There is a strong need to improve mobil-isation in public- and private-sector investment, and to structure public–private partnerships (PPPs) in a way that they meet the conditions and requirements specific to each country, locality and project, Indra technology director Juan Carlos Rojas Ramos argued at a recent seminar.
Speaking about the viability of PPPs in water management at a conference that took place at the Development Bank of Southern Africa, in Midrand, Ramos said the consequences of choosing a poor project structure were reflected in the high renegotiation rates of infrastructure contracts.
“In general, the social consequences of deficient services and the fact that most of these services are provided at local level make this sector one of the most difficult to finance and one of the riskiest investments for the private sector.”
Ramos noted that the Inter-American Development Bank had identified that vari-ables impacted significantly on the viability of projects.
“A country’s legal framework – including the legal treatment of water, water infrastructure and property rights, as well as collection rights and the capacity to enforce service suspension in the case of nonpayment – is a major variable that has been identified,” he said.
Ramos stated that fiscal space and politi-cal interference in projects, including expro-priation or partial expropriation and breach of contract, as well as transfer and convertibility issues, influenced the viability of projects in this sector.
Subsidy Stream“The ability to finance ongoing infrastruc-ture maintenance and to support a project with a government-funded subsidy stream, as well as macroeconomic conditions, also play a significant role,” he said, adding that the inability to set, enforce and monitor a rational regulatory regime, and a lack of local capacity and technical knowledge, can limit operations.
He commented that the willingness of users to pay for services, coupled with sustainable and affordable tariffs, would impact on the long-term sustainability of a project, noting that the method used for structuring the project and the size and location of the facility could affect access to investors and business resources.
“In general, strong local conditions make greater private participation possible. A strong capacity to enforce contracts, for instance, makes most of the tools for risk mitigation effective. “In weak local conditions, private participation options will tend to fall into the type of self-enforcing agreements,” Ramos pointed out.
He added that risk mitigation instruments, including political risk insurance, partial credit guarantees and full and timely debt service payment up to a predetermined amount, were some of the more commonly available risk mitigation instruments.
Ramos noted that, in the 1990s, the main private companies were multinationals that operated like large concessionaires in a global scenario, with a competitively selected private-sector firm to deliver services on their behalf, which often involved building new infrastructure.