By Clive Harris
Editor's Note: Clive Harris is Manager of the Public-Private Partnerships program at the World Bank Institute. This is the first in a series of posts on PPP Days 2010, taking place March 22nd and 23rd at the headquarters of the Asian Development Bank in Manila.
The onset of the global financial crisis in the second half of 2008 raised major concerns about the ability of PPP projects in the developed and developing world to access finance. Developers—and governments—had become accustomed to relatively cheap borrowing and plentiful debt, both from banks and in some countries via the capital markets, courtesy of the monoliners. Projects saw high gearing, relatively little financing risk being absorbed by governments, and lower costs because of cheap debt.
The crisis has indeed had an impact on PPP financing, but not, as it turns out, as severe as the more pessimistic predictions. The latest numbers from the World Bank PPIAF PPI Database show that 2009 featured a strong recovery from the large declines in investment commitments seen in the second half of 2008.
The picture is of course a nuanced one, with a few countries leading the rebound and investment being driven by large projects, often in the energy sector. PPP investments in the developed world have in general held up better than had been feared at one point. And Fitch, in its Global Infrastructure and Project Finance 2010 Outlook, sees its rating outlooks in most sectors stabilizing and even in some cases improving, following two years of largely negative trends.
But financing is being achieved under very different conditions, with greater risks being absorbed by government, greater levels of support from government or public sector financial institutions, and with considerably increased costs of debt. The UK government took the step of establishing a government infrastructure financing facility in March 2009 to provide, under clear rules, a lender-of-last-resort facility for PPPs. Whilst this facility has made only one loan so far, perhaps reflecting some recovery in the market, the Private Finance Initiative finance market remains fragile, and margins and other lending terms remain unattractive. In Australia, state governments have resorted to offering syndication guarantees to achieve financial closure, and have routinely accepted market disruption risk on financing.
While there seems to be some improvement in financing—and in some countries a shift in risk allocation back to the private sector—the favorable financing conditions prevailing before the crisis are not expected to return soon. Whilst this varies by country, the higher levels of government support embodied in many of the projects raise policy issues, in particular whether or not these continue to represent value-for-money.
On March 22nd and 23rd, the World Bank Institute and development partners are convening PPP Days 2010 at ADB headquarters in Manila. This event will bring together the heads of PPP agencies from across the globe in a unique event, many of whom have already been conversing through video dialogues, such as one last week on PPPs in Eastern Europe and the Mediterranean.
The last PPP Days were held at the height of the crisis, in December 2008, and discussions reflected the prevailing serious concerns that programs would be heavily impacted by liquidity shortages and the disappearance of the monoliners. This year’s PPP Days will feature retrospectives on the impact of the crisis, including assessments of government responses and will examine what the “new normal” for PPP financing might be. The World Bank team attending PPP Days will be blogging regularly, so stay tuned for our take on the most interesting parts of the discussions.