This sounds scary for public projects. Do you have any tips for the public and private partners in these situations?
This crisis will certainly be putting the partnership element of public-private partnerships to the test. I think communication between the parties is the most critical thing. The private partner needs to understand the demands and pressures that its public partner is under to ensure the continuity of public service delivery. At the same time, the public partner needs to understand the challenges that the private partner faces in delivering on its side.
At some point, hopefully sooner rather than later, all of these projects are going to need to work on returning to normal, and it’s going to be in everyone’s interests for the parties to emerge as unscathed as possible from all of this. We have a role to play here in getting together our network of public sector stakeholders, giving them opportunities to connect and share ideas and solutions for how to work constructively with our private-sector partners.
So what does this mean for the future of public-private partnerships? Will it be more difficult to do these types of deals?
Starting with individual projects, I think that both the public and the private partners are going to be much more conscious and cautious about building flexibility into contract arrangements. The coronavirus has highlighted in an unprecedented way the need to be agile and flexible in delivering public services. Where the private sector’s involved, it’s going to continue to have a key role to play in supporting that.
At the same time, they are going to be much more conscious and cautious about ensuring that the contracts are clear as to how the high risks and responsibilities of pandemics or other emergency situations like this are dealt with. What is reasonable and fair for the parties to expect from one another, practically and financially, in response to something like this? And then, if you think of the bigger picture, it will be interesting to see the attitudes that governments take to PPPs as a result of this crisis and the economic fallout. Here, we’re probably going to see a divergence, much as we saw in the financial crisis back in 2008. In some cases, there will be a reining back on public spending, and investment in new projects will slow down significantly.
It’s important to remember, governments have significant infrastructure spending needs, not least in climate action and commitments to zero carbon. So we also expect to see governments prioritizing infrastructure spending in some cases in order to boost economic recovery. And here the question will be whether they choose to go for private financing through PPPs or if they go for traditional government borrowing. PPPs can offer significant value for money and additional investment for government, but they are complex and they can take a long time to procure, and they also require a buoyant private sector market to ensure good competition.
Some countries have a lot of experience and a good track record in delivering PPPs, but others much less so, and so they face the additional challenge of building skills and capacity to support good PPP projects. And here there is a role for EPEC and the EIB.
There’s also the willingness of the private sector to continue participating in these arrangements, with the risks and challenges and uncertainty that they carry. And the appetite and ability of banks and other lenders to continue providing long-term financing. Another interesting player will be the insurance market and whether or not it responds to put forward solutions for the risk of future pandemics.
Taking an even bigger step back, the other thing to mention is the impact of the crisis on infrastructure planning and preparation more generally. The systems of working, traveling and connecting — for society, government and business — have been turned upside down in the last few months and some of this might never return to what it was like before. So that means governments will need to take a fresh look at their forecasts and assumptions around demand and use of public infrastructure as they plan for the future.
The bank is organizing a big package of assistance to respond to the new coronavirus. Where do you see your team playing a role in this package?
Things are certainly not slowing down for us. Our mission in EPEC is to help the public sector deliver good public-private partnerships, and we do this by sharing information, best practices and lessons learned across our European network. We advise governments on policy issues and project promoters in preparing their projects. The coronavirus crisis will not change that mission or the services that we offer. We’ll continue to do all of these things, but indeed the need for EPEC is likely to increase as we see the market navigating its way through this and into these partnerships in the future.
Read Does This Change Everything? from the European Investment Bank, the EU bank. Subscribe to the podcast on iTunes, Acast, PlayerFM and Spotify