A public-private partnership (PPP) is a long-term contract between a private party and a government entity for providing a public asset or service, in which the private party bears significant risk and management responsibility and remuneration is linked to performance.
Examples of PPPs include highway concessions, design-build-operate-transfer contracts for the management of hospitals, and management and operation of public assets under a performance contract.
PPPs can help overcome some of the limitations traditionally associated with the standard public provision of infrastructure and services:
- First, tight budget constraints often limit the capacity of the public sector to commit capital to long-term and risky infrastructure projects. A PPP arrangement allows the private sector to finance the construction, operations and maintenance of the infrastructure asset and be remunerated directly via user charges, indirectly via taxation or through a combination of both.
- Second, the absence of long-term contracts with clearly specified service quality standards can result in substandard work or a construction method that entails much higher operations and maintenance costs. A PPP contract is designed to account for outputs and costs over the entire life cycle of the project, potentially allowing the private sector to reduce costs while improving quality of service.
- Third, public delivery of public infrastructure programs is often affected by difficulties in identifying and prioritizing projects, poor planning and slow permitting and procurement processes. PPP projects are meant to follow international standards in procurement, with open, transparent and competitive procedures.
- Finally, the risk that political and fiscal cycles will affect the investment during the operation and maintenance stage can impair the efficiency of investments, increasing costs of infrastructure and reducing quality of service. While not immune to the political cycle, PPPs tend to introduce discipline, given the relatively large amount of resources required and the long-term commitment involved.
The IDB Group is already a major player in this arena, accounting for more than one third of the total PPP investment that multilateral development banks have made in the region.
Building on that experience, the IDB Group created a PPP coordination mechanism, which leverages the experience of both IDB Invest and the IDB to offer end-to-end services to support PPP project development. This includes the creation of a solid regulatory framework, sound financial structure and transparent bidding process.
This is one area where the synergies within the IDB Group are especially strong.
The Inter-American Development Bank works with governments to identify where PPPs could be effective, address technical, institutional and legal challenges and create the proper regulatory environment. At IDB Invest, we provide our expertise in the private sector for the structuring of bankable PPP contracts, design of tender documentation and support throughout the tender process.
We provide guidance to government agencies on how to structure arrangements that will attract private investment and spur healthy competition. We can help them properly analyze risks, design a solid PPP contract, set up a fair, transparent tendering process and determine how to make projects more inclusive and sustainable, with a greater positive impact on development. The cost of such services is covered through reimbursable grants, paid back over time by the winning bidder under terms built into the contract itself.
We believe the right PPP advisory services will:
- improve public infrastructure and services by enhancing private sector participation
- attract new, innovative investment projects
- make projects more financially sound
- increase transparency and accountability
- mobilize additional private sector financing sources
- support the development of new sectors for PPPs
- provide an opportunity to incorporate sustainability initiatives such as gender and climate measures
- strengthen social and environmental safeguards
At IDB Invest, we are uniquely positioned to support public-private partnerships.
Our in-depth knowledge of the private sector in Latin America and the Caribbean, coupled with our leadership in the PPP market, gives us a distinctive advantage to provide effective and reliable advisory services to our clients throughout the region.
Leveraging the IDB Group's expertise is also a quality that distinguishes our PPP advisory services. Our end-to-end solutions offer is built on years of successfully promoting the region's sustainable development.
Additionally, our IDB Group country representatives are a key component of our work in the region. They help coordinate both IDB and IDB Invest activities, providing us with an all-encompassing view of each country’s needs and a deep understanding of the private sector’s goals in PPPs.
With IDB Invest’s expertise in structured finance, resource mobilization and capital markets, among other areas, we can help design bankable PPPs. Ultimately, this will improve the daily lives of millions of people in the region who lack access to critical infrastructure and services.