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Thursday, 20 June 2013 08:53

G20 Civil Society Invites Business to Discuss Infrastructure Finance

Written by Lesley Wentworth

The first Civil 20 Summit was opened on June 13 in Moscow by the co-chairperson of the C20, Elena Topoleva and a welcome address from President Putin was read by Ksenia Yudaeva, Russian G20 Sherpa and Chief of Presidential Experts’ Directorate.

One of the highlights of Day One of the Summit was a panel discussion, moderated by Nancy Alexander of the Heinrich Boell Foundation (USA), described as a bridge between civil society and business on the linked issues of investment financing and infrastructure projects. Infrastructure has been a core focus of the G20’s Development Action Plan. Now, financing for investment in these infrastructure projects seems to have become the next stage in the G20 directive.

Guiding the discussion, Ms Alexander posed a key question to the speakers: Should the G20 abandon the bias towards PPPs and instead adopt a value for money (VfM) approach? VfM is defined as “what a government judges to be the optimal combination of quantity, quality, features and price…over the project’s whole lifetime.”

Clearly, the provision of basic infrastructure is viewed as the responsibility of the state. Estimates are that governments have spent around 200 times more than the private sector on infrastructure development. Various studies have found that the private sector has consistently under-invested in infrastructure. For instance, a recent ILO study was cited where the share of capital and profits for corporates between 2002 and 2007 increased by 1.5% of GDP, while corporate investment in infrastructure did not increase at all in real terms.

The private sector is intended to offer relief when states are constrained by lack of finance to provide citizens with basic access to infrastructure assets and services. PPPs are then considered as the answer to this burden governments have to bear, especially local or municipal governments with small budgets and who are unable to approach commercial banks. While the relief offered by PPPs is welcomed by governments and consumers in the short-term, these projects typically have built-in fiscal incentives, like minimum demand guarantees, which appear cheap at negotiation stage. However, these are pledges that the government agency must make good on – even when consumers protest the fees and tariffs associated with the project.

In the discussion, it was conceded that PPPs are viewed as much less transparent –largely because the complex tender procedures and diverse participants – including co-investors, government entities, guarantors, private insurers –in these projects make them extremely complicated. In reality, many of the projects undertaken as PPPs fail; however, as discussants pointed out, these “lessons from failures are extremely important” as they inform the next generation of projects. Unfortunately, these failures add significantly to the fiscal burden governments have to bear.

It was noted that project preparation is often under-estimated and that this was one of the most important stages of a project’s development. The example of the US$6 billion Western High Speed Diameter Toll-road project in St Petersburg was shared by Sergey Shatalov, of the Eurasian Development Bank. The financing contract for the construction of the toll-road was signed in April 2013 – after the project had gone through a project preparation phase of 15 years.

There is a long history of the involvement of civil society in PPP processes, with the civil movement having achieved much in getting multilateral agencies and development finance institutions to comply with social and environmental safeguards in the projects they finance, invest in or insure. As Shoujun Cui, Research Director at the Center for International Energy Strategy Studies (Renmin) University of China, pointed out that ignoring these social and environmental safeguards would inevitably result in unsustainable projects. In addition, feasibility studies were often inadequate and implementation was poor – resulting in badly-managed relocation programmes and unaffordable tariffs, and no real return on investment, amongst other things.

Evgeny Shwarts, Co-chair of Environmental Sustainability and Energy Working Group, Director, Nature Conservation, WWF Russia, Russia emphasised the importance of the social and environmental safeguards, as well as the various complaint mechanisms and compensation for affected communities. While DFIs have largely incorporated these policies in their processes, national banks should be required to do so also. There is a need for equal procedures and rules – which would be better for attracting investment and sustaining economic growth. Standards and norms are not enough; they need to be universally adopted.

Discussants agreed: In the long-run public benefits must be funded by the budget. However, there is no strong argument against public-private partnerships when an appropriate comparator has been used to determine this is the most efficient type of project – that is, there is a value for money argument. There are numerous PPP models – some of them are pro-poor. These partnerships must rely on the specialised input of civil society experts who should maintain a neutral position in serving the citizens in the infrastructure-affected environment.

Moderator: Nancy Alexander, Director, Economic Governance Program, Heinrich Boell Foundation, USA

Panelists:

  • Sergey Shatalov, Deputy Chairman of the Board, Euro-Asian Development Bank, Russia
  • Alexander Martusevich, Consultant, Project Manager, Water Programme,EAP Task Force Secretariat, Environment Directorate, OECD
  • Sean Glodek, Director, Russian Direct Investment Fund, Russia
  • Shoujun Cui, Research Director, Center for International Energy Strategy Studies, Renmin, University of China Research Unit
  • Evgeny Shwarts, Co-chair of Environmental Sustainability and Energy Working Group, Director, Nature Conservation, WWF Russia, Russia
  • Aldo Caliari, Project Director, Rethinking Bretton Woods

 

Lesley Wentworth is the programme manager with SAIIA's Economic Diplomacy Programme, who co-ordinate the GEGAfrica Project.

Visit the Civil20 2013 website for photos, presentations and more.

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