It was a pleasure to contribute to the PPP project outlook for Europe at the 9th Annual World Energy & Infrastructure Summit.
The drivers for the adoption of PPPs as a procurement model were discussed together with the evolution of PPPs and the focus on service outcomes rather than physical built outcomes.
With respect to Europe, some of the key PPP challenges identified by the panel included:
- lack of consistent understanding and application of the PPP model
- distortion of the infrastructure market by the participation of development banks and multilateral funding of infrastructure projects, including PPPs crowding out private sector participation
- appropriate risk transfer to the private sector, particularly where significant capital is not required to be deployed upfront, such as in the operation of brownfield projects without a construction component
- value proposition of PPPs may not be as high in brownfield projects; opportunity for innovation and risk transfer may be more limited
- competing priorities with respect to government financing vs the utilisation of private sector financing. Typically, the driver for the adoption of PPPs in mature markets is to obtain better value for money, rather than the off-balance sheet treatment of infrastructure assets or seeking to raise private non-recourse finance through PPP procurement
- governments should look strategically and over the long term in developing their infrastructure programs and corresponding project pipelines, given most infrastructure projects represent a commitment of at least 25-30 years and sometimes longer
- the infrastructure industry needs to do a better job in demonstrating the value of private sector involvement in infrastructure delivery and operation (supported by real performance data), coupled with a recognition that not every project is suited to the PPP procurement methodology.