Public-private partnerships: evaluation of ADB's performance in infrastructure

Published on: 28/10/2009

There are, however, areas for improvements for both, public sector and ADB's Private Sector Operations Department (PSOD) operations, as implied by lower performance ratings in some specific areas and sectors.

For the water sector, the report recommends the PPP modalities that improve systems performance should be promoted. This means that the ADB should promote performance-based management contracts and affermages/leases, at least as strongly as the build-operate-transfer (BOT) type interventions. Decisions should be guided by the overall objective of minimizing investment and operating costs of the entire system and need to be sensitive to local political conditions and aspirations. Attracting private capital rather than achieving gains in technical, managerial, and allocative efficiencies is often wrongly perceived as the primary purpose of PPPs.

Since the 1990s, there is an increased use of PPP schemes that involve fiscal support to facilitate private sector participation (PSP) in water projects, which have had problems attracting private investment due to difficulties associated with predicting demand and charging cost-reflective tariffs.

ADB has implemented PPP in the water sector in many countries, including Bangladesh, India, Nepal, Pakistan, and Sri Lanka in South Asia, and in Cambodia, China, Indonesia, and the Philippines in East Asia. ADB's support has included technical assistance and policy dialogue for sector reforms and commercialisation of water utilities.

The report notes that two-thirds of approved PSOD water transactions had to be cancelled due to disputes between project promoters and authorities, limitations of the BOT modality, and unresolved tariff issues. This highlights PSOD's particular difficulties in identifying viable transactions in this sector despite numerous attempts to become more engaged.

Opposition to change and fear of consequences (job losses, higher tariffs, loss of political control) and resistance by non-governmental organisations (NGOs) opposed to private sector entry have thwarted many attempts to introduce PPP, particularly in the water sector. The development of PPPs was also derailed in several countries, e.g., Indonesia, Nepal, and Sri Lanka, due to changes in (local) government commitment. Sustained political will and support of key stakeholders is therefore seen as the ultimate determinant of PPP success.

Feig, H. and Finlayson, B. (2009). ADB assistance for public-private partnerships in infrastructure development : potential for more success : evaluation study. Manila, The Philippines, Asian Development Bank. ix, 65 p. : fig., tab. 15 ref.
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