Project Preparation Facility: Enabling Local Governments Access to Private Finance, a discussion paper by Oshani Perera, David Uzsoki and Fida Rana for the International Institute for Sustainable Development (IISD), March 2017.
BACKGROUND
Canada’s 3,664 municipalities are responsible for close to 60 per cent of the country’s public infrastructure. However, nearly one-third of that infrastructure is in need of immediate repair and maintenance, and population growth in municipalities is creating a larger demand. The federal government has promised CAD 186 billion for infrastructure spending between now and 2028, with CAD 11.85 billion in investment announced for Phase I of this program over the next three to five years. Although CAD 10 billion worth of municipal PPP (P3) projects have reached financial close to-date, Phase I permits municipalities to consider the financing options that they deem preferable without a mandatory P3 screen, which will lead to a need for more upfront education on the P3 model as a potential procurement tool for major projects.
CAPACITY CONSTRAINTS
Two critical capacity constraints that hinder greater private infrastructure investment at the national or subnational (e.g., municipal) level around the globe, and need to be addressed by Canadian municipalities, consist of:
- Capacity constraints leading to inadequate deal flow, partly due to a limited capacity of local governments to prepare projects to the standards required by private sponsors and financial investors, and bring projects to the market in a way that will satisfy potential bidders.
- Lack of awareness, whereby communication gaps between key stakeholders can hinder private sector investments in infrastructure projects, which can be perceived as a costly way to deliver public sector services.
PROJECT PREPARATION FACILITY:
Project Preparation Facilities (PPFs) are used to develop bankable and investment-ready projects through technical and/or financial supports to project owners/concessionaires, and also through financial assistance to the public sector to support the financial, legal and technical advisory services needed to facilitate private investment into infrastructure projects.
The scope of PPFs generally includes upstream sector reform work corresponding to potential projects under preparation, due diligence on various matters (e.g., technical, financial, economic, social, etc.), the preparation of information memoranda and marketing to place each transaction with investors, and drawing in high-quality sponsors/investors that depend on limited recourse debt markets.
In conclusion, the IISD proposes the establishment (with federal assistance) of a Project Preparation Facility (PPF) for Canadian municipalities, considering the need of assistance of many Canadian municipalities in the preparation of bankable infrastructure projects.