Funding Infrastructure Gaps

[dropcap]P[/dropcap]ublic infrastructure has long been viewed as a risky investment but 2019 brings new, potentially lucrative opportunities across the region. Resilient building has been a hot topic in the Caribbean of late as damage from natural disasters highlighted infrastructure gaps across the region. For too long, governments have largely ignored infrastructure needs, preferring to invest in shorter-term projects either for electoral gain or simply to address more pressing issues.

And it’s understandable — public infrastructure is widely regarded as a massive drain on the public purse and funding such large-scale work can be difficult. This is where the private sector can play a role. Public Private Partnerships (PPPs) have been under-utilised in the Caribbean but have huge potential to deliver resilient, sustainable infrastructure that doesn’t stretch the government coffers.

According to Jorge Familiar, World Bank Vice President for Latin America and the Caribbean: “Combining public and private capital and taking advantage of the efficiency and innovation of the private sector can make a huge difference. When well designed, PPPs bring greater efficiency and sustainability to public services. As the region emerges from six years of economic slowdown, PPPs can help it boost infrastructure investments and strengthen the momentum for growth.”

Under-used

Head of Public Private Partnerships for the Caribbean Development Bank, S. Brian Samuel believes that the region is playing catch-up when it comes to realising PPP potential. Speaking on a panel for the Caribbean Infrastructure Finance Forum, held earlier this month, he said: “Sometimes the Caribbean is a little bit late in adopting international trends and this is one of them. In the region we are good at paying lip service to PPPs but when it comes to actually doing them, we need some help.”

There are many factors to explain why the Caribbean has not embraced PPPs but chief among them is concerns of corruption. A lack of transparency translates into a lack of competition as preferred bidders are permitted or encouraged to jump the queue. Procurement processes are often ad-hoc, inconsistently implemented or simply for show. In areas where this is a longstanding problem, highly-skilled contractors are dissuaded from even entering the bidding process — lowering the standard of providers and, ultimately, the completed work.

The Caribbean Development Bank has moved to address this issue as interest in PPPs grows. “We are seeing the trend of PPP projects coming up; the challenge now is to get those projects implemented and developed in a transparent manner,” said Samuel.

Areas of opportunity

One of the most potentially profitable areas for infrastructure investment is the energy sector. With the Caribbean becoming ever more aware of the need to cut pollution, promote renewables and lower the cost of electricity, this is a growth industry that is set to benefit from cutting-edge technologies. As the region moves to cut its diesel dependency, opportunities are emerging in solar, wind and geothermal energy.

Another area of environmental concern that could offer opportunities is waste management. Waste to energy initiatives, recycling projects and waste disposal efforts are gaining interest as governments realise that waste disposal requires a viable, long-term, sustainable strategy. Trinidad is currently working on a solid waste PPP while Bermuda is considering a PPP mechanism for its wastewater treatment.

Private sector investors should also consider transportation infrastructure. Many countries in the region have adopted the PPP framework to upgrade highways, airports and sea terminals. The increasing intensity of hurricanes, flooding and tropical storms has necessitated an upgrade of these facilities and this is an area where the private sector can step in.

When it comes to disaster recovery, coastal protection infrastructure projects are paramount and global groups such as the International Monetary Fund are urging the Caribbean to focus on this area in the near future.

Attracting investment

The opportunities are there, but is there interest? Samuel believes so, but the project itself must be well-defined and well thought out. “There is actually more money than projects. If you have a strong project, with a strong sponsor, well-structured and viable, you will get financing for it. Many projects tend to get rushed. You are going to the market with half-baked projects, which are not bankable and you are going to have challenges.”

In assessing projects, private partners prioritise security and return. Many PPPs fail to launch because they cannot deliver on either. A strong PPP sector in the Caribbean is dependent upon a strong institutional and regulatory framework within which these projects can be developed, executed, monitored and managed. According to a 2017 report by the World Bank, 19 countries in Latin America and the Caribbean have PPP legislation and 17 have dedicated PPP units. The ideal enabling environment for PPP success requires structured procurement processes, bankable contracts that share risk among the parties, and a means of robust oversight during project delivery.

In recent years, Saint Lucia has been positioning itself as a PPP-friendly destination. In 2015, as it sought a private partner for the redevelopment of Hewanorra International Airport, the government adopted a PPP framework for the country with assistance from the World Bank. The policy’s objectives are to provide value for money, prioritise fiscal responsibility, ensure transparency, assess environmental impacts of PPP projects and promote partnership and inclusivity.

But putting a strong foundation in place is only the first step. According to Samuel, small island governments such as Saint Lucia’s need to be more proactive in selling themselves to potential partners. Putting the right framework and policies in place is key, but then governments should identify their needs and locate the right partner in the international marketplace — whether through trade shows, government delegations, conferences or simply online connections. “You have to use all kinds of different platforms. There is somebody out there for you.”