FUND­ING IN­FRA­STRUC­TURE GAPS

Pub­lic in­fra­struc­ture has long been viewed as a risky in­vest­ment but 2019 brings new, po­ten­tially lu­cra­tive op­por­tu­ni­ties across the re­gion

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY CATHER­INE MOR­RIS, STAR BUSINESSWEEK CORRESPONDENT

Re­silient build­ing has been a hot topic in the Caribbean of late as dam­age from nat­u­ral dis­as­ters high­lighted in­fra­struc­ture gaps across the re­gion. For too long, gov­ern­ments have largely ig­nored in­fra­struc­ture needs, pre­fer­ring to in­vest in shorter-term projects either for electoral gain or sim­ply to ad­dress more press­ing is­sues.

And it’s un­der­stand­able — pub­lic in­fra­struc­ture is widely re­garded as a mas­sive drain on the pub­lic purse and fund­ing such large-scale work can be dif­fi­cult. This is where the pri­vate sec­tor can play a role. Pub­lic Pri­vate Part­ner­ships (PPPs) have been un­der-utilised in the Caribbean but have huge po­ten­tial to de­liver re­silient, sus­tain­able in­fra­struc­ture that doesn’t stretch the gov­ern­ment cof­fers.

Ac­cord­ing to Jorge Fa­mil­iar, World

Bank Vice Pres­i­dent for Latin Amer­ica and the Caribbean: “Com­bin­ing pub­lic and pri­vate cap­i­tal and tak­ing ad­van­tage of the ef­fi­ciency and in­no­va­tion of the pri­vate sec­tor can make a huge dif­fer­ence. When well de­signed, PPPs bring greater ef­fi­ciency and sus­tain­abil­ity to pub­lic ser­vices. As the re­gion emerges from six years of eco­nomic slow­down, PPPs can help it boost in­fra­struc­ture in­vest­ments and strengthen the mo­men­tum for growth.”

UN­DER-USED

Head of Pub­lic Pri­vate Part­ner­ships for the Caribbean De­vel­op­ment Bank, S. Brian Sa­muel be­lieves that the re­gion is play­ing catch-up when it comes to re­al­is­ing PPP po­ten­tial. Speak­ing on a panel for the Caribbean In­fra­struc­ture Fi­nance Fo­rum, held ear­lier this month, he said: “Some­times the Caribbean is a lit­tle bit late in adopt­ing in­ter­na­tional trends and this is one of them. In the re­gion we are good at pay­ing lip ser­vice to PPPs but when it comes to ac­tu­ally do­ing them, we need some help.”

There are many fac­tors to ex­plain why the Caribbean has not em­braced PPPs but chief among them is con­cerns of cor­rup­tion. A lack of trans­parency trans­lates into a lack of com­pe­ti­tion as pre­ferred bid­ders are per­mit­ted or en­cour­aged to jump the queue. Pro­cure­ment pro­cesses are of­ten ad-hoc, in­con­sis­tently im­ple­mented or sim­ply for show. In ar­eas where this is a long­stand­ing prob­lem, highly-skilled con­trac­tors are dis­suaded from even en­ter­ing the bid­ding process — low­er­ing the stan­dard of providers and, ul­ti­mately, the com­pleted work.

The Caribbean De­vel­op­ment Bank has moved to ad­dress this is­sue as in­ter­est in PPPs grows. “We are see­ing the trend of PPP projects com­ing up; the chal­lenge now is to get those projects im­ple­mented and de­vel­oped in a trans­par­ent man­ner,” said Sa­muel.

AR­EAS OF OP­POR­TU­NITY

One of the most po­ten­tially prof­itable ar­eas for in­fra­struc­ture in­vest­ment is the en­ergy sec­tor. With the Caribbean be­com­ing ever more aware of the need to cut pol­lu­tion, pro­mote re­new­ables and lower the cost of elec­tric­ity, this is a growth in­dus­try that is set to ben­e­fit from cut­ting-edge tech­nolo­gies. As the re­gion moves to cut its diesel de­pen­dency, op­por­tu­ni­ties are emerg­ing in so­lar, wind and geo­ther­mal en­ergy.

An­other area of en­vi­ron­men­tal con­cern that could of­fer op­por­tu­ni­ties is waste man­age­ment. Waste to en­ergy ini­tia­tives, re­cy­cling projects and waste dis­posal ef­forts are gain­ing in­ter­est as gov­ern­ments re­alise that waste dis­posal re­quires a vi­able, long-term, sus­tain­able strat­egy. Trinidad is cur­rently work­ing on a solid waste

PPP while Ber­muda is con­sid­er­ing a PPP mech­a­nism for its waste­water treat­ment.

Pri­vate sec­tor in­vestors should also con­sider trans­porta­tion in­fra­struc­ture.

Many coun­tries in the re­gion have adopted the PPP frame­work to up­grade high­ways, air­ports and sea ter­mi­nals. The in­creas­ing in­ten­sity of hur­ri­canes, flood­ing and trop­i­cal storms has ne­ces­si­tated an up­grade of these fa­cil­i­ties and this is an area where the pri­vate sec­tor can step in.

When it comes to dis­as­ter re­cov­ery, coastal pro­tec­tion in­fra­struc­ture projects are paramount and global groups such as the In­ter­na­tional Mon­e­tary Fund are urg­ing the Caribbean to fo­cus on this area in the near fu­ture.

AT­TRACT­ING IN­VEST­MENT

The op­por­tu­ni­ties are there, but is there in­ter­est? Sa­muel be­lieves so, but the project it­self must be well-de­fined and well thought out. “There is ac­tu­ally more money than projects. If you have a strong project, with a strong spon­sor, well-struc­tured and vi­able,

you will get fi­nanc­ing for it. Many projects tend to get rushed. You are go­ing to the mar­ket with half-baked projects, which are not bank­able and you are go­ing to have chal­lenges.”

In as­sess­ing projects, pri­vate part­ners pri­ori­tise se­cu­rity and re­turn. Many

PPPs fail to launch be­cause they can­not de­liver on either. A strong PPP sec­tor in the Caribbean is de­pen­dent upon a strong in­sti­tu­tional and reg­u­la­tory frame­work within which these projects can be de­vel­oped, ex­e­cuted, mon­i­tored and man­aged. Ac­cord­ing to a 2017 re­port by the World Bank, 19 coun­tries in Latin Amer­ica and the Caribbean have PPP leg­is­la­tion and 17 have ded­i­cated PPP units. The ideal en­abling en­vi­ron­ment for PPP suc­cess re­quires struc­tured pro­cure­ment pro­cesses, bank­able con­tracts that share risk among the par­ties, and a means of ro­bust over­sight dur­ing project de­liv­ery.

In re­cent years, Saint Lu­cia has been po­si­tion­ing it­self as a PPP-friendly des­ti­na­tion. In 2015, as it sought a pri­vate part­ner for the re­de­vel­op­ment of He­wanorra In­ter­na­tional Airport, the gov­ern­ment adopted a PPP frame­work for the coun­try with as­sis­tance from the World Bank. The pol­icy’s ob­jec­tives are to pro­vide value for money, pri­ori­tise fis­cal re­spon­si­bil­ity, en­sure trans­parency, as­sess en­vi­ron­men­tal im­pacts of PPP projects and pro­mote part­ner­ship and in­clu­siv­ity.

But putting a strong foun­da­tion in place is only the first step. Ac­cord­ing to Sa­muel, small is­land gov­ern­ments such as Saint Lu­cia’s need to be more proac­tive in sell­ing them­selves to po­ten­tial part­ners. Putting the right frame­work and poli­cies in place is key, but then gov­ern­ments should iden­tify their needs and lo­cate the right part­ner in the in­ter­na­tional mar­ket­place — whether through trade shows, gov­ern­ment del­e­ga­tions, con­fer­ences or sim­ply on­line con­nec­tions. “You have to use all kinds of dif­fer­ent plat­forms. There is some­body out there for you.”

The in­creas­ing in­ten­sity of hur­ri­canes, flood­ing and trop­i­cal storms has ne­ces­si­tated an up­grade of es­sen­tial in­fra­struc­ture and this is an area where the pri­vate sec­tor can step in

Hur­ri­canes and heavy rain are not the only weather-re­lated causes of road de­te­ri­o­ra­tion. Warmer weather in Saint Lu­cia means more cracks in fre­quently-traf­ficked roads and a greater need for reg­u­lar up­keep

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