Mega-project mania?
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Sponsors:
Heinrich Boell Foundation, Bretton Woods Project, Latindadd, Pacific Environment, International Rivers, European Network on Debt and Development (EURODAD), Center of Concern, URGEWALD, Derecho Ambiente y Recursos Naturales (DAR), Instituto Brasileiro de Análises Sociais e Econômicas (IBASE) and Mott Foundation
Panelists:
Cesar Gamboa (Executive Director, Derechos Ambiente y Recursos Naturales / DAR), Peru), Iderley Colombini (Economist and Researcher, IBASE, Brazil), Jeroen Kwakkenbos (Senior Policy Officer, EURODAD), Jordan Schwartz (Manager, Singapore Infrastructure Hub, WBG), CHAIR: Nancy Alexander (Director, Economic Governance Program for Heinrich Boell Foundation-North America),
Alexander
- CSO has been working on G20, BRICS, MDBs for some time, but seems to be a paradigm shift
- This panel is about to explore this, what does it look like
- No new elements in this paradigm shift, but what we’re going to hear is an emphasis on large scale infrastructure
- Comes with host of CSO concerns, displacement, land acquisitions, etc
- Packed with policy issues, investment climate in the country, Doing Business, how business climate has been tweaked not always to the benefit of people
- Private sector investment on a new scale, pension funds – new asset class of infrastructure
- Regional integration, in Africa platform to implement projects financed globally
- Not new, but magnitude of consensus globally that this is the ‘magic bullet’ to restore demand, jobs, growth – therefore a new paradigm to move ahead with this model
- New institutions created for this model, eg Global Infrastructure Facility, BRICS Bank, etc
- CSO can’t just be the party of no, but also of yes – we do need infrastructure development
Kvakkenboes
- Doing Business ranking, a small coalition has been working on this for some years
- Identified outstanding issues that need to be addressed, labour and taxation issues
- Independent review revealed flaws
- Elements coming to the forefront on the enabling environment on business – hear this in several context,
- Missing part to make business contribute to development
- Evident in broader discussion on infrastructure financing
- G20 interesting, most overt pushing for large scale transformational infrastructure project, see it also at WB and in UN, an emerging trend
- Eurodad focus on the need for responsible financing, to create an enabling environment need to ensure predatory practices are not exported into partnering countries
- Recent documents from WB on crowding in institutional investors, PPPs
- Financing gap, but for most part instruments proposed requires capacity and carries risks, not always in discourse
- PPP work don’t looking at value added on these partnerships
- 50% more expensive, and normally only 10% gains in efficiency – German partner
- Exporting this and scaling up in short time frame seems alarmist and reactionary for CSOs – is being discussed everywhere
- Finance in trillions
- Urgency how to create a responsible financing framework
- Conversation driven largely at international level, national level compliance to create an enabling environment
- Potential for PPP and increased private sector involvement, but need to come from a grassroot basis, needs based, not quantity but quality of project
- Availability of viable projects has been identified as constraint, not financing – so why the focus on increasing finance for projects that don’t exist
- How will we pay for infrastructure, liabilities require careful and conscious decisions
Gamboa
- Report on large infrastructure in the Amazon, what are the environmental and social impacts in the region, local and national level
- No clear connection between the G20 plan and what is happening in the region, maybe because strong national governments promoting these investments, don’t need the support
- Regional integration markets, eg MERCOSUR
- Battle in South America, UNASUR with infrastructure model w Brazil
- Chile, Peru etc promoting infrastructure, negotiation electricity regional models, to build dams and connect for international markets
- WB, IDB etc not part of this party, not part of funds and promotions, they are adjusting there portfolios and strategies to be part
- In the region the Andes tiger economies lead to weakening of environmental regulation to facilitate infrastructure projects
- Slowing of Chinese economy and presence in the region
- Who supports these infrastructure investments, UNASUR, new manager of IIRSA – will finance 544 projects
- In last decade build roads, highways, etc, creating environmental destruction, especially in the Amazon forest, impact on fragile ecosystem
- Chinese investment financing on one side, also BNDES – USD95 billion
- 20 dam projects in Amazon, Brazilian companies
- CSOs trying to find out how to improve this model, too late to stop
- Improve governance, from planning, transparency
- Strengthening environmental standards
- Understand and reduce risks especially in fragile ecosystems
- Participation in dialogue with UNASUR and BNDES, propose policies of transparency, citizen participation and safeguard policies for this model of investment in South America, especially the Amazon forest
- Alexander
- PIDA map shows plans for infrastructure developments – we are in a different era now
Colombini
- BNDES economic model that leads to social and environmental impacts
- Brazil GDP has increased a lot in the last decade, also the GINI has improved a lot – showing a good situation in the country, not just in economy terms
- Trade balance – total is good, but because primary product improved, not manufactured product
- Soybeans increase, also in iron ore, that can explain trade balance
- Not just internal movements, but international
- Direct investment has also grown
- BNDES disbursements increased
- Pension funds contributed to the growth of the national economy, national treasury fund now bigger
- BNDES funding mainly to large enterprises, infrastructure disbursement huge increase
- BNDES definition of infrastructure, energy distribution, transmission and production etc – social infrastructure, health etc, no growth in latter
- Social infrastructure includes world cup arenas
- BNDES disbursements not just in country, but also in Latin America and Africa
- Very important not just Brazilian obsession, but an international model
- BRICS bank model looks the same
- Russian development bank, similar trajectory, also for China even stronger pattern
- Important CSOs rethink the banks in this perspective
Schwarz
- Do agree with most of what we’ve heard
- WB zig zag direction as going through reorganisation
- Discussion some years ago, was only a couple of institutions working on this, policies, CSO role etc – much more complicated now
- Within WB ambivalence, like to be an institution to drive an agenda incorporating important values, but also don’t want to be the only institution to be blamed if things go wrong
- In a situation where WB is increasingly a smaller player, in part in relation to regional development banks – not just finance, but also externalities
- We may or may not have much ability to influence, complex
- Mid 90s worked briefly in state development bank of China to devise financial and economic impact assessments, have evolved to see impact
- More complex world, role of WB in this agenda is decreasing significantly, would like to revers this trend as we do things with years of experience – “you learn while you burn”, Jesse Jackson
- People found our safeguards to be greater than value that came with using us for finance, risk of us being side-lined
- In LAC didn’t have much investment in the Amazon, but involved in environmental policy and REDD agenda, deforestation
- Also project to strengthen environmental standards in BNDES
- Hope to return to greater role to finance infrastructure with standards that exist, also strategic environmental assessment as methodology
- On numbers, trillion dollars a year in infra today, another trillion dollars per year needed to be convergence in growth – growth target
- If you have insufficient infrastructure investment you push up against inflation, trade corridors and energy access
- What that infrastructure should look like and focus on efficiency – more important discussion
- Trillion dollar, how much from private sector and PPPs, WB database 180 billion a year – about 5% telecom investors, some divestures of assets, 12-3% in PPPs, 70% debt 30% equity – most debt from public institutions
- On equity side third from public entities
- Not much private investment directly into projects
- Largely there as state development banks taking most of the risk
- Public sector is there at national level, WB/IFC/MIGA 33%
- WB not relevant, but not as front and centre as wished
- Soul searching on this for the past year – trying to find a division in the Bank to offer long term finance for infrastructure projects, to give voice to MICs wanting to have larger say on how these institutions are run
- Conversations with Board members, and with NGO community
- This is not the direction the WB will take any time soon
- March 27 discussions, will discuss with governors of the Bank
- GIF idea to focus on project preparation, quality of projects, with belief that financing follows projects – not vice versa
- Some disagree with this, eg China, India, Indonesia – want more options for multilateral financing
- This is out there for debate, they will go ahead as they are a large part of the world’s economy
- Will see more forms of multilateral investment, eg BRICS bank – response to what we discussed before
- Balance being seen as imposing, and sovereign identity
- Sense that could invest in our own resources, but also option to pool our resources in our own fashion
- Will be part of the future, want to find a way to crowd this into the discussion about best practices, understanding cumulative aspect
- New institutions with more capital than us, want to be part of the discussion
- Hope to double investment in infrastructure, but not sure when it will happen
- Changed the fee structure a little bit for MICs borrowing, make it a bit more expensive and increase the single borrowing limit
Q&A
Q: Did you tell us 2-3% infra investment in developing country investment is in PPP, what is the entire portfolio. In this period of reorganisation, don’t have a good sense of what would be the Bank’s role, how big in the future portfolio.
Q: Drinking water access campaign, how these developments impact – infrastructure main cost for drinking water. Public sector often pays for lion share, often highlighted. Rhetoric often about private sector bringing in capital investment – how do you see access to drinking water in this context?
Q: WB took long difficult process to integrate safeguards into loans, what is the status in regional development banks? Is the WB helping?
Q: The debt potential is big, at the end of the day needs to be repaid – even private sector part needs to be repaid, maybe even in worse conditions. Huge increase of debt, WB has done some analysis of debt risks of PPPs and ways of funding infrastructure, also in the Fund – what analysis is on-going now in WB?
Kvakkenboes
- Water access, some studies done late 90s and early 00 – Senegal example, users cut off
- Problematic aspects with water services
- Also Tanzania case, UK company was asked to leave as no improvement in services
- Academic rigour missing from PPP discussion, evidence is very weak
- Public procurement more effective
- Implications for regional banks, have a lot of work to do, for citizen to protect their rights
- Top down approach primarily focusing on WB until competition came up with alternatives
- Not necessarily a problem, but work needed to ensure human rights etc
- On debt, we are working on this, who carries the risk, what are the implicit guarantees in place, who carries the responsibilities – for most part in public sector
- Expertise needed not readily available in governments, well demonstrated by WB and OECD papers
- WB intervention reasonable, but while true current amounts in PPPs private sector investments are small – demands to scaling up drastically, focus on quantity rather than quality, inconsistency need to be addressed
Gamboa
- National governments weaken environmental regulation, BNDES no strong safeguard policy
- But problem not weak standards, but for us to push for more commitment to global rules
- Access to water, seeing dams build, traditional env assessment considers access to water – our authorities focus on producing electricity, but don’t understand necessities of local population
Colombini
- In mining process, a lot of infrastructure in this sector with impacts
- Also economic impacts, not a good model
- A lot of money on infrastructure, but to export – plus social and environmental impacts
- BRICS bank could increase this problem
Alexander
- G20 80-90% of WB voting power, infra top two goals
- Not taking line that financing follows good projects, how can WB take position that different to 85% of voting power
Schwartz
- 35% investment in infrastructure, depending on how you calculate, eg including health etc
- No explicit direction to increase this as a total, haven’t’ heard it, don’t know how we would do it
- Energy senior direction, water, ICT but no infrastructure senior director
- Cross cutting with knowledge on PPPs, but not involved in lending
- WB mostly responding to priorities on client countries, rather than driving the lending according to strategy
- IFC different, has been grow tin faster, large part of work in infrastructure
- Drinking water, big topics, spent time collecting data on this – can do any kind of econometric analysis on
- Lot of failed privatisation, but also lot of failed public utilities
- The beauty of the water sector is that nothing works
- Should not have a religious position on who the owners are, etc, but how to get access for people
- Regulation is key to this, don’t see a huge range of performance in terms of access and prices
- From our data, retail prices tend to go up a little bit on average, for small businesses tend to go down a bit
- Didn’t want to say that safeguards have been avoided, but a view that they have been difficult to deal with – would rather do domestically where possible – do we want them at the table or not
- To influence regional development banks, they have to ask us for help
- Debt, infrastructure worked with Chile to put in place for contingent liability, NZ earlier, Indonesia tried to do the same thing
- Working with IMF
- Can’t be a push for more spending without taking impacts on fiscal stability into account, have more advisors on macro economy than on infrastructure
Q: GIF and accountability mechanisms. On debt, stranded carbon assets and equity, huge burden, how is this factored into debt analysis?
Q: Presidents of Central American push for mega projects, eg memorandum signed with Chinese companies for 10 mega projects, including 190 km canal, 2 ports, 2 airports, 2 free zones, etc, 2 that will be designed later on. A lot of money, in Nicaragua estimate 40 billion, Honduras 100 billion, and so on – how is the WB involved in this, no mention of source of financing only construction companies? We are worried because the experience of mega projects in CA has not been good.
Q: GIF, not a lot of public information available that we can use to inform our input, what is the WB plan for public outreach, so that we can more effectively input?
Q: institutions are generally dysfunctional, can’t agree on standards on regulations, how to improve this?
Q: Quality and level of conversation with countries from the South on infrastructure financing, only at project level or broader? On energy financing, best dealt with at policy level – alternatives discussion, is this happening?
Q: Risk assessments in mega projects, in the WB and elsewhere. Rogun dam, env & social risks are closely links, social risks often downplayed to the periphery. Would WB consider more robust ex ante screening, including human rights? Safeguards for RDBs, do you use human rights language, avoidance of costs later?
Schwarz
- Not decided where GIF will be housed, not approved by WB, but will be within WB under safeguards
- Public assets, consultation process primarily with governments, not yet designed, not sure if WB board is amenable during re organisation
- Probably couple of months away, assuming board will approve something, for public document
- Designed as a pilot platform for project preparation for complex projects, eg 3-4 projects
- Not a new financing vehicle to change lending
- To change for institutional investors to look at as asset class, cost recovery potential, affordable, potential for private partners, mobilise assets already out there, infra investments largely self financing in some countries – where MIC countries want to get to
- Returns for pension funds 6-8% a year, not so expensive, but infrastructure stabile investment, all would like to see this
- If you invest in your own country or service delivery, 5-10 vs. 20-25 year mortgage comparison
- Human right question, no smart answer to this – failures in safeguards policies with regards to resettlement, land acquisitions, what exactly is missing – don’t want to enter into that discussion
Gamboa
- At regional level, we work with other organisations in the region, to respond to BNDES transparency policy, including human rights at safeguards level – but hard process
- In Peru, we are traditionally orthodox but trying to work with national government on env policy, to apply tools on strategic env assessment for national development plan, eg in Cusco, Camisea gas project
- Problem of traditional env assessment is regulation, how to improve the capacity
- After 15 years not enough for our economy, need new tools to complement the assessments
Colombini
- NGOs in Brazil with BNDES, working to create forum with BNDES to improve transparency, etc, and also the model of the bank
- In February we had a transparency meeting, but need to institutionalise this forum with bank and CSOs – problem that president will step down after this year, so the model can change, but important for the dialogue
Kvakkenbos
- Mortgage is a good example, re infra asset class
- But have to keep in mind what happened with mortgages, that created the 2008 crisis, don’t want to see this repeated
