A mar­riage of con­ve­nience

The World Bank’s Pe­ter Mous­ley talks ben­e­fits and risks of PPP

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Pe­ter Mous­ley talks ben­e­fits and risks of PPP

Af­ter a nearly decade-long wait, Le­banon’s leg­is­la­ture fi­nally rat­i­fied a law en­cour­ag­ing pri­vate-sec­tor in­vest­ment in pub­lic in­fra­struc­ture. The new frame­work for pub­lic-pri­vate part­ner­ships (PPP) could al­low the pri­vate sec­tor to de­liver some pub­lic ser­vices at lower prices than those cur­rently avail­able, says Pe­ter Mous­ley, the pro­gram leader for trade and com­pet­i­tive­ness, fi­nance and mar­kets, and PPP at the World Bank’s Beirut of­fice. Le­banon’s com­mer­cial banks, Mous­ley says, have sig­naled their readi­ness to di­ver­sify port­fo­lios, and an ap­petite for in­vest­ing in pub­lic in­fra­struc­ture.

What’s the dif­fer­ence be­tween pri­va­tiz­ing pub­lic ser­vices and pub­lic-pri­vate part­ner­ships?

One way of look­ing at it is [that] privatization is a di­vorce and PPP is a mar­riage. They’re two very dif­fer­ent things. One is where a gov­ern­ment sells as­sets to the pri­vate sec­tor; the other is where, un­der cer­tain terms, a gov­ern­ment makes as­sets avail­able to the pri­vate sec­tor to de­liver pub­lic ser­vices, but the as­sets re­main owned [by the state]. What they’re pri­mar­ily try­ing to do with a pub­lic-pri­vate part­ner­ships is dis­trib­ute risk to get a more cost-ef­fec­tive ser­vice de­liv­ered. So, if the pri­vate sec­tor [is more] will­ing to take the risk un­der a PPP model, you try to in­cen­tivize them to take that risk.

Should coun­tries new to PPP ex­er­cise cau­tion, begin­ning with a trial project?

Yes, you take time. This is a skill that is not im­me­di­ately cre­ated, and the [Le­banese] Higher Coun­cil for Privatization and the line min­istries that want to do PPPs are go­ing to have to de­velop the right ex­per­tise to man­age the pro- cess. It’s very dif­fer­ent from pub­lic pro­cure­ment, so if they build up a pipe­line of PPPs, it will be done over a long time­frame.

What can go wrong?

Well, you can do bad anal­y­sis about what the al­lo­ca­tion of risks are. You can un­der­es­ti­mate or over­es­ti­mate the rev­enue base. There are so many ele­ments to it. Usu­ally, in pre­par­ing a PPP, you do an ini­tial prefea­si­bil­ity [anal­y­sis], which sort of says: Okay, this is a sec­tor that has rev­enue flow. And if it doesn’t have rev­enue flow, [the pri­vate sec­tor can be] con­fi­dent that the gov­ern­ment en­ti­ties that would be mak­ing rev­enue, if it’s not the end user, are cred­it­wor­thy and are able to make the pay­ments to the pri­vate sec­tor. And if it isn’t go­ing to be based on end user [rev­enue], then does the gov­ern­ment have the fis­cal ca­pac­ity to honor what is called “avail­abil­ity pay­ments,” which is of­ten how these are fi­nanced? Bear­ing in mind, what you’re essen­tially do­ing is ask­ing the pri­vate sec­tor to [take on] front-end risk in the in­vest­ment in cap­i­tal de­vel­op­ment against a long-term flow of rev­enue. So they need to have con­fi­dence that long-term rev­enue is com­ing from a cred­it­wor­thy source.

Le­banon has wit­nessed al­most seven years of slug­gish eco­nomic growth, for many fac­tors, but elected and pub­lic of­fi­cials ar­guably did lit­tle in that pe­riod to fa­cil­i­tate or ease the chal­lenges of the pri­vate sec­tor. Is the PPP law an ex­am­ple of leg­is­la­tion that can help Le­banon’s econ­omy, and does the World Bank ad­vise other leg­is­la­tion or reg­u­la­tory fixes?

Look at the World Bank’s Ease of Do­ing Busi­ness rank­ings for Le­banon and you [will] know there are ar­eas that, if you deal with these things, you’ll gen­er­ate more in­vest­ment. [For­eign di­rect in­vest­ment] flows have been de­clin­ing, [and] there are lots of rea­sons for that: po­lit­i­cal se­cu­rity as over­rid­ing. We did a sur­vey a cou­ple of years ago, [and] the sig­nif­i­cance of po­lit­i­cal in­se­cu­rity as a dis­in­cen­tive for in­vest­ment had gone right up rel­a­tive to pre­vi­ous sur­veys. Then there is a host of in­vest­ment­cli­mate items, from start­ing up a busi­ness to cre­at­ing a more in­clu­sive fi­nan­cial sys­tem, through leg­is­la­tion Par­lia­ment has in draft form. So there is a whole range of things the coun­try could do to move for­ward, and in terms of gen­er­at­ing more pri­vate sec­tor in­vest­ment. In the back of the Spring 2017 edi­tion of LEM [Le­banon Eco­nomic Mon­i­tor—a World Bank pub­li­ca­tion], we list a lot of the pol­icy pri­or­i­ties that we rec­om­mend. Frankly, I don’t think any of these ideas are un­known to the gov­ern­ment—the rea­son they haven’t gone for­ward is they haven’t got very clear aware­ness of the im­por­tance of these. PPP is a great one and is a good start, but there are many oth­ers that ar­guably have been pend­ing par­lia­men­tary ap­proval or im­ple­men­ta­tion for a few years. Cu­mu­la­tively, they would all make a huge dif­fer­ence.

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