Not infrequently, we hear news of long delays and budget overruns in delivering publicly funded projects, not to mention failures of PPP projects. Of course, no news tends to be good news; many important infrastructure assets are successful (and unreported). However, when we see problematic projects in the news, we can’t help but wonder what went wrong.
Of course, infrastructure development is complex, and many factors impact its implementation. Circumstances are even more likely to change during the long-term operation of PPPs. One common factor that appears in many discussions regarding underperforming infrastructure projects (whether PPP or not) is the lack of proper due diligence during the preparation stage of the project. Among the most prevalent sticking points are: demand, cost and time misestimations, misallocation of risks among parties, and having to face difficulties that could have been foreseen and mitigated.
All these factors need to be assessed carefully by public authorities before fully committing to any given infrastructure asset. This is critical for projects undertaken as PPPs, as they imply long-term commitments from many stakeholders, but equally relevant for public investment projects where governments commit a large amount of public resources.
The basic principles governing the project’s development and future relationship between parties are established at a very early stage. Here, public authorities identify, select, and prioritize potential projects that are aligned with integrated infrastructure plans and strategies. From these, they should gauge their viability and the most adequate delivery mechanism through rigorous assessments in order to make informed decisions. While this is not a full guarantee of success, sufficient due diligence acts as a sound basis for the next steps in the project lifecycle—and allows mitigation strategies to better face unforeseen circumstances that the project may see.
The World Bank looks at how well public authorities are doing at this critical stage via its Benchmarking Infrastructure Development 2020 initiative that assesses the quality of regulatory frameworks worldwide to develop large infrastructure projects, comparing them with internationally recognized good practices. Among the areas we look into are precisely the steps governments take to properly prepare infrastructure projects.
We started this initiative focusing on PPPs, but our latest edition also expanded to cover the assessment of conventionally procured infrastructure. This newly available dataset offers a great opportunity to uncover areas for improvement of existing regulatory frameworks, particularly in order to embed adequate infrastructure project preparation.
What did we find? According to our data, project preparation is the area with most room for improvement across all regions and income groups—but particularly for low-income economies (see figures). Fortunately, in the case of PPPs where we had historical data, we noticed this also is the area where more countries are adopting reforms that move in the right direction. That’s the good news.
A more nuanced look shows that adopted reforms usually focused on already widely established good practices, with room for additional improvement in many aspects. For example, market sounding—despite its importance to establish whether there is enough private sector appetite and capacity for a given project—is still rare. In our data regarding traditional public investment, we also assessed more broadly the infrastructure planning process, identifying many areas for enhancing prioritization and budgetary processes. Our data highlights in particular the need to pay more and earlier attention to the choice between delivery mechanisms (that is, PPPs vs. conventional procurement) to ensure that the selected delivery mechanism is fit for purpose.
Our report provides a few more insights on this and the other areas covered by the initiative, but even there we could barely scratch the surface. The dataset is much more granular: issues covered in detail for the preparation stage go from whether the Ministry of Finance has a gate-keeping role to control the fiscal sustainability of PPPs, to whether standardized contracts and project documents have been developed, and including the all-important issue of proper project feasibility assessment.
For each of these issues and more our dataset, fully available on our interactive website, helps both identify them as potential areas for improvement in a particular country and uncover the approach that more mature markets have taken to tackle those issues. We even note the specific provisions adopted, enabling true peer learning across countries.
The information is there, at governments’ fingertips. Now, how can we do better?