Public Governance and Territorial Development Directorate, Public Governance Committee, Working Party of Senior Budget Officials, June 2015.
Infrastructure is one of the essential components of human and economic development. An infrastructure that provides effective public service – whether it is in education, health or culture – represents a key priority for both governments and its citizens. Still, ensuring infrastructure’s availability in a cost efficient, affordable and transparent manner, could be challenging. While much of the debate on infrastructure has been focused primarily on the financing issues, this paper aims at highlighting the importance of a broader public governance dimension in effectively addressing the challenges for good public infrastructure.
A lack of good governance often results in cost overruns, underperformance, faster deterioration due to lack in maintenance, corruption and white-elephants. Making the most efficient use of financial resources and managing the conflicting concerns of various stakeholders, is fundamental for achieving greater value for money from the infrastructure asset. This paper offers a guide to policymakers and infrastructure planners for choosing the right framework for the provision of infrastructure based on the experience of the OECD member countries. The paper does not however represent a cook-book formula or a one-size-fits all solution. It seeks above all to raise issues that governments encounter throughout the different stages of the infrastructure delivery, while still keeping in mind their country specific characteristics.
The framework consists of components leading to the achievement of greater value for money. It includes a list of governance preconditions, a decision tree modality choice as a guide for making sectoral decisions and overall infrastructure decisions, and a checklist offering appropriate modalities for the asset’s delivery.
The set of governance preconditions consist of nine key points:
- A long term vision for the use of infrastructure
- A well designed regulatory framework taking into account the complexity of the overall process
- The management of the life-cycle delivery of the project which should be users’ centered achieved by broad consultations
- A good coordination across different levels of government and jurisdictions
- The appropriate skills to assess, procure, manage and regulate
- The assessments should be based on data analysis
- There should be a focus on the performance of the asset throughout its life
- The mapping of corruption entry points at different stages of the project, taking into account especially i) the political and business cycles and ii) the allocation of risks
- The appropriate delivery modality choice
The infrastructure decision tree modality choice offers a three-step process based on sectoral characteristics, country circumstances (national/sub-national) and project criteria checklist.
- In the sectoral approach step a policy-maker should be asking i) What are the prioritized sectoral policy objectives? and ii) What characterises the market (e.g. what is the extent of market failures) and how politically sensitive is the sector? If for instance, improving efficiency in a particular sector is a key objective, then the most appropriate delivery model enabling for the involvement of competitive forces would acquire greater involvement of the private sector (through PPP model for instance). However, if the sector is a public service not having a potential of generating sufficient returns, it is likely that certain form of government intervention is necessary, whether it is in the form of government provision (direct provision of traditional procurement), regulation or subsidies.
- Even if in theory a particular delivery mode is optimal according to the sectoral approach, it might be that the country specific circumstances are unable to allow its effectiveness in practice. If there is an absence of adequate institutions, political or economic circumstances, or capabilities of both government and the private sector for its implementation, the government should consider pursuing the “second best option”. If for example the optimal delivery mode involves greater participation of the private sector (such as PPP), but the country is characterised by a poor rule of law, it is more likely that this modality would generate a monopoly, rather than let the programme capture the benefits from the competition.
- In the project criteria step, the paper offers a list of guideline question which further enhance the choice of the best delivery modality. A particular attention is given to the proper allocation of risk and uncertainty between the public and the private sector in generating sound incentives for both and thus enable greater value for money.