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Municipal

Municipal governments provide many essential and basic infrastructure services, for example the delivery and management of solid waste, water, electricity, health, education, urban passenger transport, and street lighting services. And as the proportion of the world’s population living in urban areas continues to grow (according to the United Nations, 66 percent of the world’s population will live in urban areas by 2050 up from 54 percent in 2014 , municipalities will face increasing demand for new and improved infrastructure services.

Traditional sources of financing are often inadequate to fund local investment needs and municipal governments often lack the capacity and resources to deliver quality services alone. Engaging the private sector through public-private partnerships (PPPs) can provide part of the solution. Close to those who need services most and responding to local demand and need, PPPs in the municipal sector offer opportunities for local investors and financiers that may not be available from larger regional or national scale projects.  

Sub-sectors

  • District Heating & Cooling

    District heating and cooling is the centralised generation and distribution of heating and cooling. Depending on local circumstances, networks can be both lower carbon and cheaper for consumers than an individual heating system. A district heating network allows a large number of individual consumers to access heat that has been produced from a number of sources such as: combined heat and power (CHP), large scale heat pumps, municipal waste incineration, biomass boilers or industrial waste...

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  • Public Lighting

    Public lighting is a key service provided by public authorities at the local and municipal level. However, many public lighting networks are outdated and inefficient. For municipalities which have outdated systems, street lighting can account for as much as 30 to 50 percent of their entire power consumption.

    Modern public lighting systems have a host of benefits:

    • enhanced road traffic safety
    • improved nighttime visibility, resulting in decreased criminal activity and an improved sense of...

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  • Urban Revitalization

    Urban Revitalization refers to a set of initiatives aimed at reorganizing an existing city structure, particularly in neighborhoods in decline due to economic or social reasons. Urban revitalization initiatives generally include improving features of the urban environment, such as the quality of pavement and the functionality of the sidewalks. Depending on the intended usage of the revitalized neighborhood, the projects can also address the need for improved community engagement and...

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  • Urban Transport

    Encouraging economic growth is seen as the key driver to achieving a wide range of policy objectives, such as raising living standards and improving the well-being of citizens. However, in urban areas these gains are offset by increased car ownership and use, resulting in the often chronic levels of traffic congestion seen today. Combined with the need to ensure sustainable mobility policies for the future, policies are increasingly promoting the use of public transport and non-vehicular...

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  • Urban Water & Sanitation

    The world’s towns and cities are growing rapidly. By 2050, 70 per cent of the world’s population, some 6.4 billion people, are expected to live in towns and cities, almost doubling the current urban population. Water utilities struggle to keep pace with this rapid urbanization with urban utility water coverage in many low and middle income countries declining in recent years as they fail to keep pace with growth. Governments and utilities face the constant challenge of balancing the...

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  • Waste

    Solid waste is inextricably linked to urbanization and economic development—as countries urbanize, and standards of living increase, consumption of goods and services increase, leading to more waste. Almost 1.3 billion tons of municipal solid waste are generated globally every year, and by 2050 this is expected to double. Poorly managed waste has an enormous impact on people’s health, the environment, and often results in higher costs for governments than if the waste was managed...

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Issues

  • Credit ratings

    Municipalities often have, or are perceived to have, poor credit positions. The perception of a poor credit position may be a question of lack of information, on the counterpart and/or on the project. A formal or shadow credit rating can help...

    Municipalities often have, or are perceived to have, poor credit positions. The perception of a poor credit position may be a question of lack of information, on the counterpart and/or on the project. A formal or shadow credit rating can help improve the availability of such information, in particular for institutional investors who rely on credit ratings to make investment decisions. Where local credit rating agencies are not available, shadow or synthetic ratings can be used to provide similar information flows.

    Weak credit positions can be addressed through credit enhancement from entities with a better credit position. A local authority with a weak credit position may obtain guarantees or indemnities from central government, insurance agencies, multilateral entities or others to help enhance its credit position and thereby reduce cost of money or attract additional investors to compete for a project. 

     

  • Local finance

    Municipal PPPs may be too small or too risky to attract international finance, but it may provide an ideal opportunity for regional financiers or local currency finance. From a financial perspective, local finance in local currency provides a...

    Municipal PPPs may be too small or too risky to attract international finance, but it may provide an ideal opportunity for regional financiers or local currency finance. From a financial perspective, local finance in local currency provides a commonality of currency between revenues and finance, reducing or even eliminating foreign exchange risk, and associated hedging costs and risks. However, local currency finance often involves higher interest rates, lower debt-equity ratios, shorter tenor and less generous grace periods than global currencies.  

    To develop the capacity and familiarity necessary to encourage local financing, training and outreach can be provided to the local private sector, in particular to investors, service providers but also to the financial markets, to help them provide the investment and financing that local government PPPs will require.  

  • Central capacity support

    Municipal governments may have limited experience or capacity to implement PPPs. Central PPP units can provide advice and support to local governments implementing PPP. Through or in coordination with the central PPP unit, the government may...

    Municipal governments may have limited experience or capacity to implement PPPs. Central PPP units can provide advice and support to local governments implementing PPP. Through or in coordination with the central PPP unit, the government may wish to provide extra-budgetary funding for expert support, feasibility studies and transaction advisers for local government contracting agencies. 

  • Project pooling

    Projects can be pooled into one larger project to make them more attractive for bigger investors and to reduce the cost of transaction advisory support by combining multiple processes into one.

    • Funding: The cost of funding one large project made...

    Projects can be pooled into one larger project to make them more attractive for bigger investors and to reduce the cost of transaction advisory support by combining multiple processes into one.

    • Funding: The cost of funding one large project made up of similar pooled smaller projects should be lower than the cost of several smaller projects, as a result of risk dilution, and economies of scale in due diligence and documentation of the project. It should also attract investors that would otherwise not be interested due to project size.
    • Advice: For typical PPPs, a consortium of consultants provides transaction advice for a single project. By pooling smaller projects and using one set of advisers, a municipality may:
      • lower total cost due to economies of scale, particularly where the pool of projects is from the same or similar sub-sectors or location;
      • leverage the presence of advisers and experts in country;
      • ensure continuity between commercial terms of projects and therefore make it easier and cheaper for bidders; and
      • coordinate the sub-projects to encourage competition.

    Pooling can be a complex process, with multiple stakeholders and authorities, which may make projects complicated and vulnerable. It also may not be feasible to combine projects with multiple contracting agencies into a single contract.

     

  • Simplification

    Smaller municipal projects might benefit from streamlined approval processes and documentation. 

    • Simplified approval: PPP approval processes are usually designed for large, national PPP projects. Municipal projects may merit a simplified...

    Smaller municipal projects might benefit from streamlined approval processes and documentation. 

    • Simplified approval: PPP approval processes are usually designed for large, national PPP projects. Municipal projects may merit a simplified approval process, sufficient to ensure quality and compliance, without the complexity and high-level participation of large scale processes. Simplification may include:
      • fewer approvals and/or approvals at a lower and more accessible level of bureaucracy;
      • less documentation (e.g., less extensive studies or fewer of them);
      • lesser publication requirements (e.g., only local press); and
      • fewer procedural steps (e.g., no pre-qualification required).
    • Standardized documentation: Standard documents can make smaller projects simpler and cheaper to develop, easier for contracting agencies to implement and manage, and easier for investors and lenders to understand and ultimately fund. They can be particularly effective for projects that are similar in nature and likely to be repeated many times (such as parking facilities, public markets, bus terminals, primary schools etc). Benefits can include:
      • a reduction in perceived risk for each project over time as investors become comfortable with the model;  
      • a facilitation of approval process, since the approving authority will find it easier to review standard documents; and 
      • a simplification of project development and implementation as fewer issues are open for discussion and less effort is needed to procure the project.

    Care must be taken to avoid standardization constraining innovation: the objective is to enable replication and facilitate implementation, while allowing creativity and the flexibility to adjust to the needs of specific projects.

Resources

    • 2014
    • Inter-American Development Bank (IDB)

    Partnerships for Innovation in Access to Basic Services

    Alianzas para la Innovación en Acceso a Servicios Básicos

    This document summarizes the key findings from a case study research project carried out for the Multilateral Investment Fund (MIF) by the Innovation and Technology for Development Centre/Technical University of Madrid (itdUPM). The research took place over a twelve month period between January-December 2013 and included the development of case studies on five partnership initiatives that have adopted innovative ways of delivering basic services to the poor. The initiatives outlined cover a diverse range of services, including clean energy, ecological sanitation, health, water and solid waste management. The final selection for the case studies was based upon criteria such as geographical and thematic diversity; length of time in...

    • 2014
    • Aijaz Ahmad and Shyamala Shukla
    • World Bank Group (WBG)

    A Preliminary Review of Trends in Small-Scale Public-Private Partnerships

    Governments have focused on large national level public-private partnership (PPP) projects in key economic sectors like transport over the last two decades. However, in recent years, governments in developing countries have increasingly been looking at leveraging private financing and efficiencies through PPP in non-transport social infrastructure sectors. While water and small energy projects have been around for some time, sub-national governments at provincial and local levels have turned to PPP projects, which are relatively smaller in size, for the provision of other essential services like solid waste management, energy-efficient street-lighting, primary healthcare and diagnostic services, municipal parking, development and...

    • 2014
    • Ernst and Young, Government of India

    Compendium on Public Private Partnerships in Urban Infrastructure

    Case Studies

    Compendium on Public Private Partnerships in Urban Infrastructure – Case Studies, Ernst and Young in collaboration with the Ministry of Urban Development of the Government of India and the Confederation of Indian Industry. This study highlights some of the commendable work being done by municipalities/urban local bodies in India. It covers mainly projects in the following sectors: Water Supply & Sewerage, Solid Waste Management, and Urban Transport. The last section contains key lessons.

    • 2013
    • Government of India

    PPP Projects in Infrastructure (India)

    Compendium

    According to World Bank data on Private Participation in Infrastructure, India has been the top recipient of Private Participation in Infrastructure (PPI) activity during 2008-12. India alone accounted for almost half of the investment in new PPI projects in developing countries during 2011. A World Bank Report Secretariat for PPP & Infrastructure 4 Compendium maintained that India remained the largest market for PPI in the developing world. Information on the status of PPP projects has been compiled as on March 31, 2013 in the three categories viz. completed projects, projects under implementation and projects in the pipeline. While the completed and under implementation projects signify the scale of success of the PPP programme,...

    • 2008
    • George E. Peterson
    • PPIAF

    Unlocking Land Values to Finance Urban Infrastructure: Land-Based Financing Options for Cities

    The short version of the unlocking land values book, summarizes the highlights of this study by looking at how land-based financing of urban infrastructure is growing in importance in the developing world.

    • 2000
    • Asian Development Bank (ADB)

    Partnerships for Better Municipal Management: Asian Cities in the 21st Century

    Contemporary Approaches to Municipal Management

    This volume represents the experiences of several Asian municipal leaders and representatives of development agencies in improving governance and delivery of municipal services, particularly through partnerships with the private sector and nongovernment organizations.  

    • 2006
    • Annez, Patricia Clarke
    • World Bank Group (WBG)

    Urban infrastructure finance from private operators

    What have we learned from recent experience?

    The paper examines the role of private participation in infrastructure (PPI) in mobilizing finance for key urban services, that is, urban roads, municipal solid waste management, and water and sanitation since the early 1990s. The review indicates that for financing urban services, PPI has disappointed-playing a far less significant role than was hoped for. The author identifies good reasons-practical, political, economic and institutional-for this disappointment. Experience shows that there are a number of features that raise the risk profile of urban infrastructure for private investors. Many of the measures that could reduce the risk profile are outside the control of many cities, others unlikely to change, and yet another group of...

For legal and regulatory resources go toPPPIRC

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