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The rising significance of small-scale PPPs
In the realm of public-private partnerships (PPPs), the segment of small-scale PPPs emerges as both a unique challenge and a promising opportunity. These small-scale PPPs, a term that has been making headlines, are more than mere buzzwords; they represent a critical instrument for attaining sustainable development goals. This blog post aims to delve into the landscape of small-scale PPPs, offering an understanding of their definition and navigating the challenges they present.
Traditionally, the narrative around PPPs has been dominated by large-scale projects, typically steered by national governments. These projects range from massive infrastructure developments to extensive energy ventures. However, this focus on large-scale initiatives often overshadows the potential of smaller-scale projects, particularly in relation to achieving the Sustainable Development Goals (SDGs).
Uncovering the potential of small-scale PPPs
An analysis of the World Bank Group’s Private Participation in Infrastructure (PPI) database from 2016 to 2022 reveals a shift in the landscape of small-scale PPPs. In 2016, around 40% of all projects listed were valued at less than $50 million, indicating strong engagement in smaller-scale initiatives. By contrast, in 2022, the scenario changed drastically, with only 3% of total investments directed towards PPP projects under $50 million. This marked decrease underscores a growing funding gap for small-scale projects.
Despite the financing disparities, the persistent demand for such projects emphasizes the urgent need to bridge the investment gap. These initiatives are pivotal for the targeted advancement of Sustainable Development Goals in various regions. For instance, in 2022, the Philippines energy sector closed small-scale PPPs ranging from approximately $17 million to $47 million. The Kingdom of Morocco undertook a transport project with an investment of around $36.8 million, and Colombia, a more developed economy, committed about $50 million to a healthcare PPP project. These examples highlight the varied investments in small-scale PPPs and their crucial role in sustainable development across different economies.
In response to this growing recognition, the World Association of PPP Units & Professionals (WAPPP) recently initiated a year-long program dedicated to this segment. This initiative, featuring 20 bi-weekly discussion sessions, kicked off by addressing the crucial question.
What are small-scale PPPs?
This question goes beyond academic curiosity. The definition of small-scale PPPs is multifaceted, considering factors beyond mere financial investment. Is the determination of a PPP’s scale a matter of investment size alone, or are there other contributing factors? Here, clarity becomes challenging. It’s not straightforward whether PPP projects under local or sub-national governments qualify as small-scale based solely on their investment size or the duration of their preparation. These subtleties are vital for a comprehensive grasp of how these projects are ideated, structured, and executed.
The defining feature of small-scale PPPs hinges on the financial structure, particularly the ratio of project design, preparation, and tendering costs to the overall project financing cost. This distinction highlights the importance of assessing the relative scale of upfront costs in relation to the total financial investment. Beyond these financial considerations, small-scale PPPs involve intricate stakeholder relationships and financial arrangements, highlighting the broader complexities that these projects entail. This complexity leads us to explore further.
What are the issues faced by Small-scale PPPs?
Small-scale PPPs are confronted with a myriad of challenges that are distinct from those faced by larger initiatives. Key among these are financial constraints, risk identification and mitigation issues, capacity limitations, unclear legal framework and lack of technical preparation, and difficulties in assessing socio-economic impacts.
In proportion to the capital costs of small-scale projects, project preparation and transaction structuring costs can be very high, making it difficult to achieve a satisfactory return on investment. This issue is particularly acute in sectors where user-pay revenue generation is low or non-existent. Furthermore, the financial viability of these projects is frequently jeopardized in economically weaker regions where the relevant public sector authority is unable to provide some sort of de-risking support.
With small-scale PPPs being mostly of a local nature, it is important to note that local authorities struggle with gaps in expertise and capacity. There’s often a notable deficiency in technical expertise and data availability, hindering the effective implementation of these projects. The private sector, too, finds itself at a crossroads, struggling to adapt to the specific needs of communities – a critical element for the success of these partnerships.
Project preparation poses its own set of challenges, as small-scale projects face mismatched legal frameworks and protracted, inflexible procurement processes that are ill-suited to their scope. Moreover, there’s a general lack of streamlined guidance and financing mechanisms to conduct proper due diligence which is fit for purpose.
This situation is further strained by the limited capacity of subnational entities, making these PPP projects more vulnerable and complex. All these paradoxes are at the heart of WAPPP’s discussions: How can these projects be delivered efficiently and at scale across various sub-national levels?
Path for small-scale PPPs
In essence, small-scale PPPs might not always dominate headlines or attract huge investments like their larger counterparts. Predominantly sub-national and characterized by modest financial investments, their role in addressing specific local needs and improving community services is undeniable. They demand creativity and adeptness in structuring, financing, and implementation, often more so than larger projects. As WAPPP continues to explore and define these projects, their role in achieving the SDGs becomes increasingly evident, marking them as not just a concept, but a necessary evolution in the world of PPPs.
Looking ahead, the WAPPP series of bi-weekly meetings stand as a beacon of progress, delving into various facets of small-scale PPPs. These discussions, rich in expertise and insights, are instrumental in developing practical solutions and innovative strategies, with the goal of making small-scale PPPs more effective tools in achieving the Sustainable Development Goals. Attendees of these sessions can expect to gain invaluable perspectives and strategies, enhancing their ability to implement and support these vital projects.
As we embark on this journey of understanding and utilizing small-scale PPPs, one question remains paramount: How can we, as a collective of professionals, policymakers, and community leaders, further innovate and integrate small-scale PPP projects for maximal impact on local and global sustainability goals?
Your thoughts and insights are valuable. We invite you to share your experiences and ideas in the comments below, fostering a collaborative dialogue that can propel small-scale PPPs to be prioritized in global conversations.
The rising significance of small-scale PPPs
In the realm of public-private partnerships (PPPs), the segment of small-scale PPPs emerges as both a unique challenge and a promising opportunity. These small-scale PPPs, a term that has been making headlines, are more than mere buzzwords; they represent a critical instrument for attaining sustainable development goals. This blog post aims to delve into the landscape of small-scale PPPs, offering an understanding of their definition and navigating the challenges they present.
Traditionally, the narrative around PPPs has been dominated by large-scale projects, typically steered by national governments. These projects range from massive infrastructure developments to extensive energy ventures. However, this focus on large-scale initiatives often overshadows the potential of smaller-scale projects, particularly in relation to achieving the Sustainable Development Goals (SDGs).
Uncovering the potential of small-scale PPPs
An analysis of the World Bank Group’s Private Participation in Infrastructure (PPI) database from 2016 to 2022 reveals a shift in the landscape of small-scale PPPs. In 2016, around 40% of all projects listed were valued at less than $50 million, indicating strong engagement in smaller-scale initiatives. By contrast, in 2022, the scenario changed drastically, with only 3% of total investments directed towards PPP projects under $50 million. This marked decrease underscores a growing funding gap for small-scale projects.
Despite the financing disparities, the persistent demand for such projects emphasizes the urgent need to bridge the investment gap. These initiatives are pivotal for the targeted advancement of Sustainable Development Goals in various regions. For instance, in 2022, the Philippines energy sector closed small-scale PPPs ranging from approximately $17 million to $47 million. The Kingdom of Morocco undertook a transport project with an investment of around $36.8 million, and Colombia, a more developed economy, committed about $50 million to a healthcare PPP project. These examples highlight the varied investments in small-scale PPPs and their crucial role in sustainable development across different economies.
In response to this growing recognition, the World Association of PPP Units & Professionals (WAPPP) recently initiated a year-long program dedicated to this segment. This initiative, featuring 20 bi-weekly discussion sessions, kicked off by addressing the crucial question.
What are small-scale PPPs?
This question goes beyond academic curiosity. The definition of small-scale PPPs is multifaceted, considering factors beyond mere financial investment. Is the determination of a PPP’s scale a matter of investment size alone, or are there other contributing factors? Here, clarity becomes challenging. It’s not straightforward whether PPP projects under local or sub-national governments qualify as small-scale based solely on their investment size or the duration of their preparation. These subtleties are vital for a comprehensive grasp of how these projects are ideated, structured, and executed.
The defining feature of small-scale PPPs hinges on the financial structure, particularly the ratio of project design, preparation, and tendering costs to the overall project financing cost. This distinction highlights the importance of assessing the relative scale of upfront costs in relation to the total financial investment. Beyond these financial considerations, small-scale PPPs involve intricate stakeholder relationships and financial arrangements, highlighting the broader complexities that these projects entail. This complexity leads us to explore further.
What are the issues faced by Small-scale PPPs?
Small-scale PPPs are confronted with a myriad of challenges that are distinct from those faced by larger initiatives. Key among these are financial constraints, risk identification and mitigation issues, capacity limitations, unclear legal framework and lack of technical preparation, and difficulties in assessing socio-economic impacts.
In proportion to the capital costs of small-scale projects, project preparation and transaction structuring costs can be very high, making it difficult to achieve a satisfactory return on investment. This issue is particularly acute in sectors where user-pay revenue generation is low or non-existent. Furthermore, the financial viability of these projects is frequently jeopardized in economically weaker regions where the relevant public sector authority is unable to provide some sort of de-risking support.
With small-scale PPPs being mostly of a local nature, it is important to note that local authorities struggle with gaps in expertise and capacity. There’s often a notable deficiency in technical expertise and data availability, hindering the effective implementation of these projects. The private sector, too, finds itself at a crossroads, struggling to adapt to the specific needs of communities – a critical element for the success of these partnerships.
Project preparation poses its own set of challenges, as small-scale projects face mismatched legal frameworks and protracted, inflexible procurement processes that are ill-suited to their scope. Moreover, there’s a general lack of streamlined guidance and financing mechanisms to conduct proper due diligence which is fit for purpose.
This situation is further strained by the limited capacity of subnational entities, making these PPP projects more vulnerable and complex. All these paradoxes are at the heart of WAPPP’s discussions: How can these projects be delivered efficiently and at scale across various sub-national levels?
Path for small-scale PPPs
In essence, small-scale PPPs might not always dominate headlines or attract huge investments like their larger counterparts. Predominantly sub-national and characterized by modest financial investments, their role in addressing specific local needs and improving community services is undeniable. They demand creativity and adeptness in structuring, financing, and implementation, often more so than larger projects. As WAPPP continues to explore and define these projects, their role in achieving the SDGs becomes increasingly evident, marking them as not just a concept, but a necessary evolution in the world of PPPs.
Looking ahead, the WAPPP series of bi-weekly meetings stand as a beacon of progress, delving into various facets of small-scale PPPs. These discussions, rich in expertise and insights, are instrumental in developing practical solutions and innovative strategies, with the goal of making small-scale PPPs more effective tools in achieving the Sustainable Development Goals. Attendees of these sessions can expect to gain invaluable perspectives and strategies, enhancing their ability to implement and support these vital projects.
As we embark on this journey of understanding and utilizing small-scale PPPs, one question remains paramount: How can we, as a collective of professionals, policymakers, and community leaders, further innovate and integrate small-scale PPP projects for maximal impact on local and global sustainability goals?
Your thoughts and insights are valuable. We invite you to share your experiences and ideas in the comments below, fostering a collaborative dialogue that can propel small-scale PPPs to be prioritized in global conversations.
