By Cesar Queiroz, Roads and Transport Infrastructure Consultant & Former World Bank Highways Adviser
This article is based on an extensible paper by the author – please contact him for the full article at firstname.lastname@example.org
Many governments do not have all the financial resources required to expand, maintain, and operate their country’s infrastructure. Also in search of more investment efficiency, several countries have adopted public-private partnerships – PPP.
Nevertheless, the impact of PPP projects has been mixed. As stated by McCarthy, at their best, PPPs can provide rapid injections of cash from private financiers, delivery of quality services, and overall cost-effectiveness the public sector can’t achieve on its own. But at their worst, PPPs can also drive up costs, under-deliver services, harm the public interest, and introduce new opportunities for fraud, collusion, and corruption.
Good governance in managing PPPs thus seems essential to ensure that the private sector’s involvement yields the maximum benefit for the society.
Key requirements for good governance in PPP projects include, inter alia: (i) competitively selecting the strategic private investor, (ii) properly disclosing relevant information to the public, and (iii) having a regulatory entity appropriately oversee the contractual agreements over the life of the concession.
Competitive bidding. Open and transparent competitive bidding is usually perceived as a prerequisite to ensuring the efficient allocation and use of scarce public resources. The use of international competitive bidding is highly recommended.
In cases where competition is perceived to be relatively limited and the environment is prone to collusion, some innovative approach in the procurement process may lead to better results. In the selection of concessionaires under the second phase of the Brazilian federal road concession program, which led to substantially lower toll rates than the first phase, the selection was carried out by the Sao Paulo Stock Exchange through an auction.
Disclosure. Full disclosure of concession agreements, an indication of good governance, helps ensure that the users know what to expect from the facility under concession, thus increasing transparency in the role of the regulator. Nevertheless, not all concession contracts are open to public scrutiny. Excuses range from a claimed need for confidentiality to the cost of photocopying.
In one country in Central and Eastern Europe, the main text of a concession agreement was published but key annexes including financial and technical obligations of the concessionaire were not open to the public. In a Latin American country, the full final draft of the concession agreements are published, but the signed version is kept confidential.
Long-term monitoring. More than two centuries ago Adam Smith wrote that “a high road, though entirely neglected, does not become altogether impassable. The proprietors of the tolls upon a high road, therefore, might neglect altogether the repair of the road, and yet continue to levy very nearly the same tolls.”
To avoid such situations, which might occur even today, many countries have established regulatory agencies that monitor the performance of infrastructure facilities under concession. For example in 2001 Brazil established the National Agency for Land Transport, which, inter alia, monitors federal road concessions.