Speech by Ashok Lavasa, ADB Vice President for Private Sector Operations and Public–Private Partnerships, at the DFI Fragility Forum, 4 May 2022.
Good morning to all of you!
We all understand the several challenges for private sector investment in fragile and conflict affected situations (FCAS) countries.
Recognising these challenges, ADB has designed a development approach that encourages private sector investment but at the same time recognises and incorporates the challenges of these countries. This development approach is contained in an ADB paper released in June 2021 – the Fragile and Conflict-Affected Situations and Small Island Developing States approach, or FSA, and is based on a concept of specific tailored approaches, built on flexibility, and driven by innovation.
One key vehicle supporting sustainable development and private sector investment in the Pacific is the ADB’s Asia Pacific Project Preparation Facility or AP3F. Established in 2016, AP3F assists our client governments in preparing and delivering commercially feasible infrastructure projects to the market through the adoption of PPP modalities. Funded by three donors (Japan, Canada, and Australia), AP3F’s point of differentiation is that it can assist developing member countries at each and every stage of PPP development cycle, from the advocacy of PPP to capacity building, policy and institutional reforms, pipeline development and screening, and to the project preparation and award of contract.
Dismantling barriers to private sector investment in FCAS countries by MDBs relies on three key pillars.
- Firstly, adopting flexible business processes which improve responsiveness in fragile contexts.
- Secondly, developing a strong enabling environment with a key focus on upstream capacity development; and
- And thirdly, implementing innovative financing solutions.
Embracing these three pillars includes focusing on upstream activities such as facilitating the removal of structural barriers which inhibit private sector development. Developing sound legislative and regulatory frameworks and facilitating government institutional and organisational reform will lead to confidence for the private sector.
Building on this, a focus on enhancing an enabling environment can play a key role. For example, AP3F has supported upstream activities by establishing a PPP Centre in the Solomon Islands, by capacity building for a PPP Program in Samoa and is currently involved with the establishment of a PPP Centre in Papua New Guinea. Through these activities, ADB has provided training on PPP policies and procedures focusing on international best practices; advised on how best to conduct project selection, review, and assessment; and helped develop protocols to specify appropriate design options for potential PPPs.
Providing specialist knowledge and support is also essential to encouraging pioneer private sector investment projects. In Palau for example, AP3F funded the project preparation activities and tender support for Palau Public Utilities Corporation Solar PV project. The project, Palau’s first utility-scale solar farm and one of the largest solar PPPs in the Pacific, will supply up to 20% of Palau’s energy needs (with scope to increase to 45% with future expansion). The first phase of the project will save an estimated 15,310 tons of greenhouse gas emissions every year.
AP3F has also encouraged stakeholders to focus on complete infrastructure development solutions rather than concentrating on projects as borrowing/ lending activities alone. For the financing of projects, this has required innovative financing solutions such as the use of credit enhancement, or lending to non-sovereign infrastructure and service suppliers. This in turn supports creative solutions which mitigate the political and/or financial risks.
On providing downstream support, ADB has created tailored programs and initiatives which focus on supporting private sector investment in our FCAS developing member countries. One such program is ADB’s Pacific Renewable Energy Program. The Pacific Renewable Energy Program was designed by ADB to support power utilities in the Pacific by supporting their offtake obligations from independent power projects (IPPs) where a government guarantee to support those offtake obligations is not available. The support comes from donor backed letters of credit covering up to 21 months power payments. The program was approved in April 2019 and a 6MW solar power project in Tonga is the pilot project under the Program. Construction is completed and this is the largest private sector solar power project in the Pacific developing member countries.
Finally, AP3F understand the importance of market intelligence and supportive interventions, to leverage government and stakeholders’ involvement, from the outset and throughout the project.
It is not without its challenges, but private sector development is more likely to occur if the upstream capability and capacity is sound, and then pursued through consistent and proactive collaboration and consultation. A prime example of this is the solid waste management project in Timor-Leste’s capital, Dili, where ADB provided assistance in the tender strategy, introduced output-based PPP contracts and KPIs for the private sector, and is now providing project monitoring assistance in managing the implementation of the contracts.
Rather than a ‘one size fits all’ approach, success lies on a tailored and innovative approach which focuses on infrastructure development solutions. The vulnerabilities of these Fragile States will remain a challenge and based on ADBs experience, a differentiated approach will drive success.