbleness of private initiative. It offers the opportunity to pinpoint and implement the strategic and critical projects that support and are interconnected with national infrastructure networks and clusters.
And it may afford us the benefit of getting this social overhead capital (using the old term used by Walt Rostow half a century ago) earlier and in better form.
There are good examples (there are bad ones too) of how PPP efforts, sometimes just in the form of simple privatization, have improved the provision of public services that show the potential of how this mode can be of significant benefit to an economy.
At the same time, we need to be aware of the dangers of PPP so we can move to avoid these.
The private sector can be a very efficient operator and implementor. It can also be a very efficient negotiator. It has the unalloyed advantage of a very intense profit objective. And it can leverage its advantage in resources and nimbleness while negotiating with a sometimes lumbering government that has to consider how its rules, decisions and actions can set precedent that it will have to deal with in the future. This unbalanced condition can easily lead to government’s disadvantage even with very good projects unless the resulting contract is properly structured.
The paradox of public-private partnership is that while it offers the promise of the merger of public and private resources and abilities, it is not a shortcut and it will not suffer shortcuts.
PPP demands just as or even more stringent requirements from the public sector as ODA and direct government implementation. The institutional infrastructure includes, among others, well-structured rules that are clear and transparent for everyone’s guidance. Transparency, fairness and a level playing field are critical to bringing in the right private sector players and heading off unwanted legal hassles later.
At the same time, it is important for the government to have an effective planning and programming process to identify and prepare public projects amenable to this mode of implementation.
With the complexity and size of public projects nowadays and the complicated, interrelated (a “noodle dish”) government laws and regulations, one cannot anticipate all of the potential issues in project design, development and contracting.
For complete and effective implementation, we need to take care of the details “from A to Z.”
It is difficult to do this in concept.
Actual cases are needed to go through the whole process and see where the kinks are. More often, we need more than one pilot case.
There are too many interlacing procedures and rules that one cannot possibly predict where inconsistencies and gaps are going to be. One just has to go through the whole exercise of actual projects.
This is where PPP projects come in. While these projects are critical and are at the nexus of many development activities, the program’s ultimate benefit may not lie in its physical contributions, no matter how critical those are.
As it turns out — as we go through the motions of bringing PPP projects forward — we encounter project development and investment programming issues that do not crop up in direct government implementation and ODA.
For example, typical mundane issues in private sector contracts such as the careful specification of levels of service, guarantees, methods of monitoring and margins of error, etc. reach higher levels of need for public projects as it deals with the private sector.
Given the myriad of possibilities, it is almost impossible to specify a taxonomy of rules and procedures to cover even just the majority of cases. Like jurisprudence, the whole body of explicit and implicit rules, practices and custom need to be built up with practice. Since laws, customs and business practices differ from one country to another, it is not possible to just copy from another country, no matter how advanced it is.
In other words, as we apply PPP as an important mode of public sector project implementation, we are finding out that there is a very large lacuna of processes that should govern the way government interacts with the private sector.
These processes need to be developed; and they are being developed as they have to be.
Except that, given the litigiousness of our society and the stringency of the consensus interpretation of the anti-graft law and the code of ethics, errors of judgment are not given the benefit of the doubt.
As a result, bureaucrats are loath to exercise judgment. Thus, project development is slow and tedious.
The speed will pick up as projects of each genre are successfully implemented. (Other areas that are being developed are auction rules, contract structure, monitoring and several more areas).
But the initial costs of discovery have to be matriculated and the going is quite sluggish. And even as the processes are developed, applications under the existing environment will still not be speedy enough.
Fortunately, development partners like the Asian Development Bank, the Australian Government Overseas Aid Program and Canadian International Development Agency have been willing supporters of our learning efforts.
BUILDING UP EXPERIENCE
As PPP projects are being developed and implemented, emerging issues help improve policies and processes. This mode of implementation could turn out to be an important plank of the government’s governance reform process.
And as experience is built up, the body of knowledge expands and may be propagated to lower levels of government.
That is one reason the PPP Center has developed the initial manual and template of PPP for local government units. This is an important example of “institutional externalities” where good practice is propagated and absorbed by other institutions.
If we are successful, the overall improvement in processes over a broad front that ultimately results in good practice on a routine basis may ultimately be the lasting and sustainable legacy of this program.
Our task now is how to speed up the development of this package of good practices to accommodate the needs and advantages of PPP and to facilitate the propagation of these lessons to all levels of government.