This presentation was made by Dorothée ALLAIN-DUPRE, OECD Secretariat, at the 11th Annual Meeting of the OECD Network of Senior PPP and Infrastructure Officials held at the OECD, Paris, on 27 March 2018

1. Dorothée Allain-Dupré
Head of Unit
Decentralisation, subnational finances and investment, ESG
Centre for Entrepreneurship, SMEs, Regions and Cities, OECD
RESPONDING TO THE
INFRASTRUCTURE CHALLENGE
The Role of Subnational Public Private
Partnerships
SBO PPP Network
March 27, 2018
OECD

2.  The world needs to spend approximately USD 3.3 trillion annually between 2016
and 2030 on economic infrastructure.
 Strong place-based dimension of infrastructure needs
• Rising regional disparities in OECD countries
• Urbanization
 In OECD area: around 70% of the population lives in functional urban areas
• Rural areas:
 Proximity to cities benefits surrounding rural & intermediate regions
 Need to strengthen urban-rural linkages
 SNGs well-placed to understand local dynamic and connect with stakeholders
2
Strong place-based dimension of infrastructure
needs

3. 3
Source: OECD national accounts
Share of public investment at subnational level
Important role of subnational governments for public
investment
60% 59% 56% 55%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Subnational government Central government and social security

4. 4
 Red tape and regulatory burden
• A large majority of respondents (90%) consider excessive administrative
procedures, lengthy procurement and red tape as a challenge
 Lack of capacities to design PI strategies
• Lack of capacity to design long-term public investment strategies (65% SNGs)
• Lack of sufficient in-house expertise to design infrastructure projects (56%)
• Lack of coordination across sectors
 Coordination across levels of government & jurisdictions
• Mismatch between local/regional needs and those given priority at central
level (84%).
• Absence of a joint investment strategy with neighbouring cities/regions (76%)
• Lack of incentives (such as financial incentives) to cooperate across
jurisdictions
 Unclear assignment of responsibilities across levels of government
Challenges reported by subnational governments for
infrastructure investment (OECD, 2016)

5. • Invest using an integrated strategy tailored to different places
• Adopt effective co-ordination instruments across levels of
government
• Co-ordinate across SNGs to invest at the relevant scale
Pillar 1
Co-ordinate across
levels of governments
and policies
• Assess upfront long term impacts and risks
• Encourage stakeholder involvement throughout investment cycle
• Mobilise private actors and financing institutions to diversify sources
of funding and strengthen capacities
• Reinforce the expertise of public officials & institutions
• Focus on results and promote learning from experience
Pillar 2
Strengthen capacities
and promote policy
learning at all levels of
government
• Develop a fiscal framework adapted to the objectives pursued
• Require sound and transparent financial management at all levels
• Promote transparency and strategic use of procurement
• Strive for quality and consistency in regulatory systems across
levels of government
Pillar 3
Ensure proper
framework conditions for
public investment at all
levels of government
5
OECD Recommendation on Effective Public
Investment Across Levels of Government

6. Public Private Partnerships can help diversify
sources of funding at the subnational level
 Sub-national financial constraints and decentralisation challenges
• Decentralisation increases sub-national responsibilities, often without sufficient accompanying
resources
• In many OECD countries, subnational public investment declined as part of fiscal consolidation
strategies resulting from the 2008 financial crisis
• Public investment is still below the level of the early 2000s in many countries
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
PRT
ISL
ESP
KOR
JPN
GRC
MEX
USA
NLD
FRA
OECD
CHE
DEU
AUS
BEL
SWE
AUT
FIN
CZE
GBR
NZL
TUR
CAN
DNK
NOR
Note: For Korea, the last available year is 2014.
Source: OECD (2017a), Economic Policy Reforms 2017: Going for Growth, OECD Publishing, Paris,
Percentage points difference in public investment
between 2015 and the average over 2000-2007

7. Public investment is still much subdued in the EU
90
100
110
120
130
140
150
160
General government State government Local government
Subnational government GDP
-6.1% in 2016
-2.4% / year 2008-2016
-5.9% in 2016
-2.7% / year 2008-2016
-8.8% in 2016
-3.1% / year 2008-2016
-9.4% in 2016
-3.2% / year 2008-2016
+2.0% in 2016
Change in public investment in the EU28 from 2001-2016 (real terms)

8. Public Private Partnerships can help bring
private sector know-how
 Governments should look to involvement of private actors, financing institutions and
banks in public investment to offer more than just financing for projects
 It should be a way to strengthen capacities of governments at different levels and bring
expertise
 Sub-national know-how constraints
 Even with sufficient funds…the private sector may be best positioned to integrate
new “technology”
 PPPs are justified when partnership represents greater VFM vs. traditional procurement
– not as a way around fiscal constraints
 Gains are expected to result from:
 Benefits of risk transfer
 Private sector incentives
 Private sector know-how
 Innovation
 PPPs are justified when partnership represents greater VFM vs. traditional procurement
– not as a way around fiscal constraints

9. 9
Subnational governments are active in PPPs
• In France, between 2005 and 2012, SNGs granted 79% of “contrat de
partenariat”
• In Australia about 90% of PPPs occur sub-nationally
• In Canada, nearly all PPPs are contracted by sub-national authorities
• In Korea, SNGs act as the competent authority for 74% of PPPs
• In Germany, SN PPPs constitute approximately 80% of PPP investment
• Although the number of PPPs is frequently greater at the sub-national
level, their value tends to be smaller than for national projects
• Even if SNGs are not the contracting authority, they support the success
of national PPPs
E.g. national (air)port needs local road connections
 There is little systematic, comprehensive cross-country assessment of
the subnational capacity to engage in PPPs in OECD countries

10. Challenges:
1. Regulatory coherence and administrative burden
2. Financing and funding of subnational PPPs
3. Economies of scale and cross-jurisdictional coordination
4. Administrative capacity of sub-national governments to
engage in PPPs
5. Political commitment and accountability
Main challenges/risks for the implementation of
PPPs at the subnational level
Implementing PPPs at the sub-national is characterized by 2 unique dimensions:
 The specificities of decentralisation
 Multi-level governance arrangements

11. Challenge 1: Regulatory coherence and
administrative burden
 Legislation authorising PPPs and associated enabling regulations can
exist at multiple levels of government and across jurisdictions
 Key responsibilities associated with infrastructure development : shared
across agencies and/or levels of government
 Private actors must navigate a myriad of regulations  increasing
administrative burden (and possibly project cost)
 Australia: The federal and sub-national governments endorsed national PPP guidelines in
2008, through he Council of Australian Governments (COAG)
 United States: the state-based U.S. PPP market, despite guidance and support from federal
programmes, offers a highly variable and confusing operating environment for private actors
navigating the range of proposal, financing, facility, partner, and institutional regulations
maintained by each state

12. Challenge 2: Financing and funding of
sub-national PPPs
 SNG? (E.g. availability payments; shadow tolls)
• PPPs can reduce future fiscal flexibility
• PPPs create long-term ordinary liabilities for sub-national governments that must be
addressed and, depending on their design, contingent liabilities that must be
accounted for lest they create fiscal risks.
 Users?
• Will PPP raise user-fees? Often, projects fail to meet their demand forecasts
• Will political discontent be a problem? Will subsidies continue?
 Financing challenge: Who will pay now?
• SN PPPs may involve higher debt costs, credit enhancements, or government
guarantees
• Small local projects = difficulty accessing financing due to size
 Project development costs are substantial
• For projects > USD 100 mil, cost may be 1-3% of total project costs
• For smaller projects, costs may be 3-4% of total project costs (WEF, 2013)

13. Challenge 3: Economies of scale and cross-
jurisdictional coordination
 Infrastructure can require economies of scale and a match between users and
geographic area, but:
• SNGs may be small (e.g. local governments)
• Functional regions may cross administrative borders (e.g. metropolitan areas)
 Horizontal co-ordination can:
• Expand the geographic coverage of the PPP
• Lower barriers to entry presented by small-scale projects
• Increase the pool of interested, qualified operators
• Strengthen administrative capacity
 But it can be hampered by:
• Lack of coordination tools/incentives
• Differing political agendas
• Differing policy priorities, resource constraints, concerns regarding the distribution of
costs or benefits from coordinated investment
• Concerns regarding the extent to which different parties would be responsible for
contingent liabilities or termination payments in the event of failure

14. Challenge 4: Administrative capacity of sub-
national governments to engage in PPPs
 Technical demands for PPPs are high
 Less experienced SNGS can face substantial asymmetries of information relative to the private
sector
 Skills needed vary over the course of the project cycle
 SNGs can find it difficult to recruit and/or retain sufficiently qualified staff
 Relevant skills are likely to vary across sub-national jurisdictions
• Large regions or metropolitan areas may:
 have human resources to dedicate to a PPP project in a sustained manner over time
 benefit from arrangements that facilitate economies of scale
• Small and/or rural SNGs, where PPPs may be infrequent, likely have limited skilled
resources
 France: The 2014 Senate report on PPPs raises concerns regarding
symmetrical capacities between small local governments and large
contracting companies

15. Good practices, solutions and next steps
 PPP-supporting tools, economies of scale and capacities
• The promotion of PPP projects at the sub-national level should be directed primarily at the larger
municipalities and the regions which already have the general fiscal and institutional capacities
required
• Identify a limited number of sectors in which PPP is recommended to sub-national governments in
order to provide pertinent and efficient technical assistance and standardised legal template
documentation (e.g. Philippines)
• Specific provisions can be made for bundling across sectors or jurisdictions.
• Ensure that investments in neighbouring or otherwise linked jurisdictions do not work at cross-
purposes (e.g. Indian toll road, crossing seven counties including metropolitan and non-
metropolitan areas)
 Financial and budgetary arrangements
• Use standard ex-ante evaluation instruments
• Adopt third party scrutiny and approval prior to tender and/or before contract signature
• Provide direct financial support
• Create a flexible and inclusive statutory framework that supports private sector participation
(e.g. U.S)
• Minimise accounting incentives to move projects “off the budget” (e.g. subsidies for availability
payments, statistical or accounting treatment of PPPs, etc.)

16. 16
Survey: Do national PPP units or Infrastructure units in central governments strengthen the capacities of
subnational governments to design and run PPP or infrastructure projects in general?
 PPP-supporting tools
• Establish sub-national PPP units, in line ministries or at an arms-length from government
• Professionalise public procurement to strengthen procurement capacity in general
• Develop or strengthen performance indicator systems for PPP design and implementation
• Create peer-to-peer knowledge exchange platforms for sub-national governments as well as
mechanisms for inter-municipal and regional co-ordination
Good practices, solutions and next steps
Yes No
Australia Austria
Czech Republic* Belgium
France Chile
Germany Denmark
Ireland* Estonia
Italy Finland
Korea Hungary
Spain Japan
Turkey* Luxembourg
United Kingdom New Zealand
Norway
Slovenia
Non-OECD Sweden
Philippines Switzerland
South Africa Mexico na
Note: Total respondents: 26; * without a mandate, na not answered.

17. 17
Legal and regulatory framework
• Establish proper legislation to improve government capacity for standardised treatment of
PPPs and appropriate treatment of unsolicited proposals
• Ensure coherence of laws and regulations across levels of government and across sub-
national jurisdictions
• Strengthen the sustainability and credibility of contracts so that they do not fall apart with
new political pressures
• Create PPP-specific legal arrangements with a rigorous project selection and review
Simplify procedures and increase flexibility for local and regional authorities (e.g. U.S.
Policy and political commitment
• Political parties provide stable and articulated support
• Generate an up-to-date PPP policy document
• Implement stakeholder consultation and engagement throughout the investment cycle
Collect more systematically data on subnational PPPs
• Establish a national observatory to collect data and advise cities in their choices to follow
PPP performance
• Collect more systematically data on subnational PPPs to fill the data gaps – can be done by
international organisations
Good practices, solutions and next steps

18. Dorothée.Allain-Dupré@oecd.org
Thank you