Covid-19 has delayed, disrupted and damaged even the most resilient of economies. And whether it’s providing healthcare, digital connectivity or thousands of jobs, infrastructure’s role in responding has been looked to as a panacea. PPPs in particular are playing a particularly nuanced part in pandemic responses across the world, with energetic support from multilateral development banks (MDBs).
“We see our role in helping governments protect lives, livelihoods and the future,” says Imad Fakhoury, director of Infrastructure Finance, PPPs & Guarantees Group at the World Bank.
Having enacted a programme of around USD160bn over the next 12-15 months, the scale of the World Bank Group’s response is vast, and so is its scope.
“Firstly, we’re focused on helping governments in the healthcare sector to better respond to emergencies. Secondly, protecting the poor and old and their safety needs,” says Fakhoury. “The third tier is protecting the workers, state managed enterprises and private sector to help preserve as many of the jobs as possible. The last element we are working on is a reform agenda and the recovery that will be needed post-emergency.”
Keeping large-scale infrastructure projects and the procurement of new ones going, and preventing termination is a tremendously difficult task: “They are getting into difficult financial sustainable situations and their liquidity is getting squeezed heavily,” Fakhoury continues.
“If we can look at ways to mitigate the short term, and find ways to sustain the delivery of the infrastructure services, that would be a win-win situation for all parties.”
Part of the World Bank Group’s strategy to help governments deal with the short-term implications of the pandemic has been the rollout of its ‘Covid-19 PPP Rapid Response Umbrella Program’. This aims to give governments an assessment of the fiscal impact of the pandemic on a project or portfolio in just six to eight weeks, allowing them to respond swiftly.
It has been taken up by eight governments in the first two weeks, particularly by those in Latin America - where other MDBs like the Inter-American Development Bank are also contributing to help nations by deploying financial and technical resources.
“In the medium term there are two critical objectives,” Fakhoury continues. “Providing labour intensive fiscal stimulus - infrastructure would be a critical component in that - and ensuring the financial sustainability of key service operators.”
Under the new circumstances, the landscape of PPPs is set to change, as Christiane Kuti, director, Fitch Ratings’ Global Infrastructure, explains: “In this context of limited fiscal capacity and [a] government’s need to support the country’s economic activity and employment, we expect an upswing of privately funded investment in infrastructure in the emerging countries.”
These projects are unlikely to be funded by multilaterals themselves, which “operate under tight capital constraints”, says Arnaud Louis, senior director, Fitch Ratings’ Supranationals Team. “There are a few exceptions, such as the Asian Infrastructure Investment Bank and the Asian Development Bank, which are two MDBs with very large capital buffers. This will allow them to significantly increase their lending activities as a result of the Covid-19 crisis.”
The Asian Development Bank’s head of Public Private Partnership Office Yoji Morishita explains its approach to the situation: “Even before the Covid-19 crisis hit the region, the annual infrastructure gap in the Asia-Pacific region was a staggering USD1.7 trillion. Many governments are already struggling under significantly higher expenses for social care and health services due to Covid-19, so the funding gap for key infrastructure is likely to be increased even further.”
“In the medium to long term, we will work with our clients in developing policies and guidance to make PPPs more resilient and also help our public sector clients to increase revenues from infrastructure to shore up their balance sheets,” says Morishita. “In the post-Covid-19 ‘new normal’ world (once the crisis phase is over), PPPs will become even more relevant and useful.”
As most agree that PPPs will be used to help cover new fiscal gaps across the globe, their role has changed – and perhaps their form will too. Morishita hints at one of the pressures that may drive changes: “Banks and investors will no longer take full demand risk as they have done in many of the PPPs in the developing countries of Asia. Therefore, the use of availability payments may become a key consideration in the way governments look to pay for PPP projects.”
During unprecedented times, having flexibility and adaptability is essential. As many projects face jeopardy and pipelines may need to be refocused, the multilaterals are helping advise governments on what to do next.
“Openness to make changes is critical,” says Matthew Jordan-Tank, director of Sustainable Infrastructure, Policy & Project Preparation at the European Bank for Reconstruction and Development (EBRD). “We’ve seen how important it is for governments to make adjustments to their institutional and legal frameworks to be able to present to the market bankable structures.”
With over USD23bn of investments expected in 2021, the EBRD “is well placed to support private sector participation”, says Jordan-Tank. The bank is operating a three-pronged financing response: deploying credit to existing clients; providing loans to key services with liquidity problems; and providing financing to public sector clients to support threatened projects. PPP pipelines “will be bolstered now significantly by the Bank’s Solidarity Package for the COVID-19 response”, he predicts.
With more projects on the way, the handling of PPPs in emerging markets is set to change.
David Baxter, Sustainable PPP and Development consultant and member of the World Association of PPP units and Professionals (WAPPP), says that the private and public sectors are going to have to move closer together “in a blurring of the boundaries”.
Baxter believes that mediating this blurring is an area where the multilaterals could play a really effective role. “The government and private sectors could have round tables and talk about specific PPP projects, sectors, or even national programmes. What they need is to start talking to each other to ensure the survivability of existing projects and future projects will be bankable under the new reality.
“If the multilaterals just focus on the government side it might not help the private sector get involved - and the governments ultimately need the private sector.”
Close relationships between sectors is an idea that Syed Afsor H. Uddin, PPP policy advisor for the Uzbekistan Ministry of Finance and PPP Development Agency, predicts we may see in the future: “There could be a new breed of PPPs, where returns are fixed and governments get into alliancing with an idea of what they’re going to do and work with the private sector to finalise the details, keeping an open book and target benchmarks for returns.”
In the immediate term, Uddin says that there is likely to be “more of a need for MDBs getting involved in the actual financing of the projects, and not just the preparation costs, with the idea that in the future, when the market has stabilised, it can be refinanced and the money can be reinvested in other projects”.
Whatever the future, one element that will need to be protected is the confidence of investors. Uddin says that although “we need probably two or three quarters to go by to see the levels of interest, in terms of Uzbekistan, there has been no change in appetite”. The EBRD also stated the “initial reaction has been positive” to their tenders.
As some tentatively look towards a post-pandemic world, the role of the multilateral in shaping that future is as complicated and as critical as ever.