Ex S&P director cautions against PPPs for poor

Robert Bain, an independent infrastructure consultant and former credit analyst at Standard & Poor’s, says development banks have a responsibility to discourage poorer countries from embracing certain PPP programmes that are likely to prove unaffordable.

Development banks should be actively discouraging poorer countries from embracing public-private partnership (PPP) programmes that are attractive as a way of enabling much-needed infrastructure development, but which may ultimately prove unaffordable – especially when these programmes involve incentive mechanisms paid for by the state.   

This is the view of Robert Bain, a provider of investor support services to the traffic, transport and PPP sectors who spent five years as a director in the infrastructure finance ratings team at ratings agency Standard & Poor’s before setting up his own company two years ago.     

Speaking in the forthcoming July/August 2010 issue of Infrastructure Investor, Bain says: “You should look at PPPs as a procurement option – not the only game in town. So when particularly rich countries do availability- or performance-based PPPs it’s interesting because they have genuine alternatives. Poorer countries should be very cautious about jumping on the bandwagon and the development banks supporting some of these transactions need to look at affordability in the round, not just the economic case for individual projects.”
He adds: “I come across some countries paying for road PPPs that simply can’t afford them. There are countries where the financial commitments to individual PPPs approach 1 percent of GDP. That’s a huge, arguably unsustainable, commitment to a single scheme.”

Bain, whose company RBconsult specialises in technical summaries of demand study reports from a credit perspective, says the development banks are regular clients these days. In Bain’s words, they have often been the only organisations prepared to “lend and lend long” to infrastructure projects post-Crisis.

The full interview with Bain – which also includes his thought-provoking views on inaccurate toll road business plans and the questionable applicability of availability payments and other incentive mechanisms – can be found in the July/August edition of Infrastructure Investor, out soon.