Public-private partnership vital for urban renewal

As history's most massive urban migration happens, civic officials need to take expertise of private sector to ensure infrastructure keeps up

Image: Nicolas Lannuzel – CC BY-SA 2.0

Between 1980 and 2010, the combined population of cities in Asia Pacific grew by more than one billion, and a billion more people will be added again by 2040.

One of the greatest challenges facing governments is upgrading urban infrastructure to meet this demand.

The quality of urban infrastructure is an important factor in determining whether cities can continue to attract and retain investment. However, most urban bodies in developing nations do not have either the expertise or the financial capital to be able to build out top quality infrastructure, particularly urban transportation systems.

Public-private partnerships

The best way forward is to devise robust public-private partnerships (PPPs) for urban development. The private sector has skin in the game for both urban and economic development, being a major contributor to national income and the principal job creator and employer.

The UITP (International Association of Public Transport) notes that an increasing number of cities and regions are considering the private sector to address the need for revamping transport infrastructure.

Talking to GovInsider, Mohamed Mezghani, Secretary General of the International Association of Public Transportation, notes that there are two key elements: first that the participation of the private sector in urban infrastructure projects is not new. Second, that there are important differences between outsourcing elements of a project, projects that are fully privatised and the sharing of risks between partners, which is the essence of public-private partnership.

"No matter what is the type of participation from private partners, it has shown benefits - notably in the definition or provision of projects, development of innovative and efficient approaches, access to capital, identification, allocation, assignation of risks, as well as the capacity to absorb, manage and estimate the cost as a risk premium," Mezghani notes.

Managing costs

 

Getting a PPP system working is easier said than done. It requires a lot of planning.

Talking about his city's experience, Sandiaga Uno, Vice Governor, Jakarta City Government, notes that one of the biggest challenges is finding alternative financing for urban infrastructure. The Indonesian capital is planning rapid expansion of its public transport infrastructure over the next four years, including new MRT and LRT lines, feeders to integrate the various systems and introducing electronic fare payments.

"The nature of public transportation is that almost 60-80% is sunk-cost and we can say that it is the Government's responsibility to provide the system," Sandiaga says.

"However, we would like to use the opportunity to engage the private sector to provide help to build a new public transportation system. We are trying to utilise the PPP scheme as much as possible at this stage," he adds.

The Jakarta Government has established the Jakarta PPP Centre where they have listed some possible PPP-based projects and are looking to partner with relevant stakeholders.

Sandiaga adds that land availability is an issue due to the sky-rocketing land prices today. "To build infrastructure, we need to spend a lot for land acquisition and processes associated with it," he adds.

Turnkey advantage

French transportation systems builder Alstom's Jean François Blanc, believes that turnkey projects between the private sector and the government offer several benefits.

"The first one is that versus lot-by-lot (project awarding), you've got one contractor, one integrator so the cost and effort to manage the project is lower. And you've got somebody that is committing on design and performance - committing on performance, committing on costs and committing on on-time delivery of the project. It's a full package," Blanc, who is Alstom's Solutions Director for Tramway Systems, notes.

He adds that turnkey projects also ensure a committed cost and a committed price, with a fixed scope. "So there is no surprise in budgeting for the project as opposed to building out infrastructure lot-by-lot, where there could be some deviation," he adds.

Alstom offers an approach where as a contractor for electromechanical and technical equipment it partners a civil works contractor to deliver a turnkey urban transport system - be it a metro line or a tramway line. However, the responsibility for giving access to the site and deviating the existing networks will still lie with the municipal authorities, and can remain a challenge on any project.

After the requirements of the customer are understood, Alstom designs the system to a technical specification, using different types of equipment that the company has in-house or, if required, can source for other partners, Blanc says.

"Once we've designed the infrastructure, we build it with our partners, test and commission the system and then deliver it to transport people from point A to point B, and verify that we have abided by the performance requirements that we were given at the beginning," he adds.

UITP's Mezghani agrees that turnkey contracts are the best way for governments to engage the private sector. "One element we have noticed, while working on a recent UITP study, is that the most efficient approach is when they (the build contracts) fall under a single contract, with a need for KPIs (key performance indicators) to be interconnected and include all the operations and maintenance activities," he adds.

In order to make the right pick for a long term partnership, it is crucial for governments to ensure that they are well aware of the type of project they want, according to their current and future needs, says Mezghani.

"Assessments and due diligence must be carried out, particularly when it comes to the value for money, to establish the most appropriate form of procurement. The project must be based on a robust business case and the planning has to be rigorous, which means that it should combine technical expertise with political sensitivity, predictability, and it should count on the engagement of all the stakeholders," he adds.

This article was produced in partnership with Alstom.