Presentation by Ian Hawkesworth at the 7th annual meeting of the MENA Senior Budget Officials held on 10-11 December 2014. Find more information at http://www.oecd.org/gov/budgeting

1. TOWARDS AN INTEGRATED
GOVERNANCE FRAMEWORK FOR
INFRASTRUCTURE – BUILDING
ON PPP LESSONS
Ian HAWKESWORTH
Head, PPP and Capital Budgeting
Budgeting and Public Expenditures Division
Public Governance and Territorial Development
Directorate, OECD
7th OECD-MENA Senior Budget Officials Meeting
Abu-Dhabi, UAE, 10-11 December 2014

2. 1. There is a need for infrastructure.
2. We need to make sure that it is affordable and
Value for Money.
3. Infrastructure investments can be tricky.
4. PPP governance frameworks have taught us lessons
we can build on.
5. There are many additional infrastructure delivery
options we should consider.
6. An analytical and pragmatic framework can help
deliver more value from infrastructure investment.
2
Agenda

3. THERE IS A NEED FOR
INFRASTRUCTURE
3

4. Infrastructure and competitiveness go
hand-in-hand…
Figure 1. Competitiveness and quality of overall infrastructure
Source: World Economic Forum 4

5. Government investment as a share of total government expenditures
…but declining investment has been
observed
Source: OECD (2013), Government at a Glance 2013
0
5
10
15
20
25
Korea
Poland
Mexico
Estonia
Australia
Canada
Luxembourg
CzechRepublic
Japan
Norway
Slovenia
NewZealand
Switzerland
Netherlands
Turkey
OECD
Sweden
Spain
Hungary
SlovakRepublic
France
UnitedStates
Ireland
Portugal
Finland
UnitedKingdom
Israel
Italy
Iceland
Denmark
Germany
Belgium
Greece
Austria
RussianFederation
% 2011 2009 2001
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6. And global infrastructure needs are
increasing
Source: Standard and Poor’s; Burnett Robin (2014), “Global Infrastructure: How to Fill A $500 Billion Hole”,
Presentation at the OECD’s 7th Annual Meeting of Senior PPP Officials, Paris, February 17 2014 6

7. WE NEED TO MAKE SURE
THAT INFRASTRUCTURE
IS AFFORDABLE AND
VALUE FOR MONEY
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8. • Make the most efficient use possible of limited
financial resources
• Focus on the areas of greatest need for society
• Choose the optimal mode of delivery and
governance framework
• Make effective use of private sector participation
when appropriate
• Ensure that projects are delivered and operated as
efficiently as possible over their lifetime
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i.e. It is the responsibility of decision
makers to …

9. INFRASTRUCTURE
INVESTMENTS CAN BE
TRICKY
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10. • are a capacity challenge for governments, including the
ability to identify, plan, procure and manage such projects.
• contain risks and uncertainty that can be difficult to
identify, measure and manage.
• may be subject to optimism bias from the concerned
stakeholders undermining VfM and affordability.
• May be vulnerable to waste, corruption and other dangers.
• can be politically controversial and good projects may be
derailed by a lack of consensus.
• Reach across jurisdictions so that coordination across
levels of government and within government is
necessary, but can be difficult.
• Some projects may be implemented for the wrong reasons
such as off budget treatment of PPPs.
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Experience shows that infrastructure
projects …

11. PPP GOVERNANCE
FRAMEWORKS HAVE
TAUGHT US LESSONS WE
CAN BUILD ON
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12. How do PPPs perform relative to traditional infrastructure procurement?
PPPs can be an infrastructure solution
because …
Better than
TIPs
The same as
TIPs
Worse than
TIPs
Not enough
data
Timeliness e.g. being completed
on-time/according to projected
deadline
14 1 0 2
Construction cost e.g. projects
completed on or under expected
budget
12 2 0 3
Operating cost e.g. projects
operate on or under expected
budget
7 3 1 5
Quality of the finished project e.g.
projects comply with code,
innovations, etc.
10 3 0 4
Transaction costs 4 1 7 4 12
PPPs outperform TIP on timeliness, construction cost and
quality but transaction costs are higher.
Source: OECD (2013)

13. But PPPs are only part of the answer …
Source: P. Burger & I. Hawkesworth. ‘Capital Budgeting and Procurement Practices’. OECD (2013)
For the 2011 fiscal year, what percentage of public sector
infrastructure investment flow (total asset value, public and private
components included) took place through PPPs?
Australia >10% - 15% Korea >5% - 10%
Austria No PPPs Luxembourg >5% - 10%
Canada >1% - 3% Mexico >15%
Czech
Republic >0% - 1%
New Zealand >1% - 3%
Norway >3% - 5%
Estonia No PPPs South Africa >3% - 5%
Finland >10% - 15% Spain >3% - 5%
Germany >3% - 5% Sweden No PPPs
Hungary No PPPs Switzerland No PPPs
Italy >1% - 3% UK 15%
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14. The 2012 OECD Principles for Public
Governance of PPPs
• 12 Principles, three overarching headlines:
1. Set up a strong Institutional framework
2. Maximise value for money
3. Integrate PPPs into the budgetary process to
ensure affordability
You need a good governance
framework to ensure VfM & affordability
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15. THERE ARE MANY
INFRASTRUCTURE
DELIVERY OPTIONS WE
SHOULD CONSIDER
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16. There are many infrastructure delivery
options – but which one is most appropriate?
Traditional
Public
Procurement
Direct
Provision
SOE’s
PPPs
Regulated
Privatisation
Full
Privatisation
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17. AN ANALYTICAL AND
PRAGMATIC FRAMEWORK
CAN HELP DELIVER MORE
VALUE FROM
INFRASTRUCTURE
INVESTMENT
17

18. An Integrated Framework for the
Governance of Infrastructure
• Starts from the premise that the careful scrutiny we are
subjecting PPPs to could be used for all infrastructure
delivery choices.
• Designed to identifyways to optimise infrastructure
investment decisions
– Insufficient attention given to choice of delivery mode – often driven by
expediency and habit
– Decisions relating to mode of delivery should be based on objective criteria
and consider the full range of available options
• An integrated three-tier framework for infrastructuredelivery
and related governance arrangements
• Sectoral criteria
• Country criteria
• Project criteria
• A work in Progress
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19. The Integrated Framework
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Sector characteristics
Optimal sector approach
Country circumstances
Fit-for-purpose
sector approach
Private firms make
investment decisions
SOE makes investment
decision
Government makes
investment decisions
Privatisation Corporatisation
Project characteristics
PPPsTraditional
procurement
Infrastructure planning & Sector
strategy
Project planning

20. Develop a strategy based on …
Sectoral objectives, including
• Improving quality of services
• Improving access to infrastructure
• Improving efficiency
• Reducing the need for government subsidies
• Promoting innovation
• Speed of delivery
Sectoral characteristics, including
• Extent of Market Failures
• Potential for competition
• Non-excludability
• Network effects
• Equity Considerations
• Environmental, land Issues
• National Security
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21. Develop a strategy based on …
Country circumstances:
• Political Economy (distribution of resources within an
economy)
• Institutions (e.g. rule of law, enabling legislation, dispute
resolution mechanisms)
• Government capacities (implementation)
• Private Sector Capacities (e.g. skills, competitive environment,
credible threat of entry, level playing field, national treatment)
• Openness to Foreign Investment (the extent of limitations and
obstacles to FDI in infrastructure )
• …
21

22. The Integrated Framework
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Sector characteristics
Optimal sector approach
Country circumstances
Fit-for-purpose
sector approach
Private firms make
investment decisions
SOE makes investment
decision
Government makes
investment decisions
Privatisation Corporatisation
Project characteristics
PPPsTraditional
procurement
Infrastructure planning & Sector
strategy
Project planning

23. Choose a Delivery Mode based on …
• Size and Profile of Investment (big ticket item, long
term/short term, bundling synergies)
• Revenue Sources (budget, users, both, land value
capture)
• Extent to which output and quality is “contractable”
(defined, measured, monitored)
• Level of Uncertainty (Economy, Demand, Technology
– high uncertainty )
• Identify, price and allocation of Risk
• …
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24. OECD Relevant Policy Guidelines
• Direct Provision
– OECD Principlesfor Budgetary Governance
• TraditionalProcurement
– OECD Principlesfor Integrity in Public Procurement
– OECD Principlesfor Private Sector Participation in Infrastructure
• State-Owned Enterprises
– OECD Guidelines on Corporate Governance of State-Owned Enterprises
• Public-Private Partnerships
– OECD Principlesfor the Public Governance of Public-Private
Partnerships
• Privatization
– OECD Recommendation on the Structural Separation of Regulated
Industries
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25. Summary
– We should subject our infrastructure delivery options
to the same level of scrutiny which we do PPPs.
– The new OECD Framework aims to help countries
identify ways to optimise their infrastructure
decisions.
– It provides an opportunity to assess a country’s
infrastructure portfolio in an analytical and timely
manner.
– It integrates a sectoral, a country and a project
approach to infrastructure delivery, and the
governance of such delivery.
– A work in progress … you comments are
welcome!
– A preliminary concept paper will be printed in the KDI
book coming out of the recent infrastructure conference
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