Rapid urbanization is placing growing demands on governments and sub-national entities in the developing world to deliver essential services to an ever-increasing number of people. Decentralization programs in many countries are forcing cities to become responsible for meeting these challenges, but city budgets alone are usually unable to do so. Many cities, regional governments, and utilities are beginning to view the private sector as a source of needed infrastructure financing and management expertise, and public-private partnerships (PPPs) as well as options for directly accessing private finance from banks or bond markets are increasingly being seen as key elements in the overall infrastructure delivery strategies of cities.
PPIAF is uniquely qualified to help municipal officials and cities respond to some of the key challenges associated with urbanization and decentralization. PPIAF helps build the capacity of government officials to prepare and enter into PPP arrangements with private partners. This work can include reforms to institutions, policies, and legal/regulatory frameworks necessary for sustainable PPPs. Through its Sub-National Technical Assistance (SNTA) program, PPIAF carries out similar work in support of sub-national entities’ access to private financing. Municipal bonds, for example, represent a powerful capital allocation tool that is used by cities in many developed countries to build and maintain urban infrastructure, but has so far been untapped in many developing countries. SNTA’s ultimate target is financial transactions involving bonds or bank loans to help utilities or municipalities access market-based finance without sovereign guarantees to tackle the urbanization problem developing countries face.
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PPIAF helps improve bus transport services in Vietnam
PPIAF funding: $250,000
Background: To cope with urbanization challenges, the Hanoi city government needed to expand its state-owned bus system through its bus operator, Transerco. This expansion was necessary to address transport demand and attract commuters who would otherwise revert to personal modes of motorized travel and contribute to street congestion and pollution. But this expansion would have meant shouldering unsustainable increases in operating subsidies.
PPIAF’s contribution: PPIAF helped Hanoi assess the potential role of the private sector in increasing the efficiency of service delivery and lessening public subsidies for the provision of bus services. A strategy was developed for the government to introduce private participation in the provision of bus services. In particular, the study determined the potential role of the private sector in providing bus services, including maintenance facilities and ticketing systems. The work also included a review of other developing countries’ experience in restructuring and involving the private sector in their respective urban bus services.
Impacts: With new bus routes rontracted ou based on the lowest subsidy requirements, the Hanoi city government realized a cumulative reduction of approximately $2.5 million in public subsidies. The new bus routes have generated an additional 1,300 private sector long-term jobs and $11 million in private investments for 218 new buses. The increased level of competition between the public and private sectors has led to improved service quality for consumers, as well as environmental benefits.