This article was written by Charlotte Broyd, Senior Communications Manager at CoST - Infrastructure Transparency Initiative
- The problem: Private infrastructure investment can be alluring in a crisis, but it is also risky.
- Why it matters: It can lead to greater debt, poor quality projects and public distrust.
- The solution: Ensuring transparency, participation and accountability can mitigate the risks.
Prior to the pandemic, it was estimated that a US $94 trillion investment was needed to meet global infrastructure needs by 2040, but a US $15 trillion gap remained. This gap is likely to grow as the recession continues and Public-Private Partnership (PPP) contracts and the multi-million-dollar financing agreements behind them may be adopted to fill it. Indeed, mobilising private sector capital to meet global infrastructure needs was highlighted at the G7 Summit in June 2021.
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While it is unknown exactly how much the recovery will encourage private over public investment, ensuring PPP transparency is of fundamental importance. In lessons from CoST, researched and authored by Søren Kirk Jensen, today we show how doing so in Honduras helped to see institutional reform and end a poor quality project, saving the government US $517 million.
A tempting offer in times of crisis
PPP investment was an alluring offer to Honduras at a time when its infrastructure needs had been compounded by natural disasters and political instability. In 2010 a PPP promotion law created the ‘Coalianza’ unit to oversee PPP project implementation and throughout the decade these projects encountered significant financial and other risks.
In light of this, CoST Honduras — one of the 19 members of the CoST initiative — began its journey to apply scrutiny to nine PPP projects. To do so it formed a solid relationship with the World Bank which resulted in a joint PPP Disclosure Framework which outlined the key data disclosure points to ensure sufficient transparency on the projects.
Another important tool emerged from this collaboration — SISOCS PPPs — an e-platform allowing those delivering the projects to easily disclose the required data.
The e-platform was also highly revealing in showing how limited data publication was, and given its value to the impact which follows today we have released its open-source code for its free use elsewhere.
Shining light on the key issues
Fundamental to the CoST approach is the ‘CoST assurance process’ which provides a narrative to the gaps in data publication and highlights key issues on the data which has been published. Assurance findings can then be used by various actors to deliver impact. The Honduras’ Tourist Corridor Project demonstrates a practical example of this.
Serving four sections of toll road connecting three northern provinces, the project was intended to cut travel times, improve safety and promote local business opportunities. Its results were just the opposite.
Potential revenue from the project had been grossly overestimated and a contract clause gave the project concessionaire the right to be compensated by the government for differences between the estimates and the actual revenue collection from the tolls.
Furthermore, to help finance the project, tolls were introduced before the works had been completed, a deeply unpopular move, particularly as much of the revenue was to derive from lower-income areas. Public distaste was shown most vehemently by violent protests which followed.
The CoST Honduras assurance process helped to put these and other issues in the public domain and it recommended how the project could be made economically feasible to lessen the cost to the government.
Investigative journalist increases exposure
A journalist who had been trained by CoST Honduras, Josué Quintana, used SISOCS PPPs and assurance findings to expose the issues in the mainstream media.
His report featured small business owners and drivers who highlighted the inequity of the project — for example, traders from one town on a common commercial route were taxed more than those from other towns. Police also told of increased accidents due to roadworks and traffic delays.
Simultaneously, the CoST Honduras Multi-Stakeholder Group — who comprise positions of influence from across government, civil society and the private sector — also helped to raise awareness on the issues in their respective sectors.
From project to institutional change
The combined effort of these actors helped to see recommendations were followed by the government, including to begin re-negotiating the contract. This eventually led to the project’s cancellation in 2018, saving the government the US $517 million it had been committed to pay over a 15-year period.
More broadly, heightened scrutiny on this and other projects contributed to the closure of Coalianza. This was at a time when evidence of its poor governance, such as staff being hired on suspicious grounds, was increasingly coming to light.
New impetus has also been given to PPP reforms. Last year a new specialised PPP unit backed by the IMF was set up to improve PPP management. The unit will assess the suitability of projects to use the PPP modality and provide a robust cost-benefit assessment of the projects.
The PPP option, with incentives such as no upfront payment, may be tempting in crisis. However its risks must be mitigated to ensure intended benefits are realised. Our experience shows that transparency, participation and accountability provide a solid foundation to mitigate such risk. — Charlotte Broyd
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