Soaring global interest rates are making it even harder to tempt private sector companies into infrastructure public-private partnership projects in developing countries. This is cramping the extent to which PPPs can fill some of the massive shortfalls in infrastructure financing.
Uzbekistan has massive infrastructure needs and wants to implement $30bn of PPP projects by 2030, according to Odilbek Isakov, its former deputy finance minister, who helped create the country’s PPP framework.
Isakov left government earlier this year to set up a consulting firm dedicated to helping bring infrastructure projects to fruition. The firm, Infrasia Capital, already has five PPP projects and strategic advisory mandates in Uzbekistan, which include building new hospitals and modernising irrigation pumps.
But drawing in private investors remains difficult. “There isn’t a playbook for that yet,” said Isakov. “There is a clear gap in infrastructure funds and infrastructure sponsors that focus on emerging markets.”
In attractive sectors like the Uzbek energy industry, foreign firms including Masdar, ACWA Power and TotalEnergies have been enthusiastic sponsors. But finding private sector investment in less lucrative areas is far harder.
This has become even more arduous now that investors can find higher interest rates in more established markets. “That’s a very recent phenomenon, but even when interest rates were close to zero that didn’t push those financial sponsors to emerging markets,” Isakov said.
Government capacity
The sheer number of things a developing country needs to put in place to make PPPs a reality can be daunting. The country itself — let alone the project — needs to be bankable and the PPP legislation needs to be robust and clear, Isakov said. The investors must have a degree of familiarity with the country.
“Then there’s the question of whether the government has enough capacity to embark on such a journey,” he said.
New international financial institution programmes could help catalyse private sector funding. Kosovo aims to use funds from the International Monetary Fund’s Resilience and Sustainability Trust to hold auctions for wind and solar power projects, and leverage this to attract investment into power sector PPPs.
But developing countries will also need far more support when it comes to building capacity. This is particularly important for municipalities that lack a national government’s administrative capabilities.
Infrasia is working with the Tashkent municipality, which wants to use PPPs for wastewater, cogeneration, school and road projects. “But first the municipality needs to create capacity,” said Isakov — “a dedicated project/PPP unit, hire staff and prepare a strategy, which we are helping them with.”