caribbean infrastructure ppp roadmap - world bank · executive summary. 1. executive summary....

Caribbean Infrastructure PPP Roadmap

March 2014

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© 2014 Public-Private Infrastructure Advisory Facility (PPIAF)1818 H Street, NWWashington, DC 20433www.ppiaf.orgE-mail: [email protected] The findings, interpretations, and conclusions expressed in this report are entirely those of the authors and should not be attributed in any manner to the Public-Private Infrastructure Advisory Facility (PPIAF) or to The World Bank Group, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent.

Neither PPIAF nor The World Bank Group guarantees the accuracy of the data included in this publication or accepts responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this report do not imply on the part of PPIAF or The World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. For questions about this publication or information about ordering more copies, please refer to the PPIAF website or contact PPIAF by email at the address above.

Rights and Permissions The material in this work is subject to copyright. Because PPIAF and The World Bank Group encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes, as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street, NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: [email protected]. Cover photos: Dominic Chavez / World BankCover design: TM Design, Inc.

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SECTIONTITLE

TABLE OF CONTENTS

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1 . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

2 . Rationale for PPPs in the Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

3 . Caribbean Experience with PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

4 . Emerging PPP Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.1 TransportSector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.1.1 Airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.1.2 Ports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.1.3 OtherMaritimeTransport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.1.4 Roads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4.2 ElectricitySector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.3 WaterSector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 4.4 TelecommunicationsSector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 4.5 SocialandGovernmentInfrastructureSectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

5 . Learning from Experience: PPP Constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.1 ImplementationChallenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 5.2 BarrierstoPPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

6 . The Way Forward: PPP Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 6.1 PPPArchitecture:PolicyFrameworks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 6.2 PPPArchitecture:InstitutionalCapacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.3 PPPProjectsandPipelines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 6.4 SequencingofActionsandImplementationChallenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

AppendicesAppendixA:CaribbeanPPPExperience—ExistingPPPsintheCaribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

TablesTable4.1: ElectricitySector—StructureandPerformance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Table4.2: PotentialElectricityPPPProjects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

FiguresFigure0.1: CaribbeanPPPPipelinebySector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Figure0.2: LimitedPPPPolicyandInstitutionalArchitectureintheCaribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Figure0.3: PPPActions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Figure3.1: PrivateInfrastructureInvestmentExperienceintheCaribbean. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Figure3.2: PPPProjectExperienceintheCaribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Figure3.3: PPPPolicyandInstitutionalArchitectureintheCaribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Figure4.1: NumberofCurrentandPlannedPPPProjectsintheCaribbeanbyCountry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Figure4.2: CurrentandplannedPPPProjectsintheCaribbeanbySector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Figure5.1: ConstraintsArisingfromLimitedPPPPolicyandInstitutionalArchitecture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Figure5.2: SummaryofBarriersandImplicationsforPPPOutlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27Figure6.1: TypicalPPPProgramFunctionsandResponsibilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Figure6.2: TypicalPPPProjectDevelopmentProcess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32Figure6.3: SummaryandSequencingofActions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

BoxesBox2.1: PPPsand“FiscalSpace” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Box3.1: DefiningPPPSuccess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Box4.1: HowthePPPPipelineProjectswereIdentified. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Box4.2:TheChallengesofRegionalProjects:OECSRegionalFastFerry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Box6.1: PPPPoliciesandLaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Box6.2:HowCouldaRegionalPPPUnitWork? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

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ACKNOWLEDGEMENTS

ACKNOWLEDGEMENTS

ThisreporthasbeenpreparedbytheLatinAmericaandCaribbeanSustainableDevelopmentDepartment(LCSSD)oftheWorldBank.TheworkwasledbyHelenMartin,Consultant(LCSSD)—leadauthorofthisreport—undertheoverallguidanceofSophieSirtaine,WorldBankCountryDirectorfortheCaribbean,andCeciliaBriceño-Garmendia,LeadEconomist(LCSSD).TheteamandcontributorsincludedDavidBotBaNjockoftheInternationalFinanceCorporation(IFC)’sC3PAdvisorypractice,andDavidEhrhardt,AlfonsoGuzmán,BrianSamuel,andIkepoOyenugafromCastalia.InitialconclusionsofthereportwerepresentedattheCaribbeanPPPForumheldinBarbadoson19-20November,2013,forvaluablefeedbackfromparticipatinggovernmentofficialsanddevelopmentpartners.

TheteamwishestothankpeerreviewersDanielPulido,PierreNadji,andTomVis;aswellasotherWorldBankGroupcolleagueswhoprovidedcomments,includingRichardCabello,FranciscoGalraoCarneiro,JamesClose,GlenKierse,CristinaMariaLadeiraFerreira,AlessandroLegrottaglie,CliveHarris,RuiMonteiro,GylfiPalsson,GalinaSotirova,MariaAngelicaSotomayor,SatheeshSundararajan,SonaVarma,andJunZhang.Finally,theteamwishestoacknowledgethegeneroussupportforthisactivityfromthePublic-PrivateInfrastructureAdvisoryFacility(PPIAF).

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ABBREVIATIONS

ABBREVIATIONS

ESCO EnergyServiceCompany

EU EuropeanUnion

ICT Informationandcommunicationstechnology

IDB Inter-AmericanDevelopmentBank

IFC InternationalFinanceCorporation

IMF InternationalMonetaryFund

IPP Independentpowerproducer

LNG LiquidNaturalGas

MIF MultilateralInvestmentFacility

NRW Non-RevenueWater

OECS OrganizationofEasternCaribbeanStates

PPA Powerpurchaseagreement

PPIAF Public-PrivateInfrastructureAdvisoryFacility

PPP Public-privatepartnership

WB WorldBank

WBG WorldBankGroup

iv LARGER SECTION TITLE

1EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Executive Summary

There is growing interest in the Caribbean in using public-private partnerships (PPPs) to provide infrastructure. Infrastructureinvestmentneedsaresignificantacrosstheregion,toboosteconomicgrowthandresilience.ManyCaribbeangovernmentsareincreasinglyturningtoPPPstomeetthoseneeds,drivenbyacombinationoftightfiscalconstraints,andgrowingappreciationoftheroleoftheprivatesectorindeliveringpublicservices.Thisinclinationreflectsglobaltrendsandexperience.ManycountrieshavefoundthatPPPs—whenselected,structured,andmanagedwell—canhelpmakethebestuseofthefinancialandtechnicalresourcesofthepublicandprivatesectorstoprovideimprovedinfrastructureassetsandservices.

Experience with PPPs to date in the Caribbean has been mixed. PPPsarenotnewintheregion,havingbeenusedtodeliverneworimprovedroads,ports,airports,bulkwatertreatmentfacilities,andelectricitygenerationplants.ManyPPPprojectshaveoperatedsuccessfullyforyears,deliveringhigh-qualityinfrastructurefacilities.Othershavefacedchallenges.Inmanycases,thecomplexityofthePPPdevelopmentandimplementationprocesshasmeantlongdelaysindeliveringprojects;othersresultedinquestionablevalueorunexpectedcoststogovernmentsorconsumers.AllPPPprojectstodatewereimplementedwithoutoverarchingPPPpolicyframeworks,asdescribedinmoredetailbelow.

This raises a question: How can Caribbean governments navigate the challenges to make the best use of PPPs to deliver improved infrastructure assets and services? This“CaribbeanInfrastructurePPPRoadmap”seekstoanswerthisquestion.ItreviewstheoutlookforPPPsintheregion,by:identifyingPPPprojectopportunitiesinelevenCaribbeancountries1;constraintsorbarrierstosuccessfuldevelopmentofthoseprojectopportunities,basedonpreviousexperience;andpossibleactionstoovercometheseconstraints.TheRoadmapwasdevelopedbytheWorldBankGroup,withinputsfromCaribbeangovernments,privateinvestors,andotherdevelopmentpartners,andsupportfromthePublic-PrivateInfrastructureAdvisoryFacility(PPIAF).

PPP OPPORTUNITIES

This Roadmap identified a potential PPP “pipeline” of 33 projects that are being actively developed as PPPs across 11 Caribbean countries,withatotalestimatedinvestmentvalueofUSD2to3billion.Theseareprojectsthatareactivelyunderdevelopment,albeitinsomecasesatanearlystage,andthatappearpotentiallyviableasPPPsfromaprimafacieassessment—fromtechnical,economic,commercial,legalandregulatory,andpoliticalperspectives—althoughdetailedappraisalisneededinmostcases.Assuch,thispipelineprovidesareasonableestimateofthepotentialforPPPintheCaribbeaninthenexttwotofiveyears.

This pipeline represents a significant planned increase in the use of PPPs in several countries:notablyJamaicaandTrinidadandTobago(whichtogethercontributehalfthepipelineprojects);Suriname;andsomeOrganizationofEasternCaribbeanStates(OECS)memberssuchasSaintLuciaandGrenada.Ontheotherhand,somecountrieswithmorePPPexperiencearemovingawayfromPPPgoingforward.ParticularlyintheDominicanRepublic,challengeswithearlyPPPsinsomesectorshaveledtopoliticalandpublicskepticism.

1TheRoadmapcoversthefollowing11countries:AntiguaandBarbuda,Dominica,theDominicanRepublic,Grenada,Haiti,Jamaica,SaintKittsandNevis,SaintLucia,SaintVincentandtheGrenadines,Suriname,andTrinidadandTobago.ThesewereselectedasWorldBankGroup(WBG)clientcountriesforwhichaninitialdeskreviewprovidedprimafacieevidenceofinterestinPPP.Inpractice,severalnon-WBGclientcountriesintheregionhaveexpressedanintentiontomakegreateruseofPPP.Assuch,theRoadmapdoesnotpresentacomprehensiveoutlookforPPPacrosstheCaribbeanregion,butcouldbeconsideredtoprovidearepresentativepicture.RegionalactionspresentedintheRoadmapcouldinpracticeapplytoawidergroupofcountries.

2

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Transport and power opportunities remain significant—although new PPP sectors are also emerging.Figure0.1belowshowsthesectordistributionofthe33pipelineprojects.Transportprojectsincluderoads(bothtollroadsandlong-termrehabilitationandmaintenancecontracts);amajorportconcessionforJamaica’sKingstonContainerTerminals;passengerferryandcruiseshipfacilities;andfiveproposedairportconcessions.Intheenergysector,thefocusinondiversifyingenergysources,withseveralPPPsindevelopmentforrenewableenergygeneration.WhiletelecommunicationsservicesaremostlyprivateintheCaribbean,potentialPPPsintheICTsectorcompriserolloutofhigher-speedbroadbandnetworks,aswellasgovernmentITsystems.ViewsonPPPinthewatersectorremaincircumspect,outsidebulkwaterandwastewatertreatmentprojectsbeingconsideredinJamaica.Finally,severalcountriesareconsideringPPPprojectsforsocialandgovernmentinfrastructuresuchashealthandeducationfacilities—althoughtheaffordabilityofsuchprojectsremainsaquestioninthefaceoftightfiscalconstraints.

Figure 0.1: Caribbean PPP Pipeline by Sector

Source: Authors, based on Castalia and World Bank research, and inputs from relevant governments

Most of these projects are at a very early stage.SubstantialfurtherworkisneededtoassesswhethertheprojectsareviableandrepresentattractivePPPopportunities;andforthosethatdo,totaketheseprojectsthroughtofinancialcloseanddeliverimprovedinfrastructureontheground.Ofthe33projectsidentified,16remainattheconceptstage;13areundergoingmoredetailedfeasibilityanalysisorduediligence;andtransactionsareunderwayforonlyfourprojects.Manyhavebeenreceivingsupportfromdevelopmentpartners,includingtheWorldBankGroup,theInter-AmericanDevelopmentBank(IDB)anditsMultilateralInvestmentFund(MIF),theEuropeanUnion(EU),andtheBill,Hillary&ChelseaClintonFoundation,amongothers.

Policy Law Detailed Guidelines Defined Roles

Dedicated Units(s)

Staff with PPP Experience

Dedicated Project Prep Funding

Jamaica 4(2012)

6 Underway 44

(DBJ&MOF)6

Trinidad & Tobago

4(2012)

6 Underway 44

(MOF)6

Dominican Republic 6 6 6 6 6 6

Haiti 6 6 6 64

(MOF)6

Suriname 6 6 6 6 6 6

OEC States 6 6 6 6 6 6

PPP CONSTRAINTS

Experience in the Caribbean suggests that governments may face some constraints in turning this potential PPP pipeline into successful projects on the ground. CaribbeancountrieshaveimplementedPPPs,andseveralaresuccessfullyprovidingimprovedinfrastructureservices.However,othershaveexperiencedproblemsinimplementation.Theseproblemshaveincludedunexpectedfiscalcosts;questionablevalueformoney;andlongdelaysinclosingdeals.Manyadditionalprojectshavesimplyfailedtolaunch,asevidencedbythelargenumberofpipelineprojectsthathavebeenunderdiscussionforsometime.Inparticular,regionalprojectideashavestruggledtogetoffthegroundinthefaceoflimitedmechanismsforregionalcooperation.

Many of these past problems can be traced back to the lack of “PPP architecture” across most of the Caribbean.Inotherwords,thesearethetypesofproblemsthatcountrieswithsuccessfulPPPprogramshavetypicallysolvedbyintroducingPPP-specificpolicyandinstitutionalframeworks—definingclearprocessesformanagingPPPsthatensurethoroughprojectduediligenceandpreparation;definingresponsibilitiesforcarryingoutthoseprocesses;andbuildingcapacitytodoso(bothinternal,andthroughtheuseofwell-qualifiedadvisors).WhileafewCaribbeancountrieshavemadesignificantrecentprogresstowardsestablishingPPPpoliciesandinstitutions—particularlyJamaicaandTrinidadandTobago,asshowninFigure0.2below—significantgapsremainacrosstheregion.

Figure 0.2: Limited PPP Policy and Institutional Architecture in the Caribbean

4Inplace(date)6 AbsentLowModerateHigh;DevelopmentBankofJamaica(DBJ);MinistryofFinance(MOF)Source: Authors, based on Castalia and World Bank research

3

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

In addition to these constraints on implementing pipeline projects that appear viable, there are additional barriers to greater use of PPP in the Caribbean—thatis,tofurtherexpansionofthepipeline.Inafewcases,particularlyintheenergysector,completionofon-goingsectorreformprocessesisneededto“unlock”opportunitiesforPPP.Inseveralothers,apparentlyviablePPPopportunitiesappearunlikelytobepursuedintheneartermduetoalackofpoliticalinterestinPPPincertaincountriesandsectors—abarrierthatislikelytobemoreintransigent,althoughitmayerodeovertimeinthefaceoflocalPPP“successstories.”

Ultimately, the small scale of infrastructure needs at the country level—particularly for smaller islands—may limit the extent of “marketable” PPP projects. Flexibleapproacheswillbeneededforcountriestomitigatethisinherentbarrier.Ontheonehand,thiscouldincludegreaterregionalcooperation—whetheronregionalprojectsinsectorssuchasenergyandtransport;oraregionalapproachtodevelopingandmarketingPPPpipelinesthatcouldhelpelicitgreaterinterestfrominternationalinvestors.CaribbeangovernmentscouldalsoconsidertargetingawiderrangeofPPPinvestors—includingeducatingandencouraginglocalentrepreneurstogetintothebusiness,andfindingregionalplayersthatmaybeinterestedinsmaller-scaleprojects.

THE WAY FORWARD: PPP ACTIONS

Capitalizing on the PPP potential in the Caribbean will therefore require building more robust PPP architecture, as well as moving forward with PPP projects, as summarized in Figure 0.3.Pursuingtheseactionsinparallelwillhelpensureinstitutionsandprocessesarefoundedonexperienceandpracticalrealities,andbuildpoliticalandmarketmomentumbehindPPPprogramsbymovingforwardwithdeals.Thiscouldincludeacombinationofcountry-levelandregionalactions.SincemanyCaribbeancountriesfacesimilarneeds,collectiveactionattheregionalleveltosupportPPPmakessense:toachieveeconomiesofscaleandavoidreinventingthewheel;helpfosteraregionalPPPmarketthatisbetterabletoattractinvestorinterest;andenablepursuitofregionalprojects.

Figure 0.3: PPP Actions

4 EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Caribbean countries that intend to make significant use of PPPs going forward would benefit from introducing guiding policy frameworks. Asdescribedabove,ofthecountriescoveredbythisRoadmap,onlyJamaicaandTrinidadandTobagohaverecentlyintroducedPPPpolicies,althoughseveraladditionalgovernmentshaveexpressedinterestindoingso.Whileeachcountrywillneedtodevelopandbuildconsensusarounditsownpolicyorlaw,regionalcooperationonPPPpolicyframeworkscouldinvolvedevelopinga“model”policy,processmanual,andtoolsfromwhichcountriescoulddrawfornationalPPPpolicies.

Building the institutional capacity needed to effectively implement PPP policies and projects could involve actions at both the national and regional level. Theseactionscouldinclude:• Designating “PPP focal points” at the national level byidentifyingteamsorindividualstoplayacoordinatingroleforthePPPpolicyand

projects,andtobearepositoryofexperienceandknowledgeonPPP.JamaicaandTrinidadandTobagohavebothestablishedPPPUnitstothisend,intheDevelopmentBankandMinistryofFinancerespectively.

• Reviewing the case for a regional “PPP Unit,” giventhelimitedscaleofPPPprograms,particularlyonsmallerislands,whichmaymakeitinefficientforeachgovernmenttobuildadedicatedPPPteam.

• Training and capacity building forgovernmentstaffatalllevelswillbeneeded—anotherarearipeforregionalcooperation.AregionalPPPcapacity-buildinginitiativeaimedatgovernmentofficialsinvolvedinPPPscouldaddressimmediateneeds;overtime,thiscouldexpandtoworkingwithregionaleducationalinstitutionstoequipyounggraduatesforfuturerolesinPPPs,whetheronthepublicorprivateside.

At the same time, Caribbean governments can move forward with developing priority PPP projects and pipelines. Intheabsenceofwell-establishedprocessesandinternalcapacity,cautionwillbeneededtoensureearlyPPPprojectsestablishsuccessfulprecedents.Thesupportofexperiencedadvisorswillbecrucial,andgovernmentsneedtobepreparedtoinvestsubstantialresourcesindevelopingPPPswell.GovernmentsmayalsowanttotakeamoresystematicapproachtodevelopingPPPpipelinesbyscreeningprioritypublicinvestmentprojectsforPPPpotential.ThiscanhelpidentifythemostpromisingprojectsforearlyPPPsuccesses,aswellasthelikelyscopeofaPPPprograminthemediumterm.Whileprojectandpipelinedevelopmentintheneartermislikelytofocusatthenationallevel,introducingsuchpipelinestothemarketinacoordinatedway—forexample,througharegionalPPPForum—couldhelpcreatearegional“PPPmarket”andgenerategreaterinvestorinterest.

Experience suggests that undertaking these actions is likely to require external support, whilegovernmentsintheregionbuildtheinternalcapacityandconsensusneededtomovePPPprogramsforward,andtoovercomechallengesofregionalcoordination.TheWorldBankandIFCarealreadysupportingthedevelopmentofPPPprojectsandprogramsinseveralCaribbeancountriesandsectors,asareotherdevelopmentpartnerssuchastheIDBanditsMIF—goingforwardtheseeffortscouldincreasinglybecombinedandcoordinated.“Quickwins”couldincludeworktoharmonizenationalPPPpolicies,buildcommontools,anddeveloparegionalcapacity-buildingprogram.

Going forward, a lasting regional PPP support mechanism could be considered. Thiscouldtaketheformofaregional“PPPFacility,”comprisingaregional“PPPunit”thatprovidesbothupstreamanddownstreamtransactionimplementationsupporttoCaribbeangovernmentsfornationalandregionalPPPprojects—workingwithdevelopmentpartners,andexperiencedexternaltechnicaladvisorsasneeded—andarevolving“PPPpreparationfund”tosupporttheactivitiesofthisregionalteam.Thesuccessofsuchafacilitywoulddependheavilyonthelevelofdemandandcommitmentfromgovernmentsintheregion.Afirststepwouldthereforebetodevelopabusinessmodelforthefacility,asthebasisforconsultationandagreementamongparticipatinggovernmentsandpotentialmultilateralandbilateralpartners.

5EXECUTIVE SUMMARY

6

INTRODUCTION

INTRODUCTION

1

A public-private partnership (PPP) is a long-term contract between a private party and a government agency for providing a public asset or service, in which the private party bears significant risk and management responsibility.2 Thisdiffersfromotherformsofprivate-sectorparticipationininfrastructure,suchasprivatization,wheretheownershipofanassetistransferredtoprivatehands(oftenunderregulation),orajointventure,wheretherelationshipbetweenthepublicandprivatepartiesisdefinedinashareholders’agreement.

There is growing interest in the Caribbean in using PPPs to provide infrastructure. Infrastructure investment needs are significant across the region, to boost economic growth and resilience.ManyCaribbeangovernmentsareincreasinglyturningtoPPPstomeetthoseneeds,drivenbyacombinationoftightfiscalconstraintsandgrowingappreciationoftheroleoftheprivatesectorindeliveringpublicservices.Thisinclinationreflectsglobaltrendsandexperience.ManycountrieshavefoundthatPPPs—whenselected,structured,andmanagedwell—canhelpmakethebestuseofthefinancialandtechnicalresourcesofthepublicandprivatesectorstoprovideimprovedinfrastructureassetsandservices.

Experience with PPPs to date in the Caribbean has been mixed.PPPsarenotnewintheregion,havingbeenusedtodeliverneworimprovedroads,ports,airports,bulkwatertreatmentfacilities,andelectricitygenerationplants.ManyPPPprojectshaveoperatedsuccessfullyforyears,deliveringhigh-qualityinfrastructurefacilities.Othershavefacedchallenges.Inmanycases,thecomplexityofthePPPdevelopmentandimplementationprocesshasmeantlongdelaysindeliveringprojects;othersresultedinquestionablevalueorunexpectedcoststogovernmentsorconsumers.

This raises a question: How can Caribbean governments successfully navigate the challenges to make the best use of PPPs to deliver improved infrastructure assets and services?This“CaribbeanInfrastructurePPPRoadmap”seekstoanswerthisquestion.ItreviewstheoutlookforPPPsintheregion,by:identifyingPPPprojectopportunitiesin11Caribbeancountries3; constraintsorbarrierstosuccessfuldevelopmentofthoseprojects,basedonpreviousexperience;andpossibleactionstoovercometheseconstraints.TheRoadmapwasdevelopedbytheWorldBankGroup,withinputsfromCaribbeangovernments,privateinvestors,andotherdevelopmentpartners,andwithsupportfromthePublic-PrivateInfrastructureAdvisoryFacility(PPIAF).This report presents the “Caribbean Infrastructure PPP Roadmap,”asfollows:• Section2explainstherationaleforPPPsintheCaribbean—itdescribeswhyandhowPPPscanaddvaluebydeliveringneeded

infrastructureeffectivelyandefficiently;• Section3presentsexperiencewithprivate-sectorparticipationininfrastructureandPPPinthe11countriescoveredbytheRoadmap;• Section4reviewsemergingPPPopportunities:apotentialPPPpipelineof33projectsthatarebeingactivelydevelopedasPPPsacross

these11countries;• Section5drawsonexperiencewithPPPintheregiontoidentifypossibleconstraintsonsuccessfuldevelopmentoftheseprojects,and

barrierstogreateruseofPPP;and• Finally,Section6setsoutconcreteactionsthatCaribbeangovernmentscantake—individually,andcollectively—tobuildsuccessfulPPP

projectsandprograms.

2Thereisnosingle,internationallyaccepteddefinitionofPPP,andthetermisoftenusedtodescribearangeofcontracttypes.Thisreportadoptsabroaddefinition,asusedintheWorldBankInstitute’s“PPPReferenceGuide,”availableonlineat:http://wbi.worldbank.org/wbi/news/2012/04/10/now-available-public-private-partnerships-reference-guide-version-10.3TheRoadmapcoversthefollowing11countries:AntiguaandBarbuda,Dominica,theDominicanRepublic,Grenada,Haiti,Jamaica,SaintKittsandNevis,SaintLucia,SaintVincentandtheGrenadines,Suriname,andTrinidadandTobago.ThesewereselectedasWorldBankGroup(WBG)clientcountriesforwhichaninitialdeskreviewprovidedprimafacieevidenceofinterestinPPP.Inpractice,severalnon-WBGclientcountriesintheregionhaveexpressedanintentiontomakegreateruseofPPP.Assuch,theRoadmapdoesnotpresentacomprehensiveoutlookforPPPacrosstheCaribbeanregion,butcouldbeconsideredtoprovidearepresentativepicture.RegionalactionspresentedintheRoadmapcouldinpracticeapplytoawidergroupofcountries.

7

RATIONALE FOR PPPS IN THE

CARIBBEAN

RATIONALE FOR PPPS IN THE CARIBBEAN

2

Rationale for PPPs in the Caribbean

Many Caribbean governments face common challenges in delivering the quality, efficient, accessible infrastructure needed to support sustainable and inclusive growth.EnergycostsinmanyCaribbeancountriesareamongthehighestintheworld,andvulnerabletooilpriceshocks.Transportservices,crucialforcompetitivenessofsmallislandnations,aretypicallyexpensive—oftenreflectingdiseconomiesofscale,butalsounder-investmentandinadequatemaintenance(exacerbatedbyexposuretonaturaldisasters),andoperatinginefficiencies.Whiletelecommunicationsmarketsarecompetitive,gapsinservicessuchashigh-speedbroadbandconstraindevelopmentofnewindustries.Mostgovernmentsareaimingtoovercomethesechallengesinthefaceoftightresourceconstraints.

Caribbean governments are increasingly turning towards partnerships with the private sector to meet these infrastructure challenges. There are two main motivations for this.First,cash-strappedCaribbeangovernmentsseePPPsasameanstocreatemore“fiscalspace”formuch-neededinfrastructureinvestment.Second,thisexigencyisaccompaniedinsomecasesbyashiftinperceptionoftheroleofgovernment—fromhistoricallystate-leddevelopmentmodelstowardsgreateremphasisonprivate-sector-ledgrowth.Inthiscontext,governmentsareinterestedingreaterprivate-sectorinvolvementinprovidinginfrastructurethroughPPPswithaviewtoachievingimprovedperformanceandefficiency,particularlyinthecontextoflimitedmanagerialresourcesinthepublicsector.BoththesemotivationsforPPPintheCaribbeanareborneouttosomeextentbyinternationalexperience.

In some cases, PPPs can mobilize additional resources for infrastructure—although certainly not always, as described further in Box 2.1 on page 9.CareisneededtoensurePPPsdonotsimplymaskthefuturecostofinfrastructureinvestments.PPPstypicallyreplaceupfrontcapitalexpenditureswithlong-termcommitmentsorcontingentliabilities,oracombinationofthetwo.Thecostofthesefiscalcommitmentsneedstobecarefullyassessedandmanaged,particularlyinthecontextoftightfiscalconstraints.WhileinternationalnormsforcapturingPPPsingovernmentaccountsarestillevolving,thereisageneraltrendtowardsrecognizingsomeorallPPPprojectsasconstitutingpublicassetsandliabilities—suchthattheimpactondebtmeasures,forexample,canbethesameunderbothaPPPandadebt-financedtraditionalpublicprocurement.

PPPs can help governments get more value out of resources spent on infrastructure.PPPscanbringprivate-sectorexperienceandinnovationtobearindeliveringinfrastructure,andprovidetherightincentivestoimproveperformance.PotentialadvantagesofPPPcaninclude:• On-time, on-budget completion of investment projects.ManypublicinfrastructureprojectsintheCaribbeangooverbudgetandare

deliveredlate.SomecountrieshavefoundPPPscanreducetheseproblems,becausetheprivatecompanyisonlypaidoncetheassetisoperational—creatingastrongincentivetodeliverontime.41

• Accountability for improved service delivery. Well-structuredPPPstypicallysetclearstandardsforserviceperformance,andfinancialpenaltiesforfailuretodelivertothesestandards.Thiscreatesclearaccountabilityandincentivesforperformancethatcanbehardtoreplicateinthepublicsector,particularlywheremanagerialresourcesareconstrained.

• Reducing whole-of-life costs.PPPstypicallyintegrateup-frontdesignandconstructionwithon-goingoperationsandmaintenanceundertheresponsibilityofoneprivatecompany(ratherthanaseriesofcontracts),creatinganincentivetodobothinawaythatminimizestotalprojectcost.IntheCaribbeantherearesignificantopportunitiestominimizewhole-of-lifecosts—suchasbydesigningmoreenergy-efficientschools,governmentofficesandwaterutilities,andbyreducingroadmaintenancecoststhroughhigher-qualityinitialconstruction.

4IntheUnitedKingdom,forexample,theNationalAuditOfficefoundin2003thatwhereas73percentoftraditionalprojectsranoverbudget,theproportionwasjust22percentforPPPprojects.Seventypercentoftraditionalprojectswerelate,whereasonly23percentofPPPswerelate.(SeeFinlay,Browne,Cham-bers,andRatcliffe,underthedirectionofRichardEales,NationalAuditOffice,2003,“PDI:ConstructionPerformanceReportbytheComptrollerandAuditorGeneral.”)SimilarresultshavebeenfoundinAustralia—seeforexample,InfrastructurePartnershipsAustralia,2007,“PerformanceofPPPsandTraditionalProcurementinAustralia.”

8



2

• Sustained maintenance and service delivery. PublicinfrastructureacrosstheCaribbeanisplaguedbyinadequatemaintenance,creatingabuild-neglect-rebuildcyclethatgreatlyincreasesthetotalcostofinfrastructureserviceprovision.PPPscanhelpcurtailthiscycle.Becausetheprivatepartneronlygetspaidiftheservicecontinuestobeprovidedatthecontractuallyspecifiedlevel,operatorsseektoensurethecontractprovidessufficientfundsformaintenanceovertheprojectlife,andthatthismaintenanceiscarriedoutinpractice.

• Increased resilience.InfrastructureprojectsintheCaribbeanareparticularlyexposedtothehighwindsandheavyrainfalloftropicalstorms—risksthatwilllikelyintensifyincomingyearsduetotheeffectsofclimatechange.Asaresult,assetsoftendeterioraterapidly.PPPscanbringinnovation,incentivesandexperienceneededtobuildresilientinfrastructureprojects.Becausetheircapitalwilltypicallyonlyberecoverediftheassetisoperating,privateinvestorswillcarefullyassessclimate-relatedrisks,andidentifyinnovativeandprovenapproachestomanagerisks.Forinstance,highwaysaremorelikelytobebuiltwithproperdrainage,andrenewableenergyinstallationswillberesistanttohurricanes.

To achieve these performance and efficiency benefits in practice, PPPs must be carefully chosen and developed.MostbenefitsofPPPrelyonprovidingtherightincentivesfortheprivatepartytobringtobearexperienceandinnovationindeliveringinfrastructurebetteroratlowercost.Theseincentivesdependonawell-structuredcontract,withclearly-identifiedperformancerequirementsandriskallocation.PPPsthereforeworklesswellwheretheoutputsrequiredaredifficulttospecifycontractuallyandmonitor—forexample,insectorswhereneedscanchangerapidly.Thepotentialadvantagesofon-timedeliveryandincreasedresilienceonlyapplyiftheprivatesectorbearstherisksassociatedwithcostoverrunsandclimate-relatedevents,respectively.

Moreover, PPPs can create their own risks.Theirrelativecomplexityraisestheriskofproblemsinthecontractingprocess—suchasfailuretoattractqualifiedbiddersifaprojectisnotwell-structured,orlegalchallengestotheprocess.Governmentscanalsobetemptedtoeschewcompetitiveprocessesandnegotiatedirectlywithpotentialinvestors—makingitdifficulttobesureaprojectisprovidinggoodvalue.Furthermore,asdescribedabove,thefiscalcostsofPPPsaretypicallylessclearthanthoseoftraditionallyprocuredprojects(beinglongterm,andoftencontingent).Governmentscanunderestimatethesecosts—leadingtounexpectedfiscalcosts,oratworst,over-specifiedprojectsthatdonotprovidegoodvalueformoney.Section5belowon“PPPconstraints”describesexamplesofsomeofthesechallengesexperiencedintheCaribbean.

Developing and managing PPP contracts successfully is therefore demanding and resource-intensive.AchievingthebenefitsandavoidingtherisksofPPPscomeatthecostofmorecomplexcontractpreparation,procurement,andmanagement—bothforthegovernmentandforbidders.Thesecostsaresomewhatfixedirrespectiveofprojectsize—meaningtheymaysimplynotbejustifiedforsmall-scaleprojects,aconstraintthatmaybiteformanypotentialCaribbeanPPPs.Governmentswillalsoneedtothinkcarefullyaboutwhetherandhowtheycanensurecapacitytodesign,procure,andmanageaPPPisinplacebeforeembarkingonaproject,asdescribedfurtherinthesectionsthatfollow.

9

RATIONALE FOR PPPS IN THE

CARIBBEAN


2

Forsomeprojectsandundersomecircumstances,PPPscanexpandtheresourcesavailableforinfrastructureinvestment.Specifically,PPPscanhelpmobilize:• Additional revenues. SomePPPs—suchastollroads—introducefeesthatreflectthevalueofservicesprovided;otherscan

helpreduceleakageincollectionofexistingcharges.Inprinciple,governmententitiescouldchargefeesandcollectrevenuesefficiently—inpractice,incentivestodosotendtobeweakerinthepublicsector.Privateoperatorscanalsobecreativeinfindingadditionalwaystouseafacilitytogeneraterevenue.Forexample,in2003theVancouverAirportServicesConsortiumtookoveroperationsofSangsterInternationalAirportinMontegoBay,Jamaica,undera30-yearconcession.Theconcessionairedoubledairportcapacityandcreated43newretailspacesatnocosttothepublicpurse.Retailrevenuespartiallyoffsetthecostofexpansion—increasingtherevenuestothegovernmentfromconcessionfees

• Additional capital. Sometimesgovernmentswanttofundprojects,butdonothavethecashorborrowingcapacitytofinancethecapitalexpenditure,evenwhentherevenuegeneratedfromtheinvestmentwouldexceedthecostofdebtservice.Inthesecircumstances,aPPPcanunlocktheinherentcapital-raisingabilityoftheassetinquestionbytakingitoutoftheconstrainedsphereofgovernmentfinance.Asanexample,intheearly90s,theGovernmentofGrenadawasnotabletoinvestinexpandingandimprovingelectricityassetsbecauseoffiscalconstraints.ItsoldacontrollingstakeinGRENLEC—thepowerutilityinGrenada—toaprivatecompany,whichputcapitalintothecompany,allowingittomakeneededinvestmentsinimprovingthesystem.

However,while“mobilizingresources”iscommonlygivenasakeyadvantageofPPPs,therealityishighlycase-specific.Forexample,socialinfrastructureprojectsinvolvingavailabilitypaymentsfromthegovernment(oftencalled“government-pays”projects)donotcreateanyadditionalfundingtopayforinfrastructure.Suchprojectsmaytakeupless“fiscalspace”intheshorttermbyturninganupfrontcapitalexpenditureintoalong-termpaymentcommitment,butultimatelythecostoftheinvestmentisbeingmetfromthepublicpurseeitherway.

Moreover,suchprojectsmaynotreallymobilizemorecapitalthanthegovernmentcouldsimplybyborrowing—inbothcases,financiersarelookingtothefiscalcapacityofthegovernment,toservicedebt,ormakeavailabilitypaymentsovertime.SuchPPPsmaymakesense,iftheyreducecostsorincreaseassetutilizationcomparedtoconventionalprocurement;carefulassessmentisneededofaffordabilityandtherationaleforPPP.

WhereaPPPhasitsownrevenuestream(“user-pays”projects),thereisagreaterlikelihoodthataPPPapproachmaytrulymobilizeadditionalcapitalbeyondwhatthepublicsectorwouldbeabletoprovide,particularlyintheborrowing-constrainedcontextoftheCaribbean.Nonetheless,suchprojectsoftencreatecontingentliabilities,intheformofguaranteesorcontractualclausesunderwhichthegovernmentbearssomerisk.Particularlyinthecontextofhighindebtedness,thepossiblecostsandsustainabilityofacceptingtheseliabilitiesneedstobeassessedandmonitored.

WhileinternationalnormsforcapturingPPPsinpublicaccountsandnationalstatisticsarestillevolving,thereisageneraltrendtowardsrecognizingPPPprojectsascreatingpublicassetsandliabilities—particularlyfor“government-pays,”butalsoinsomecasesfor“user-pays”PPPs.Thismeanstheimpactonnationaldebt,forexample,maybethesameunderaPPPandadebt-financedtraditionalprocurement.ForCaribbeancountriesunderInternationalMonetaryFund(IMF)programs,thetreatmentofPPPliabilitiesunderprogramtargets—todatedefinedonacountry-by-countrybasis,butincreasinglyrequiringrecognitionofsomeorallPPPproject-relatedliabilities—willbeimportantindelineatingthefiscalspaceavailableforinvestmentthroughPPPs.

Box 2.1: PPPs and “Fiscal Space”

10

CARIBBEAN EXPERIENCE WITH PPP


3

Caribbean Experience with PPP

Private investment in infrastructure is not new in the Caribbean.Inthelast20years,privateinfrastructurecompaniesandlendershaveinvestedmorethanUSD8.5billionininfrastructureassetsinthe11countriesincludedinthisstudy,withtheDominicanRepublicandJamaicatheleadingdestinationsforinvestment.Thiscomprisesanannualaverageofabout0.7percentofGDPforthese11countriesoverthepast20years,comparedtoanannualaverageof1.2percentofGDPfortheLatinAmericaandCaribbeanregionasawholeoverthesameperiod.AsshowninFigure3.1,thisinvestmenthasbeenconcentratedinthetelecommunicationsandelectricitysectors;attheotherendofthespectrum,therehasbeenrelativelylimitedinterestinattractingprivateinvestmentinthewatersector.

Figure 3.1: Private Infrastructure Investment Experience in the Caribbean

Source: Authors, drawing from Castalia research and World Bank PPI Database

All the countries included in the Roadmap have attracted private infrastructure investment, although most commonly through structures other than PPPs.Thesehaveincludedprivatizationsofpublicutilities,regulatedgreen-fieldprivateinvestments—particularlyinthetelecommunicationssector,whichhasbeenliberalizedinmostCaribbeancountries—andafewjointventures.Thissuggeststhatfortherightprojects,theCaribbeanisanattractiveinvestmentdestination.However,PPPexperienceisrelativelylimited—ofthe95infrastructureinvestmentprojectsrecordedinthese11countries,fewerthanhalfwerethroughsomeformofPPP.

The use of PPPs has been more concentrated by both country and sector, as shown in Figure 3.2 below.MorethanhalfofcurrentPPPprojectsinthecountriesandsectorscoveredbythisRoadmapareintheDominicanRepublic,andonlysevenofthe11countrieshavemadeuseofthePPPmodalityforcoreinfrastructure.51Electricityandtransportsectorprojectsdominate,primarilycomprisinginvestmentsinelectricitygenerationbyindependentpowerproducers(IPPs),andPPPsforrehabilitation,upgrade,orafewnewinvestmentsinroads,ports,andairports.AhandfulofwatercontractsincludeexperimentswithtechnicalassistanceandleasecontractsinHaiti,aswellasfourbulkwatertreatmentplantselsewhere.Noneoftheprivateinvestmentininformationandcommunicationstechnology(ICT)hastodatebeenunderaPPPstructure.AppendixAprovidesalistofthesepreviousPPPs;CaribbeanPPPexperiencebysectorisalsodescribedfurtherinSection4.

5AfewadditionalexamplesinothersectorsincludegovernmentbuildingsinSaintLuciaandTrinidadandTobago.

11



3

Figure 3.2: PPP Project Experience in the Caribbean

Source: Authors, drawing from Castalia research and World Bank PPI Database

The results of previous PPP experience in the Caribbean have been mixed.WhiledefiningsuccessforaPPPisnotstraightforward—seeBox3.1below—thereareseveralPPPprojectsintheCaribbeanthatcouldreasonablybeconsideredsuccessful.ThesePPPprojectshaveoperatedforyears,providingquality,reliableinfrastructureassetsandservicesatareasonablecost,andoftenwithoutattractingmuchattention.Theseinclude,forexample,Suralco,theCaribbean’soldestPPP—a185MWhydroplantbuiltbyAlcoaAluminumin1958,whichcontinuestosupplyupto60percentofSuriname’selectricityundera75-yearpowerpurchaseagreement(PPA).Atamuchsmallerscale,WindWattNevis,amicro-generatorwithaninstalledcapacityof2.2MW(equivalentto20percentofNevis’demandforelectricity),commencedoperationsin2010undera25-yearPPAandhasoperatedreliablysince.

Box 3.1: Defining PPP Success

WhatdoesitmeantosaythataPPPissuccessful?Inpractice,thismaydependonthenatureoftheproject,andwhatwastherationaleorexpectedbenefitsfromdeliveringtheprojectasaPPP.Ingeneral,asuccessfulPPPcouldbedefinedasoneinwhichtheassetand/orserviceprovidedbytheprivatepartymeetsitsobjectivesovertheprojectlifetime,anddoessoinawaythatprovidesbettervalueformoneytothegovernmentandserviceusersthanthealternatives.

AssessingthesuccessofaPPPinmeetingitsobjectivesisrelativelystraightforward—albeitonlyultimatelypossibleoncethecontractisconcluded.Forexample,thiscouldincludeconsideringwhether:constructionorrehabilitationwascompletedontime;thePPPassetorassetsarecontinuouslyavailableattherequiredstandards;anticipatedserviceperformancelevelsorimprovements(forconcessionsofexistingassets)materializeandaresustained;andtheassetorservicecontinuestocontributetomeetinggovernmentobjectivesinthesectorinquestionoverthecontractlifetime.

AssessingthesuccessofaPPPinprovidingvalueformoneyisharder,becausedirectcomparatorsarerarelyavailable.Nonethelessitispossibletoassesssomeindicatorsofsuccess.Forexample,aPPPthatendsupcostingthegovernmentmorethanexpected(thatis,wherecontingentliabilitiesrealize)maybeconsideredunsuccessfulindeliveringvalueformoney.Itisalsopossibletoassesswhetherconditionsconducivetoachievingvalueformoneywereinplace—forexample,whetherthetransactionprocesswastransparentandcompetitive.

12



3

Not all Caribbean PPPs have achieved sustained success.Problemshaveincludedunexpectedfiscalcosts,questionablevalueformoney,andsignificantimplementationdelays—whilemanyadditionalpotentialPPPprojectshavesimplyfailedtolaunch.ThesechallengesaredescribedinmoredetailinSection5below,whichlooksattheconstraintsonthesuccessfuluseofPPPintheregion.

None of the existing Caribbean PPPs was implemented under an overarching PPP policy or legal framework.AsshowninFigure3.3,afewgovernmentshavesincebeguntodevelopspecificpolicyandinstitutional“architecture”toguidetheuseofPPPs.JamaicaandTrinidadandTobagobothintroducedPPPpoliciesin2012,establishingguidingprinciples,criteria,processes,androlesformanagingtheirPPPprograms.BothhavealsocreateddedicatedPPPteams—inJamaicathesecompriseaPPPUnitintheDevelopmentBankofJamaica(DBJ)andaPPPNodeintheMinistryofFinanceandPlanning;inTrinidadandTobago,aPPPUnitintheMinistryofFinance.APPPUnitwasalsoestablishedinHaiti’sFinanceMinistryin2012,althoughwithoutaguidingpolicy,theroleandmandateofthisunitremainssomewhatunclear.

Caribbean countries still lack institutional capacity to develop and implement PPPs. GiventhelimitedPPPprojectexperienceoutsidetheDominicanRepublic,relativelyfewgovernmentshavestaffwithexperienceimplementingPPPs.Moreover,wheresuchexperiencedoesexist,itisforthemostpartdistributedamongresponsiblegovernmententities.InJamaica,TrinidadandTobago,andHaiti,effortsareunderwaytoconsolidateandbuildexpertiseindedicatedPPPteams—inthecaseofJamaica,withthebenefitofbuildingonanexistingprivatizationteamatDBJ.DespitethelackofinternalPPPcapacity,governmentshavealsoprovedreluctanttoconsistentlyallocatesufficientfundingtocoverthecosts(whichcanbesignificant)ofexperiencedexternaladvisorysupportneededtopreparehigh-qualityPPPprojects.

Figure 3.3: PPP Policy and Institutional Architecture in the Caribbean

4Inplace(date)6 AbsentLowModerateHigh;DevelopmentBankofJamaica(DBJ);MinistryofFinance(MOF)Source: Authors, based on Castalia and World Bank research

Policy Law Detailed Guidelines Defined Roles

Dedicated Units(s)

Staff with PPP Experience

Dedicated Project Prep Funding

Jamaica 4(2012)

6 Underway 44

(DBJ&MOF)6

Trinidad & Tobago

4(2012)

6 Underway 44

(MOF)6

Dominican Republic 6 6 6 6 6 6

Haiti 6 6 6 64

(MOF)6

Suriname 6 6 6 6 6 6

OEC States 6 6 6 6 6 6

13

EMERGING PPP OPPORTUNITIES


4

Emerging PPP Opportunities

A ramp-up of PPP activity in infrastructure is planned across much of the Caribbean. Asdescribedinsection2,thedriversofinterestinPPPsvary.Insomecasesthistrendreflectsashiftintheperceivedroleofgovernment,andthepotentialefficiencyandperformancebenefitsofengagingtheprivatesectorininfrastructuredelivery.However,aprimarydrivingconcerninalmostallcasesisthepressingneedforinvestmentinthecontextoftightfiscalconstraints.SincetheabilityofPPPstogenuinelyincreasetheresourcesavailableforinfrastructurevariesbyproject—asdescribedinBox2.1above—thisfiscalimperativeisreflectedinthetypesofPPPsthatarelikelytobesuccessfulacrossmuchoftheCaribbeanintheshorttomediumterm.

The PPP Roadmap identified a potential PPP pipeline of 33 projects being considered or developed as PPPs across 11 Caribbean countries, with a total investment value of more than USD 2 billion.TheprocessandcriteriaforidentifyingthispipelinearedescribedinBox4.1.Broadlyspeaking,theseareprojectsthatareactivelyunderdevelopment—albeitinmanycasesatanearlystage—and,frominitialassessmentbasedonexperienceandavailableinformation,appearviableandimplementableasPPPsinthenearterm.Assuch,thispipelineprovidesareasonableestimateofthepotentialforPPPintheCaribbeaninthenexttwotofiveyears.

Box 4.1: How the PPP Pipeline Projects were Identified

This pipeline represents a significant planned increase in the use of PPP in several countries,asshowninFigure4.1:notably,Jamaica,TrinidadandTobago,Suriname,andsomeOrganizationofEasternCaribbeanStates(OECS)membercountriessuchasSaintLuciaandGrenada.JamaicaandTrinidadandTobagotogethercomprisealmosthalfofthePPPpipelinebynumberofprojects.Theapproximatetotalinvestmentvaluerepresentedbythispipeline,ofmorethanUSD2billion,wouldcomprisearoundtwopercentofGDPinthese11countries;orfourpercentofGDPexcludingtheDominicanRepublic,wherenosufficientlyfirmpipelineprojectswerefound.

FewgovernmentsintheCaribbeanhavewhatcouldbecalleda“PPPpipeline.”BothJamaicaandTrinidadandTobagoareestablishingaprogrammaticapproachtoPPP,whichhasinvolvedsystematicallyscreeningpotentialPPPprojects.Inthesecases,thepipelinepresentedinthisreportisbasedonconsultationwiththeresponsibleofficials,andcapturesthepipelineprojectsthatareinactivepreparation.Intheremainingninecountries,thepipelinepresentedherewasdevelopedforthisroadmap.AwidersetofpotentialPPPswasidentifiedthroughacombinationofdeskresearch,meetingswithgovernmentofficials,privateinvestorsanddevelopmentpartners;andreviewofanyavailableprojectdocumentation.Thesewerescreenedagainstthefollowingcriteria,basedonexperienceand(limited)availabledata:• Prima facie assessment of technical and economic viability of the project—theprojectwoulduseproventechnologytoaddressa

clearly-identifiedserviceneedthatisinlinewithdevelopmentandpublicinvestmentpriorities.• Prima facie assessment of viability as a PPP—thePPPwouldfollowestablishedcontractualmodels,andislikelytogeneratea

revenuestreamthatwouldmaketheprojectfinanciallyviableandattractivetoinvestors.WherethePPPwouldinvolvegovernmentpayments,theseappearaffordablegivenfiscalconstraints.

• Political supportforimplementingtheprojectasaPPP.• Project readinessandfeasibilityofimplementationwithinareasonabletimeframe.Forexample,projectstudiesarealreadyunder-

wayorcompleted;andnomajorsectororotherreformsareneededaspre-requisitesforpursuingaPPP.

Theresultantpipelineisfarfromexhaustive,sinceithasnotarisenfromasystematicreviewofgovernmentinvestmentprioritiestoidentifyprojectsthatcouldoffermorevalueasPPP.Ontheotherhand,giventheearlystageofdevelopmentofmanyoftheprojects,thereislikelytobeattritionfromthispipelinewherefurtheranalysisrevealsthatsomeprojectsorPPPsarenotviableinpractice.

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Figure 4.1: Number of Current and Planned PPP Projects in the Caribbean by Country

Source: Authors, based on Castalia and World Bank research and inputs from relevant governments

On the other hand, some countries with more PPP experience are moving away from PPP going forward.ParticularlyintheDominicanRepublic,challengeswithearlyPPPsinsomesectorshasledtopoliticalandpublicskepticism,asdescribedfurtherinSection5onPPPconstraints.InHaititheoutlookismoremixed:withgeneralinterestamongmanygovernmentpartiesinexploringtheuseofPPPgoingforward,butfewspecificpotentialprojectsidentifiedtodateinthefaceofmixedopinionsacrossgovernment,andlimitedcapacitytoidentifyandmoveprojectsforward.

Most of these PPP pipeline projects are at a very early stage. SubstantialfurtherworkisneededtoassesswhethertheprojectsareviableandrepresentattractivePPPopportunities;andforthosethatdo,totaketheseprojectsthroughtofinancialcloseanddeliverimprovedinfrastructureontheground.Ofthe33projectsidentified:• 16 remain at the concept stage—thatis,havenotyetbeensubjecttodetailedanalysis.Pre-feasibilityanalysismayhavebeendone,or

insomecases,unsolicitedproposalsreceivedfrominvestorshavebeenfavorablyreceivedbutareyettobecarefullyassessed.Concept-stageprojectsincludedinthepipelinearethosethattherelevantgovernmentisactivelypursuing—thatis,projectsexpectedtoproceedtothenextstageinthenearfuture.Manymoreprojectideasexistthatarenotyetbeingactivelydevelopedorthatcurrentlyfacebindingconstraints,asdescribedfurtherinthesectorsectionsthatfollow.

• 13 projects are undergoing more detailed feasibility analysis or due diligence.Insomecases,thisworkisfocusedprimarilyonthetechnicalandeconomicviabilityoftheproject,withprocurementandimplementationoptionsyettobeanalyzed;inothers,thisworkalreadyincludesassessmentofPPPoptions.Afewsuchprojectsarerelativelywell-advancedalongthePPPstructuringprocess—suchasaproposedconcessionfortheNormanManleyInternationalAirportinJamaica.

• Only four projects are at the transaction stage—thatis,acompetitivetenderprocessisunderway,orthegovernmentisinnegotiationwithoneormorepotentialinvestorsbasedonproposalsreceived.TheseprojectsareaconcessionfortheKingstonContainerTerminalsinJamaica,forwhichaRequestforProposalshasrecentlybeenissued;ageothermalIPPinDominica;andawindpowerIPPandcruise-shippierinSaintKitts.

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Many of these projects are currently receiving support from development partners,includingtheWorldBank(WB),InternationalFinanceCorporation(IFC),Inter-AmericanDevelopmentBank(IDB)anditsMultilateralInvestmentFund(MIF),EuropeanUnion(EU),theBill,Hillary&ChelseaClintonFoundation,andothers.Inafewcases,thissupportisdefinedtospanthefullprojectdevelopmentprocess;however,inmostcases,furthersupportislikelytobeneededtobringtheprojecttofruition,asdescribedfurtherinSection6.

Transport and power remain significant, reflecting infrastructure investment needs—although new PPP sectors are also emerging.Figure4.2belowshowsthedistributionofthe33pipelineprojectsacrosssectorsandsub-sectors.TheoutlookforPPPintheCaribbeaninthetransport,power,water,ICT,andsocialandgovernmentinfrastructureisdescribedinSections4.1to4.5.6

Figure 4.2: Current and Planned PPP Projects in the Caribbean by Sector

Source: Authors, based on Castalia and World Bank research, and inputs from relevant governments

4.1 TRANSPORT SECTOR

Of the 33 potential PPP projects identified, 13 are in the transport sector—includingairports;portsandothermaritimetransportsub-sectors;androads,describedinturnbelow.Thissizeablepotentialpipelinereflectstheperceivedneedforinvestmentinimprovedtransportservices—bothofgoodsandpeople—tounderpineconomicgrowthintheregion,includinginthecrucialtourismsector.

The economic case for some of these projects is likely to be inter-dependent.Asnotedabove,thepotentialPPPsdescribedinthissectionarisefromthecurrentinvestmentprioritiesoftherespectiveCaribbeangovernments.Thereisarisk,however,thatcountry-levelinfrastructureimprovementspursuedinparallel—particularlyintheportorairportsectors,forexample—couldleadtoover-capacityattheregionallevel.7 Inthiscontext,regionalanalysisandpolicycoordinationcouldbemutuallybeneficialtoavoidover-dimensionedprojects;orconversely,toidentifyopportunitiesthatmakesenseonceregionallinkagesaretakenintoconsideration.Inturn,portandairportinvestmentsmaydriveroadinvestmentprioritiesatthenationallevel.

6WherepotentialPPPprojectsarealreadyinthepublicdomain,theseexamplesaredescribedintherelevantsection.However,itisnottheintentionorremitofthisreporttoannouncePPPprojectopportunitiesbeingconsideredthatarenotyetpublicknowledge.Inthesecasesprojecttypesarementionedwithoutreferencetospecificprojects.7Forexample,“AirTransportintheOECS:FlyingSolo?”WorldBankCaribbeanKnowledgeSeries,June2013,describeshowweakinter-islandairconnectivitycurrentlyprovidesimpetusforeachislandtodevelopairportfacilitiesthatcollectivelyareover-dimensioned.

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4.1.1 AIRPORTS

Virtually all governments in the region want to develop first-class airport facilities—toimproveconnectivityandsupporteconomicgrowth,inparticularpromotingtourism,aswellasforreasonsofnationalprestige.AirportrehabilitationorexpansionprojectscanbegoodcandidatesforPPPs—asstand-aloneassetswithserviceobligationsthatcanbeclearlydefined;withrevenuestreamsthataretypicallysufficienttocoveroperatingandcapitalcosts;theopportunitytocreatevaluethroughbetterconsumerservices,suchasincreasedretailfacilities;andwithawell-establishedPPPmarket,particularlyinEuropeandLatinAmerica.The Caribbean has already seen several successful airport PPPs, reflecting international experiences. JamaicasetaprecedentforprivateparticipationintheairportsectorintheCaribbean,withasuccessfulPPPforitslargestairport,SangsterInternationalatMontegoBay.Underthisconcessionsince2003,airportcapacityhasdoubled,and43newretailspaceshavebeenadded,amongothersystemimprovements.TheDominicanRepublichasaconcessionagreementwithaprivateoperatorinplacesforsixairports—alargelysuccessfulPPPinacountrywherePPPexperienceoverallhasbeenmixed.PuertoRicoalsorecentlyintroducedaconcessionforitsmainairportatSanJuan.

Building on this experience, there is strong interest in additional airport PPPs in the region going forward, with five such projects included in the pipeline of 33 potential PPPs.TheGovernmentofJamaicaiscurrentlypreparingaconcessionforitssecondinternationalairport,theNormanManleyInternationalAirportinKingston.FouradditionalairportconcessionsareunderconsiderationinthecountriescoveredbythisRoadmap.AllappeartoholdthepotentialtobeviableasPPPs,althoughallareatarelativelyearlystage,withfurtherassessmentneededofeconomicandfinancialviability.Asnotedabove,analysisofneedsattheregionallevelcouldhelpavoidcreatingexcesscapacitythatcouldunderminethesuccessofindividualprojects.

Scale limitations may limit the potential for substantial further PPP development in the sector beyond these near-term opportunities.Thesmallsizeofmanyairportsintheregionmeanstheysufferfromdiseconomiesofscale—suchthatexpansionsorupgradesmaynotbefinanciallyviable,evenifeconomicallybeneficial—andmaybetoosmalltoattractinterestfromexperiencedinvestorswithoutprovidingsubstantialincentives(whichmaynotresultinvalueformoneyforthegovernment).Thischallengecaninsomecasesbeovercomebybundling—forexample,thesixairportsintheDominicanRepublicareunderprivateoperationunderonemasterconcessioncontract—butsuchopportunitieswithinCaribbeancountriesarelimited.

Moreover, in some countries, political and public opposition to private operation of airports persists.Airportsaresometimesseenasstrategicassetsthatgovernmentsprefertoretainunderpubliccontrol,particularlyinsmallcountrieswithonlyonesignificantairportfacility.ProjectsthatcouldmakeattractivePPPs—suchasaconcessionforthePortauPrinceairportinHaiti,whereinvestmentneedsarecombinedwithsignificantpassengerflows—areunlikelytoprogressinthefaceoflimitedpoliticalinterest.ThisdynamicmaychangeovertimeastheregionbuildsexperiencewithairportPPPs.

4.1.2 PORTS

The Caribbean port sector consists of facilities of vastly differing sizes and traffic levels, from1.9millionTEUs(standardcontainers)peryearinJamaicatojust19,000TEUsperyearinDominica.Theseportsfaceconcomitantlydifferingchallenges.Largerportswithsignificantglobaltrans-shipmentbusinessarepreparingfortheforthcomingexpansionofthePanamaCanal—whichinmostcaseswillrequireinvestmenttoenableportstohandlelargerships.Formid-sizeandsmallerportsservingprimarilyintra-regionalanddomestictraffic,theprimarychallengeislowefficiency,whichresultsinhighportchargesandimport/exportcosts.Whilediseconomiesofscaleareinevitableinmanycases,thesearetypicallyexacerbatedbyahistoryofunder-investmentandoperatinginefficiencies—particularly,ofhighstaffinglevels.

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Most Caribbean ports remain publicly owned and controlled—in contrast with global trends.Globally,manygovernmentshaveturnedtotheprivatesectortoundertakeportinvestmentandimproveoperationalperformance.Amajorityofportsworldwidearenowunderprivateownershiporcontrol—whetherasfullyprivateentities,orundersometypeofPPP.Incontrast,onlyafewCaribbeancountrieshaveadoptedportPPPstructuresthatinvolvesignificantinvestmentorriskforaprivateoperator—althoughmosthavesomelevelofprivateprovisionofportservices(suchascargohandlingorstevedoring)withinportsthatarepubliclyownedandrun.IntheDominicanRepublic,severalportsareoperatedunderconcessioncontracts,whileonesuchconcessionisinplaceinSurinameforthePortofNieuweHaven.

Going forward, a handful of the Caribbean governments included in this Roadmap are considering port PPPs.PrincipalamongtheseistheGovernmentofJamaica,whichiscurrentlyseekingaprivateportoperatorunderaconcessionarrangementfortheKingstonContainerTerminals(thelargestportintheregion);severalfullyprivateportinvestmentsarealsounderconsiderationaspartofthegovernment’s“LogisticsHub”initiative.Thepipelineof33potentialPPPsincludesonlyoneotherpotentialportprojectthatisunderactiveconsiderationbytherelevantgovernment.

Elsewhere the port sector remains largely in public hands for a combination of reasons, which appear unlikely to change in the immediate future.Primarily,thereappearstobelimitedpoliticalwillinsomecasestocedeportoperationstoprivateinterests,givenwidespreadpoliticalandpublicperceptionthatportsarestrategicassets.TheseviewsmaychangeovertimeasmorePPPportsintheregionareintroducedandaresuccessful.Portreformcanbeespeciallypoliticallychallengingincaseswhereover-staffingisamajorcauseofinefficiencythataprivateoperatorwouldlikelyseektoresolve,particularlygivenastrongunionpresenceinseveralcountries.Finally,asfortheairportsectorasdescribedabove,someofthesmallerportsintheregionaresimplyofaverysmallscale,makingattractingprivateoperatorsdifficult.

4.1.3 OTHER MARITIME TRANSPORT

The outlook for the cruise ship industry in the Caribbean appears bright.AccordingtotheCruiseLinesInternationalAssociation,moderategrowthinglobalcruisepassengernumbersisexpectedin2014,whiletheCaribbeanisexpectedtoextenditsleadasthedominantcruisedestination,witha12percentincreaseincruiseshipdeploymentstotheregion.8 However,thetrendintheindustryistowardslargercruiseships,withthenewgenerationofshipscapableofaccommodatingupwardsof5,000passengers.ManyCaribbeandestinations,althoughpopularwithcruiselines,donothaveadequateberthingandancillaryfacilitiesfortheexpectedincreasesinpassengerarrivals.

Several Caribbean countries have turned to PPPs to develop new cruise ship pier facilities—withsuccessfulprojectsinJamaica,Grenada,andHaiti.CruiseshippierscanmakeattractivePPPs—asstand-aloneassets,withreliablerevenuestreamswithplentyofroomtoaddvaluebyimprovingcustomerservices.Insomecasesinvestorsarecruiseshiplinesseekingtocapitalizeonsynergiesbetweencruiseandpieroperations—suchastheHaitiLabadiePier,andJamaica’snewFalmouthcruiseshippier,bothoperatedbyRoyalCaribbeanCruises.

Several more countries are considering private investment in cruise ship piers under PPPs or similar structures.Onesuchpipelineprojectiswelladvanced:asecondcruiseshippierinSaintKittsandNevis,expectedtoaccommodateupto200,000passengersinitsfirstyear.InSeptember2013,thegovernmentsigneda30-yearconcessionagreementwithmarineconstructioncompanyJayCashman,followingaMemorandumofUnderstandingsignedinMay.Undertheagreement,alocalsubsidiarywillbeestablishedtodesign,finance,build,andmaintainthepier.ThepierwillthenbeleasedbacktotheAirandSeaportsAuthority(SCASPA),whichwillberesponsibleforoperations.Theprojectisnowpursuingfinancialclose,withthefirstcruiseshipexpectedtodockinOctober2014.Basedontheroadmapdiscussions,severalmorecountriesareconsideringenteringintoPPPorsimilararrangementsforcruiseshippiers,butareattooearlyastageforthesetobeconsideredaspipelineprojects.

8CruiseLinesInternationalAssociation“StateoftheCruiseIndustryin2014,”www.cruising.org.

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Another possible area of interest for PPP is in the ferry sector. FerrytransportiscommonbetweenislandsintheCaribbean,andistypicallyfullyprivatelyoperated,underregulationbymaritimeauthorities(thatis,notunderPPPstructures).However,PPPscanberelevantwhereferryprojectsinvolveasignificantinvestmentinland-sideinfrastructure—potentiallyrequiringgovernmentsupport,orrequiringalong-terminvestmentforwhichspecificationofrightsandobligationsofpublicandprivatepartiesisbeneficial.ThiswouldbethecasefortheonepotentialferryPPPprojectincludedinthepipeline,albeitatanearlystageofdevelopment—aproposedfootandvehiclepassengerferryinHaiti,forwhichwharfandterminalfacilitieswouldalsobeneeded.

Given the high cost of intra-regional travel—with air travel the only option on many routes—further development of the ferry sector appears attractive,whetherthroughPPPsorfully-privateregulatedstructures.Forseveralyears,therehavebeendiscussionsandplanstolauncharegionalfastferry,asdescribedinBox4.2.However,theseplanshavenotcometofruition.Thisisanexampleofthechallengesinachievingtheregionalcooperationrequiredtomoveforwardwithprojectsthatcouldbemutuallybeneficial,butlackanobviousprojectchampion.

Box 4.2: The Challenges of Regional Projects: OECS Regional Fast Ferry

4.1.4 ROADS

The vast majority of roads in the Caribbean are publicly run, and free to users.Theonlycountrieswithprivately-runtollroads,operatedunderconcessioncontracts,areJamaicaandtheDominicanRepublic.ThesePPPshavebeenamongthemostdifficult,intermsofriskallocationandunforeseenfiscalcosts.Forexample,theDominicanRepublichasfourexistingroadPPPs,allofwhichhavecreatedunexpectedfiscalcoststothegovernment—inthefaceofthisexperience,thegovernmentdoesnotcurrentlyintendtopursuefurthertoll-roadPPPs.Nonetheless,twogovernmentsareactivelyconsideringintroducingtoll-roadPPPprojects,andtwosuchprojectsarethereforeincludedinthepipeline.Theseprojectswillneedtobecarefullyassessedanddevelopedtoavoidthesamepitfalls.GiventhelowleveloftrafficinmostCaribbeancountries,andlimitedpoliticalinterestinchargingroadtolls,therearelikelytobeverylimitedopportunitiesfor“self-financing”toll-roadPPPs—thatis,tollroadsthatarefinanciallyviablebasedontollrevenue,withoutgovernmentsubsidies.

Road sector PPPs do not have to be fully “self-financing” toll roads.Otheroptionsincludecontractsbasedon“shadowtolls”oravailabilitypayments,underwhichprivatecontractorsbuildorrehabilitatearoad,andmaintainittoaspecifiedqualityoverthecontractlifetime.Suchcontractscanhelpgetthemostvalueoutofpublicinvestmentintheroadsector—forexample,overcomingproblemswithunder-maintenancethatarecommontheCaribbean,bypre-committingtoadequatemaintenanceoverthecontractlifetime.ThesePPPscanalsoincentivizeandprovideroomforinnovationinconstructionthatimprovesresilience,includingtoclimate-relatedrisks(providedthecontractisstructuredsuchthatthecostofsuchrisksisbornebytheconcessionaire)—suchasroaddrainagesystemsthatreducetheimpactofstormrainfall.

FastferryservicesarecommoninmanyarchipelagosofsimilarsizetotheOECS,suchasregionsintheMediterraneanandnorthernEurope.Aregionalfastferryservicecouldpotentiallyprovidecheapertravelthanairservice.Whilesuchaprojectcouldbelargelyprivatelyimplemented,regionalgovernmentswouldberequiredtograntlicenses,regulatesafety,andpossiblyregulatethetariffsoftheprivateoperator(s).

Aprivately-operatedregionalferryservicehasbeendiscussedamongregionalgovernmentsformanyyears,buthasyettocometofruition.Themostrecentinitiativefounderedin2008-09,whenoneoftheseveralgovernmentsinvolveddeclinedtocertifytheproposedvesselsasseaworthy.Thisillustratestheinherentdifficultiesofnegotiatingprojectsamongmultiplegovernments,whichmayhaveconflictinginterestsandfiscalobjectives.NoneoftheninegovernmentsinterviewedforthisstudymentionedthefastferryasapotentialPPPproject.

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A few Caribbean governments have started to transition towards performance-based PPP road contracts.Forexample,theGovernmentsofSurinameandSaintLuciahavebothusedaformofthisarrangementinwhichtheroadisguaranteedoverathree-yearperiod.Goingforward,afewgovernmentsarenowlookingatlonger-termperformance-basedroadPPPcontracts,whereintheprivateoperatorwouldtakeonagreaterdegreeofrisk—foursuchprojectsareincludedinthe33pipelineprojects;allatanearlystage.Aspublicly-fundedprojects,thescopeforsignificantadditionalPPPsinthisareanaturallydependsonthepriorityaffordedtoroadinvestmentbygovernmentsoperatingundersignificantfiscalconstraints.

4.2 ELECTRICITY SECTOR

Electricity prices in many Caribbean countries are among the highest in the world,andasignificantconstraintoncompetitivenessandgrowth9 WhilemanyofthecountriescoveredbythisRoadmaphavehighlevelsofenergyaccessandrelativelyreliablesupply,asshowninTable4.1below,loweringthecostofpowerbydiversifyinggenerationsourcesawayfromexpensivedieselpowerisapriority.HaitiandtheDominicanRepublicareexceptions,inthatexpandingaccess(intheformer)andachievingsufficientgenerationcapacitytoensurereliablesupplyremainchallenges.

Table 4.1: Electricity Sector—Structure and Performance

Source: Authors, drawing on Castalia research using Annual Reports of each Utility; access estimates for 2010 from World Bank Sustainable Energy for All database

9Forexample,theWorldBankGroup’sEnterpriseSurveysidentifyelectricityasoneofthemostseriousconstraintstobusinesssuccessinseveralCaribbeancountries;formoredetailsseewww.enterprisesurveys.org.

Country Private Utility IPPs Independent Regulator Access (%) Peak Demand/

Capacity (%)% from Diesel

Average Retail Tariff (US$/kWh)

A&B 4 88% 60% 100% N/a

Dominica 4 91% 63% 75% 0.43

DR 4 4 98% N/a 53% 0.20

Grenada 4 88% 59% 100% 0.40

Jamaica 4 4 4 92% 76% 95% 0.36

Haiti 4 34% N/a 80% 0.38

Nevis 4 88% 60% 85% N/a

Saint Kitts 88% 56% 85% N/a

Saint Lucia Mixed 88% 67% 100% 0.38

SVG 73% 49% 89% 0.36

Suriname 100% 74% 49% N/a

T&T 4 4 99% 48% 1% N/a

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The Caribbean electricity sector has seen significant PPP activity, as well as other forms of private investment—reflectingabroaderpoliticalacceptanceofprivate-sectorparticipationinenergy,comparedtootherinfrastructuresectorssuchastransportorwater.Of12electricityutilitiesinthecountriescoveredbythisreport,fourareprivatelyowned,asshowninTable4.1.Inthesmallerislands,mostelectricityutilitiesareverticallyintegrated,withjustacoupleofIPPsoperatinginAntiguaandSaintKitts.InthelargermarketsofJamaica,TrinidadandTobago,theDominicanRepublic,andHaiti,governmentshaveliberalizedgeneration,introducingIPPs,and(exceptinHaiti)establishedindependentregulators—althoughtheeffectivenessoftheseregulatorsvaries.AregionalregulatorisintheprocessofbeingestablishedintheOECS,withtwoprospectivemembercountriessofar.10

In this context, there is significant interest going forward in making greater use of IPPs, which in many cases can be considered as PPP arrangements.11 Thefocusisprimarilyonnew-generationtechnologies—particularlyfromgeothermalsources—thatincumbentutilities,whethergovernment-ownedorprivate,maynothavethetechnicalorfinancialcapacitytopursue.Table4.2belowdescribesthefoursuchprojectsthatarebeingactivelydeveloped(albeitatvariousstages)andhenceareincludedinthePPPpipeline.

Table 4.2: Potential Electricity PPP Projects

10TheEasternCaribbeanEnergyRegulatoryAuthority(ECERA)isbeingsupportedbytheWorldBankandtheOECSSecretariat.Formoreinformation,seetheECERAprojectinformationavailableontheWorldBankwebsite:http://www.worldbank.org/projects/P101414/eastern-caribbean-energy-regulatory-authority--ecera?lang=en&tab=overview.11Forthepurposesofthisreport,IPPsoperatingunderPowerPurchaseAgreements(PPAs)areconsideredPPPsincaseswheretheoff-takerisapublicutility,and/orwhereaconcessionagreementwithgovernmentisrequired.ThelatteristypicallythecasewheretheIPPismakinguseofresourcesthatareotherwiseundergovernmentcontrol—suchasgeothermalenergy,orwaste-to-energyplants.IPPscontractingwithprivately-ownedutilitiesarenotconsideredPPPs.

Country Project Description Status Next Steps

Dominica Geothermalgenerationplant

Upto120MWpotentialtobedevelopedin

twophases:10-15MWfordomesticuse;theremainderforexport

Explorationphasecomplete;drillingcontractsignedin

2012forfirstphase(domesticsupply)withdonorfinancing.

Ageothermalbillisbeingfinalizedtorefinesectorlegal

andregulatoryframework

PrepareandprocureaPPPcontractforthefirstphaseelectricitygenerationplant

Saint Kitts and Nevis

GeothermalgenerationplantinNevis

ExplorationMoUsignedin2007withWest

IndiesPowerHoldings(WIPH);potential

estimatedat300MWfrominitialdrilling

Stalledsinceinitialexplorationinfaceoflegalchallenges

Resolveoutstandinglegaldispute;confirmpotentialandtechnology;andassesseconomicandfinancial

caseforproject(wouldinvolveinter-connectionsandexport)


NorthStarwindenergyprojectinSaintKitts

5.4MWwindfarmwithinvestmentcostofUSD

16.5m

Negotiationsunderwaywithdeveloper(whichhasOPIC

financing)—currentlystalled

Governmenttocompleteevaluationoftermsandconclude

negotiationsaccordingly

Saint Vincent and the Grenadines

Geothermalgenerationplant

Geothermalgeneration—scaleofpotentialunknown

ExplorationcontractsignedwithReykjavikandEmera

EnergyinJune2013—developersgrantedrightto

exploitanyresourcesprovenwithin6months

Ifexplorationsuccessful,negotiateexploitationandpowerpurchaseagreements;introduceenabling

legalframeworkforproject

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While these projects are being actively developed and so are included in the pipeline, they remain for the most part at a relatively early stage,andinthecaseofgeothermal,facesignificantuncertaintyandcomplexity.Oftheproposedgeothermalprojects,Dominica’sismostadvanced,andhasbeenreceivingsubstantialsupportfromdevelopmentpartners,includingtheEuropeanUnionandtheWorldBank.Likewise,theGovernmentofSaintVincentandtheGrenadinesisworkingcloselywiththeClintonInitiativetodevelopitsgeothermalexploration(withpotentialasyetunproven).ThecomplexitiesandcapacitychallengesfacingtheseprojectsarehighlightedbytheexperienceofSaintKittsandNevis,wherebothpotentialenergyprojectsarecurrentlystalled(andinthecaseofthegeothermalproject,havebeenstalledforsometime),givenprocesschallenges.

Several other governments expressed interest in greater use of PPPs in the energy sector, in addition to the projects listed above.Additionalprojectsbeingconsideredarealsolargelyinrenewableenergygeneration,whereunlikesomeothersectors,privateinvestmentappearspoliticallypalatablethroughoutmostoftheregion.However,theseprojectshavenotyetbeenincludedaspipelineprojectsbecauseofthebarriersthatwouldneedtobeovercomeforthemtomoveforward.Theseconsistof:

• Sector-wide barriers—somegovernmentsarestillintheprocessofdevelopingsector-widestrategiesormajorreformprocessesthatwouldneedtoprecedeanyprivateinvestment.Forexample,theGovernmentsofSurinameandGrenadabothexpressedstronginterestinIPPsforelectricitygeneration,butwouldfirstneedtocompleteon-goingorproposedsectorreformprocesses.TheGovernmentofHaitiisalsoconsideringsectorreformoptionsthatcouldinvolvetheprivatesectormorewidelyacrosstheelectricitysub-sectors,asawaytoimproveperformanceandenableinvestment,butthisprocessisatanearlystage.

• Technology barriers—somerenewableenergytechnologiesthatareattractinginterestarenewtotheregion.Inparticular,fourcountriesexpressedinterestinwaste-to-energyprojects,butacknowledgethatthistechnologyisasyetunprovenatscalesthatwouldpertainintheCaribbean.

Furthermore, energy generation and supply is a sector in which there may be significant value from regional solutions, which have yet to be fully explored.Allofthegeothermalprojectsdescribedabove,ifdevelopedtotheirfullpotential,wouldhaveregionalimplications,astheywouldinvolvecross-borderpowersupply(althoughtheviabilityofcableinter-connectionshasyettobeestablished).Otherregionalsolutionshavebeenmooted,inparticulararegionalapproachtosupplyofLiquidNaturalGas(LNG)andconversionofgenerationfacilitiestorunonLNG.Thisideaisatanearlystage,andhasyettogaintractionintheabsenceofaclearchampionoreffectiveregionalcoordinationmechanism.TheIDBissupportingafeasibilitystudyforaregionalapproachtoLNGsupply,comparedtoalternativessuchasgreaterinvestmentinrenewableenergygeneration,withaviewtobuildingconsensusandacoalitionaroundsuchaproject.

There may also be opportunities for PPP in performance-based energy efficiency contracts, although no such projects are currently being pursued.Suchopportunitiestypicallyinvolvegovernmentsworkingwithaprivateoperatortoimprovetheenergyefficiencyofpublicbuildingsandinstallations,particularlywherethesearecurrentlyenergyinefficientorintensive—anattractiveoptioninlightofhighelectricitycosts.Forexample,undersuchamodel,aprivateoperatororenergyservicecompany(ESCO),couldinvestinretrofittingagovernmentbuildingwithenergy-efficientlightingandcoolingsystemsandreceivepaymentsbasedonthereductionsinenergyconsumptionoveramulti-yearperiod.

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4.3 WATER SECTOR

Caribbean water utilities, all publicly owned companies, have generally performed well in terms of access—but are characterized by inefficiencies.12 ExceptinHaiti,morethan80percentofthepopulationinthecountriescoveredbythisstudyhasaccesstoimprovedwaterandsanitation,althoughsupplymaybeunreliable.Keyefficiencyissuesincludeoverstaffing—atypicalCaribbeanwaterutilityhasabouteightstaffper1,000connections,comparedtotheindustrybestpracticeoffewerthanfour.Largelossesareamajorchallenge.“Non-revenuewater”ofabout40to60percentisnormalinCaribbeanwaterutilities—highincomparisontoabout20to30percentachievedbymanyemerging-marketwaterutilities,andbestpracticelevelsofunder20percentinsomecountries.Caribbeanwaterutilitiesalsosufferfromthehighcostofelectricityinmostcountriesintheregion.

Notwithstanding the apparent potential for performance improvements, there is limited interest in private investment or PPP in water and sanitation. Thisismainlyduetopoliticalandpublicoppositiontoprivateinvolvementinthesector,whichisseenasinherently“non-commercial.”ThefewexamplesofPPPorotherformsofprivateinvestmentindeliveryofwaterandsanitationserviceshavehadlimitedsuccess.Forexample:

• InHaiti,anaffermagecontractisinplaceforthecityofSaintMarc,andamanagementassistancecontractwassignedin2011forPortAuPrince.However,experiencewiththesecontractsisnotencouraging.InSaintMarc,theoperatorhasnotbeenabletochargecostrecoverytariffsandisoperatingataloss.InPortauPrince,thecontractor(Suez)hasimprovedqualityofserviceandfinancialperformance,buthasnottransformedtheutilityintoaself-sustainingentity.

• InSaint Lucia,thegovernmentattemptedtointroduceprivateparticipationinthewatersector,butfailed.In2008,thegovernmentcorporatizedWASCOandestablishedaframeworkforpartialprivatizationoftheutility.However,thetransactionwasabortedatthefinishlinewhenalosingbidderthreatenedlegalactionagainstthegovernment,withlackofpublicsupportanexacerbatingfactor.

There may be greater scope for other types of PPP in the water sector that are not customer-facing.TherearefourexamplesofPPPsforbulkwatertreatmentplants—oneeachinAntiguaandNevis,andtwoinTrinidad(thelatterthreebeingdesalinationplants)—ineachcasesellingwaterunderabulkwatersupplyagreementtoapubliclyrunutility.SimilararrangementsarecurrentlybeingconsideredinJamaicaforbothbulkwatersupplyandwastewatertreatmentplants.Thesecomprisethethreewaterprojectsincludedinthepipelineof33potentialPPPs.

Other more limited PPP arrangements could include performance-based contracts for reduction in non-revenue water (NRW), or energy efficiency of water utilities.NRWreductionprojectscanbestructuredinwhichtheprivateoperatorsharesthecostsofreplacementofleakingwaterpipes,inreturnforlong-termpaymentsbasedonreductionsinNRW.Underperformance-basedenergyefficiencycontractswithESCOs,asdescribedinsection4.2above,privatecontractorswouldaudittheenergyconsumptionofwaterutilities(whichintheCaribbeantendtobehigh),andreceivepaymentonreductionsinenergycosts.However,wefoundnoCaribbeangovernmenttobeactivelyconsideringthesetypesofengagementsinthewatersectoryet.

4.4 TELECOMMUNICATIONS SECTOR

Ownership and operation of telecommunications services in most Caribbean countries is already in private hands. Ofthe11countriesinthisstudy,government-ownedtelecommunicationsutilitiesremainonlyinAntiguaandBarbuda,Suriname,andTrinidadandTobago(inallcasesalongsideprivatecompaniesoperatingunderlicenses).Asinmostoftheworld,thesectorhasseensignificantgrowthinthelasttwo

12Source:CastaliabenchmarkingofCaribbeanwaterutilities.

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EMERGING PPP OPPORTUNITIES 4


decades,particularlyinthemobilesector.Penetrationofmobileservicesisaboutormorethan100percentinalmostallthecountriescoveredinthisstudy,withHaiti(60percent)andtheDominicanRepublic(87percent)asnotableexceptions.13

However, infrastructure gaps remain, which PPP arrangements could help address.Inparticular,broadbandpenetrationremainslow,atbetweenfiveand30percentinthecountriescoveredbythisstudy.ThemotivationforPPPintelecommunicationsisprimarilyinsub-sectorswhereincentivesoranchorpurchasecommitmentsfromthegovernmentmaybeneededtopromptfurtherprivateinvestment.Thiscouldincludedomesticbackbonenetworksforhigher-speedbroadband,submarinecableinfrastructurewithinandacrossborders,andnationalandregionalinternetexchangepoints(IXPs).SeveralgovernmentsintheregionareactivelypursuingPPPprojectsintheICTsector,andfoursuchprojectsareincludedinthePPPpipeline.

The World Bank is supporting the development of ICT infrastructure under PPPs through its Caribbean Regional Communications Infrastructure Program (CARCIP) project.14 CARCIPisworkingwithgovernmentsintheregiontoassessanddevelopICTinfrastructureprojectsaddressingthegapsdescribedabove—bothatthenationallevel,andthosewithregionalimplications.Theprojectalsoincludesdevelopmentofpolicyandregulatoryframeworksneededtosupporttheseinvestments,andsupporttoinnovativeITindustriesthatwouldtherebybeenabled.TheCARCIPprojectiscurrentlyworkingactivelywiththeGovernmentsofSaintLucia,SaintVincentandtheGrenadines,andGrenada,comprisingthreeofthefourpipelineprojectsintheICTsector.ThelackofgovernmentcapacityandprocessesforprocuringPPPs—bothatthenationalandregionallevel—havebeenidentifiedbytheCARCIPteamaspotentialbottlenecksfortheseprojects.4.5 SOCIAL AND GOVERNMENT INFRASTRUCTURE SECTORS

While the focus of the Roadmap is on core infrastructure—transport, power, water and telecommunications—interest in PPP in the region goes beyond those sectors.Globally,somegovernmentshaveusedPPPstodeliverinvestmentprojectsinsocialsectors(suchasschools,healthcarefacilities,orprisons),aswellasgovernmentinfrastructuresuchasofficebuildings.SeveralCaribbeangovernmentsarelookingintothesetypesofPPPprojects.

Most of these projects do not generate revenues from users, and are remunerated by government payments over the contract lifetime.TherationaleforPPPinthesecasesisbasedonmoreeffectiveorefficientprovisionoftheseassetsandservices,drawingonprivate-sectorexpertiseandincentives.ThesePPPsdotypicallyalsochangehowprojectsarereflectedinbudgetsandnationalaccountsinawaythatcanappeartocreatefiscalspace—convertinganupfrontcapitalexpenditurefortraditionalprocurement(oftendebt-financed)intoarecurrentexpenditureovertheprojectlifetime.However,sinceinbothcasesthegovernmentpaysfortheassetinfull,thereisnosubstantivedifferencebetweenthesetwoarrangements.Governmentsmustbecarefultoassessthelong-termcostsofthesetypesofPPPs.15

Six of the 33 pipeline PPP projects are in the social and government infrastructure sectors.Thesecomprisetwohealthcareprojects,twoeducationprojects,onegovernmentofficecomplex,andonesetofcourtbuildings,allofwhicharestillattheconceptstage.Forexample,theGovernmentofTrinidadandTobago,withsupportfromtheIDB’sMIF,isintheprocessofengagingadvisorstoassessthefeasibilityandbusinesscasefor10earlychildhoodeducationcentersandprimaryschools,andthreeimagingandlaboratorydiagnosticcenters,bothunderPPPcontracts.

13Source:http://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx,accessedJanuary2014.14FormoreinformationonCARCIP,seehttp://www.ctu.int/carcip/143.15WhileinternationalnormsforcapturingPPPsinpublicaccountsarestillevolving,thereisageneraltrendtowardsrecognizingsuchprojectsasconstitutingpublicassetsandliabilities.Inthiscasetheimpactonnationaldebt,forexample,isthesameunderbothaPPPandadebt-financedtraditionalprocurement.

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LEARNING FROM EXPERIENCE: PPP CONSTRAINTS


5

Learning From Experience: PPP Constraints

Experience suggests Caribbean governments may face constraints in developing successful PPP projects and programs,notwithstandingthehighlevelofinterestandpromisinginitialPPPpipelinedescribedinSection4.Theseconstraintsareoftwobroadtypes.ThefirstareimplementationchallengesthatCaribbeangovernmentsmayfaceinturningthepotentialPPPpipelineintosuccessfulprojectsontheground.Thesecondarebarriersconstrainingfurtherexpansionofthatpipeline—thatis,limitingthenumberofviablePPPprojectsintheregion.Thissectionexplorestheseconstraints,withaviewtoidentifyingwhetherandhowtheycouldbeovercomebygovernmentstoenablesuccessfuluseofPPPintheCaribbean.

5.1 IMPLEMENTATION CHALLENGES

Experience in the Caribbean suggests that governments may face implementation challenges in turning the potential PPP pipeline into successful projects on the ground.CaribbeancountrieshaveimplementedPPPs,asdescribedinSection3,andseveralaresuccessfullyprovidingimprovedinfrastructureservices.However,othershaveexperiencedproblemsinimplementation.Itisworthlearningfromthisexperience,tounderstandwhatconstraintsmaybefacedindevelopingthepotentialPPPpipelineprojectspresentedinSection4above.PreviousimplementationproblemsforPPPsintheCaribbeanhaveincluded:

• Fiscal surprises.ThereareseveralexamplesofPPPprojectsgivingrisetofiscalsurprises,orunexpectedfiscalcosts—includingforexamplethewell-documentedcasesoftollroadsintheDominicanRepublic,andthefirstphaseoftheHighway2000inJamaica.Thesesurprisescanariseforseveralreasons.Firstly,insufficientlyrigorousprojectduediligenceandplanningcanmeanaprojectissimplypoorlyspecified.Second,governmentsmayhaveacceptedrisksthattheymaynotbebest-placedtomanageandthatcouldhavebeentransferredtotheprivatesector.Finally,evenwhererisksacceptedbygovernmentsarereasonable,insufficientfiscaloversightcanmeantheserisks(andinsomecases,evendirectprojectliabilities)areacceptedwithoutcarefulassessmentoftheircostsandpotentialfiscalimpacts.

• Questionable value for public money.Wherefiscalsurprisesarosefrompoorprojectspecificationandriskallocationdescribedabove,thisimpliesnotjustthatthecostwasunplanned(creatingfiscalchallenges),butalsothatitmaynothavebeenthebestuseofgovernmentresources.Asecondproblemwithvalueformoneymayariseintheprojectdevelopmentprocess:manyPPPprojectsintheCaribbean—includingfiveofthoseinthecurrentpipeline—originatefromunsolicitedproposals.Theseareoftenreceivedatahighpoliticallevel,thendirectlynegotiatedwiththeoriginatinginvestor.Insuchcircumstances,withoutcompetitivepressure,itisveryhardtoknowwhethertheprojectprovidesvalueformoney.

• Deal closing delays.Manyprojectsenduptakingsignificantlylongerthanoriginallyexpectedtoreachfinancialclose.ChallengesalwaysariseinthecourseofdevelopingPPPs—thequestioniswhetherthesecouldhavebeenanticipatedanddealtwithmoreefficientlyiftheprocesswerebetterdefined,andduediligenceandprojectpreparationmorecomprehensive.Insomecases,lackofexperienceinPPPdevelopmentmaygiverisetomisunderstandings,resultinginchallengesordelaystoprocesses,suchasthoseexperiencedinbothIPPprojectscurrentlybeingdevelopedbytheGovernmentsofSaintKittsandNevis.

In addition to these implementation problems, there are many more potential PPP projects that have simply failed to launch—evidencedbythenumberofPPPconceptsthatremaininthepipelinedespitehavingbeenindiscussionforsometime.ManygovernmentsareinterestedinPPPsandhaveideasforprojects(someoriginatingfromtheprivatesectorthroughunsolicitedproposals),buthavenotsucceededinmovingtheseprojectsforward.Thiscanbesimplyduetoalackofclarityonhowbesttodoso,intheabsenceofdefinedprojectselectioncriteria,processes,andresponsibilities,particularlygivenlimitedPPPexperienceamonggovernmentstaffatalllevels.Lackofregionalcoordinationmechanisms,inparticular,hasresultedinverylittleprogressonpotentiallybeneficialregionalPPPprojectsthatlackanobviouschampion.

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LEARNING FROM EXPERIENCE:

PPP CONSTRAINTS


5

Many of these PPP implementation problems can be traced back to the lack of “PPP architecture” across most of the Caribbean,asillustratedinFigure5.1below.Inotherwords,thesearethetypesofproblemsthatcountrieswithsuccessfulPPPprogramshavetypicallysolvedbyintroducingPPP-specificpolicyandinstitutionalframeworks—bydefiningclearprocessesformanagingPPPsthatensurethoroughprojectduediligenceandpreparation;definingresponsibilitiesforcarryingoutthoseprocesses;andbuildingcapacitytodoso(bothinternal,andthroughtheuseofwell-qualifiedadvisors).Section6belowdescribesactionsthattheCaribbeangovernmentscouldtake—individuallyandcollectively—toovercometheseconstraintsandmoveforwardsuccessfullywiththepipelineprojectsdescribedabove.

Figure 5.1: Constraints Arising from Limited PPP Policy and Institutional Architecture

5.2 BARRIERS TO PPP

PPP constraints in the Caribbean go beyond implementation challenges, to barriers that may limit the extent of viable PPP projects—thatis,constrainfurtherexpansionofthepipeline.Theseincludetheneedformajorsectorreformasapre-requisitetoimplementingPPPs;lackofpoliticalsupportforprivateinvestmentininfrastructure,whetherinparticularsectorsorinacountryasawhole;andlimitedmarketabilityofsmaller-scalePPPprojects.Thesebarriers,andtheirimplicationsfortheoutlookforPPPsasawhole,aredescribedinturnbelow.

Need for major sector reformSuccessful PPPs need conducive and stable legal, regulatory, and policy environments in the relevant sectors.Insomecases,thismeanstheuseofPPPsinasectorisdependentonabroadersectorreformprocess.ThisappliestotheelectricitysectorinafewCaribbeancountries,asnotedinSection4.2above.Forexample,whereapublicly-ownedutilityisloss-makingduetotariffsfallingbelowcost-recoverylevels,tariffreviewandreformmaybeneededtoenablethatutilitytobeacrediblepublicpartnerforIPPinvestorsinnew-generationassets.PPPopportunitiesalsodependonthesectorstructure.InsomeofthesmallerCaribbeanstates,theelectricityutilitywasprivatizedasavertically-integratedmonopoly—creatingalegalbarriertotheuseofPPPsinthesectorthatinterestedgovernmentswouldneedtoworkwithincumbentoperatorstoovercome.InHaiti,asnotedabove,clarityonbroadersectorreformisneededbeforespecificPPPopportunities(whetherindistributionorgenerationorboth,forexample),couldbeidentified.

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The need for legal and regulatory reform need not always be a barrier to pursuing a PPP. Insomecases—typicallyforone-offPPPprojectssuchasconcessionsforexistingassetsornetworks—theprocessofdevelopingaparticularPPPprojectcanincludemakingchangestoasectorlaworregulatoryframework.Thiscancausedelaysifnotcarefullyplanned—fortheSangsterInternationalAirportconcessioninJamaica,forexample,theneedtoamendsectorlegislationemergedduringprojectpreparationandtookseveralyearstoresolve—butinthecontextofaclearsectorstrategy,andprovidedthereispoliticalsupportforsuchchanges,itdoesnotnecessarilyconstituteabarriertopursuingthePPP.

Lack of political supportA further barrier to the greater use of PPPs in the Caribbean is the level of political interest in private-sector involvement in infrastructure.Whereasthe33projectsinthePPPpipelinepresentedinthisRoadmapallappeartohavesupportfromtheirrespectivegovernments,therearemanymoreprojectideasorpotentialareaswherePPPscouldmakesensebutwheretheylackpoliticalsupport,orindeedfacepoliticalopposition.Thisdearthofpoliticalwillhasmanyroots,includingskepticismofindividualprojectsandforeigninvestorsingeneral.However,therearetwobroaderreasonswhypotentiallybeneficialPPPprojectsmaynotattractpoliticalsupport:• Experience with PPPs that did not work as hoped.Forexample,thereluctanceofthecurrentadministrationintheDominicanRepublic

todomorePPPprojectscanbetracedlargelytobadexperienceswithpreviousprojects—unexpectedfiscalcostsfromtollroads,asdescribedabove,andperceivedhighcostsofelectricityfromIPPs.Inthiscase,amoredetailedreviewofPPPexperiencescouldhelp—toidentifywhatwentwrong,andwhetherandhowtheseproblemscouldbeovercometoenableasuccessfulreturntousingPPPsinthefuture.

• Policy preference for state-directed development and public ownership.ThereisalongtraditionofstateownershipofutilitiesandotherinfrastructureintheCaribbean,andinsomecountriesandsectors,thereisstillapoliticalconsensusinfavorofthestate-ownershipmodel.Forexample,politicalandpublicpreferenceforpublicownershipanddeliveryofwaterservicesremainswidespreadintheregion.

This barrier, although currently a binding constraint in some countries and sectors, may erode over time as experience with PPPs in the Caribbean grows. Attemptsto“push”PPPsabsentbroadpoliticalandpublicsupportarerarelysuccessful.Nonetheless,internationalexperiencesuggeststhatprojectsuccessesinsomesectorsandcountriescancreate“demonstrationeffects”elsewhere—graduallychangingpoliticalandpublicperceptions,andperhapsopeningthedoortotheuseofPPPswherethesecouldhelpmeetinfrastructuregoals.

Limited marketability of smaller-scale PPP projectsCaribbean countries have managed to attract private-sector investment in infrastructure, notwithstanding their small size.Section2listedexamplesofprivateinfrastructureprojectsacrossthe11countriesincludedinthisstudy,mostofwhichhavebeensuccessful.LargercountriessuchastheDominicanRepublic,Haiti,andJamaicahaveattractedlargeinternationalinvestorsandoperatorstoPPPsintheelectricity,water,androadssectors.Smallercountrieshavealsoseeninfrastructureinvestmentbyinternationaloperators—particularlyinmobiletelecommunications,wheresimilaropportunitiesexistedacrossmultiplecountriesintheregion.

However, as the “big” deals are picked off, reduced interest from investors in smaller-scale PPP investments could become a barrier to further expansion of the pipeline.Forexample,accordingto“rulesofthumb,”manyCaribbeanportsandairportsarebelowthescaleusuallyconsideredviableforPPP.WhileCaribbeancountriescannotovercomethechallengesforinfrastructureprovisioninherentintheirsmallsize,theymaybeabletomitigatetosomeextenttheresultantlimitationsonthegreateruseofPPPsintheregion.

Regional approaches to PPP could help overcome this barrier.Insomesectorssuchasenergyandtransport,therecouldbesignificantvaluefromregionalprojects,asdescribedintherelevantsectionsabove,whichhaveyettobefullyexplored.Moreover,evenforprojectsatthenationallevel,aregionalapproachtodevelopingandmarketingPPPpipelinescouldhelpengagegreaterinterestfrominternationalinvestors.

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PPP CONSTRAINTS


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Binding constraint(s) Significant constraint(s)

Transport

• LackofpoliticalsupportfortransportPPPsinsomecountriesandsub-sectors

• Limitedmarketabilityofsmaller-scaleprojects

• Needforregionalcoordinationonsectorpolicy,particularlyinseaandairtransport

Energy

• Needforsectorreforminsomecountries

• Needforregionalcoordinationtoenablepossibleregionalprojects

Water • LackofpoliticalsupportforwaterPPPsinmanycountries

• SectorreformsmaybeneededtoenablePPPsinfutureifpoliticalinterestchanges

ICT• Needforpolicyclarityatthenational

level,andregionalcoordinationinsomecases

More opportunities could emerge if regional coordination is strengthened; demonstration effects may help address mixed political perspectives




Implications for Sector PPP Outlook

However,bothcaseswouldrequirealevelofregionalcooperationthathasprovedchallengingtodate.Section6belowdescribesactionsattheregionallevelthatcouldhelpimprovecoordinationandenableregionalPPPsolutions.

Caribbean governments could also consider targeting a wider range of investors—includingeducatingandencouraginglocalentrepreneurstogetintothebusiness,andseekingregionalplayerstoelicittheirinterest.Forexample,whentheGovernmentofTurksandCaicoswantedtoprivatizeitselectricityutility(whichwaslosingmoneyandwasunder-maintained),itapproachedWRB,theFlorida-basedcompanythatsuppliedandmaintainedtheutility’sgenerators.ThegovernmentaskedWRBifthecompanywouldliketotransitionfrommaintainingthegeneratorstooperatingthewholeutility.WRBagreed—andlaterdevelopedintoaregionaloperator,investinginandmanagingtheutilitiesinDominicaandGrenadaaswell.

Summary: Implications of barriers for PPP outlookThese barriers are of varying severity, and apply to different extents across sectors and countries.Forexample,country-levelelectricity-sectorreformsareon-goingthatcouldunlockmorePPPopportunitiesintheshortterm,whilesupportisalreadyinplaceforregionalanalysisintheelectricityandtelecommunicationssectors(asdescribedinmoredetailinSection4above).Ontheotherhand,negativepoliticalandpublicperceptionswilllikelytakelongertoovercome.Figure5.2summarizestheimplicationsofthebarriersdescribedaboveforthePPPoutlookbeyondthecurrentpipelineinthecoreinfrastructuresectorsintheCaribbean.

FigueFigure 5.2: Summary of Barriers and Implications for PPP Outlook

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The Way Forward: PPP Actions

There is clearly growing interest in using PPPs to deliver infrastructure in the Caribbean, and a significant potential pipeline of PPP projects thatappearimplementableintheshorttomediumterm.Goingforward,thispipelinecanbeexpectedtoexpand,particularlyifbarrierssuchastheneedforsectorreformcanbeovercome(althoughotherconstraintssuchaslackofpoliticalsupportforPPPsmaybemoreintransigent).However,CaribbeancountrieshaveinthepastexperiencedchallengesinturningPPPpipelineideasintosuccessfulPPPprojects.AsdescribedinSection5,theseproblemscanlargelybetracedtomissing“PPParchitecture”—thatis,thepolicies,institutions,andcapacityneededtomanagePPPswell.

Capitalizing on the region’s PPP potential will require actions on two fronts: building “PPP architecture,” and moving PPP projects forward.Formanycountries,itwillmakesensetoadvanceonbothfrontsatonce.Thisparallelapproachhelpsensurethatinstitutionsandprocessesarefoundedonexperience,needs,andpracticalrealities.ItalsohelpsbuildpoliticalandmarketmomentumbehindPPPprogramsbymovingforwardwithdeals.Whilethisstrategyinvolvessomecompromises,riskscanbemitigatedbybringingintrustedadvisorswithexperienceinselectinganddevelopingPPPs.Advisors’experiencecanserveasasubstituteforfullydevelopedprocessesandinstitutions,andallowthecountrytolearnbydoing.

Regional approaches to support PPPs are worth considering, given that interest in PPPs, potential constraints, and likely solutions are common across many Caribbean countries.ActingattheregionalleveltosupportPPPsintheCaribbeancouldmakesenseforseveralreasons:• Achieving economies of scale and efficiency.Giventhatthelackof“PPParchitecture”iscommontomostCaribbeancountries,many

governmentswillfacesimilarneedsindevelopingPPPpoliciesandtools,andinbuildingthecapacityneededtoimplementPPPswell.Addressingsomeoftheseneedscollectivelycouldmakesense,to:overcomediseconomiesofscaleatthenationallevelwhenitcomestoinvestinginbuildingPPPcapacity;avoidre-inventingthewheel’andenablegovernmentstolearnfromeachother’sexperiencesindevelopingPPPprojects.

• Creating a regional PPP market.AsdescribedinSection5above,thesmallscaleofCaribbeanPPPprogramsandprojectsmakeithardertoattractqualifiedinvestors.CoordinatedeffortsonPPPcanhelpfosteraregionalPPPmarket,withamoresubstantialpipeline,creatingamoreattractiveprospectforinternationalcompanies,aswellasfordevelopmentpartnersseekingtosupportPPPinitiativesintheregion.

• Enabling regional projects.SomeoftheCaribbean’sinfrastructureconstraintscouldbemoreeffectivelyaddressedbyprojectsattheregionallevel,asdescribedinSection4above,toovercomediseconomiesofscaleininfrastructureprovisionatthenationallevel.However,todatetherehasnotbeenaneffectivecoordinationmechanismforbringingsuchmutuallybeneficialprojectstobear.AregionalapproachtoPPPcouldprovidesuchamechanism.

Sections6.1to6.3belowdescribetheactionsthatCaribbeangovernmentscantake—individuallyandcollectively—todevelop“PPParchitecture”(comprisingpolicyframeworksandinstitutionalcapacity)andmoveforwardsuccessfullywithPPPprojects.Finally,Section6.4describesthesequencingoftheseactionsandpossibleimplementationchallenges,andhowdevelopmentpartnerscouldworktogetherinaregionalapproachtosupportPPPintheCaribbean.

6.1 PPP ARCHITECTURE: POLICY FRAMEWORKS

Summary of Actions to establish and strengthen PPP policy frameworks:• Develop a “model” PPP policy for the region, based on existing examples, supported by a set of common guidance material and tools; and• Draw on this model to implement national-level PPP policies or laws that reflect country-specific institutional structures and PPP

program needs.

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Most countries with a successful PPP program have built that program on a sound PPP policy framework.PPPpoliciesguidegovernmentagenciesandmarketparticipantsonhowPPPswillbedone.AsdescribedinSection3above,ofthecountriescoveredbythisstudy,onlyJamaicaandTrinidadandTobagocurrentlyhaveaPPPpolicyinplace.AnyotherCaribbeancountrythatwishestomakesignificantuseofPPPsgoingforwardwouldbenefitfromintroducingaguidingpolicyframework;severalgovernmentshavealreadyexpressedinterestindoingso.

PPP policy frameworks are typically established in an overarching policy document or law that sets out at a high level the key parameters of the PPP program.ThesecanincludethescopeandprioritiesforPPPprojects;theguidingprinciplesbywhichPPPswillbedeveloped;thecriteriaandprocessesbywhichPPPprojectswillbeidentified,developed,andimplemented;andtheresponsibilitiesfordoingso.Experiencevariesastowhetherthisguidingdocumentisapolicyoralaw,oracombinationofthetwo,asdescribedinBox6.1.

Box 6.1: PPP Policies and Laws

PPP policies or laws are often supplemented with guidance material, or regulations, setting out PPP processes in more detail.SuchprocessesmaycoverhowtoselectaprojectfordevelopmentasaPPP,howtoselecttheprivatepartnerfortheproject,andhowtomonitortheprivatepartner’sperformance.BothJamaicaandTrinidadandTobagoarecurrentlyintheprocessofdevelopingPPP“manuals”andassociatedtemplatesandtoolstosupporttheirPPPpolicies.

Policies are clearly country-level decisions. Nevertheless, there are opportunities to benefit from regional cooperation in developing policy frameworks. HarmonizedpolicieswithsimilarPPPdevelopmentprocesseswouldhelpfosteraPPP“market,”withtheadvantagesdescribedabove.Moreover,processmanualsandtoolswouldlikelybesimilarformanycountries,meaningthatgovernmentscouldsavetimeandmoneybydevelopingandusingcommonmaterials.Forexample,regionalcooperationonPPPpolicyframeworkscouldinvolvedevelopinga“model”policy,processmanual,andtools—basedonexistingexamples,suchasthoseinJamaicaandTrinidadandTobago—fromwhichcountriescoulddrawwhenintroducingnationalPPPpolicies.

DifferentcountrieshavedifferentapproachestoestablishingPPPpolicyframeworks—theguidingprinciples,processes,andinstitutionalresponsibilitiesforimplementingPPPs.Manycountriesintroducea“PPPLaw”orotheroverarchinglegislation;othersrelyonaPPPPolicy,implementedthroughacabinet-leveldecision.

Theapproachdependstosomeextentonthelegalsysteminthecountry.Countrieswithcivil-lawsystemstypicallyuselawstoprescribegovernmentbehavior.MostLatinAmericancountries’PPPprogramsarebasedonPPPorConcessionLaws;HaitiandtheDominicanRepublic,forexample,wouldlikelyrequireasimilarapproach.Incommon-lawcountrieswithWestminster-stylesystemsofgovernment,whichincludemostoftheEnglish-speakingCaribbean,PPPframeworksmaybeestablishedthroughpoliciesratherthanlaws.ThisistheapproachtakentodateinJamaicaandinTrinidadandTobago,anditbuildsonpracticesdevelopedintheUnitedKingdom,AustraliaandNewZealand.

Therearealsopracticaladvantagesanddisadvantagestoeachapproach.APPPLawcanbeconsideredmorebindingthanapolicyandmorelikelytoendurechangesingovernment—providinggreatercomforttoinvestors.Atthesametime,alawishardertochangeinresponsetoexperienceortheevolvingneedsofaPPPprogram.Forthelatterreason,well-designedPPPlawstypicallyfocusonenduringprinciplesratherthandetails,andapolicymayworkbetterintheearlydaysofaPPPprogram.

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6.2 PPP ARCHITECTURE: INSTITUTIONAL CAPACITY

Summary of Actions to build the institutional capacity needed for successful PPPs:• At the national level, designate PPP “focal points” to coordinate the PPP program;• Consider establishing a regional “PPP unit”—to support governments in implementing PPP transactions (including by hiring and

managing experienced technical advisors), and to be a regional repository of PPP experience and knowledge; and• Coordinate regional PPP training initiatives: both immediate training programs for current government officials likely to be involved

in a PPP; and education in relevant skills for future generations of public- and private-sector employees.

Developing and implementing PPP projects is a demanding process for governments.ItrequiresexpertiseinstructuringPPPcontracts(andmanagingexternaladvisorysupportindoingso),tomatchtheexperiencebroughttothetablebypotentialprivatepartners.Italsorequirescoordinatedinputs,reviews,andapprovalsfrommanyentitiesacrossgovernment—asistypicalforpublicinvestmentprojects—toensuretheprojectalignswithprioritiesandfiscalconstraints.

To help meet these demands, many governments designate a specific team to support and coordinate the development of PPP projects,andtoactasarepositoryofexperienceandknowledgeonthesubjectofPPPforthegovernment.Commonrolesofsuch“PPPUnits,”aswellastheotherentitiestypicallyinvolvedinthePPPprojectlifecycle,arehighlightedinFigure6.1below.

Figure 6.1: Typical PPP Program Functions and Responsibilities

PPP Program Functions Typical Responsibilities

Approving PPP projects CabinetorParliament(parallelswithpublic-sectorinvestmentplanning)

Coordinating PPP policy PPPUnit

Managing fiscal implications MinistryofFinance(MOF)

Identifying PPP projects Ministries,Departments,andAgencies(MDAs)—withPPPUnitand/orMOFsupport&input(parallelswithpublic-sectorinvestmentplanning)

Guiding PPP development Project‘steeringcommittee’underMDA

Undertaking due diligence (with advisors) MDA-ledprojectteamwithPPPUnitsupport

Implementing transactions(with advisors) MDA-ledprojectteamwithPPPUnitsupport

Managing PPP contracts Varies:PPPUnit/MDAs

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Three such PPP Units currently exist in the Caribbean. InJamaicaandTrinidadandTobago,therolesandresponsibilitiesoftheseunitswereestablishedintheirrespectivePPPPolicies,asdescribedinSection3above.InJamaica,themainimplementingteamforthePPPprogramisaPPPUnitintheDevelopmentBankofJamaica(DBJ),whichworksintandemwithaPPPNodeintheMinistryofFinanceandPlanning.InTrinidadandTobago,aPPPUnitwasestablishedintheMinistryofFinance.APPPUnitwasalsoestablishedinHaiti’sFinanceMinistryin2012,althoughwithoutaguidingpolicy,theroleandmandateofthisunitremainssomewhatunclear.

Other Caribbean countries that intend to make greater use of PPPs will likely also benefit from establishing a clear “focal point” for their PPP programs.Thelocationofthisfunctionineachcountrywilldependonexistinginstitutionalcapacitiesandmandates.Forexample,inJamaicathePPPUnitwaslocatedintheDevelopmentBankofJamaica,tocapitalizeontheexperienceofanexistingprivatizationteam.Manycountries,suchasTrinidadandTobago,choosetolocateaPPPUnitwithintheMinistryofFinance—takingadvantageofthisministry’sexistingroleincoordinatingeconomicpolicyandexpendituredecisions,andthefinancialliteracyofitsstaff.

However, given the limited scale of PPP programs, particularly on smaller islands, it may be inefficient for each government to build a dedicated PPP team. WherepipelinescomprisejustahandfulofPPPprojects,itmaynotmakesenseforgovernmentstodesignatededicatedteamswiththefullrangeofexpertise—legal,economic,andfinancial—typicallyfoundinfull-fledgedPPPUnits.Inthesecases,itmaymakemoresensetoassignresponsibilityforPPPstoanexistingteamorindividualtoactasa“focalpoint,”andtorelymoreheavilyonoutsourcingtoexperiencedPPPadvisorsforspecificprojects.ThisalsoraisesthequestionofwhetherbuildingcapacityattheregionallevelcouldbeanefficientapproachfortheCaribbean—tothisend,Box6.2belowexplorestheideaofaregional“PPPUnit.”

Box 6.2: How Could a Regional PPP Unit Work?

CaribbeangovernmentsfacecommonchallengesinimplementingPPPs—centralamongtheseisthechallengeofbuildingandsustainingsufficientcapacitytoimplementPPPprojectswell,givennecessarilylimitedPPPpipelines.Moreover,governmentscanfinditdifficultorbereluctanttoinvestinengagingexperiencedexternaltechnicaladvisorysupporttopreparePPPprojects.

Inthiscontext,itmakessensetoconsiderbuildingthiscapacityattheregionallevel.Thiscouldtaketheformofa“regionalPPPunit,”whichcouldprovidesupporttonationalgovernmentsinimplementingPPPtransactions,includingbyengagingandmanagingspecialisttechnicaladvisorstosupportthatprocess.Arevolvingfundhousedwithinsuchaunitcouldalsoprovideasustainablesourceoffundingforfundingtransactionsandcontractingadvisors,bychargingsuccessfeestowinningbidders.

SuchaunitwouldpartlymimictheroleofPPPimplementationunitsthatareoftenestablishedatthenationallevelbycountrieslookingtoimplementsignificantPPPpipelines.Thatsaid,aregionalPPPunitcouldnotreplacetheneedforoversightofPPPprojectimplementationatthenationallevel—forexample,therelevantgovernmentwouldneedtodeterminetheconsistencyoftheprojectwithnationalandsector-levelstrategies,fiscalprioritiesandconstraints,andapprove(ornot)aprojectonthatbasis.Theroleofaregionalunitcouldbetomanagetheday-to-day,detailedtransactionpreparationandimplementation,bringingtobearthespecificskillsandexperienceneededtodososuccessfully. (continued on page 32)

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The approach to staffing PPP “focal points” will likely vary by country, and could involve both building and hiring in skills and expertise.Thenumberoffull-time-equivalentstaffneededwilldependontheexpectedscaleofthePPPpipeline.WhereexistingstaffhaverelevantskillsandcanbemadeavailabletofocusonthePPPprogram,thiscouldprimarilyinvolvetrainingonPPP-specifictopicstoenablethosestafftofulfiltheirnewroles.Wherestaffingconstraintsaretight,thiscouldinvolvehiringininternationalexperts,whetherascoordinatingstafforasresidentadvisors.

In either case, given limited experience to date with PPPs in the Caribbean, governments will need to invest in building capacity to implement PPPs.ThisshouldincludetailoredtrainingforstaffacrosstherangeofentitiesinvolvedinPPPs,toenablethemtofulfiltheirrolesasshowninFigure6.1above.OfficialsdirectlyinvolvedinpreparingandimplementingPPPprojects,suchasPPP“focalpoint”andlineministrystaff,mayneedtrainingontechnicalmatterssuchasfinancialanalysis,riskallocation,andcontractdrafting.OfficialsmakingdecisionsonPPPprojectsandpoliciescouldbenefitfromhigher-leveltrainingontopicssuchasprojectselection,thebenefitsandpitfallsofPPPs,meansforensuringappropriategovernance,andstakeholderconsultation.

16Ata“CaribbeanPPPForum”convenedinBarbadosinNovember2013,theCDBexpressedinterestinbuildingsuchaPPPsupportfunction,andgovernmentrepresentativesinusingitsservices.However,furtherworkisneededtoestablishdemandandfleshoutthebusinessmodel.

ThefigurebelowillustratesapossiblestructureformanagingatypicalnationalPPPprojectwiththesupportofaregionalPPPunit.

Sucharegionalunit’sactivitiescouldalsoextend“upstream”:forexample,supportinggovernmentstoimplementPPPpolicies,buildcapacity,andidentifyandscreenpotentialPPPpipelineprojectsfromamongnationalinvestmentpriorities.However,suchactivitieswouldnotberevenue-generating,sowouldrequireadditionalfunding.

Finally,aregionalPPPunitcouldactasachannelfordevelopmentpartnersseekingtosupportthedevelopmentofPPPsintheregion—bothforfundingandtechnicalassistance.TheCaribbeanDevelopmentBank(CDB)appearsanaturalhomeforsuchaunit,givenitsmandateandtheskillsetofexistingstaff—althoughinvestmentwouldbeneededinbuildingPPP-specificskills.16

Box 6.2: How Could a Regional PPP Unit Work? (continued from page 31)

33



6

PPP training is another area where governments could benefit from regional cooperation.Theneedforcapacity-buildingiscommonthroughouttheCaribbean—includingincountriesthathavealreadyestablishedinstitutionalstructuresforPPPs.Sometrainingonspecificskills,suchasprojectfinanceandfinancialmodeling,isavailableexternallyfromacademicorcommercialproviders.However,addressingthefullrangeofcapacity-buildingneedswilllikelyrequirecommissioningspecificprogramsthataredeliveredlocally.Governmentsintheregioncouldbenefitfromdoingsojointly—tobenefitfromeconomiesofscale;complementthecommonprocessesandtoolsdescribedabove;andbuildnetworksandlearnfromeachother’sPPPexperiences.Goingforward,thiscouldincludeworkingwithregionaleducationalinstitutionstointroducePPPconceptsandskillstofutureemployeesofboththepublicandprivatesectors.

6.3 PPP PROJECTS AND PIPELINES

Summary of Actions to develop and implement PPP projects and pipelines:• Invest in comprehensive support from experienced advisors for early-mover PPP projects;• Consider a more systematic approach to developing PPP pipelines; and• Cooperate to present projects and pipelines in a coordinated way to attract greater investor interest.

At the same time as developing PPP architecture, Caribbean governments can move forward with developing priority PPP projects.DoingsoinparallelwithdevelopingPPPpoliciesandinstitutionalcapacitymakessense,asdescribedabove,becauseitensuresthosepoliciesandinstitutionsarefocusedonpracticalends,andbuildonhands-onexperience.However,intheabsenceofwell-establishedprocessesandinternalcapacity,governmentswillneedtoproceedwithcautiontoensurethatearlyPPPprojectsavoidthepitfallsdiscussedinSection5,andestablishsuccessfulprecedentsonwhichPPPprogramscanbuild.

The support of experienced advisors will be crucial.Figure6.2belowshowsthetypicalstagesinvolvedindevelopingaPPPproject,includingthetypeofadvisoryassistanceusuallysoughtateachstage.Alow-costinitialscreenofpotentialprojectscanhelp“sense-check”PPPsuitabilitybeforeinvestingsignificantresourcesindetailedfeasibilitystudiesandduediligence,transactionpreparation,andimplementation.Thelattertypicallyrequiresinputsfromarangeofspecialistadvisors—technical,legal,andfinancialconsultants,amongothers.Full-servicetransactionadvisorstypicallyprovidethisrangeofinputs,aswellasstrategicadvicetogovernmentsthroughouttheprocess.

Governments need to be prepared to invest substantial resources in developing PPPs well.Thetotalcostoftransactionadvicetypicallyrunstoseveralmilliondollars,orafewpercentofthefinaltransactionvalue.Aportionofthiscostcanbecoveredbysuccessfeeschargedtowinningbidders.However,governmentsshouldbewaryofcreatingincentivestopushthroughdealswithoutthoroughpreparationandduediligence,andensureappropriate“breakpoints”forreviewsandapprovalsthatareinformedbythisappraisalwork.Inadequateresourcingatthesestagescanbeaseriousfalseeconomy—creatingdelaysduringtheprocess,orworse,fiscalsurprisesorquestionablevalueformoneyfromtheprojectitself.

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6

Figure 6.2: Typical PPP Project Development Process

Governments may also want to take a more systematic approach to developing PPP pipelines.ThePPPprojectideasthatcomprisethepotentialpipelinepresentedinSection4havearisenonasomewhatad-hocbasis.Goingforward,interestedCaribbeangovernmentscouldinitiateamoresystematicscreeningofprioritypublicinvestmentprojectstoassesswhethertheycouldprovidebettervalueasPPPs,againstcriteriasimilartothoseusedforthisstudy(seeBox4.1above).ThiscanhelpidentifythemostpromisingprojectsforearlyPPPsuccesses,andalsothelikelyscopeofthePPPprograminthemediumterm—andthereforethelikelyresourcesneeded,bothhumanandfinancial.ThisapproachhasbeenusedwithsomesuccessinJamaicaandTrinidadandTobago.

Caribbean governments may also benefit from presenting PPP pipelines to the market in a coordinated way—with a view to generating greater investor interest (and hence competition and value) than each country pipeline would do individually. Forexample,thiscouldincludeinstitutingaregularpublic-private“PPPforum,”atwhichinvestorscaninteractwithofficialsandpotentialpartnerstonetwork,andlearnfromeachother’sexperiencesandaboutpotentialopportunities.TheannualCaribbeanRenewableEnergyForum(CREF)providesapossiblemodel.SinceCREFstarted,ithasmadeamajorcontributiontoknittingtheCaribbeantogetherintoasinglemarketplaceforrenewableenergydevelopments—somethingthatwaspreviouslyfarfromthecase.

6.4 SEQUENCING OF ACTIONS AND IMPLEMENTATION CHALLENGES

This section set out several actions that Caribbean governments could take to further the successful use of PPPs to deliver infrastructure in the region—todevelopsoundPPPpolicyandinstitutionalframeworks,andtomoveforwardwithpriorityPPPprojects.Theseactionsare

Concept

Feasibility &“Business Case”

Tender

Implementation

REVIEW AND APPROVAL

REVIEW AND APPROVAL

REVIEW AND APPROVAL

1

2

3

4

16Projects

STAGE # OF PROJECTS DESCRIPTION TYPICAL SUPPORT

13Projects

4Projects

• Develop concept and “pre-feasibility” analysis• Initially screen against PPP appraisal criteria— “sense check” of PPP suitability prior to major investment in project development• Prioritize for development as PPP and allocate necessary advisory resources

Develop initial PPP structure:• Identify risks• Allocate risks and responsibilitiesDetailed appraisal of proposed project and PPP:• Detailed project feasibility• Commercial viability of PPP• Whether PPP will provide value for money• Whether PPP is fiscally responsible

• Prepare transaction in detail—design PPP contract and prepare RFP• Implement transaction—qualification and bid processes• Finalize contract and reach financial close

• Establish contract management structures• Monitor and manage PPP delivery and risk• Deal with change

Project screening support

‘First phase’ transaction advisory assistance

Transaction advisory assistance (often success-fee-based)

35



6

summarizedinFigure6.3below.Someoftheseactions—suchasintroducingPPPpolicies,andinitiallyscreeningpotentialPPPpipelines—canbeundertakenintheshorttermbyinterestedgovernments,andindeedarealreadyunderwayinafewcountriesintheregion.Others,suchasbuildingcapacity,willtakelonger,andbuildonprojectexperienceandsuccesses.

Figure 6.3: Summary and Sequencing of Actions

Several of these actions would benefit from cooperation at the regional level.“Quickwins”attheregionallevelcouldincludecoordinatedworktoharmonizenationalPPPpoliciesbasedonacommonmodel,anddevelopingcommonbasicguidancematerialandtools(whichmayberefinedovertime).AregionalPPPcapacity-buildingprogramforgovernmentofficialsinvolvedinPPPscouldefficientlyaddressimmediateneeds,althoughbuildingcapacitywillbeanon-goingprocess—forexample,thiscouldexpandtoworkingwithregionaleducationalinstitutionstoequipyounggraduatesforfuturerolesinPPPs,whetheronthepublicorprivateside.

Going forward, a lasting regional PPP support mechanism could be considered. Thiscouldtaketheformofaregional“PPPFacility,”comprisingaregionalPPPsupportteamthatprovidesbothupstreamanddownstreamtransactionimplementationsupporttoCaribbeangovernmentsfornationalandregionalPPPprojects—workingwithdevelopmentpartners,andexperiencedexternaltechnicaladvisorsasneeded—andarevolving“PPPpreparationfund”tosupporttheactivitiesofthisregionalteam.Thesuccessofsuchafacilitywoulddependheavilyonthelevelofdemandandcommitmentfromgovernmentsintheregion.Afirststepwouldthereforebetodevelopabusinessmodelforthefacility,asthebasisforconsultationandagreementamongparticipatinggovernmentsandpotentialmultilateralandbilateralpartners.

Experience suggests that undertaking these actions is likely to require external supportwhilegovernmentsbuildtheinternalcapacityandconsensusneededtomovePPPprogramsforward,andtoovercomechallengesofregionalcoordination.SeveraldevelopmentpartnersarealreadyactivelysupportingthePPPagendaintheCaribbean—workingwithearly-movergovernmentstodeveloppolicyframeworks,andprovidingtechnicalassistancetosupporttheappraisalanddevelopmentofPPPopportunitiesattheprojectorsectorlevel.Goingforward,thereisanopportunitytocombinetheseefforts,inacoordinatedregionalapproachtoPPPsupportintheCaribbeanthatcouldbemorethanthesumofitsparts.

Introduce PPP policies (where needed)

Develop tools

Screen & prioritizepipeline projects Appraise, prepare, and implement transactions

Policies

Institutions& Capacity

Projects ProjectSuccesses

Country Level Regional

Shorter Term Actions On-going/Long Term Actions

Develop and assess regional “PPP Unit” model

Train technical sta� and build stakeholder awareness

Define & sta� government PPP “focal points”

Build regional PPP Unit

36

APPENDIX A

APPENDIX A: CARIBBEAN PPP EXPERIENCE—EXISTING PPPS IN THE CARIBBEAN

Country Sector Subsector Name Description Year Type

Antigua and Barbuda

Electricity Generation

AntiguaPowerCompany

Limited(APCL)(Independent

PowerProducer)

Build-own-operate-transfer(BOOT)contractforconstructionandoperationofinitiallya27MWdieselgenerationplant,witha50.9MWexpansion,underapower-purchaseagreementbetweenAPCLandAntiguaPublicUtilitiesAuthority(APUA).APUAhasconsistentlyfailedtopayAPCL,resultinginalongstandinglitigationbattle,whichwasfinallysettledbythePrivyCouncilinfavorofAPCLinJuly2013.

1996 PPP

Water ProductionSembcorp

desalinationplant

WatersupplycontractbetweenSembcorpandAPUAtodesign,build,financeandoperateadesalinationplant.Theplantsupplies65percentofAntigua’spipedwater.AsofFebruary2013,APUAowedSembcorpUSD7.6millionforwateralreadysupplied.

1991 PPP

Socialinfra-structure

HealthMountSt.JohnMedicalCenter

Five-yearcontractbetweenAmericanHospitalManagementCompanyandthegovernment-ownedMountSt.JohnMedicalCentertoprovidenon-medicalsupportservicesatthenewhospitalfacility

2010 PPP

Dominican Republic

Transport RoadsAutopistadel

Nordeste

Concessioncontractforthedesign,construction,andoperationofa106-kilometertollroadconnectingSantoDomingowiththeSamanápeninsula.DevelopedbytheColombianconcessionaireGrodcoandOdinsa.InvestmentvalueUSD162million.

2001 PPP

Transport RoadsSanPedroMarcori-LaRomanaandLas

Americas

Concessioncontractawardedin1999,renegotiatedin2002andtransformedintoa30-yearconcessioncontractforexpansion,operationandmaintenanceoftheSanPedroMarcori-LaRomanahighway,andoperationandmanagementoftheLasAmericastollroadbuiltbytheDominicanGovernment.ConcessionaireisCODACSA;InvestmentvalueUSD62million.

2002 PPP

Transport RoadsBoulevardTurístico

delAtlántico

Concessioncontracttodesign,build,finance,andoperatea123-kilometertollroadfor30yearsintheSamanáPeninsula.ConcessionaireisColombianGrodcoandOdinsa,andDominicanConsortiaRemix.InvestmentisUSD150million.

Ongoing PPP

Transport Roads Viadom

Concessioncontracttodesign,finance,rehabilitate,construct,operate,andmaintain500kilometersofhighways.ConcessionaireisColombianOdinsa,ItalianGhella,ArgentineanIECSAandDominicanConsortiaRemix.InvestmentisUSD471million.

2012 PPP

Transport Ports PortofRioHaina

Concessioncontractforoneofthetwoportterminalsthathandle70percentofthecountry’strade.HIT’sinvestments(TerminalHainaOriental)includedreconstructionofthepatio,docks,dredging,andinstallationofcranes.HainaInternationalTerminalistheconcessionaire.TotalinvestmentforthefourportconcessionslistedinthistableisUSD469million.

2001 PPP

Transport/Tourism

PortsPortofSanto

Domingo

Concessioncontractforrehabilitationandoperationofthestate-ownedtouristport.ConcessionairecompanyisSanCouciTourismInvestment(ITSS).TotalinvestmentforthefourportconcessionslistedinthistableisUSD469million.

2001 PPP

Transport Ports PortofCaboRojo

Concessioncontractforoperationandmaintenanceofthisindustrialportspecializedintheexportoflimestoneandbauxiteaswellasintheimportofclinker(aninputincementproduction).ConcessionaireisDominicanIdealDominicanaandColombianCementosAndinos.TotalinvestmentforthefourportconcessionslistedinthistableisUSD469million.

2001 PPP

Caribbean PPP Experience—Existing PPPs in the Caribbean

37

APPENDIX A



Dominican Republic

Transport Ports PortofManzanillo

Concessioncontractforoperationandmaintenanceofthisport,focusingontheexportofrefrigeratedcontainerscargoandtheimportofgeneralcargo(contractwasrevokedin2012).ConcessionairecompanywasCorporacionPortuariadelAtlántico.TotalinvestmentforthefourportconcessionslistedinthistableisUSD469million.

2001 PPP

Transport AirportSixstateownedairportsinthe

country

Concessioncontractformanagement,operation,maintenance,renovation,andexpansionofthesixgovernment-ownedairports:AeropuertoInternacionalLasAméricas,SantoDomingoAeropuertoInternacionalGregorioLuperón,PuertoPlataAeropuertoInternacionalPresidenteJuanBoschAeropuertoInternacionalLaIsabela,SantoDomingoNorteAeropuertoInternacionalMariaMontez,BarahonaAeropuertoArroyoBarril,Samaná.TotalinvestmentUSD350million.

1999 PPP

Electricity Generation

Variousthermalpowerplants

acrossthecountry(14projectsin

total)

Since1999,14PPPshavebeenawardedintheelectricitysector,totalingUSD2.5billioninprivateinvestment.Around2,800MWoftheelectricitygenerationcapacityintheDRisprivatelyowned.IPPssellelectricityunderlong-termPPAs.Investorsarevarious,includingHaina,Itabo,UnionFenosa,AES,MonteRio,Metaldo,andLaesa.

Since1999

PPP

Electricity DistributionEdeNorte,EdeSur,

andEdeEste

Performance-basedmanagementcontractsforthreepublicelectricitydistributioncompanies.Thecontractshaveexpiredandthepublicsectorhasregainedcontrolofthepowerdistributioncompanies.

UnknownManage-

mentcontract

Haiti

Electricity Generation E-Power

AnIPPof30MWheavyfueloil-poweredplantinPort-au-Prince,sellspowertoEdHundera15-yearPPA.InvestorsareHaitian,EastWestPower,IFC,andtheDutchDevelopmentBank(FMO).InvestmentvalueUSD56million.

2011 PPP

Electricity GenerationLaSociétéGénérale

d’EnergieS.A.(SOGENER)

AnIPPthatoperatesthreemobiledieselgenerationunitsthroughoutHaiti(VarreuxI,IIetIII)andsellstoEdHunderPPAcontracts.InvestorisVorbeGroup.InvestmentvalueUSD50-60million.

2002 PPP

Electricity GenerationHaytrac(Haitian

Tractor)

AnIPPthatoperatesmobiledieselunitsthroughoutHaiti(Petit-GoâveandLesCayes,totalinstalledcapacityof12MW)andsellstoEdHunderPPAcontracts.InvestorsareHaitian.InvestmentisUSD20-30million.

2009 PPP

Transport/Tourism

PortPierOperating

Company

ConcessionContracttobuild,finance,manage,andoperatetheLabadiepier,aprivateresortinthenorthofthecountry(closetoCapHaitien).Resortleasedtoconcessionaireuntil2050,inexchangeforaUSD6paymentpertourist.ConcessionaireisRoyalCaribbeanCruise(RCI);investmentisUSD50million.

2009 PPP

WaterProduction,distribution

NationalDirectoratefor

DrinkingWaterandSanitation

Underatechnicalandoperationalassistancecontract,theconsortiumprovidesassistancetothePort-au-Princemetropolitanregionwaterutility.TheconsortiumiscomprisedofSuezLyonnaisedesEaux,Agbar,andUnitedWater.InvestmentismorethanUSD10million.

2011Technicalassistancecontract

Water DistributionLaSociétédes

EauxdeSaint-Marc(SESAM)

Underanaffermagecontract,managementofwaterservicewasdelegatedinHaiti.Awardedin2009toSESAMafteraninternationaltenderingprocess.A15-yearcontractfortheoperation,restructuringandlong-termconsolidationprogramofthewatersector.InvestorisLYSAandinvestmentisoverUSD5million.

2009 PPP

Caribbean PPP Experience—Existing PPPs in the Caribbean (continued)

38

APPENDIX A



Jamaica

Transport Airport

SangsterInternational

AirportinMontegoBay

VancouverAirportServicesConsortiumtookoveroperationsofSangsterInternationalAirportinMontegoBayundera30-yearconcession.Airportcapacitywasdoubled,and43newretailspacescreated,suchthatrevenuesfromvaluableretailspacepartiallyoffsetthecostofexpansion.InvestmentvalueUSD180million.

2003 PPP

Transport RoadsHighway2000concession(tollroad)Phase1A

A45-kilometertolledexpresswaylinkingKingston/PortmoretoSandyBay.Developedunderadesign,build,operateandtransferPPPbetweenGoJ(representedbyNROCC)andTransjamaicanHighway(TJH),aspecialcompanyestablishedbyBouyguesTravauxPublics,aFrenchconstructioncompany,whichwasgranteda35-yearoperatingconcession.Investmentvalue$324million.ThiscontractgaveTJHtherightoffirstrefusaltofurtherplannedphasesofHighway2000.

2001 PPP

Transport RoadsNorth-South

LinkextensionofHighway2000

A68-kilometerfour-laneextensionofHighway2000underanimplementationandconcessionagreementwithJamaicaNorthSouthHighwayCompanyLtd.(JNSHC),aspecialcompanyestablishedbyChinaHarbourEngineeringandConstructionCompany(CHEC).EstimatedinvestmentvalueUSD600million.

2012 PPP


Electricity GenerationWindWattNevis

LimitedApowersupplyPPP,undera25-yearPPAtosupplyupto2.2MWtoNEVLEC.InvestorisWindWattCanadaPowerIncorporated.

2010 PPP

Water Production BEADLimitedAbulk-waterPPP,undera10-yearcontracttosupplyonemilliongallonsofbulkwaterperday.InvestorisBedrockExplorationandDevelopmentLtd.

2007 PPP

Transport Airport PrivateJetPortBuild,operate,andtransferconcessionforaUSD15millionprivatejetportattheRobertL.BradshawAirportinSaintKitts.InvestorisVeilingofMauritius.

2013 PPP

Suriname

Electricity GenerationSuralco(Suriname

AluminumCompany)

Alcoabuilta185MWhydroelectricplantin1958,andsellssurpluselectricitytothenationalgridundera75-yearPPA.InvestorisAlcoaUSA.

1958 PPP

Transport PortIntegraPort

Services(IPS)

DubaiWorldacquired60percentofSuriname’sleadingterminaloperator,IntegraPortServices(IPS).IPShasaconcessionforcontainerandbreak-bulkcargooperationsinNieuweHavenPort.InvestmentisUSD31million.

2011 PPP

Trinidad and Tobago

Electricity GenerationPowergen

(IndependentPowerProducer)

Trinidad’sstate-ownedutility(T&TEC)divesteditsgenerationassetsin1994toPowerGen,whichsuppliestheT&TECunderaPPA.T&TECremainsthemajorityshareholder,alongsideMaruEnergyofGeorgia(39%),andAmocoofTexas(10%).PowerGen’sthreegas-firedpowerstationsnowhavetotalinstalledcapacityof1386MW.

1994 PPP

Water Desalination

DesalinationCompanyofTrinidadand

Tobago(Desalcott)

Adesign,build,finance,andoperatePPPforaUSD200milliondesalinationplant,DesalcottsellsdesalinatedwatertoTrinidad’sWaterandSewageAuthority(WASA).OriginallyajointventurebetweenTrinidadiancompanyHKESL(60%)andGeneralElectric(40%),in2012HKESLpurchasedGE’sshare,makingDesalcott100%locallyownedandoperated.Afterexpansion,itisproviding50milliongallonsofwaterperday.

1999 PPP

Water Desalination SevenSeasAbuild,own,operate,transferPPPwithUS-basedSevenSeasforanewdesalinationplanttoprovide4.6milliongallonsofwaterperdaytoTrinidad’sWaterandSewageAuthority(WASA).

2013 PPP

Caribbean PPP Experience—Existing PPPs in the Caribbean

41

SECTIONTITLE

SECTION TITLE

2

ENABLING INFRASTRUCTURE INVESTMENT

PPIAF is a multi-donor trust fund that provides technical assistance to governments in developing countries to develop enabling environments and to facilitate private investment in infrastructure. Our aim is to build transformational partnerships to enable us to create a greater impact in achieving our goal.

caribbean infrastructure ppp roadmap - world bank · executive summary. 1. executive summary....

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