Regional Insight from the UN on the Fundamentals for Successful PPPs
April 8, 2014: Manlio Coviello, Chief of Natural Resources and Energy at the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), shares his views on the role ECLAC is playing to stimulate PPPs in the electricity sector and the fundamental steps for establishing successful PPPs in the region.
“Access to finance is still a, if not the, main barrier, as the financial institutions in the region are not all able to cope with the increase in demand for investment. Therefore, the role of the public sector could be augmented by fostering incentives, such as private finance initiatives (PFI), for both private developers and financial institutions.”
What role is ECLAC playing to stimulate electricity sector PPPs in Latin American and Caribbean countries?
Manlio Coviello: ECLAC can play (and is playing) an important role to foster the use of unconventional renewable energies in the region. Actions currently being undertaken by ECLAC include:
- Being a trusted source of information within the region. Our technical and policy reports reach and influence many decision makers.
- Organizing and sponsoring meetings/workshops to exchange experiences and know-how among public institutions in the region, with the participation of the private sector.
- Carrying out capacity-building initiatives to increase the expertise of governments to identify, negotiate, manage and implement successful PPP projects.
- Promoting good governance for PPPs, i.e. setting up the institutions, procedures and processes in order to fully benefit from PPPs. In addition to creating new institutions (where necessary), it is also crucial to develop public expertise to manage and administer projects. PPPs demand a strong public sector with managers capable of building partnerships, managing working groups, and negotiating.
From your experience, what are the fundamental steps for establishing successful PPPs in Latin America and the Caribbean? Are they generally applicable to the entire region, or is there any specific context depending on the sub-region? What difficulties have you experienced in establishing PPPs?
Manlio Coviello: ECLAC’s study Public-private partnerships in renewable energy in Latin America and the Caribbean (published in 2012) revealed that most PPPs in the region were coming from programs that started at the beginning of the last decade in a number of countries, particularly in South America, to promote the use of unconventional renewable energies for electricity generation. What programs such as the Programme of Incentives for Alternative Electricity Sources (PROINFA) in Brazil, GENREN (Argentina), and Legislative Decree 1002 (Peru) have in common is the involvement of the state as a regulator and promoter, and in some cases also as a guarantor and provider of financing, while the private sector plays a leading role in the commissioning and operation of the infrastructure. This model of partnership between the public and private sectors seems to be yielding positive results in the promotion of unconventional renewable energy, leading to a significant increase of said technologies since the implementation of these programs.
What is ECLAC’s experience in PPP replication in Latin American and Caribbean countries? What were the main lessons learned? What are the main difficulties or obstacles in replicating PPPs in the region? Is there a common denominator in all countries?
Manlio Coviello: Access to finance is still a, if not the, main barrier, as the financial institutions in the region are not all able to cope with the increase in demand for investment. Therefore, the role of the public sector could be augmented by fostering incentives, such as private finance initiatives (PFI), for both private developers and financial institutions.
What concrete steps have countries taken in order to increase private sector participation to develop electricity infrastructure?
Manlio Coviello: The private and public sectors continue to play a crucial role in developing renewable energies in the region. Nevertheless, the programs to promote the use of renewable energies are slowly phasing out as they are reaching their intended goals. In some cases, the base has been created and the cost of energy from renewables is progressively becoming more competitive compared to traditional sources (e.g. fossil fuels and large hydro). Consequently, the private sector is responding positively to the new business opportunities emerging from renewable energies.
How can we assess the potential of PPPs for the energy sector in Latin America and the Caribbean? What would be the main solution to resolve difficulties or obstacles?
Manlio Coviello: Most of the clean energy investments in the region were made in Brazil (US $82 billion), Peru (US $2.5 billion), Argentina (US $2 billion), and Uruguay (US $393 million). These are all countries that show a very large potential for renewables, together with Chile, Colombia and Mexico. Brazil’s attractiveness for investment is indisputable and the country has been able to harness that momentum in a very good way, giving value to the renewable energy supply chain that has made such technologies cheap enough to compete with other traditional sources and with no subsidies.
From your standpoint, do public and private entities show a growing interest in carrying out PPPs? How do you imagine the future of PPPs in Latin American and Caribbean countries?
Manlio Coviello: It seems that there is a future for PPPs, even if the “speed” of their development is still uncertain due to existing obstacles. State-owned companies (e.g. Alur and UTE in Uruguay, Eletrobras in Brazil, and ENARSA in Argentina) are instrumental to implement national energy policies and gain energy security. It is also worth highlighting the promising experience of private entities working in countries where the energy sector is predominantly state-owned or controlled.