New Developments in Infrastructure Governance,

OECD-IMF Seminar, March 23-24, 2015

The World Bank’s Framework for Assessing PIM Systems

Anand Rajaram, World Bank

Key questions on public investment

• How much can/should a country spend on public investment?

• Should broad development plans/strategy guide choice of sectors?

• How should individual public investment project choices be made?

• What kinds of institutional arrangements will help achieve good PIM outcomes?

http://blogs.ft.com/beyond-brics/2014/06/23/emerging-asia-to-drive-global-infrastructure-spend-to-2025-says-pwc/

http://www.ft.com/intl/cms/s/2/9b591f98-4997-11e4-8d68-00144feab7de.html#axzz3G7Uidmg1

Present Day - Growing Focus on Infrastructure Investment

Public Investment – its current salience

Everybody talks about Infrastructure

• Developing countries now spend about $1 tril. a year on infrastructure, but an additional $1 tril./yr is required through 2020 .

• We wish to use our oil revenues to invest in infrastructure which can benefit future generations – Minister Kiwanuka, Govt. of Uganda

• Time is right for an infrastructure push in countries where conditions are right – IMF, World Economic Outlook, October 2014

• Real challenge is a lack of bankable projects. – Jim Kim, WBG President, Oct 2014 at launch of Global Infrastructure Facility.

• Growing support for Asia Infrastructure Investment Bank

• G-20 focus on infrastructure investment

But few about the Institutions

• Unless PIM systems are in good condition, much of this infrastructure spend will be wasted

• There needs to be a corresponding emphasis on the need for investment in institutions to manage PIM

• We are now building knowledge on how good, bad or ugly PIM systems actually are across the globe

Why effective PIM is important

Common Problems • Development plans disconnected

from actual budgets/projects

• Projects selected with poor/no social cost benefit analysis

• Projects with low socio-economic value consuming scarce resources

• PPP projects that create risk for govt.

• Projects awarded to unqualified firms

• Corruption in procurement

• Delays in land acquisition

• Cost escalation, delays

• Abandoned projects

• Poor quality of completed project

• Poor maintenance and operation

• No self-correcting response

Consequences • Few valuable assets are created

• Stock of decaying infrastructure – Power and water shortages, road and

railway accidents, crowded hospitals, deteriorating HDI

• “Investment” fails to spark growth and improved social welfare

• And if investment is financed: – by debt – creates a liability

– by taxes - burdens citizens and private sector

– by finite natural resource extraction - reduces net wealth

• Macroeconomic instability, failure to grow, political instability

A Framework for Assessing PIM holistically

PIM: Building a Knowledge Base

PIM Systems across Countries

AN IMPRESSIONISTIC PICTURE OF PIM SYSTEMS ACROSS SELECTED COUNTRIES

Country Examples> Haiti Sierra Angola Mongolia Georgia Brazil Vietnam Ireland Korea U.K.

PIM Feature LeoneGuidance

Appraisal

Independent Review

Selection/budgeting

Implementation

Adjustment

Operation

Evaluation

Unified PPP?

GNI per capita 810 680 5010 3770 3570 11690 1730 39110 25920 39140

Source: PIM diagnostic country studies, World Bank

Good Weak Poor

Some emerging knowledge on PIM

• Typologies of PIM systems - Advanced / Emerging / Aid-dependent/ Resource rich/ Fragile-post conflict

• Countries with good PIM outcomes typically reflect good processes with regard to all eight features of a PIM system

• Advanced countries use more sophisticated techniques to achieve better PIM functionality and risk management

• But the large majority of countries have poor PIM systems with a wide variety of management/governance failures

• There are no standard blueprints to achieve a given PIM functionality – but key principles apply

• PPPs are a complex modality for PIM – countries with limited capability are approaching this without the necessary knowledge

• Procurement challenges are often a critical problem – PIM may help create a new paradigm for procurement

Advanced PIM systems: United Kingdom

• The UK addresses all 8 PIM stages in great depth

• High degree of integration across the 8 stages – reporting and tracking from appraisal to completion

• PPPs are integrated as a specific PIM modality

• Major projects and high risk projects given special attention

• System is constantly being improved

– 2012 Olympics used to upgrade good practice

– Requirement that senior govt. staff undertake training in major project management at Oxford University program

Advanced PIM systems: United Kingdom

Gu

idan

ce

Evaluatio

n

Ap

praisal

3 Stage

Review

Selection

Imp

lemen

tation

, A

dju

stmen

t

Op

eration

Major Projects Authority, Cabinet Office

HM Treasury

MPA Guidance

Gateway reviews at initiation, pre-market and pre-final negotiation stages

Review of Integrated Assurance and Approval Plan by MPA and HMT

National Audit Office

Green Book

Strategic, Outline and Final Business Case

UK: A Sophisticated Implementation Assurance Process

Ireland - PIM • Five year plan and 5 year rolling capital budget

• Guidelines for project appraisal and PPPs

• 2 stage - screening/detailed project appraisal

• Appraisal techniques vary – simple appraisal to MCA to CBA

• Independent review by central unit/consultants

• Project selection as part of the budget process

• Implementation monitored through spot checks on compliance/ cost overruns can trigger project termination

• Post-project evaluations undertaken by sponsoring agency

Year 2009 2010 2011 2012* 2013*

Exchequer capital, €m 8,231 8,297 8,193 9,672 9,159

Exchequer capital, % of GNP 5.2% 5.0% 4.7% 5.3% 4.7%

PPP (incl. user charges), €m 957 1,783 2,139 2,387 2,173

Total (Exchequer + PPP), €m 9,188 10,080 10,331 12,059 11,333

Total, % of GNP 5.8% 6.1% 6.0% 6.6% 5.8%

Vietnam PIM – system in transition

• High levels of investment until recently: Total investment and

consolidated public investment, respectively, accounted for 41% and 13% of GDP (2008); reduced to 30% and 10% (2013).

• But increasingly through provincial government: 77% of public investments are managed at the provincial and lower levels where: – Weak guidance and screening of proposals. Sectoral and provincial masterplans are not an

adequate basis for screening investment proposals.

– No structure or formal technical guidance to appraisal. The system is mainly administrative, concerned mostly with procedural compliance and set timeline.

– There is no independent review of project appraisal by provinces or sectors.

– Project selection and budgeting. Too many projects chasing insufficient funding.

– Project implementation/adjustment during construction: Monitoring of provincial public investments is only required for projects with at least 30% of total cost financed by government budget. Cost overrun as much as 50% over estimates.

– Facility operation: No asset registry for constructed works. Despite Law on Management and Use of State Property, there are no specific regulations so assets are poorly managed and maintained.

– Ex-post evaluation: Largely a missing function.

Sierra Leone – Aid dependent PIM

• Project appraisal reliant on donors • Natural resource revenue growth raising share of

domestically funded projects w/o review • Early efforts to define guidelines for PIM • But limited capacity to appraise/review and

fragmented responsibilities weaken process • Unsolicited PPPs poorly handled – conflict between

PPP unit & privatization commission • Implementation is poor due to multiple failures • Weak PIM not surprising – challenge is how system can

be strengthened • Source: Sierra Leone Diagnostic and Policy Note, World Bank, June 2013

Conclusion

• Calls for public investment must be matched by attention to quality of PIM

• Building knowledge on PIM systems is high value

• PPPs need to be integrated into PIM systems

• Diagnosis is easy, institutional reform is difficult

• Important that reforms are tailored to “load-bearing” capacity in country and sustained over time

• Growing portfolio of PIM reform TA projects at WB

• World Bank ready to collaborate closely with other partners including KDI, IMF, OECD and others

Recent book – Public Investment Management

Thank you