In many developing countries, roads and highways are the dominant mode of transport. Road-based transport typically accounts for more than 80% of the distance travelled by individuals and more than 50% of the distance travelled by goods. Consequently, roads and highways form a crucial backbone to any economy by seamlessly linking up people and goods to their respective markets, which in turn improves economic efficiency and reduces poverty.
Despite the importance of a viable road network, the World Bank estimates that roughly 1 billion people in developing countries still lack access to basic all-weather roads. This lack of access is hampering both economic and social development by:
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Reducing access to employment
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Reducing access to key public services such as health and education
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Preventing businesses from accessing markets for their goods and reducing the efficiency of the supply chain of their businesses
This lack of access can be attributed to a number of factors, including:
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A failure of governments to provide adequate and stable budget flows for the construction and suitable maintenance of highways
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A failure to account for the ‘whole-life’ operating and maintenance costs of new highways in the procurement, design, and construction stage
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A lack of routine management and planning to highways maintenance activities
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Limited government capacity or resources to manage and enforce the contractual requirements and service levels of highway service providers
Public-private partnerships (PPPs) offer an alternative way for governments to improve highway access. PPPs can allow governments to mobilize private investment for road construction and maintenance and can create a formal contractual basis for better allocating risks amongst the public and private sector over the life of the highway asset. As such, PPPs have become increasingly used in the highways sector in a number of guises ranging from performance-based maintenance contracts through to large toll road concession contracts.
PPIAF has been at the forefront in supporting several developing countries in trying to develop highway PPP projects through a range of technical assistance activities. Below are some examples.
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In 2007 PPIAF helped to establish the institutional and regulatory framework for the Dakar–Diamniadio Toll Highway project on behalf of the National Agency for the Promotion of Investments. This project is one of the first major highway projects in West Africa to be structured as a PPP and reached financial close in November 2010. Once completed, the highway will provide substantial socio-economic benefits for more than 2 million Senegalese living in Dakar and surrounding cities. The Dakar–Diamniadio Highway is expected to create more than 1,435 new jobs and to cut the average commute to and from Dakar from the current two hours to less than 30 minutes. Read more about this activity in the impact story PPIAF Supports a Pioneering Transaction in Africa: The Dakar-Diamniado Toll Road in Senegal. The final report "Suivi des Contrats PPP dans le secteur du Transport" from this activity is availalbe in French.
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In 2009 PPIAF funding was used to provid transaction advice to the Government of the Philippines for the Cavite-Laguna (CALA) toll road and the funding of a PPP Viability Study in Vietnam for the Ninh Binh–Bai Vot Expressway. The Cavite-Laguna toll road is a major concession project that will significantly reduce congestion through the CALA region of the Philippines. As a result of PPIAF support, the government has been able to appoint a transaction advisor to provide a full suite of advisory services from the feasibility stage of the project through to the bidding process and financial close. The Ninh Binh–Bai Vot Expressway is a planned 220 km highway connecting a number of cities in Vietnam. Through PPIAF technical assistance, the government is exploring a variety of procurement options for delivering the project, including how to blend public and private investment for what will be a $2 billion project.
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In 2009, PPIAF launched the Toolkit for Public-Private Partnerships in Roads and Highways. This toolkit was developed to assist transport-sector policy makers in developing countries to implement procedures to promote private sector participation and investment in the development of their highway sector. The Toolkit provides guidance for public sector authorities on the definition of strategy and policy for PPPs, the characteristics of PPP projects, and the stages for project preparation. It presents concepts and methods for PPPs that allow a flexible approach to application in low- and middle-income countries, ranging from performance-based maintenance contracts to large-scale build-operate-transfer highway concessions. The Toolkit discusses the scope and modality of private participation, the design of contractual packages, and the principles and mechanisms for allocating risk among the various parties involved. It also discusses different cost recovery mechanisms and financial schemes based on the government’s budget, private financing, user contributions or a combination of all. This has proved to be a very useful resource for many governments embarking on a highway PPP program.