[MUSIC] Welcome, this is the course on urban infrastructure. And in this week three, we will deal in particular, with financing urban infrastructure. My name is Meine Pieter van Dijk, and I'm a professor at the Erasmus University in Urban Management. And I've been working in particular for the Institute of Housing and Urban Development Studies and the Institute for Social Studies. In developing countries, I worked a lot for the World Bank, United Nations, and all kinds of non-governmental organizations. Now, in the week before you've learned that municipalities develop infrastructure in cities, but often they don't have an adequate amount of money for this infrastructure. So, in this week we will look at different ways of financing urban infrastructure. And so this implies that you involve all kinds of stakeholders in the private sector, but also from the public sector at different levels of government. So organizing different sources of finance is what you call financial structuring. And so, this concept will be explained and discussed. And I will give an example of an urban drinking water improvement project, which is financed with private sector support. We will also look at the complementarity between private and public sector assistance. And how you deal with risks, how you manage risks in infrastructural projects. Now, new ways of financing urban infrastructure will be summarized. And we will deal with the concept of sustainable finance. Besides the public private partnerships, which is often shortened as PPPs, there are additional financial instruments to finance urban infrastructure that can be used to increase what the public and the private partners bring in already such as issuing and obtaining bonds in the framework of a PPP. The emphasis in this week will be on the relationship between the private and the public sector and how you use that if you want to improve or extend your current urban infrastructure. However, engaging others in providing infrastructure raises the question of risks and responsibility. Who is responsible if something goes wrong in the project? Who carries these risks? This means we need to perform what's called a risk management approach for infrastructural projects. In that case, risks first need to be identified, then distributed over the different partners involved, and eventually minimized by taking all kinds of precautions and seeking possibilities to take an assurance for certain unexpected events. This week is relevant because I want to introduce a few new ideas. The first one being that finance for urban infrastructure doesn't always have to come from the government. Secondly, in that case, the projects that you submit need to be different to be interesting for private partners Additionally, it needs to be clear what the risks are, and what will be done to minimize these risks, and who will carry the brunt. So after following the content of this week, you will be able to negotiate with private partners working in a municipality or in the framework of the provision of an urban infrastructure to start such a PPP. This translates into three specific learning objectives. The first one, you learn to recognize different options to involve the private sector in a PPP. And to understand the reasons for choosing this public, private partnership, or PPP as we say. A second objective is to determine whether the prerequisites and the enabling environment for a chosen PPP option is there and will allow it to be successful. And then finally, we want to evaluate the pitfalls in a PPP implementation process. because I have to tell you already, not all PPPs have been successful. So in this week, we discuss new ways of financing urban infrastructure. Traditionally, urban water and sanitation projects for example, were financed by the government. However, many governments didn't do a good job in this respect, so the services were not available. They didn't have the necessary funds and now they look for alternative sources of finance. Even if the cost of using private capital may be sometimes higher than when the government takes a loan or when the government issues the bonds directly. In such a case, you can use a public sector comparator or a PSC. This is a tool which can be used by governments to figure out if a public-private partnership or another arrangement would be more cost effective. It compares the cost and the benefits of a public versus a privately organized urban infrastructure. Additionally, this tool allows you to determine whether the PPP arrangement delivers value for money in spite of its sometimes slightly higher cost of capital. However, if no alternative sources of finance are tapped, we will see deficits in the budget of the utility, or the municipality, or who is currently providing the service. So, you can say okay but there are ways of covering these deficits. But they are not very attractive because it means the municipality would have to use general tax funds to cover up the deficit created by an infrastructure which doesn't pay back the investment made. So, it's often advised to use local and private finance mechanisms. And I'll give you an example, issuing bonds. Different ways of crowdfunding, nowadays. Using for example, business to business, or private to private sources of finance, which are found via the Internet, or a special platform. Or you could set up a so-called special purpose vehicle, or SPV, to attract the finance instead of the municipality or the utility. You can also use new forms of payment, like internet payment, mobile phone banking to generate the cash flow, which allows you or the city to eventually repay the loans that they have taken for this particular infrastructure project or to serve the bonds that they issued to finance the infrastructure. So this week, we will then conclude with considering the lessons learned, recapping the topics covered. And additionally, I suggest you read the case study which is provided, which examines The Bolivian Urban Water Project with the help of the private sector which dramatically failed. You can find it within the readings of this module. So let's get straight now into the topic and consider stakeholder involvement and the role of private sector in infrastructure services in our next video. [MUSIC]
