The impact risks of the COVID-19 pandemic on the global infrastructure gap was discussed at length during which the following insightful statement was made - “COVID-19 has no time limit, no country limit, and no financial limit.” In other words, it is a global challenge that is here to stay for at least the next few years.
This candid assessment focusses attention on the necessity of governments adopting global economic recovery strategies and partnerships with the private sector that strengthen infrastructure delivery and which contributes to economic recovery. It is also imperative that adopted recovery strategies include the collaborative participation and input of private sector stakeholders who are committed to formal infrastructure delivery partnerships such as public-private partnerships (PPPs). Recovery strategies also need to address not just immediate concerns but also address “future proofing” if long term recovery is going to succeed.
The COVID-19 pandemic has brought about the realizations that PPP survival and recovery strategies will require a paradigm shift where risks are appropriately shared and allocated between project partners vis-à-vis unforeseeable future adverse events.
This will require, in the short term, a proactive and flexible infrastructure delivery approach which embraces innovative and incentivized recovery solutions. Force majeure and relief event contractual provisions will need to be revisited. It is time for selfless decisions where all stakeholders embrace win-win strategies wherever and whenever possible.
In the long term we need to refocus on what types of projects will deliver recovery and on reasonable timelines in a world that is facing great economic distress. Clear strategy benchmarks must be adopted that address newly identified risks and which promote investor interest. Without this occurring, it will be difficult for governments to attract investors to the national PPP markets, especially if neighbors offer better terms and opportunities.
It is recommended that:
- Governments revisit their PPP sector priorities once the scale of impacts on existing PPPs is ascertained. This might require a total revision of program visions, plans, and strategies in terms of national development goals (medium- and long-term action and goal)
- Planning should explore innovatively how PPPs can become mechanisms of Post-COVID-19 recovery
- Lessons learned from the current pandemic should be applied to future pandemic mitigation planning and contract terms, especially in terms of force majeure and relief event contract clauses and their potential punitive impacts on project sustainability and resilience
- National PPP project pipelines need to be revisited so that the private sector can reposition itself during an economic recovery period to be proficient partners in future PPPs
- A comprehensive and inclusive consultation with all stakeholders is needed to ensure that future pandemic planning continues to address the needs of all project users and partners
- It would also be prudent to review and adjust project selection criteria in regards to pandemic effects on value for money, bankability, and future viability assessments
For projects already underway, project companies will need to:
- immediately explore the impacts of and possible mitigations for labor shortages and supply chain breakdowns
- revisit construction timelines to determine impacts to project delivery and the subsequent extended servicing of debt
- identify and mitigate the greater societal ripple impacts of delayed construction on PPP projects
- explore the recovery steps that need to be undertaken to relaunch construction and protect sites during the downtime caused by the pandemic in partnership with their public sector partners
Debt relief and financing costs should be addressed innovatively through debt holidays, extended credit lines, and project refinancing. It will also be critically important to prevent investors and debtors from panicking and exercising contract terms that could endanger the project’s survival. Governments might have to continue making availability payments in dormant projects and address project bankability concerns vis-à-vis project insurability of projects in a COVID-19 economic world.
For completed projects, every effort should be made to ensure that even though projects are dormant, efforts are made by public and private sector parties to ensure that operational readiness is maintained for when user demand picks up again.
It is impossible to develop an exhaustive list of actions that should be undertaken. Nevertheless, every effort should be made to create a trust driven recovery environment that is project partner friendly. This includes mitigating impacts on PPP projects as soon as they become evident without fear of retribution. Furthermore, at no time should project decision-making occur in a vacuum as this could potentially perpetuate project problems and slow down recovery.
All parties must understand that long-term recovery will most certainly depend on proactive actions that are taken now and over the next few months and that there is no time for hesitation. On a positive note, the pandemic will most certainly offer new opportunities for innovators as the PPP market recalibrates. It is almost certain that PPPs are going to become more important as a recovery tool as we innovate our way into the Post-COVID-19 world. These partnerships will be needed as this will allow the limited resources of both the public and private sectors to be leveraged as a mechanism to address the infrastructure funding gap.
David Baxter is an independent PPP consultant who has advised organizations such as the World Bank, USAID, and the Islamic Development Bank. He is also a senior advisor to the International Sustainable Resilience Center (affiliated with the UNECE PPP Center of Excellence) and a steering committee member of the World Association of PPP Units and Professionals (WAPPP).
For more information on how Gallagher can help support and manage the inherent risks and exposures found in Public-Private Partnerships projects, please get in touch.
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. The opinions and views expressed in the above articles are those of the contributors only. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at [INSERT DATE], but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this note nor determine not to act, without first seeking specific legal and/or specialist advice. No third party to whom this is passed can rely on it. The authors, our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher.
* https://www.ipfa.org/documents/gi-forum-webinar-od-building-a-better-future/
