ADB Must Increase Upstream Engagements in PPPs to Address Post-COVID Investment Gap — Independent Evaluation Report
MANILA, PHILIPPINES (28 October 2020) — The Asian Development Bank (ADB) needs to develop a strategic approach toward supporting public–private partnerships (PPPs), with focus on upstream engagements, to address the infrastructure investment gaps in its developing members, says a report released by ADB’s Independent Evaluation Department (IED) today.
PPPs are more imperative now to minimize the negative impacts of the coronavirus disease (COVID-19) pandemic on governments’ budgets, which are already under pressure.
ADB’s Support to Public–Private Partnerships, 2009–2018, assessed the institution’s effectiveness in supporting PPP activities and how best it can respond to the PPP demands in different country contexts and across key sectors. ADB approved $22.1 billion of PPP interventions during the review period, comprising $10.8 billion in public loans, $11.1 billion in private sector facilities, and $223 million in 126 technical assistance with significant PPP elements.
The evaluation report found that ADB’s support for PPPs has delivered positive developmental outcomes, mostly through targeted downstream investments. Its downstream activities, both in public and private projects, contributed to increased private sector participation in building public infrastructure. However, ADB’s upstream support for the long-term enabling environment for PPPs was not able to achieve the much-needed change to crowd in the private sector and was not well coordinated with downstream project development and financing activities. The lack of value-for-money analysis, high costs compared to benefits, high associated risk of projects, and minimal advocacy for linked sectoral and state-owned enterprise reform have undermined ADB’s contributions.
“To be fully responsive to the needs of governments or private sector, ADB needs to proactively engage with governments at an early stage of infrastructure planning for the development of local capacity to screen and select projects using cost-benefit and value-for-money analyses,” said IED Director General Marvin Taylor-Dormond. “It needs to provide a strong and concerted institutional response to address the scale and urgency of the infrastructure and social services provision gaps in Asia and the Pacific.”
According to the report, the lack of updated sector, regulatory, and policy frameworks, as well as limited institutional capacity and state-owned enterprise dominance, have slowed the pace of PPP investments among ADB’s developing members. Risk mitigation products addressing the needs of private project developers and institutional investors in ADB’s PPP projects are not sufficiently available.
“Well-designed and implemented PPPs can transfer risks from the public sector and effectively mobilize private sector-led design, construction, operational, maintenance, and financial expertise to deliver greater efficiency gains and service quality,” said IED Director Nathan Subramaniam. “Managing and appropriately pricing project risk in a way that can mobilize existing private sector capital resources is a substantive challenge, but ADB needs to expand the use, scale, and scope of its risk mitigation products and improve its monitoring and evaluation systems to achieve and track long-term beneficial outcomes through PPPs.”
ADB’s public policy-based loans have contributed to improved PPP policies and processes in Bangladesh, India, Mongolia, Nepal, and the People’s Republic of China (PRC). ADB has also delivered strong support to institutional capacity building in key markets, including the PRC, India, Indonesia, and the Philippines, developing PPP centers, supporting the development of government-led infrastructure funds, and training local government officers. However, it needs to be careful in the selection and prioritization of projects to maximize development outcomes and minimize financial strain on the governments.
The report recommends ADB to prepare a PPP directional guidance paper, strategically engage with governments at an early stage of project development, seek to expand the use and scale of available risk mitigation products, provide political risk and partial credit guarantees to facilitate private sector investment in PPP infrastructure projects, and improve its monitoring and evaluation systems for PPP transactions. The report also recommends ADB to separate its PPP Thematic Group Secretariat from the Office of Public–Private Partnership and assign the management of the Asia Pacific Project Preparation Facility (AP3F) and other key donor and institutional relationships in support of PPPs to the newly created PPP Thematic Group Secretariat to improve the coordination of ADB’s engagement with PPPs for delivering quality infrastructure outcomes.
About Independent Evaluation at ADB
ADB's Independent Evaluation, reporting to the Board of Directors through the Development Effectiveness Committee, contributes to development effectiveness by providing feedback on ADB's policies, strategies, operations, and special concerns in Asia and the Pacific.