Summary of good practice of successful project preparation … · 2019-03-06 · Information...

GlobalInfrastructureBasel

Elisabethenstrasse22

CH-4051Basel

Switzerland

T+41612051080

F+41612711010

[email protected]

www.gib-foundation.org

SummaryofGoodPracticeofSuccessfulProjectPreparationFacilities

February2018

Authors:

BasilOberholzer,GlobalInfrastructureBaselFoundation(GIB)

KatharinaSchneider-Roos,GlobalInfrastructureBaselFoundation(GIB)

CharlotteBoulanger,FMDV,GlobalFundforCitiesDevelopment

MarykevanStaden,ICLEI,LocalGovernmentsforSustainability

Additionalcontributor:

DariusNassiry,OverseasDevelopmentInstitute(ODI)

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Acknowledgments

Theauthorswould like to thank forall the invaluablecontributions fromexpertsandpractitioners

whostimulatedourthinkingandhelpedproducethisreport.SpecialthanksgotothePPFrepresent-

ativeswhoprovideduswiththecompletedquestionnairesandtheexpertsservingasinterviewpart-

ners, including Brian Capati, Barbara K. Buchner, Andreas Wohlhüter, Shigefumi Kuroki, Stephen

Hammer,GadCohen,KlausLiebig,DariusNassiry,MichaelLindfield,JorisVanEtten,andDhrubaPur-

kayasta.Moreover,wearegratefulfortheimportantcontributionsoftheCCFLAProjectPreparation

WorkingGroup(PPFWG),theCCFLASecretariataswellastheorganizersandallparticipantsofthe

FirstProjectPreparationPractitioners’Forum1on14November,2017,duringCOP23inBonn.

The CCFLA thanks Global Infrastructure Basel (GIB) and Deutsche Gesellschaft für Internationale

Zusammenarbeit (GIZ) GmbH for providing financial support to this report. GIZ through FELICITY

(FinancingEnergyforLow-carbonInvestment–CitiesAdvisoryFacility(FELICITY)ajointinitiativeby

GIZandtheEuropeanInvestmentBank(EIB)andtheC40CitiesFinanceFacility(CFF), implemented

byGIZandtheC40CitiesClimateLeadershipGroup(C40).Bothprojectssupportcitiesinthedevel-

opmentoftheirclimaterelevant infrastructureprojectsandaimtocontributetoglobalknowledge

managementintheareaofprojectpreparationsupport.

1http://www.citiesclimatefinance.org/2017/12/press-release-the-first-project-preparation-practitioners-forum/

2 http://www.citiesclimatefinance.org/2016/12/ccfla-mandated-by-local-and-regional-leaders-at-marrakech-to-localize-

climate-finance/

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ExecutiveSummary

SignificantinfrastructureinvestmentsareneededfortheworldtoachievetheSustainableDevelop-

mentGoals (SDGs) and the Paris Agreement 2015 on climate. Yet, there is a tremendous gap be-

tween investment requirements andactual current global investment. To close it, bothpublic and

privatefinancesourcesarerequired.Moreover,moreclimatefinanceshouldbechanneledfromthe

nationaland international level to the localandregional levelwhereproject implementationtakes

place.Inreality,however,manyinfrastructureprojectscannotbelinkedtofinanceduetoanumber

ofreasonssuchasa lackofbankability, insufficientprojectdevelopment,andhighriskattheearly

stageofprojectdevelopment.Thisiswhyprojectpreparationiskeytomakingprojects“investment

ready”.

Thisreportanalysesprojectpreparationtools,approaches,mainbottlenecks,andsolutions,bypre-

sentingthreecasestudiesaswellashighlightsfromexperts’interviews.Eachcasestudyfocusesona

projectpreparationfacility(PPF)thatisactiveatthesubnationallevelineitherLatinAmericaorAsia.

ThePPFsof interestaretheCitiesDevelopmentInitiativeAsia(CDIA),theUSIndiaCleanEnergyFi-

nance Facility (USICEF) and the Emerging and Sustainable Cities Initiative (ESCI). Aligningwith the

TermsofReference(ToRs)ofthisResearchproject,thesethreePPFswereselectedbyconsensusby

CCFLAProjectPreparationWorkingGroupmembers.Althoughverydifferentintheirscopeandscale,

theyprovidequiteawideinsightofthepossibleservicesandactivitiesthatarebeingdevelopedto

supportsubnationalprojectpreparationinLatinAmericaandAsia.Assuch,theyappeartoperfectly

fit into the realizationof task 1of theResearch study aiming atReviewingof existing subnational

PPFsinLatinAmericaandAsia.

The results show that they all have developed sophisticated approaches addressing all relevant

phasesof theprojectpreparationprocess. Emphasisonprojectprioritizationensuresefficientand

effective employment of the PPFs’ financial and human resources. “Sustainability” appear to be

mainstreamedandplaced as an integral part of their tools as a strategy tomitigate the risks per-

ceivedby investors inemergingordevelopingmarkets.However, theuseof riskmitigation instru-

ments such as guarantees remains limited. Concerning the type of financial support provided by

PPFs,itisapparentthatprojectpreparationsupportstillremainsmostlydependentongrantsmostly

providedbypublicinstitutionsandthatthesubnationalclimateprojectsthemselvesarestillalsofi-

nancedbydevelopmentinstitutionsorotherpublicdonorsandonlyrarelybytheprivatesector.Like

inotherareasoftheworld,therearefurtherremainingchallengesconcerningalackofinstitutional

capacityoflocalandregionalgovernmentsaswellascurrentlegalframeworksoftencreatinganon-

enabling environment. Furthermore, the nature of many infrastructure projects (e.g. social infra-

structure) implies that their returnsmaybe insufficientand thusnotable toattractprivate sector

investment.

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This report explores solutions anddevelops recommendations throughexpertdiscussions showing

howriskmitigationinstruments,projectstructuringandfairPPPmodelsmaybecombinedandtai-

lor-made to specific project characteristics. In addition, suggestions for new PPF approaches are

made.Asummaryofthesemainfindingsispresentedbelow.

Information sharing among PPFs and also including project developers and finance institutions is

identifiedaskeytospreadingsuccessstoriesandsharingsuccessfulapproacheswhichwillleadtoan

acceleration and improvement of project preparation support. This statement confirms the im-

portanceof theCCFLAProjectPreparationworkinggroup’smainpurposeandcoreactivitieswhich

includetheorganizationofaPPFForumeveryyear.

Mainbottlenecks,solutionsandrecommendationsinprojectpreparation

Bottleneck Relevantlevel Solution Relevantscope Recommendation

Fundingcon-straintsforpro-

jectpreparation

Local,nationalandregional

level

Scalingupfundingsources

Enablingna-tionalpolicies

• Nationalgovernmentsshouldcon-tributetoPPfunding

• FinancialincentivescouldencourageprivatesectorinvestmentsinPP

Projectlevel ScalingupPPFca-

pacity

PPF:approach-

esandbusinessmodels

• Projectpreparationcostscanbemadepartofprojectloans;

• PPFsmaydevelopmorecommercial

businessmodelswhenappropriate

(RE/EEsectors)

Politicalbuy-in Localandre-

gionallevel

Makingneedof

climate-resilientinfrastructure

transparent

City:commit-

menttoclimatefinance

PPF:accesstolocalauthorities

• Climaterisksshouldbecomeinte-

gratedpartofcities’developmentplansanddecisionprocesses.

• Localexpertsmayfacilitatecollabo-

rationwithcities

• Strongdomesticfinancialinstitutionsmayensurethelinkagebetweenall

levels

Projectlevel Inclusionoflocalauthoritiesand

stakeholders(in-cludinglocalfinan-

cialinstitutionsand

civilsociety)inpro-

jectdevelopment

PPF:inclusiveapproaches

PPFsshouldincludecitiesandstake-holders((includinglocalfinancialinsti-

tutionsandcivilsocietyorganizations)fromthebeginningofprojectprepara-

tion.

Lackofprivatesectorparticipa-

tion

Projectlevel DevelopmentofPPPmodels

PPF:projectstructuring

• Solidlocalfinancialintermediariesshouldbesupported;

• Cities’andPPFs’capacityforprivatesectorcollaborationshouldbe

strengthenedsincetheearlystageofPP;

• PPFsshoulddemonstratetogov-

ernmentsthatqualitytechnicalas-

sistanceinprojectpreparationre-

ducesinherentrisksandimproveschancestoattracttheprivatesector

andachievefinancialclosure

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Financialrisks,lowcreditwor-

thinessofmu-nicipalities

Locallevel,projectlevel

Applicationofrisk-mitigationinstru-

ments,reductionofearly-stagerisksby

projectpreparation

PPF:riskmitiga-tionthrough

project

• PPFsshouldmakeuseofriskmitiga-tioninstrumentsincollaboration

withdevelopmentfinanceandpri-vatesectorfinance;

• PPFsshouldsharesuccessstoriesandlessonslearntwithriskmitiga-

tioninstruments.

• PPFsmaycreateandsharetrackrecordofsuccessfulprojectstoraise

creditworthinessofcities

Insufficientpro-

jectorganization

Projectlevel Improvingcapacity

ofprojectdevelop-ers

PPF:project

management• PPFsshouldbeengagedthroughoutthewholeprojectpreparationstage;

• PPFsshouldcarefullyselectsectors,regionsandscopeofactivitiestode-

velopsufficientexpertise;

• Localexpertsshouldbehired.

Nationalandinternational

level

Improvingcapacityofprojectdevelop-

ers

PPF:projectmanagement

• Nationalhubsofexpertisecouldprovidetherighttechnicaladvises

andensurethelinkagewiththeade-

quatesourceoffunding;• Identifysimilarprojectinitiativesat

higherlevelstoavoidduplicationofworkandfragmentedplanning

Legalobstacles Nationallevel Legislativereforms Legalframe-work

Nationallegalframeworksshouldbeimprovedtoraiseallocationofclimate

financeatthecitylevel.

Lackofinstitu-tionalcapacity

atlocaland

regionallevel

Localandre-gionallevel

Improvingcapacityoflocalandregional

governments

PPF:capacitydevelopment

• PPFsmaycombinepreparationwithcapacitybuildingforlocalandre-

gionalgovernments.

• Coordinationbetweendifferentlev-elsofgovernment

Economicandpoliticalrisks


level

Providingfinancethroughdevelop-

mentinstitutions

Generalenvi-ronment

PPFsanddevelopmentfinanceshouldlowerthehigheroverallriskbyproject

preparationandfinanceandcrowdin

additionalfinance.


Coordinationbe-tweendifferent

levelsofgovern-

mentacrosstime

PPF:accesstolocalauthori-

ties;General

environment

PPFsshouldpromotecontinuityandcoherenceofprojectsamidstcontinu-

ouspoliticalandinstitutionaltransi-

tions

Sustainability Projectlevel

MakingESGas-

sessmentspartofPPFapproaches

PPF:ESGdue

diligencewithinprocurement

rules

PPFsshouldmakesupportconditional

uponsustainabilityrequirements

GlobalInfrastructureBasel

Elisabethenstrasse22

CH-4051Basel

Switzerland

T+41612051080

F+41612711010

[email protected]

www.gib-foundation.org

Content

1 Introduction.............................................................................................................................................72 Background–TheNeedforInfrastructureInvestment.............................................................................93 CurrentChallengesandSuggestedSolutionsinProjectPreparation.......................................................113.1 WhatisaProject?.......................................................................................................................................113.2 AchievingBankability..................................................................................................................................123.3 TheScopeofProjectPreparationFacilities................................................................................................133.4 OverviewofexistingPPFs...........................................................................................................................153.5 LiteratureReview–ChallengesandSuggestedSolutionsinProjectPreparation......................................194 CaseStudies–IdentifyingSuccessfulProjectPreparationApproaches...................................................234.1 CDIA–CitiesDevelopmentInitiativeAsia..................................................................................................24

4.1.1 GeneralInformation........................................................................................................................244.1.2 Methodology...................................................................................................................................254.1.3 BottlenecksandRecommendations...............................................................................................264.1.4 SuccessFactors...............................................................................................................................274.1.5 ProjectPreparationClosureandProjectFinance...........................................................................28

4.2 USICEF–USIndiaCleanEnergyFinanceFacility.........................................................................................284.2.1 GeneralInformation........................................................................................................................284.2.2 Methodology...................................................................................................................................294.2.3 BottlenecksandRecommendations...............................................................................................304.2.4 SuccessFactors...............................................................................................................................304.2.5 ProjectPreparationClosureandProjectFinance...........................................................................31

4.3 ESCI–EmergingandSustainableCitiesInitiative.......................................................................................314.3.1 GeneralInformation........................................................................................................................314.3.2 Methodology...................................................................................................................................324.3.3 BottlenecksandRecommendations...............................................................................................334.3.4 SuccessFactors...............................................................................................................................344.3.5 ProjectPreparationClosureandProjectFinance...........................................................................35

5 Discussion..............................................................................................................................................355.1 SummaryoftheProfilingResults................................................................................................................355.2 CanPPFsCopewithExistingProjectPreparationChallenges?...................................................................365.3 RemainingChallengesUpforDiscussion....................................................................................................37

5.3.1 ParticipationinProjectFinance......................................................................................................385.3.2 FundingofProjectPreparation.......................................................................................................415.3.3 OrganizationalOptimizationofPPFs...............................................................................................42

6 Recommendations.................................................................................................................................43References....................................................................................................................................................47Annex...........................................................................................................................................................51

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1 Introduction

Infrastructureisthebackboneofanyeconomy.Toimprovepeople’swell-beingandachievetheUN

SustainableDevelopmentGoals(SDGs)andthegoalsoftheParisAgreement,tremendousamounts

ofinvestmentarenecessary.Asignificantpartoftheseinvestmentsisrequiredforinfrastructurein

urbanareas.However,betweeninvestmentneedsandactualinvestment,thereisanimmenseglob-

alfinancialgap.Closingthisgaprequiresthedevelopmentofapipelineofwell-preparedinfrastruc-

tureprojectscontributingtosustainabledevelopmentingeneral,butespeciallyalsoconsideringcli-

matechangemitigationandadaptationneeds inparticular. In this context, localgovernmentsand

citiesplayacrucialrole.Allovertheworld,inurbanareasthepressureforinclusive,fairandefficient

transportsolutions,renewableenergyandbasicsocialservices likehousing is increasingandthis is

whereclimateresiliencehastoberealizedandwhereinvestmentconsiderationsshouldtargetalow

emissiondevelopment.Mostoftheseinvestmentswillbemadeincitiesbycities.

Additionally,climatefinanceandthe implementationofclimatepoliciesareoftennotwellaligned,

thusformingasecondgapwithregardstourbaninfrastructurefinance. Internationalagendas like

theSDGsandtheNewUrbanAgenda(seeHabitatIII,2017)underlinetheimportanceofbothlevels,

nationalandsubnationalfortheirachievement.Yet,financingfortheimplementationofsuchagen-

das,and inparticular climate finance, is still largelyoperatingat the international levelwhile local

and regionalgovernmentsareoftenexcluded.Toclose this secondgap,efforts tochannel finance

towardscitiesandurbanareasarerequired.ThisneedhasbeenlargelyexpressedbyLocalGovern-

mentsthemselves,whichoftenstruggletoaccessclimatefinance.Asaresponse,in2016,attheoc-

casionofCOP22inMarrakech,LocalLeadersadoptedtheRoadmapforActionofMarrakech2during

theClimateSummitofLocalandRegionalLeadersSummit.Thisstrategicdocument,whichmandates

theCitiesClimateFinanceLeadershipAlliance(CCFLA)foritsimplementation,addressesindetailthe

complexoverallfinancialissues–includingprojectpreparation–tosupportclimateactionatthelo-

callevel.

Infact,projectpreparationhasbeendefinedin2015byCCFLA,asoneofitstopfiveprioritiestolo-

calizeclimatefinance,and,consequently,asthethematic focusofthe2017-2018CCFLAworkplan.

Asthealliance(CCFLA,2017,p.6)observes,“therecognitionoftheneedfor‚localizing’globalagen-

dashasbeengrowing,andpromisesasignificantaccelerationineffortstomakethefinancingoflocal

climateactionapriority“.Thisrequires“investment-ready”infrastructureprojects,thuspointingto

the importanceof supportingdevelopersof infrastructureprojects in thepreparationprocess.The

roleofsubnationalprojectpreparationfacilities(PPF)iskeyinthisregard.Inaddition,CCFLAstates

that,throughtheaggregationofcooperationeffortsandcommitmentscomingfromawiderangeof

stakeholders, “project preparation also serves as a key enabler of the delivery process for setting

neweffectivefinancingarchitectures,modelsandchannelsforlocalandregionalgovernments’low

carbonprojectsanddevelopmentplans”(ibidp6).Inthiscontext,renewingprojectpreparationun-

2 http://www.citiesclimatefinance.org/2016/12/ccfla-mandated-by-local-and-regional-leaders-at-marrakech-to-localize-

climate-finance/

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derstandingandsupportforactionatthesubnationalleveliskeyforthedeliveryoftheParisAgree-

ment.

Eventhoughtherearecountless ideasandplans for infrastructureprojectsbyboththepublicand

theprivatesector,asolidpipelineofbankableprojectsthatcaneffectivelyaddresstheclimatechal-

lengeisstill lackinginmostcountries.Especially, localandregionalgovernmentsindevelopingand

emergingcountriesdonothavesufficientfinancialresourcestokeepupwithactualinvestmentre-

quirements.Theterm“bankability”iscriticalandtherearefactorsthatinfluenceaproject’sbanka-

bility,whichgobeyondthereachofPPFs.However,comprehensiveapproachestoprojectprepara-

tion have a considerable potential to increase the number of projects ready for implementation.

Moreover,thedefinedobjectiveofPPFsistolinkprojectstofinancebythepublicorprivatesector,

nationalandinternationaldevelopmentbanks,climatefunds,andpotentialotherdonors.Thus,sub-

nationalPPFsarefundamentallyimportantinsettingupprojectpipelineswithhighqualitybankable

infrastructureprojectsandindirectingfinanceattheinternationalornationalleveltothelocaland

regionallevel.Additionally,PPFsmaybehelpfulinbuildinglastingcapacitiesandmakingthegeneral

environmentforprojectinvestmentandrealizationmoreenablingbysharingitsexpertiseandexpe-

rienceaswellasbyfosteringcollaborationsandpolicydialoguesacrosslevelsofgovernment.

Alargeamountofscientificliteraturehasaddressedtheneedforbetterunderstandingthestructur-

ing,processes,resultsandimpactsofPPFsworkingon“traditional”infrastructuredeals(largescale,

severalhundredmillionsbudget,basedonnationalprioritiesandwithnationalinterlocutors).How-

ever,almostnopreciseanalysishasbeenputforward inrelationtotheprojectpreparationsupply

and demand dynamics when it comes to the specifics of local and regional levels of action. A

knowledgegaponneedsandbarriers,existingexperiencesandfinancialtrackrecords,onbothsides

of the “local” equation (local clients, PPFs for subnational infrastructure investment) remains and

needstobeanswered; includingwithaviewontheclimatelensintegrationonthedesignof infra-

structureinvestmentdeals.

WiththisthematicfocusCCFLAaimstotacklethenumerouschallengesthatProjectPreparationFa-

cilities(PPFs)faceatthelocalandregionallevelwhileatthesametimeprovidingaplatformforthe

sharing of experiences of project preparation practitioners and raising awareness on financing re-

quirementsforurbaninfrastructureprojects.

ThisreportwaspreparedasaresultofthefirstProjectPreparationPractitionerForumorganizedby

CCFLAduringCOP23.Theobjectiveofthisreportistoidentifyfactorsforsuccessfulprojectprepara-

tionandhelpfultoolsandmethodologiesaswellastoproviderecommendationsforfurtherresearch

anddebatestobefacilitatedbytheCCFLAProjectPreparationWorkingGroup.

The resulting conclusions and recommendationswill hopefully stimulatenewactivities and inform

approachesofexistingandnewlyemergingprojectpreparationfacilities(PPFs).

ThisreportcompilestheprofilingofthreesubnationalPPFsandconversationswithexpertsfromdif-

ferentinstitutions,formerorcurrentPPFstaffmembersaswellasindependentconsultants.Outof

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this,severalconclusionscanbemadeconcerningcommonalities,differences,successfulapproaches

andremainingbottlenecks.

Thereportisstructuredasfollows:Chapter2describesdetailsoftheinfrastructureinvestmentgap

asthebaselineproblem.Chapter3providesandoverviewontermsanddefinitionsrelevantforPPFs

and contains a literature review on subnational project preparation challenges. In Chapter 4, the

threePPFsarepresentedincasestudies.Chapter5makespreliminaryconclusionsthat leadtothe

expertdiscussion,which isalsosummarized inthischapter.Thefinalrecommendationsareformu-

latedinChapter6.

2 Background–TheNeedforInfrastructureInvestment

Globaldemand for infrastructure is rising.Themain reasons for this trendare:populationgrowth,

economicgrowth, increasing industrialization,andnotably,urbanization.These factorsareparticu-

larlyacute indevelopingcountriesandemergingeconomies.Globally,upto1.4millionpeopleare

movingintourbanareaseveryweek(Ijjasz-Vasquez,2017).Suchrapidmigrationisleavingmanyre-

gionswithanextremelyhighproportionoftotalpopulationinurbanareas,forexample,80percent

of LatinAmericanandCaribbeanpopulationsand58percentofEastAsianandPacific)population

currently live in urban areas (WorldBank, 2016). This demonstrates the increasing need for infra-

structureandalsoexplainswhycitieshaveanoverwhelmingly importantrole inthedebatesabout

infrastructureneedsandproject implementation.Demandforinfrastructurenotonlyimpliesacer-

tainquantityofinfrastructureprojectsisrequired,butalsomeansthatthequalityofinfrastructure

projects isessential to improvements inpeople’swell-being, includingclimate resilienceandsocial

prosperity.

Anothercloselyrelatedaspectfurtherhighlightingtheimportanceof infrastructuredevelopment is

itsrole intheachievementoftheSustainableDevelopmentGoals (SDGs)andgoalsset intheParis

Agreement. Climate changemitigationandadaptationare closely tied to theway infrastructure is

designedand implemented (seee.g.OECD,2017,pp.89–120). Individualprojectsaswellas larger

infrastructuresystemssuchastransportnetworkswillplayakeyroleinthetransitiontowardsalow-

carbon economy. The usually energy-intensive and asset-heavy nature of infrastructure, however,

alsoimpliesthatalargeamountoffinanceisneededtocreatechange.AccordingtoBhattacharyaet

al.(2015,p.1),“amajorexpansionofinvestmentinmodern,clean,andefficientinfrastructurewill

beessentialtoattainingthegrowthandsustainabledevelopmentobjectivesthattheworldissetting

foritself”.Connectingtheseobjectivesagaintocities,areportbyC40CitiesandArup(2016,pp.52–

72)clearlyshowsthesignificantpotential forreduction incarbonemissions incitiesandthedirect

and indirectkey roleof infrastructure toachieve the low-emissionpath. Indeed, the reportargues

thatcitiesmayreducetheiremissionsbyalmost50percentuntil2050comparedtothebusiness-as-

usualscenariobyexploitinglocalopportunitiesandbuildingpartnershipsatthecitylevel(ibid.,pp.

79–80).

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Estimatesoftherequiredinfrastructureinvestmentvolumedifferdependingonthemethodsapplied

butallsourcesconvergeontheimmensityoftheamountneeded:TheWorldEconomicForum(WEF,

2013,p.4),suggestsaglobalannual investmentneedofUSD5trillionuntil2020.Accordingtothe

Global Commission on the Economy and Climate (2014, p. 19), total investment needs from2015

until2030isUSD93trillion.AmorerecentstudybyMcKinsey(2016,pp.2–3)estimatesinvestment

requirementstobeUSD6trillionperyearoverthenext15years.TheUNConferenceonTradeand

Development(UNCTAD,2014,p.140)statesanestimatefordevelopingcountriescalculatinganan-

nualneedforinvestmentexpendituresofUSD3.3to4.5trillionbetween2015and2030.Inthespe-

cificcontextofcities,theCityClimateFinanceLeadershipAlliance(CCFLA)(2015,p.14)estimatesof

USD4.1to4.3trillionannualurbaninfrastructureinvestmentswouldberequired,wherethequality

of infrastructurecomplieswithabusinessasusualscenario. Ifurbaninfrastructure istobeclimate

resilientandemission-reducing,theestimateofrequiredinvestmentwouldbeincreasedby9to27

percent(ibid.).

Thecurrentvolumeofinvestmentsfallwellshortofthoserequired.AccordingtotheWEF(2013,p.

4)andMcKinsey(2016,pp.2–3),currentinvestmentvolumerangesbetweenUSD2.5and3trillion

peryear,andfordevelopingcountries,UNCTAD(2014,p.140)providesanestimateofUSD1.4tril-

lionperyear:wellshortofanyoftheestimatesofrequiredinvestmentstatedabove.Inaddition,a

reportoftheInternationalInstituteforEnvironmentandDevelopment(IIED)estimatesthatonly10

percentofclimatefinanceactuallyeffectivelyreachesthelocallevel(Soanesetal.,2017,p.14)alt-

houghglobalclimatefinancehasbeenslightlyrisingintheaverageoverthepastfiveyears(seeCli-

matePolicyInitiative,2017).Consequently,thereisalargeinfrastructureinvestmentgapofbetween

USD 1 trillion (WEF, 2013, p. 4) and 3 trillion (McKinsey, 2016, pp. 2–3) annually. For developing

countries,theinvestmentgapisbetweenUSD1.9and3.1trillion(UNCTAD,2014,p.140;Morgado&

Casado-Asensio,2015).

Forthetworegionsthisstudyfocuseson,LatinAmericaandAsia,thenumbersarealsostartling:in-

frastructure financingneeds indevelopingAsia includingclimatechangemitigationandadaptation

costsamounttoUSD1.7trillionannuallyfrom2016to2030,leavingagapofalmostUSD500billion

peryear (ADB,2017,pp.12,15). InLatinAmericaandtheCaribbean,annual infrastructure invest-

mentofUSD120to150billionisrequiredandanadditionalinvestmentofUSD30billionperyearis

neededtomitigateandadapttoanticipatedclimatechange(Serebriskyetal.,2015,p.8).

Whilethesenumbersmakethedimensionofthechallengeobvious,theyalsohighlightthepotential

for investors. The International Finance Corporation (IFC, 2016, p. 2) notes that the commitments

madeintheParisAgreementimplyacceleratedeffortstowardsclimatesolutions,includingrenewa-

bleenergy,energyefficiency, sustainable cities, forestmanagementandclimate-smartagriculture.

Anassessmentof21developingandemerging countries reveals that there is a so-called “climate-

smart”investmentpotentialofUSD22.6trillioninvarioussectorsfrom2016to2030.

Currently, liquidity in global financialmarkets is available in abundanceand thishasbecomeeven

moresointhecourseofthefallintheinterestratelevelaftertheglobalfinancialcrisisandthesub-

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sequentunconventionalandultra-expansivemonetarypoliciesinindustrialcountries.Thus,Itwould

bewrongtosaythatwhatisneededismoremoney,butratherviableinvestmentopportunities.The

global level of interest rates being so low, investors are looking for profitable investment alterna-

tives.TheNewClimateEconomy(NCE,2017)estimatestheamountofassetsundermanagementby

a rangeofprivateand institutional investors to reachalmostUSD120 trillion. Infrastructurecould

potentially provide a solution tomany investors. However, there are several obstacles preventing

investment from flowing to infrastructure, suchas limitsdue to regulationand investors’portfolio

diversificationstrategies(seee.g.Nassiry&Nakhooda,pp.18-19).Anotheroneisrisksthatarespe-

cific to certain infrastructure sectors. Besides these factors,oneof themainbarriers is the lackof

well-preparedurbanprojects. Thus, successful project preparation is also of critical importance to

createapipelineofprojectssuitableforsuchinvestment.Thisisthefocusofthisreport.

3 CurrentChallengesandSuggestedSolutionsinProjectPreparation

3.1 WhatisaProject?

Definingwhatismeantbytheterm‘infrastructureproject’isanon-trivialmatter.Dependingonsec-

tor, individual infrastructure projects differ significantly in size, purpose, environmental setting,

ownership,and financingmodalities. In reality there isagreyzoneofwhatcanandcannotbede-

finedasaninfrastructureproject.Forthepurposesofthisreport,an‘infrastructureproject’canbe

consideredasthephysicalanddigitalcomponentsofsystemsthatprovideservicesrequiredtoena-

ble,sustain,orenhancesocietallivingconditions.Examplesofinfrastructureprojectsinclude:

• Water(includingharvesting,storage,management,distribution,treatmentandrecycling);

• Energy(includinggeneration,storageanddistribution;energyefficiency)

• Solidwastemanagement(includingcollection,distribution,processing,recyclingand

storage)

• Transportnetworks,nodesandfleet(includingpedestrian,bicycle,vehicular,rail,water-

borneandairtransportation)

• Communicationnetworks(includingtelephone,cellularanddata)

• Socialinfrastructure(includingeducation,healthcare,sportsandrecreation,law

enforcement,fireandemergencyservices)

• Foodsystems(includingagriculture,storage,processinganddistribution)

• Miningandextractiveindustries(includingminesandprocessingfacilities)

Whilecommunicationnetworksservecommercialpurposes,ahospitalasanexampleofsocialinfra-

structureprovidesbasicservices.Asaconsequence,ownershipofsuchdifferentprojectsoftendif-

fersaswell(privatevs.publicownership).Intheenergysector,gasproductioninfrastructureismuch

more capital intensive than decentralized solar power plants,which can be owned, operated and

potentiallyalsofinancedbyprivatehouseholds.Dependingonthecharacteristicsofaproject,PPFs

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have to emphasize different aspects while project developers need different capacities to be

strengthened.Importantly,differentfinancingmodelsareappropriateaccordingtodifferentcircum-

stances. As all PPFs profiled in this study agree, it is not possible to apply highly standardized ap-

proachesbecauseallinfrastructuresectorsaredifferentandfacetheirownuniquechallenges.Asa

consequenceandforthepurposeofthisstudyandfutureworkofCCFLA,aclarificationofthepro-

jectspectrummaybeneededtoavoidanyconfusionandenablebothstandardizationanddifferenti-

ation.

3.2 AchievingBankability

Inmanyregionsoftheworld,successfulprojectpreparationisfraughtwithdifficulties.Therearea

largenumberofprojectplansrequiringfinancing,andalargevolumeofcapitalavailableforinvest-

ment,buttheinvestmentgapisnotbeingclosed.Thereareseveral importantreasonsforthis.For

infrastructureprojectstobefinancedeitherbypublicsectorcapitalorprivatesectorcapital,several

conditionsneedtobefulfilled.Theycanbesummarizedbytheterm“bankability”.Thismeansthat

projectshavetobeprepareduptoastagewhereaninvestoriswillingtoengage.Factorsrequiredto

demonstratebankability includeproofofprojectfeasibility,projectdevelopment,financialviability,

demandplanning,fundingofoperation,acceptanceinthecommunity,regulatoryapprovals,andle-

galcompliance).Countlessprojectsfailtoachievebankability,fornumerousreasonswhichinclude:

• Insufficientprojectdevelopment:inmanyprojects,businessplansareunrealistic,legal,fi-

nancial,procurementandotherbaselineworkisinsufficientlyprepared.

• Missinglinktothefinancialsector:projectsneedaccesstothenetworkoffinanceinstitu-

tions.

• Insufficientreturns:foraprivateinvestortostepin,aprojecthastogeneratearevenue

streamexceedingacertainminimumlevel.Bankabilitymaybasicallybeachievedwithlow

returns,butthenthefinanceproviderismostprobablyadevelopmentinstitutionoranother

donor.Amajorreasonforweakrevenuesmaybethatusers,especiallyindevelopingcoun-

tries,cannotaffordtopayfortheservices.

• Highriskinthedevelopmentphase:infrastructureprojectsareplannedforthelongterm.

Thisinvolveshighriskparticularlyinthepreparationphasewhenmanyinfluencefactorsare

stilluncertain.Manyinvestorsarethereforenotwillingtospendresourcesonprojectprepa-

ration.

• Long-termnatureofinfrastructureinvestmentvs.short-termpreferencesofinvestors:the

long-termhorizonofinfrastructureprojectsrequireslargefixedcapitalinvestmentatthebe-

ginningwhilereturnsaccumulatemuchslowerovertime.Thismaybeincontrasttoanin-

vestor’sshort-termpreferences.

• Resistancefromthelocalcommunity:projectsmayexperienceresistancefromstakehold-

ers,vulnerablegroupsorNGOsinthelocalcommunitypossiblyreducingreturnsandjeop-

ardizingprojectdevelopers’andinvestors’reputation.

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Thereasonsforprojectbankabilityfailureshowthatproperprojectpreparation intechnical, finan-

cial,legal,sustainability,andgovernanceregardsiskeytoachieveahighersuccessrateofprojects.

Thus, the interest in this report is inapproachesandmethodologiesofPPFs toaddress theabove

challengesinthebestway.

Theprocessofprojectpreparationfrominitialplanningtothebeginningofimplementationrequires

considerable financial resources.Dependingon respectiveestimates, the shareofprojectprepara-

tioncostsintotalprojectcostsvariesbetween1and10percent(seeNassiry&Nakhooda,2016,pp.

37–38). Ifthetotalglobal infrastructuredemandofUSD93trillionbetween2015and2030(Global

Commission on the Economy and Climate, 2014, p. 19) is taken as a baseline, estimated project

preparationcostsrangefromUSD930billionto9.3trillionintotalandfromUSD62to620billionper

year(Nassiry&Nakhooda,p.39).Forlow-andmiddle-incomecountries,estimatedprojectprepara-

tioncostsperyeararebetweenUSD40and400billion(ibid.,p.39).

3.3 TheScopeofProjectPreparationFacilities

Thus, goodproject preparation is essential inmaking infrastructureprojects bankable. The role of

ProjectPreparationFacilitiesshouldthusbeanalyzed,sincetheyplayacrucialpartinclosingthein-

vestmentgap.ProjectpreparationitselfisawidefieldanddifferentPPFsdiffersignificantlyintheir

scopeandareasofactivities.AllPPFsprofiledinthisreportdescribetheirmaintasktobetheprepa-

rationofprojectstoabankablestageandtolinkthemwithfinancinginstitutions.

GIZ(2017)startswiththegeneraltermof“projectfacility”.ProjectfacilitiescanbedividedintoPro-

jectFinanceFacilities(PFF)andProjectPreparationFacilities(PPF).CCFLA(2017a,p.29)takesanal-

ternativeapproachanddistinguishesbetweenPPFsandProjectPreparation Initiatives (PPI),where

theformerusuallysupportsprojectpreparationthroughallitsphaseswhilethelatterprovidesbroad

supportnotspecificallytiedtoprojectpreparationphases.AccordingtotheGIZdefinition,PFFsmay

provideprojectpreparationsupportthroughtechnicalassistancebuttheirmaincharacteristicalsois

toincludeanownfundtofinanceprojects.Inmostcases,thisappliestobanksbeingpartoforhost-

ingaPFF.PPFs,incontrast,arefocusedontechnicalassistanceandprovidingfundingfortheproject

preparationprocess.However, theydonot includea financingentity.Rather,PPFsconsider them-

selvesasbeingafacilitatortolinkaprojecttoacertainexternalsourceoffinance.PPFactivitiesmay

go beyond technical assistance in its narrowest sense and often also include capacity building for

project developers, establishing effective implementation frameworks and advocating for an ena-

blingenvironment.GIZfurtherdistinguishesbetweenPPFswiththefollowingproperties:

• Cityfocus:somePPFshaveanexclusivefocusoncities.Inmostcases,thosewhodonot

sharethischaracteristicdonotexplicitlyexcludeactivitiesincitiesbutdonotemphasize

themnecessarilymorethanruralareas.So,PPFsmaybecharacterizedaseither“exclusively

urban”or“inclusivelyurban”.

• Geographicfocus:somePPFsaregloballyactivewhilemanyofthebigfacilitiesarefocused

onaspecificworldregion,suchasseveralcountries,continentsorpartsofcontinents.

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• Thematicfocus:basically,aPPFmayjustworkontheobjectiveofimplementingprojects

successfullysuchthatoperationcanstart.However,manyPPFshavespecificobjectiveslike

climateresilienceorclimatechangemitigationandadaptation,provisionofbasicservices,

energyefficiencyorpovertyreduction.MostofthelargePPFshaveaconsiderablenumberof

objectivesincludedintheirmethodologies.

• Outputfocus:aspartofpreparationfordirectprojectimplementationandalsogoingbe-

yondthefocalpointofasingleproject,PPFscanextendtheiractivitiestoaconsiderable

numberofdifferentoutputs.Theymaybeengagedindevelopingframeworkslike,among

others,nationallegislationandinstitutions,urbandevelopmentplansorsectoralstrategies.

Asalreadymentioned,capacitybuildingformunicipalitiescanbeanotheremphasis.Withre-

gardtofinancelinkage,PPFsmayeithertargetdevelopmentfinancingfromdevelopmentin-

stitutionslikemultilateral,bilateralornationaldevelopmentbanks,orfromprivatesources

likecommercialbanksorcapitalmarketinvestors.Additionaldonorsmaybeincluded,espe-

ciallywhenprojectshaveaclearfocusonsustainability.

• Partnershipstructure:PPFscanalsodifferintheirpartnershipstructure.Theycanbecreated

andhostedbyasingleentitybutaswellbetheproductofamulti-partnercollaboration.

ForthethreePPFsprofiledinthisreport,allofthemhaveaclearregionalfocus,twoareexclusively

urbanwhileoneis inclusivelyurban.Thematically,twoPPFshaveaquitebroadsustainabilityfocus

includingenvironmental,socialaswellasgovernanceissueswhileoneofthemhasanexclusivefocus

onrenewableenergy.Withrespecttotheoutputofprojectpreparationsupport,allperformmani-

foldactivitiesinthenarrowprojectpreparationprocessthatisdirectlyfocusedonaproject.Twoof

themalsoprovidecapacitydevelopmentservices.AsisgivenbytheverybasicdefinitionofaPPF,all

three of them consider the linkage of project developers and investors as their very central goal.

Concerningthepartnershipstructure,onePPFwasestablishedandishostedbyasingleentitywhile

theothertwoareamulti-partnerfacility.OneFacilityconsidersitselfasaPFF.However,asexplained

above,PFFsmaywellincludecomprehensiveprojectpreparationservicesjustasPPFs.

Withintheprojectpreparationprocess,thereisnodefiniteanduniquewayofproceeding.However,

severalstagescanbedistinguishedasacommondenominator(CCFLA,2017a;GIB,2014):

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Pre-feasibilityplanning:thisstageincludesthefirststepsinvolvingprojectselectionandthedeci-

siontofurtherdevelopaproject.Pre-feasibilitystudies,costestimates,fundinganalysesandtest-

ing of alternative approaches can be part of pre-feasibility planning. First consideration of envi-

ronmentalandsocialfactorstakesalsoplaceinthisphase.

Feasibilityplanning:thisphaseproceedstoamoretechnicallevelandinvolvesmoreconcretepro-

jectaspectslikefeasibilitystudies,demandplanning,engineering,sustainabilityandresilienceas-

pects,technicalplanning,institutionalandprocurementarrangements,businessplan,environmen-

talandsocialimpactassessment.

Operationphaseplanning:long-termplanningimpliestakingtheoperationphaseofaprojectinto

account.Therefore,thisstageemphasizesthedevelopmentofpublicandprivatedeliveryoptions,

formalquantitativeanalyses,markettestingandselectionofprocurementapproach.

Processingandapproval:inthisphase,financial,administrative,legal,procurementandriskman-

agementarrangementsaremade.Moreover,supportinprojectapprovalisprovided.

Even though there is considerableheterogeneityamongPPFsprofiled in this report, theydescribe

theirmaintasktobethepreparationofprojectstoabankablestageandtolinkthemwithfinancing

institutions.

3.4 OverviewofexistingPPFs

In themappingof itsmemberorganizationsand initiatives,CCFLA(2017a,pp.29–30) identifies27

PPFs,ofwhich11operateinAsiaand/orLatinAmericaand15haveanexclusivelyurbanfocusand

25operateatthesubnationalorprojectlevel.Mostofthemareengagedinearlystagedevelopment

activities like improving the environment or strategic planning. Only a few are active in post-

preparationphasessuchasimplementationorpostimplementation.ThemorePPFsaccumulateex-

perience insuccessfulpreparation, themore theyareexpected toalsoengage inpost-preparation

activities.

ThissectiongivesanoverviewofexistingPPFsinAsiaandinLatinAmerica.Theirmainpropertiesand

fieldsofactivityaredescribed.NotethatsomeofthemarePFFsaccordingtotheabovedefinitionby

GIZ(2017).However,asexplained,PPFsandPFFssharemanycommonfeatures.Manyofthemare

tiedtodevelopmentbanks,whichalsoserveasafinancesourceinmostcases.Whilesomehavea

puredevelopmentfocus,othershaveincorporatedaspecificemphasisonclimate.Itisalsoremarka-

blethatalargenumberofthemisexclusivelyfocusedoncities.Eventhoughmostofthemarefund-

ed by national or international institutions, they are subnationally oriented in their collaboration

withcitiesandprivatesectorpartners.PIDGisalsoactiveinAfricabutisinTable1becausealarge

proportionofitsresourcesareengagedthere.CFFdoesnothavearegionalfocusbuthasbeenactive

exclusivelyinLatinAmericasinceitscreationsothatitisexhibitedintheTable2.FELICITYwillalso

beengagedinChinabutisexhibitedinTable2duetoitsfocusonMexicoandBrazil.Dataonnumber

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of projects and average financial support per project areprovided for those facilitieswhere infor-

mationisavailable.

Table1 SummaryofsubnationalPPFsinAsia

Description Specificinformation

CDIA–CitiesDevelopmentinitiativeforAsia

Leadorganizations:AsianDevelopmentBank(ADB)&GIZ

Since:2007Facilitytype:PPF

Cityfocus:exclusivelyurban

Thematicfocus:nosectoralfocus

Partnershipstructure:multi-stakeholderNumberofprojectssupported:morethan70

Averagesupportperproject:USD250,000

- Projectpreparationsupportinmedium-sizedcities

- Prioritizationofurbaninfrastructureinvestments- Pre-feasibilitystudies

- Linkingtofinance

ACCCRN–AsianCitiesClimateChangeResilienceNetwork

Onbehalfof:RockefellerFoundation

Since:2008

Facilitytype:PPFCityfocus:exclusivelyurban

Thematicfocus:climatefocus

Partnershipstructure:multi-stakeholder

Numberofprojectssupported:35Averagesupportperproject:USD350,000

- Membership-basedplatform

- Supportofindividualpractitioners

- Generatingandsharingknowledgeabouturbanclimatechangeresilience

UEIF–UrbanEnvironmentInfrastructureFund

Leadorganization:ADB

Since:2009

Facilitytype:PFFCityfocus:exclusivelyurban


Partnershipstructure:singleactor

Numberofprojectssupported:about40

Averagesupportperproject:USD200,000

Grantsfortechnicalassistanceandinvestments

UFPF–UrbanProjectFinanceInitiative


Since:2011

Facilitytype:PFF

Cityfocus:exclusivelyurbanThematicfocus:climatefocus

Partnershipstructure:singleactor

- PooledgrantsfromUEIF

- Pooledgrantsfromotherurbantrustfunds

- Frameworkagreementswithfinancingpartners

- Knowledgeprovisionandexchange

AAPP–Adapt-AsiaPacificProject

Leadorganization:USAID


Cityfocus:inclusivelyurban

Thematicfocus:climatefocus

Partnership structure: single actor (extensive partner net-work)

- Facilitatingaccesstoclimatechangeadaptationfinance

- Buildingnationalcapacityforadaptation- Technicalassistance

- Organizingfocusedtrainingandpeer-to-peerlearning

- Promotingregionalnetworkingandtraining

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Table1 continued

AP3F–AsiaPacificProjectPreparationFacility


Since:2014

Facilitytype:PPF


Thematicfocus:nosectoralfocusPartnershipstructure:multi-stakeholder

- Financialassistanceforpublicsectoragenciesofmem-

bercountriestosupportfinancial,legalandtechnical

advisoryservices

- Supportforenablingreformsandcapacitybuilding:

- upstreamsectorreform- duediligenceofprojectstructuring

- preparationofinformationmemorandaandmarket-

ing

- preparingprojectdocumentationandfinancialmodels

USICEF–USIndiaCleanEnergyFinanceFacility

Leadorganizations:ClimatePolicyInitiative&IndianRenewable

EnergyDevelopmentAgency

Since:2017Facilitytype:PFF


Thematicfocus:renewableenergy

Partnershipstructure:multi-stakeholder

Numberofprojectssupported:5Averagesupportperproject:USD250,000

- Providingtechnicalassistance

- Linkingprojectstofinance

PIDG–PrivateInfrastructureDevelopmentGroup

Lead organization: autonomous governance, membership of

fiveEuropeanandAustralianministriesaswellasdevelopment

financeinstitutionsSince:2002

Facilitytype:PFF


Thematicfocus:nosectoralfocusPartnershipstructure:multi-stakeholder

Numberofprojectssupported(byInfraCoAsia):12

Averagesupportperproject:USD500,000(2–10millionincase

ofco-developmentandjointventurepartner)

- Mobilizationofprivatesectorinvestment

- Groupofsubsidiarycompaniesfocusedon

- Technicalassistance- Provisionofguarantees

- Facilitationofprivatesectorparticipation

- Provisionofdebt

Source:GIZ(2017),PIDG(2017),CCFLA(2017)

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Table2 SummaryofsubnationalPPFsinLatinAmerica

Description Specificinformation

CSC–PlatformofSustainableandCompetitiveCities

Leadorganizations:IDB,Findeter

Since:2012

Facilitytype:PPF

Cityfocus:exclusivelyurbanThematicfocus:nosectoralfocus

Ownershipstructure:multi-stakeholder

- Planningsustainablestrategiesforcities

- Technicalassistance

- Providingresourcesforprojectpreparation

- Partnershipswithpublicandprivateinstitutions

ESCI–EmergingandSustainableCitiesInitiative

Leadorganization:IDB




Ownershipstructure:singleactor

Numberofsupportedprojects:morethan50Averagesupportperproject:fundingisraisedbycities

- Supporttonationalandsubnationalgovernmentsin

developmentofcityactionplans- Projectprioritization

- Technicalassistance

- Pre-feasibilityplanning

Infrafund

Leadorganization:IDB

Facilitytype:PFF

Cityfocus:inclusivelyurbanThematicfocus:transportsector

Ownershipstructure:singleactor

- Identification,developmentandpreparationof

sustainableinfrastructureprojects

- Linkingprojectstofinance- Providingresourcestohirespecializedconsulting

services

CFF–C40CitiesFinanceFacility

Leadorganizations:GIZ&C40

Facilitytype:PFFCityfocus:exclusivelyurban



Numberofsupportedprojects:2

- providingsupportforclimatechangemitigationand

adaptationprojects- Technicalassistance

- Projectstructuring

- Capacitydevelopment

FELICITY–FinancingEnergyforlow-carbonInvestment–CitiesAdvisoryFacility

Leadorganizations:EIB&GIZ

Facilitytype:PPF




- guidanceontechnical,financialandeconomicfeasi-

bilityofinvestmentsincities

- capacitydevelopment

- facilitationofknowledgeexchange

Source:GIZ(2017),CFF(2017),EIB(2017),CCFLA(2017)

TherearefurtherPPFsandPFFsactive inAsiaandLatinAmerica.Theyarenotdepictedseparately

herebecausetheydonothaveanexclusivefocusonLatinAmericaand/orAsiabutareengagedin

manyworldregionsincludingatleastoneofthetworegionsofinterest.Additionally,theiroutputis

oftensomewhatdifferentwhereasTables1and2depictPPFsinamorenarrowsense.Someofthem

maybeconsideredasPPIsaccordingtotheCCFLAdefinition.Thefollowinglistgivesanoverviewof

someofthem:

• R20RegionsofClimateAction:identification,structuring,financingandevaluationofclimate

projects(R20,2017)

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• GlobalPlatformforSustainableCities:platformforknowledgesharinganddevelopmentof

cityactionplans,notactiveatthelevelofanindividualproject(WorldBank,2017)

• LowCarbonCityLab:carbonemissionimpactassessment,investmentfacilitation,capacity

building(LoCaL,2017)

• IFCInfraVentures:fundingofserviceslikefeasibilitystudies,ESGassessments,financialstruc-

turing,stakeholderengagement(IFC,2017)

• TransformativeActionsProgram:enablingbetteraccesstoclimatefinanceforcities,linking

subnationalauthoritiesandfinancingbodies,designingtransformativeandbankableclimate

actions(TAP,2017)

• GlobalInnovationLabforClimateFinance:identification,designandpilotingofclimatefi-

nanceinstruments;labsinIndiaandBrazil(ClimateFinanceLab,2017)

• LocalClimateAdaptiveLivingFacility(LoCAL):technicalsupport,capacitybuildingsupportto

localauthorities(GlobalClimateChangeAlliance+,2017)

3.5 LiteratureReview–ChallengesandSuggestedSolutionsinProjectPrepa-

ration

Researchliteratureshowsthatsuccessfulprojectpreparationisademandingtask.Thissectiongives

ashortoverviewbyfocusingonthecommonlyencounteredchallengesthatsuccessfulprojectprep-

arationneedstoovercome.

AreportpublishedbyAfricainvestor(Danso&Samuels,2017,pp.4–6)concludes,basedonasurvey

amongprojectdevelopers inAfrica, that themajor impediments forefficientprojectdevelopment

are1)higherrequiredratesofreturnforprojectsindevelopingcountriesthanforthoseinadvanced

economies.Thisisduetothehigh-riskperceptionofpotential investors.Accordingtothatstatistic,

Africafeatureshighestrequiredratesofreturn.However,projectownersinAsiaandLatinAmerica

alsohavetopaysignificantlyhigherinterestratesthanthoseinadvancedeconomies.First,projects

indevelopingandemergingcountriesrelymoreonpublicsupportthanprojects in industrialcoun-

tries.Second, riskmitigationand funding fornon-economic infrastructurearemore importantand

poorercountries.Third,likewise,itismoredifficulttosecurequalifiedprofessionalstaffindevelop-

ingandemergingcountries than inadvancedeconomies.Fourth, the roleofprivatesectorproject

developers ismoredemanding indevelopingregionsduetoconcernsabout,amongotheraspects,

negotiatingwith governments, securing riskmitigation, project design, and structuring of finance.

TheprojectsuccessratesinAsiaandLatinAmericaareestimatedat27percentand25percent,re-

spectively,comparedto46percentforindustrialcountries.3Thereportcomesupwithasetofrec-

ommendationscontainingthefollowingones(ibid.,p.9):

3Thesenumbersdependonwhatisdefinedasprojectfailure,whichmaydifferaccordingtoindividualconsideration.How-

ever,itisrathertherelativedifferencesinregionalperformancethatisrelevanthere.

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- Newpartnershipsininfrastructureprojectdevelopmentbetweenthepublicandprivatesec-

torshouldbecreatedtoachieve“infrastructure-enablingenvironments”;

- Governmentprogramsshouldbeestablishedtosupportprojectdevelopment;

- Increasinguseofriskmitigationinstruments,guarantees,andfinancefacilitiesshouldbe

employedtoensureaccesstoneededlong-termfinance.

AnotherstudyonbehalfoftheG20DevelopmentWorkingGroup(2014,pp.39–41)identifiesseveral

keyrecommendationstoachievebetterprojectpreparationresults.TheyareexhibitedinTable3.In

summary,theyaddresstheneedforamoreenablingenvironmentfor infrastructuredevelopment,

forscalingupprojectpreparationcapacitiesandfunding,andforbetterinclusionoftheprivatesec-

tor,particularlywithregardtofinancingmodality.

Table3 G20recommendationstoachievebetterprojectpreparationoutcomes

• Priorityshouldbegiventostrengtheningdevelopingcountrygovernments’capacityforupstreamac-

tivitiesthatprovideanenablingenvironmentandleadtotheidentificationofprioritizedinvestment

programs.

• Thescaleofprojectpreparationneedstoberampeduptosupportenhancedinfrastructuredevelop-

ment.

• Fundingforprojectpreparationshouldberationalizedandincreased.

• Thereshouldbeaclearpathforcountriestotransitionfromreceivinggrantsupportforprojectprepa-

rationtoeventuallybeingwillingandhavingthecapabilitytofinanceitthemselves.

• Thecommonpracticeofselectingthefinancingmodalityforaprojectpriortofeasibilitystudyshould

ideallybereversed,butotherwisenecessitatesbetterupstreamprojectinvestigationandflexibility

duringprojectpreparation.

• Improvedeffortsareneededtomakebetteruseoftheprivatesectorforinfrastructuredesign,fund-

ing,deliveryandlong-termoperationandtoleveragetheoverallbenefitsofprivatesectorparticipa-

tion.

Source:G20DevelopmentWorkingGroup(2014)

ApublicationoftheADB(ADB,2017)developsanapproachforprivateinvestmentmobilization.Ina

so-calledGreenFinanceCatalyzingFacility (GFCF),sovereignanddevelopmentfinancegrants loans

toprojectsunder thecondition that theycomplywithspecific sustainabilitycriteria.Thismitigates

risksandenhancesbankabilityofprojects.Risk reductionallowsprivatesector financetocrowd in

and tocompleteproject financeneeds.Blended finance leveragesgiven financial resources,which

maybededicatedtoachievingprojectbankability.AsFigure1shows,incontrasttothecommonap-

proachtogreenfinancewheregreenfeaturesareaddedaftertheprojectisprovidedwithfinance,

thenewapproachrequiresprojectstobegreenfromtheoutsetasaconditionforsecuringfinance.

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Figure1 ApproachoftheGreenFinanceCatalyzingFacility

Source:ADB(2017,p.56)

USAID’sDevelopmentCreditAuthority(DCA)comesupwithasetoffinancialguaranteemodelsthat

havetriggeredacreditamountofmorethanUSD5billionsince1999(DCA,2017b).Similarly,Guar-

antCo,acompanyofthePrivateInfrastructureDevelopmentGroup(PIDG),hasenabledaboutUSD

4.6billionsofar(GuarantCo,2017).Whetheramunicipalityisgivenaloanorissuesbonds,theinsti-

tutionsprovideguaranteescoveringupto50percentoftheborrowedamountsincasethecityde-

faultsonrepayment.Thismeansthataguaranteecovershalfofthelossesinthedefaultcase.Guar-

anteeshelpmitigatefinancialriskparticularlyatthecitylevelwherecreditworthinessisusuallycon-

sideredaslow.

A further exampleof a riskmitigation approach is Climate InvestorOne (2015, p. 1–2),which is a

compositionofthreefacilities.Adevelopmentfundprovidesfundingforprojectpreparationandde-

velopment.Thesecond facility isaconstruction finance fundconsistingof three tiersofwhich the

firstcoverspotentiallosses.Thesecondtieristakenupbydevelopmentfinanceinstitutionsandpo-

tentiallycommercial investors.Commercial investorswhoserisk is reducedduetothe firstandse-

cond tiers contribute the third tier. In caseaproject is successfully implemented,projectdevelop-

mentcostsfundedbythedevelopmentfundsbecomepartoftheproject’sequitytobeboughtout

bytheconstructionfinancefund.Third,are-financingfundhasrightoffirstrefusalforupto50per-

centofprojectdebtafter theprojecthasenteredoperation.Thanksto long-termriskreductionof

infrastructuredebt,newcommercialinvestorsmaybeattracted.Figure2showsmoredetailsofCli-

mateInvestorOne’sstructure.

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Figure2 DesignoftheClimateInvestorOneFacility

Source:ClimateInvestorOne(2015,p.2)

Inadditiontotheabovetechnicalandinstitutionalapproaches,theestablishmentofabroaderdo-

mestic framework aswell as a high level political buy-in can support investments in climate infra-

structure.

In the framework of the possible establishment of a PPF inWest African Region, some guidelines

weredrawnbyFMDVandICLEIwiththesupportofClimateKICasanattempttoovercomethemain

bottleneckforsuccessfulprojectpreparation(ICLEI,FMDV&Climate-KIC,2016).Althoughspecificto

theWestAfricanregionalcontext,theserecommendationscanbetakeninabroadercontext.They

include: • Up-streamdue-diligencetoavoidthatthe“usualsuspects”receivethePPFsupport.

• Sufficientinstitutionalcapacityandbuy-in:InthecaseoftheDevelopmentBankofSouthern

Africa(DBSA)projectpreparationunit,oneoftherequirementsissufficientinstitutionalca-

pacityoftheprojectsponsor,whichformspartoftheapplicationassessment.Furthermore,

thereshouldbeevidenceofbuy-inathighestlevel,anditisarequirementthatadedicated

projectofficewithinthesponsoringentitybecreatedtooverseeprojectimplementation.

• Cost recovery:Requiringsome levelofcost-recovery isawayofmakingthePPFmoresus-

tainablebymakingitrotatingandself-replenishing.

BasedonGlobalClearinghouse forDevelopmentFinance (GlobalDF,2017)andtheCCFLAMapping

(2017b)extensiveevidence-basedanalysisofinfrastructureprojectfinancingdeals,keypropositions

illustratesomeoftheleverstopullforclimateactionatdomesticlevel, integratingthesubnational

component,andinaconstrainedagenda.Themostimportantpropositionsare:

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• Develop localized marketplaces: that will enable tosuccessfully identify, develop, and fi-

nanceprojects.

• Establishknowledge&financehubsofskilledprofessionals(international,regional,national,

local)toprovideexpertsupportforthedevelopmentofnationalandsubnationalsustainable

developmentplans,andthedevelopmentandfinanceofpriorityprojects.

• Pilotsofdemonstrationprojectsmobilizinglocalfinancewithinnovativefinancetechniques:

• Performancetrackingandreportingatcountrylevelasatechnicalonlinetooltocapturesuc-

cesses,lessonslearned,securesupportandbuildmarketconfidence,momentumandlearn-

ing.

ThechallengesandrecommendationspresentedherecanbeclassifiedasinternaltothePPF,when

theyfocusonprojectpreparationapproachesandtools,andexternaltothePPF,whenpolicylevel

issuesandthegeneralenvironmentareconcerned.Intheremainder,thecasestudiesandthesub-

sequentdiscussionsareelaboratedconsideringonbothinternalandexternalfactors.

4 CaseStudies–IdentifyingSuccessfulProjectPreparationApproaches

Inthefollowing,theresultsofthePPFprofilingarepresented.Forthis,theyweresentaquestion-

nairecontainingquestionsonthefacilities’backgroundinformation,theirscopeofactivities,support

services,andregionalfocus.Inthemainpart,theyarerequestedtoprovideinformationontheirap-

proachesandtools,theirrelationshipstomunicipalities,privatesectorinvolvementaswellasmain

challenges and bottlenecks. In the next section, questions about financial issues are asked. These

questionsconcernthefundingstructureofthePPFs,aswellasthewaystheinfrastructureprojects

themselvesarefinancedandtheriskmitigationinstrumentsthatareused.

Inthefinalpartofthequestionnaire,PPFsareaskedabouttheirspecificwaystosuccessfulproject

preparation.Forthis,fivesuccessfactorsaredefined,whicharebasedonareportofTheInfrastruc-

tureConsortiumforAfrica (ICA,2012,pp.64–72)butpartiallymodified forourpurposeto include

thecontextofcitiesandESGaspects.Thefivesuccessfactorsare:

Successfactor1:relevancyandeffectivenessDothemanagedprojectsmatchtheinfrastructurechallengesintherespectiveenvironment?

Successfactor2:efficiencyHowdoesthePPFensurethatfinancialandhumanresourcesareemployedinthemosteffective

way?

Successfactor3:co-benefitsHowcanco-benefitsforlocalcommunitiesandtheprojectpreparationprocessbecreated?

Successfactor4:financialviabilityofprojectsHowisfinancialviabilityandbankabilityofprojectsachieved?

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Successfactor5:sustainabilityHowareenvironmentalandsocialaspectstakenintoaccount?

4.1 CDIA–CitiesDevelopmentInitiativeAsia

4.1.1 GeneralInformation

TheCitiesDevelopment Initiative forAsia (CDIA) is an internationalpartnershipestablishedby the

AsianDevelopmentBank(ADB)andtheGovernmentofGermany,withadditionalcorefundingsup-

port from the governments of Austria, Sweden, Switzerland and the ShanghaiMunicipal Govern-

ment.ADB,GIZandKfWpartnerforitsimplementation.CDIApursuestheoverallobjectiveofdevel-

opingstrategiesandapproachestoenhancesustainabledevelopmentandreducepoverty.Theinitia-

tiveprovidesassistancetomedium-sizedAsiancitiestobridgethegapbetweentheirdevelopment

plansandtheimplementationoftheirinfrastructureprojects.

The operational objectives of CDIA are to improve urban infrastructure services andmanagement

through:

• Providingtechnicalassistanceinstructuringpriorityinfrastructureprojectstoastagewhere

theycanbefinanced;

• Helpingcitiesstructuretheirprojectstoattractmarket-basedinternationalprivateinvest-

ment;

• Strengtheninglocalinstitutionalprerequisitesfordevelopmentofcapitalinvestmentinfra-

structureprojectsandurbanservices;and

• PromotingregionaldialogueandcooperationonurbanmanagementinAsiatoenhance

cross-learningfromgoodlocalpractices.

CDIAwascreatedinOctober2007andcurrentlyhasateamof18staffmembersfromADBandGIZ.

Theactive infrastructuresectorsarewater,energy, solidwastemanagement, transport,andsocial

infrastructure.WiththegeneralregionalfocusbeingonAsiaandthePacific,currentprojectsareon-

going in Georgia, Tajikistan, Pakistan, China, Cambodia, Indonesia, Vanuatu, andMongolia. CDIA’s

targeted beneficiaries are the city administrations of medium-sized cities with a population of

250,000to5million.Sofar,thefacilityhasbeenworkingwith138cities.Partnershipsareestablished

withlocalorregionalgovernmentsaswellasnationalpartnerorganizationssuchasnationalminis-

triesandagencieswithasimilarmandatetoCDIA.Theactivitiesthemselvescanbesummarizedby

technical assistance through project prioritization, capacity development, and project preparation.

FinancialassistanceforprojectimplementationisnotprovidedasCDIAengagesonlyinprojectprep-

arationandaimsat linkingprojectstofinancial institutions.Projectpreparationsupportconsistsof

comprehensivepre-feasibilityand/orfeasibilityplanning.Howevermostprojectsarebeinglinkedto

follow-up finance straight after the pre-feasibility study. In some cases, CDIA provides additional

supporttoensuresuccessfulprojectfinancing.Onaverage, ittakesaboutfivemonthstoprovidea

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projectwiththesupportneededandrangesfromaboutUSD50,000to600,000.Inmostcasescities

alsocontributeownresourcesbutmostlyasin-kindcontributions.

WhiletheADBsideofCDIAfocusesonprojectpreparationanddirectliaisonwithprojectdevelopers,

GIZ complements these activities through capacitydevelopment. 77CDIA-supportedprojectshave

beenlinkedtofinancingtodate,withanexpectedinfrastructure investmentvolumeofUSD6.8bil-

lion.

4.1.2 Methodology

Forthepurposeofprojectprioritization,CDIAdevelopeditsowncomprehensiveapproachcalledthe

CityInfrastructureInvestmentProgrammingandPrioritization(CIIPP)Toolkit(CDIA,2015).Itconsists

of investment budget analysis, project prioritization, and investment programming and has been

usedin52casessofar.

Inordertoavailofprojectpreparationsupport,a localgovernmenthastosenda letterofprelimi-

naryenquiryforCDIAsupport.Whileitisrarethatcitiesdirectlyapplyforsupport,theyusuallyap-

proach CDIA through partner organizations. Joint discussions on project priorities, development

plansandcityvisionsfollow.Threeselectioncriteriamustbefulfilled:

• Thecitymustbeamedium-sizedcity(populationof250,000to5million);

• Thecitymusthaveanurbandevelopmentplaninplace;

• Therehastobeanendorsementletterfromthecentral/statelevelindicatingin-principle

supportforthedevelopmentofanurbaninfrastructureprojectsportfolioanditsfinancing

andtheassistancerequestapplicationtoCDIA.

Afterpreliminaryenquiry,CDIAconductsafact-findingmissiontoassessifthecityisabletocomply

withtheselectioncriteria.Furthermore,specificinfrastructureinvestmentsandpotentialimpactsof

theprojects,requiredcommitmentsandtherolesofkeystakeholdersintheprocessareidentified.

Giventhattheinitialassessmentispositive,thecitypreparesaformalsupportrequestapplication.

Thepre-screeningprocessassuresthecitiesreachthelevelrequiredfortheprojectpreparationpro-

cess.

Projectpreparationsupportmostlyconsistsofpre-feasibilitystudies.Atthislevel,asteeringcommit-

teeiscreatedwhichisusuallychairedbythecitymayorandcomposedoftheheadsofrepresenta-

tivecitydepartmentsaswellasCDIAstaff.Thesteeringcommitteehastheresponsibilitytooversee

theprojectandparticipateswithexecutivedecision-makingauthorityonhowtosteertheprojectto

accomplishagreedandestablishedgoals.Thisdecision-makingcompetenceisaremarkablefeature

whereCDIAdiffersfromotherPPFs.Thecity’sinputisfurthermoresoughtanddocumentedduring

the entire project preparation phase through the steering committee. After completion of a pre-

feasibilitystudy,CDIAmaintainssupportandcommunicationwith thecity through liaisonwithna-

tionalministriesandagenciesaswellasfundinginstitutions.Thishelpslinktheprojecttofinancing.

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Privatesectorparticipationalsoformspartoftheprojectpreparationphasesinceimportantproject

milestonesarepresentedtokeystakeholders.Moreover,CDIAcollaborateswiththePPPCenter in

thePhilippinesandPTSMiinIndonesiainordertofosterprivatesectorparticipationinthosecoun-

tries.

4.1.3 BottlenecksandRecommendations

Confrontedwiththequestionofwhatthemainbottlenecksinprojectpreparationandthemostim-

portant challengesare,CDIAmentions several aspects.Aspartof theprojectpreparationprocess,

thefollowingshortcomingsarerankedasmostfrequentandimportant:

• Neglectingconsiderationofinstitutionalarrangements;

• Neglectingrequiredoperationandmaintenancecapacities;

• Lackofcoordinationbetweendifferentlevelsofgovernment;

• Non-identificationofsimilarinfrastructureprojectinitiativesathigherlevels,whichleadsto

duplicationofworkandfragmentedplanning;

• Insufficientengagementofstakeholders;

• Poorphasingofinvestments.

Inaddition,thereareconstraintsinthepolitical,economicandsocialenvironmentsurroundingthe

projectpreparationprocess.Assuch,threemainbottlenecksarise:

• Legalobstacles;

• Insufficientprojectorganization;

• Fundingconstraints.

Furthermore, in contrast to project preparation at national level, subnational project preparation

often features different priorities. CDIA quotes the example of flood and drainage projects to im-

provenaturaldisaster resilience:whileanationalproject tends toaddress thebasinor catchment

areas,acityormunicipalitywillfocusonlocaldrainageproblems.

Inresponsetotheexistingchallengesandbottlenecks,CDIAformulatesfiverecommendationstobe

takenintoaccountintheprojectpreparationprocess:

• Ensurefinancialandtechnicalviabilityofaproject;

• AddressESGaspects;

• Addresstheneedsoflocalgovernment,vulnerablegroupsandprojectstakeholders;

• Projectsneedtobeinlinewithnational/regionalprograms;

Inrecentyears,theconsiderationofurbanresilienceingeneralhasbecomepartofallnewproject

preparationservicesbyCDIA.Itisaquestionaddressedineachprojectpreparationstudy.Thisfacili-

tates the identification, segregationand isolationof resiliencecomponentsofprojects.Asanother

importantaspect,projectpreparation support is generallyadaptedaccording to thecharacterand

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stateofaproject inordertoachieveaflexibleprocessandtodevelopaprojectsuitabletothere-

quirementsofthedownstreamprojectfinancer.

4.1.4 SuccessFactors

Anevaluationreportforthethreeyearsfrom2013until2015overallconfirmedCDIAasaremarka-

blesuccess story (GIZ,2016,p.3): twoof threeobjectives indicators (concerning thecreationofa

partnernetworkandthenumberofcitieswhereCDIAispresent)werefulfilledor,respectively,even

outperformed.Theareawhere theobjectiveswerenotmetconcerned theuseof innovative tools

andprocessesbycities.Withregardtothesuccessfactorsthatthisreportdefinesaskindofqualita-

tivesuccessassessment,CDIAaccountsforthemindifferentways.

Successfactor1:relevancyandeffectivenessAllprojectpreparationteamsarecomposedofbothinternationalandlocalspecialists.Thelocalspe-

cialistsprovideagoodunderstandingofthelocalchallengesandcontext.Togetherwithstakeholder

inclusionthroughoutthewholeprocess,thisensuresprioritizationofrelevantprojects.Secondly,all

specialistshiredfortheconductofPPSarerequiredtospendthemajorityoftheirinputson-site,to

encouragebetterunderstandingofthelocalcontextandfacilitateconstantanddirectexchangewith

stakeholders.Inthisway,inquiriescanbeaddressedandmeetingswithstakeholderscantakeplace.

Importanttonote,thankstoawideregionaloutreach,itispossibletoclustercitieswithsamesector

prioritiesandchallenges.Synergiescanthereforebeexploitedandprojectpreparationactivitiescan

bescaledup.

Successfactor2:efficiencySoundand systematic processes, like theCIIPP Toolkit, to select and approve city applications im-

provestargetingoftherightprojectsandprioritizinginvestmentsinordertoemployfundsandhu-

manresourcesefficiently.Theseprocessesendeavourtolinkwithdownstreamfinancingpriortocity

application approval. Thereafter, there is full-timemonitoring of the preparation process and the

closeliaisonwithfinancinginstitutionsisongoing.

Successfactor3:co-benefitsSinceCDIAisco-managedbytheADBandsinceCDIAandADBshareofficespace,directcommunica-

tionandcontactparticularlywithregionaldepartmentsisfacilitated.Essentially,itreducesthechal-

lenge of linking projects to financing. Another benefit arises in favour of the local government by

providingcapacitydevelopmentandinstitutionaldevelopmentif identifiedasnecessarybyaneeds

assessment.

Successfactor4:financialviabilityoftheprojectFinancialanalysisisacentralpartoftheCIIPPToolkit,butCDIAalsodirectlyengagesfinancinginsti-

tutionsbylinkingthemwiththecityadministrations.Thisenablesacomprehensiveassessmentofa

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project’s financial viability from a third party. Since bankability is the crucial level that has to be

achievedbyprojects,potentialinvestorsareinvolvedfromthebeginningofprojectpreparation.

Successfactor5:sustainabilityEnvironmentalandsocialduediligencearepartofeachprojectpreparationstudy.Moreover,andas

mentionedabove,aresilienceassessmentidentifiespotentialshocksandstresses.Stakeholdersare

includedinallprojectmilestonepresentations.Theyhavetheopportunitytogivefeedback,whichis

documented. In theeventofpossibledisagreement,meetingsanddiscussionsarearranged,when

applicabletoresolveit.

4.1.5 ProjectPreparationClosureandProjectFinance

Projectsareconsideredassuccessfullycompletedoncetheyarelinkedtoafinancinginstitution.The

followingnumbersgiveanimpressionofsuccessinCDIA’sactivities:76projectshavebeenlinkedto

finance. In 29 projects, construction has started, in five of them construction is fully completed.

Thereisaconsiderablefinancialleverof1:107meaningthatonaverage,for1USDspentbyCDIAfor

projectpreparation,USD107aretriggeredasinfrastructureinvestment.

TheaimofalmostallPPFsisthelock-inofprivatesectorfinance.However,thetrackrecordofCDIA

projectsshowsthatthisdoesnothappenthatoften.AsthePPFishostedbytheADB, it isobvious

thatmost projects finally are financed by the ADB. Other important financing institutions are the

WorldBankandtheLocalFinanceInitiative(LFI).PPPsarequiterareandamounttolessthantenof

themorethan70managedprojects.AccordingtoCDIA,morecapacitybuildingwouldbenecessary,

especially for cities, in order to develop balanced and fair public-private relationships. As towhat

concernsprivatesectorprojects,itisfoundthatmanyapplicationsfromtheprivatesectorhavenot

metthequalitystandardrequired.LeveragedfinanceisgenerallynotusedbyCDIAasprivatesector

participationisrare.

4.2 USICEF–USIndiaCleanEnergyFinanceFacility


TheUSIndiaCleanEnergyFinanceFacilityisaninstitutioncreatedandledbytheClimatePolicyIniti-

ativeandthe IndianRenewableEnergyDevelopmentAgency.At firstglance,USICEFdoesnot look

likeapreparation facility,accordingtotheabovedefinitionsanddistinctionbetweenPPFandPFF.

However,ontakingacloserlookatitsactivitiesandsupportservices,itisobviousthatitcanbecon-

sideredasaPPF.Moreover, this is in linewith thedefinitionsusedheresincemanyactivitiescon-

ductedbyPPFsaredonebyPFFsaswell.USICEFisfundedbytheMacArthurFoundation,theWilliam

and Flora Hewlett Foundation and the Good Energies Foundation and the Ministry of New and

Renewable Energy (Government of India). A further partner is theUSGovernment’s development

financeinstitution(OPIC).Thefacility’smainobjectivecanbedescribedasdevelopingapipelineof

distributed renewable energy projects in India and preparing projectswith technical assistance in

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engineering,commercial,financialandlegalaspectsforfinallyaccessingdebtfinancefromOPICand

inthefuturealsofromotherpublicandprivatefinancinginstitutions.Byprovidingadequateproject

information to lenders, their transaction costs toprovide smaller ticket size loans canbe reduced.

Thisservestheoverallobjectiveofexpandingaccesstodistributedcleanenergysolutionsinorderto

benefitdisadvantagedcommunitiesinIndiaontheonehandandtocontributetoIndia’sambitious

renewableenergyandenergyaccessgoalontheotherhand.

USICEFwascreatedinApril2017andhasfivestaffmembers.Sinceitisquitenewinthemarket,the

experiencefromtheirtrackrecordisnotcomprehensiveasyet,butitcanstillgiveseveralimportant

insights.thefacilityisfocusedononesinglesector,orevenasub-sector,thatis,renewableenergy.

Withinthis field,mini-andmicro-gridpowergenerationprojects,marketbasedsolutions likesales

and distribution or energy access provision as well as renewable energy infrastructure catalysers

suchasprojectsto improveinfrastructurearesupported.USICEFhasbeenengagedinfiveprojects

so far. Its beneficiaries are generally the disadvantaged communities in general. In the specific

preparationprocess,however,targetedclientsareprivatecompaniesaswellasbothdomesticand

foreign investors. USICEF provides mainly technical assistance, financial and legal advice, and

comprehensive feasibility planning ranging from feasibility studies, demand planning, engineering,

technicalplansaswellassupportininstitutionalandprocurementissues.Thepreparationprocessis

fundedbygrantsfromUSICEF,whichamounttoUSD250,000inaverage.Thefacilityhasthecapacity

tomanagetentofifteenprojectsatatime.

4.2.2 Methodology

USICEFdoesprojectpreparationinaspecificway:itincludestheprivatesectorfromthebeginning.

In fact, the facility isessentiallyanetworkofserviceproviders. It invitesprivatecompanies to join

thenetworkbypublicannouncement.TheycanapplyandhavetobeselectedbytheClimatePolicy

Initiative.Oncetheyareaccepted,theycanbeengagedbyprojectdeveloperstoprovidetheirser-

vicesintheirrespectivefieldofexpertise.Withservicesrangingfromfeasibilitystudies,productde-

velopment,socialandimpactassessmentstolegalandfinancialadvisoryservices,thewholeproject

preparationprocess iscovered.Giventhatservicesaresuccessfullydelivered,theserviceproviders

arepaidbytheprojectdevelopers,whichareprovidedwithgrantsbyUSICEF.Currently,thenetwork

consistsof30 serviceproviders specialized in technical assistance, feasibilityplanning, engineering

andlegalissues.SoUSICEFitself,takeninitsnarrowsensewithouttheserviceproviders,isessential-

lyacoordinatingbodyandisconcernedwithlinkingprojectstofinancinginstitutions.

Projectdeveloperscanapply forpreparationsupport.Applicationandselectiontakestwotothree

months.Tobeawardedwithagrant,projectdevelopershavetomeetthefollowingcriteria(USICEF,

2017):

• Focusonsolarpowergenerationanddistributionforexternalcommercialconsumption;

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• UseoftechnologiescommerciallyprovenandtestedbytheMinistryofNewandRenewable

Energy;

• NoblacklistingbyanyIndiangovernmentorpublicsectoragency.


Whenaskedaboutprojectdevelopers’mostfrequentweaknessesandthemajorchallenges,USICEF

notesthefollowingaspects:

• Lackofprofessionallypreparedbusinessplansandinvestmentproposals;

• Inadequateriskassessmentandcreditinformationforduediligenceonofftakersandenergy

customers;

• Lackoflegalreviewofcontractsandpaymentsecuritymechanisms.

Asmainbottleneckswithintheprojectpreparationphase,thefollowingtwopointsareraised:

• Inadequatepresenceoffinancialinvestorsinequityforrooftopandoffgridprojectstoscale

uptoreachcommercialdebtfinancing;

• Off-gridsectorshavelackofpolicyclarityandusuallyinsufficientscaleforfinancingbycom-

mercialdebt.

Ontheonehand,thesepointsarecloselytiedtotherenewableenergysector.Ontheotherhand,

theyrepresentchallengesthatarealsofoundinmanyothersectorsaswhenthefocus isonsmall-

sizedprojectsorwhentheinsufficiencyofbusinesscasesorhightransactioncostspreventlocking-in

ofinvestors.

USICEFcomesupwithasinglemainrecommendation:policymakershavetobeconvincedthatgood

technical assistance in project preparation is not a waste of resources but rather leads to higher

chancesoffinancialclosureforsociallydesirableprojects.Wrongperceptioninthisregardoftenpre-

ventsgovernmentsfrompayingforprojectpreparation.


Successfactor1:relevancyandeffectivenessAccording toUSICEF’sestimation, itmaybe theonlyPPF fordistributedenergy in India.This isby

itselfastatementthattheneedforprojectpreparationinrenewableenergyinIndiaisnotsufficient-

ly accommodated, which is a strong indicator of the facility’s relevance and effectiveness. This is

strengthenedbyon-the-groundpresenceastheprogrammanagementteamisbasedinIndia.How-

ever,USICEFalsoraisestheconcernthattherearehighersystemiclevelchallengeslikegridstability

andnetmeteringthatremainandcannotbeaddressedbyaPPFofthesizeandstructureastheone

describedhere.

Successfactor2:efficiency

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USICEFhasaprogramteamwiththreetofourdedicatedstaffmembers.Theyfocusonthesupport

ofprojectdevelopersandensurethatcontinuoushandholdingthroughthewholeprocessisguaran-

teed.ItisbystructuringthePPFintheabove-describedmannerasanetworkofspecializedservice

providersthatefficientemploymentoffinancialandhumanresourcesisenabled.

Successfactor3:co-benefitsThefacilityisindependentlymanagedbuthasastronglinktoOPICasafinanceinstitutionaswellas

apartnershipwiththegovernmentofIndiathroughtheMinistryofNewandRenewableEnergy.This

islikelytoproducesynergiesandefficiencygainsintermsofknowhowandnetworking,whichcan

beusedtosupporteffectiveprojectpreparation.Ontheotherhand, incontrast to theotherPPFs

profiled,USICEFdoesnotprovidecapacitybuilding.

Successfactor4:financialviabilityoftheprojectFinancialduediligenceispartofeverypreparationprocessbeforeaprojectistogetaccesstoOPIC

oranyotherfinance institutions.Thereareserviceproviders,whicharespecificallydedicatedtofi-

nancialviabilityassessment.Financialriskmitigationinstrumentslikeguaranteesorblendedfinance

arenotusedcurrently.However,theenvisagedcatalyticfinancefacilitymayintroduceguaranteesin

thefuture.

Successfactor5:sustainabilityProjects are assessed for environmental and social impacts, even though they are expected to be

marginal indistributedcleanenergyprojects themselvesbeing contributions to improvedenviron-

mentalperformanceinenergyproduction.USICEFnotesthatminigridprojectsareusuallyrealized

withwidecommunityacceptance.Stakeholderinclusionisexpectedtobecomeanintegratedpartof

thePPF’sactivitiesoncetheprogramisdisseminatedatlargerscale.


Atthemoment,projectsarefinancedbyOPIC.Inthefuture,privatecommercialfinanceisenvisaged

tobeamajor sourceof finance.Currently,USICEF isworkingonanot yet established catalytic fi-

nancefacilityaimingtoreducecreditrisk.Byprovidingguarantees,riskmitigationwillhelpcrowdin

commercialfinancefromotherbothdomesticandinternationalsources.

Duetothesmallsizeofmostdistributedrenewableenergyprojects,classicalprojectfinanceisinap-

propriate as the high transaction costs are too high. For this reason, the projects access finance

throughcorporatefinancelending.Thisenablesaggregationandthecreationofscalingupoflending

fromfinancialinstitutions,whichthencanbestandardizedmoreeasily.

4.3 ESCI–EmergingandSustainableCitiesInitiative


TheEmergingandSustainableCitiesProgram(ESC),oftenreferredtoasanInitiative(ESCI),ishosted

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andfundedbytheIDB.Inaddition,ithasawidenetworkofpartnershipscontainingcountrydonors

(China, Italy, South Korea, Spain, Nordic Development Fund, Denmark, Finland, Iceland, Norway,

Sweden,Chile,JapanInternationalCooperationAgency(JICA),Argentina),nationalandregionalde-

velopmentbanks inNorthandSouthAmerica,anda largenumberofvariousacademic institutions

fromdifferentcontinents.The initiativeaimsat tackling themain roadblocks thatprevent thesus-

tainable growth of emerging cities in Latin America and the Caribbean. The multidisciplinary ap-

proach identifies, organizes andprioritizes urban interventions and is basedon threepillars: envi-

ronmentalandclimatechangesustainability,urbansustainability,and fiscal sustainabilityandgov-

ernance. The PPF relies on the principle that it is more sustainable and efficient to prevent un-

plannedgrowthinadvanceinsteadoftryingtomitigatetheconsequencesthereafter.Citiesareac-

companiedinprojectdevelopmentfromactionplanstolinkagetofinance.

ESCIwascreatedin2011andcurrentlyemploys20staffmembers.Thefocusisonmedium-sizedcit-

ieswithbetween200,000andonemillionpeopleinLatinAmericaandtheCaribbean.Thefacilityis

active in 26 countries. ESCI is active in most infrastructure sectors including water, energy, solid

wastemanagement,transportnetworks,socialinfrastructureandhousing.Currentbeneficiariesand

clients of the program are city administrations, community based associations, local and regional

governments,publiccompanies,andpublicdevelopmentbanks.ESCI’sareasofsupportaretechnical

assistance,capacitybuildingandprojectprioritization.Itworksoncitydevelopmentplans,compre-

hensivepre-feasibilityandfeasibilityplanning.Ithasbeenengagedinmorethan50projectssofar.

TheexpectedinfrastructureinvestmentvolumetriggeredbyESCIpreparationsupportisUSD1.4bil-

lion(IDB,2016).

4.3.2 Methodology

ESCI’sprojectpreparationmethodology isdivided in twostagesandbasically fivephases (see IDB,

2014,2017).Thefirststageconcernsthecoreofthemethodologyandinvolvesthedevelopmentof

theactionplan,whichlastsoneyear.Itcontainsthefollowingphases:

• Phase0(preparation):initiationofdatacollection,buildingofworkteams,stakeholderiden-

tification,hiringoftechnicalexperts

• Phase1(analysisdiagnostic):cityoverview,completionofindicators,baselinestudies

• Phase2(prioritization):applyingfilters:publicopinion,economiccost,climatechangespe-

cialists’expertise,criticalareasforthecity’ssustainability

• Phase3(actionplan):formulatingactionplansforidentifiedstrategies,deliveryofinitial

study,creationandvalidationofdetailedactionplan

So,inthefirststage,acityoverviewisdevelopedaccordingtoasetofabout120indicatorscovering

thedimensionsclimatechangeandenvironment,urbandevelopment,fiscalandgovernability.Then,

projectsareprioritizedthroughemploymentofthemultiplefiltersandembeddedintoasetofstrat-

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egiesandanactionplan.Thesecondstageisaboutactionplanexecution,lastsforaboutthreeyears,

andconsistsofphases4and5:

• Phase4(pre-investment):preparationofpre-investmentstudiesinprioritizedsectorsonfea-

sibilityaswellaseconomic,engineering,andsocialaspects

• Phase5(monitoring):designandimplementationofamonitoringsystem

Attheinitialstageofthewholeprogram,theIDBpaidfortheimplementationofthemethodologyin

onecityineachcountry.Now,citieshavetopaythemselvesfortheimplementationservices.There

areseveralvariations inthebusinessmodels.Usually, it iseithertheministriesofnationalgovern-

mentsornationaldevelopmentbanksfinanciallysupportingthecitiessothattheycanfundthepro-

jectpreparationsupport.Nationalentitiesare,however,notinvolvedinprojectpreparation,whichis

apartnershiponlybetweenESCIandthecities.ThisfundingmodalitydifferssubstantiallyfromCDIA

andUSICEFwhereprojectpreparation isusually fundedby the facilities. Even thoughnot contrib-

utingfinancetotheprocess,ESCIinsomecasessupportscitiesingettingaccesstointernationalcli-

matefinancesourceslike,forinstance,theGlobalEnvironmentFacility.

Theprivatesectorisinvolvedbybeingpartofregularmeetingsduringtheprojectpreparationpro-

cess. Additionally, there are collaborationswith the private sector on feasibility studies and infor-

mationgathering.Likewise,engineeringfirmscanbehiredforspecificworks.Universitiesandother

academicinstitutionsmayalsobeinvolvedforspecificcollaborations.


AccordingtoESCI, themost importantchallengesandaspectsobserved in themarketthatarenot

sufficientlytakenintoaccountinprojectpreparationarethefollowingones:

• Selectionofprojectsoflowpriorityfromacityactionplanperspective;

• Lackofinvolvementoflocalgovernments;

• Nostakeholderinclusioninthepreparationprocess;

• Lackofcapacitiesandresourcesatthelocallevel.

Ontheonehand,ESCIobservesthesefactorstobecausedbyinsufficientprojectdevelopment.On

the other hand, insufficiently developed projects are just the outcome of these shortcomings. As

mainbottlenecksinthewholeprojectpreparationprocess,twomainpointsareraised:

• Linkingprojectstofinance:IDBcanprovideaccesstointernationalfundssuchasGEForGCF

butnotallprojectsachievethis;

• Coordinationwiththepublicsectorondifferentlevels:duetoregularelections,governments

keepchanging,therebycreatingamodifiedpoliticalenvironment,whichitselfgivesriseto

changingstaffandfinallygapsincapacityatthelocallevel.

ESCI also remarks on the lack of ability to analyze and synthesize relevant information in project

preparation.Inparticular,itidentifiesalackofunderstandingofclimatechangerisksatthecitylevel.

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Infrastructureprojectsinvolvehighrisksandrequirealotofpreparationandinvestment.Thesefac-

torsareallrelatedtoclimatechangeinsomeway.Butsincetheawarenessofmanycitiesinthisre-

gardisinsufficient,theydonotnecessarilyprioritizeclimaterelatedquestionswhendevelopingpro-

jectsorcity-levelplans.

Given these challenges, drawbacks and room for improvement, ESCI identifies threemain recom-

mendations:

Threerecommendations:

• Involvecivilsocietyfromthebeginning;

• Respectenvironmentalandsocialsafeguards;

• Haveasolidteamintheimplementationunitofthelocaladministrationwithsufficienteco-

nomicandlegalcapacityinthelocalgovernment.


Successfactor1:relevancyandeffectivenessBy sophisticatedprojectprioritizationand selection (e.g. aspartof citydevelopmentplans) asde-

scribedaboveinthemethodologyaswellasearlystakeholderidentificationandinvolvement,itcan

beensuredthattherelevantprojectsareimplemented.Projectsthatdonotrespondtoaregion’sor

city’sinfrastructureneedsareruledoutatanearlystage.ESCIispresentonthegroundinallcities

whereprojectsarerealized.

Successfactor2:efficiencyLikewise,itisthroughacomprehensiveapproachtoprojectprioritizationandselectionthattheeffi-

cient employment of financial and human resources can be achieved, and resources will not be

wastedoninappropriateprojects.

Successfactor3:co-benefitsESCImentions its statusasbeingaprogramof the IDB thatgives rise tomajorbenefitsbecause it

facilitatesaccesstofundingandparticularlyfinancingsources.Resourcesdedicatedtotheaccumula-

tionofanetworkoffinanceinstitutionscanthusbeoptimized.Moreover,synergiesareproducedby

partnershipswithcities,academiaandtheprivatesectore.g.engineeringcompanies.

Successfactor4:financialviabilityoftheprojectTestingprojects for financial viability is an integral partof ESCI’sprojectpreparationmethodology

withoutwhichbankabilitycannotbeachieved.

Successfactor5:sustainabilitySocial and environmental safeguards as well as stakeholder inclusion are an integral part of the

methodology.

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Projectpreparationiscompletedonceaprojectislinkedtoaninvestor.It isusuallyadevelopment

institution,thatis,theIDB.Insomecases,otherdonorsourcesprovidefinance.For14projects,the

preparationprocesshasbeencompletedwhileanotherfourarecurrentlyinthepipeline.Thefinan-

cial lever canbecalculated inanalogy toCDIAand is1:120meaning thata1USDexpenditure for

projectpreparationgivesrisetoaninfrastructureinvestmentofUSD120(IDB,2016).

ContributionofprivatesectorfinanceisagainquitelimitedandPPPsduetolimitedinstitutionalca-

pacitiesatthecitylevel.ApossiblereasonforthelackofprivateinvestorsinthecaseofESCImight

bethatthereisnotthesameopenapplicationprocedureasinthecaseofCDIAandUSICEF.Rather,

thewholemethodologyisconstructedtomoreexclusivelytargetmunicipalities.Initscenter,thereis

thedevelopmentofcityactionplansthataredevelopedincollaborationwithlocaladministrations.

Thismaylimitthespacefortheprivatesectorasaprojectdeveloperapriori.TheotherPPFshavean

applicationprocedurethatismoreopentoprivateprojectdevelopersfromthebeginning.

5 Discussion

5.1 SummaryoftheProfilingResults

ThethreeprofiledPPFshavemanycommonfeaturesbutalsocertaindifferencesworthdiscussing.

All facilitieshavedeveloped comprehensiveapproaches for their activities. The term“comprehen-

sive”doesnotmeanthataPPFnecessarilyperformsallactivitiesinprojectdevelopmentonitsown.

Itratherdescribestheobservationthatalloftheprofiledfacilitiesmanageprojectsfromtheinitial

applicationstageuptoitslinktofinance.CDIAusesitsCIIPPToolkit,ESCIhasaitsownmethodology,

too,whileUSICEFoffersstandardizedtechnicalassistancebymeansofitsnetworkofprivatespecial-

izedserviceproviders.Theapproachesingeneralcontainelementssuchasinitial(city-level)assess-

ments, embedding the activities into city development plans, project prioritization and selection,

preparation studies, technical assistance, capacity building, sustainability assessments, inclusion of

stakeholders, vulnerablegroupsand theprivate sector, andprojectmonitoring.USICEF is apartial

exceptioninthisregard.Ononehand,thisisduetothefactthat,unlikeCDIAandESCI,itisnottied

to a development bank. On the other, ESG assessments and stakeholder inclusion exist but have

lowerprioritycomparedtootherfacilitiessincesolarpowerplantsusuallyenjoyhighacceptancein

local communities, have a low impact on the environment and particularly contribute to climate

changemitigationontheirown.Asanotherpartialdifferenceworthmentioning,ESCIhasastronger

focusonstartingwiththedevelopmentofactionplansatthecitylevelthantheotherPPFs.

Ingeneral,projectpreparationprocessesarefundedbygrants.TheyareeitherprovidedbythePPFs,

asinthecaseofCDIAandUSICEF,ormobilizedbythemunicipalities,aswithESCI(exceptatthebe-

ginningoftheprogram,whenthefirstcitiesineachcountryoftheregionweregrantedthesupport).

Yet,inthelattercasecitiesdonotpaythemselves.EventhoughtheyhavetocompensatethePPFfor

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itsservices,theygetthemfundedbyorganizationsatthenationallevel,mostlyministriesornational

developmentbanks.

Projectsaremainly financedbydevelopmentbanks,publicdonors,nationalgovernmentsorother

national development agencies (as for example OPIC). The use of riskmitigation instruments like

guaranteesandblendedfinanceisquitelimited.ThesameistrueforPPPs.

As formain bottlenecks and challenges, the profiled facilitiesmention funding constraints, linking

projectstofinance,inadequateriskassessments,andthelackofinvestorsinequity.Furtherbottle-

necksareon thesideof themunicipalitiesasprojectdevelopers: changingstaff, changingpolitical

environment,alackofcommitment,insufficientorganization,andalackofcapacityatthelocaland

regional level.Finally,additionalchallengesareatasystemic level:political impedimentsand legal

obstacles.Inresponsetothis,PPFsidentifytheinclusionofcivilsociety,vulnerablegroupsandpro-

jectstakeholders,considerationofESGaspects,theprovisionoflocalcapacitiesandanenablingen-

vironmentasthemostimportantrecommendations.

5.2 CanPPFsCopewithExistingProjectPreparationChallenges?

Relevance and effectiveness of projects are key aspects of the three PPFs approaches described

above.Forexample,inthecaseofUSICEF,relevanceisindicatedintheinitialstatementthatthereis

aneedforsupporttoachieveIndia’sambitiousenergygoals,whichwasthemotivationtocreatethe

PPF.Thesecondfactor,efficiency,isemphasizedconstantlyandmainlythroughprojectprioritization

andselection.However,facilitiescannotavoidacertainproportionofprojectsfailing,whichneces-

sarilygivesrisetoinefficiencies.Co-benefits,whichhavebeenlabeledasthethirdfactor,canbecre-

atedthroughcapacitybuilding.Itisnotonlyessentialforprojectimplementationbutprovideslocal

andregionalgovernmentswiththeknowhowandexpertisetorealizefurtherprojectsinthefuture.

Anothersourceofco-benefitsisthesynergiesthatarisefromcollaborationofthePPFswithitslead

organizations, cities, private partnerships, finance institutions, and academia. For instance, as can

obviously beobserved, the fact thatCDIA andESCI are eachhostedby a developmentbank gives

themabetteraccesstoprojectfinanceandalsoabetterunderstandingofafinanceinstitution’sper-

spective.Thefourthandthefifthsuccessfactors,thatis,financialviabilityofprojectsandsustainabil-

ity,respectively,arecentralissuesinthePPFs’methodologiesandusedtools.

Iftheseoutcomesarecomparedtothemainchallengesandrecommendationsintheliteraturethat

havebeendiscussedabove,itcanbenotedthattheyareaddressedinmanybutnotallaspects.The

recommendationstobuildnewpartnershipsofactors involvedinprojectdevelopment,toscaleup

project preparation, and to increase funding for project preparation (seeDanso& Samuels, 2017;

G20DevelopmentWorkingGroup,2014)arelargelytakenintoaccountbytheprofiledPPFs.Itisevi-

dent that the increase in thenumberofPPFs in recentyears isa response to these recommenda-

tions.

Other identified challenges, however, still remain to be solved. As shown in the literature review,

project risk is perceived as quite high in developing and emerging countries (Danso & Samuels,

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2017).Itneedstobereducediftherequiredinternalrateofreturnistobedecreased.Therefore,the

useof riskmitigation instruments isageneral recommendation resulting fromvarious studiesand

analyticalreports.Likewise,citiesaregenerallyfoundtohavelimitedaccesstofinancing.Thisiswhy

instruments likemunicipal bonds or local development funds are suggested by literature (see e.g.

CCFLA,2017b).Yet,asthethreecasestudiesinthisreportshow,theuseoffinanceinstrumentsfor

riskmitigationandotherfinancialproductsotherthanloansisquitelimited.

Another remaining issue tobedebated is the lackofanenablingenvironment. It isa system-level

challengeandthusdifficulttobeaddressedbyindividualPPFs.However,theycontributebyoffering

capacity building for local governments. This collaboration with the cities creates an important

knowledge transfer. Inessence, it is thepresenceofPPFsat the localand regional level itself that

contributes to a better environmentbecause cities havebetter access to project preparation sup-

port.

Finally, it is recommended in the literature review that countries fund project preparation them-

selves insteadofreceivinggrants(seeG20,2014).This isonlypartiallyaccomplished.ESCIrequires

cities topay for thePPFsupport,which theyusuallyclaimback fromsourcesat thenational level.

However,thisisnotthecaseforCDIAandUSICEF.

Asmentionedseveraltimes,themainobjectiveofPPFsistolinkprojectstofinance.Giventheresult-

ingdescriptionofthePPFs,itremainstoaskiftheyareabletoremoveallobstaclesthatpreventpro-

jects fromachievingbankability.Theproblemof insufficientprojectdevelopment is tackledby the

facilitiesastheyhavedevelopedcomprehensiveprojectpreparationmethodologies.Sincefundingof

thepreparationprocessisensured,riskintheearly-stagedevelopmentphasecanbeclearlyreduced.

Bothinclusionofstakeholderandprojectprioritizationcontributetothiseffect.Asecondreasonfor

notachievingbankability,theinsufficientlinktoprojectfinance,isaccountedforsincethefacilities

areabletoestablishthelinktofinancinginstitutionseventhoughtheyaremostlydevelopmentinsti-

tutions.

5.3 RemainingChallengesUpforDiscussion

However, several key issues require continuing discussion. They concern the remaining challenges

comingoutofthequestionnairesthatcanbesummarizedasfollows:

• Lock-inofprivateinvestorsinlow-returninfrastructuresectorsislimited,mostprojectsare

financedbydevelopmentinstitutions;

• Triggerofadditionalprivatefinancethroughguaranteesandblendedfinanceislimited;

• Manychallengesatthecitylevelaresystemicandcannotbetackledbyanindividualproject.

Thesepointscanbeexaminedthroughasetoffollow-upquestions.Ontheonehand,theydealwith

the issueofhowthechallengescanbeaddressed.Ontheotherhand,theyalsoaimtorevealnew

ideasandinsightsthatmayfurtherimprovePPFactivitiesinthefuture.

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• Whatdoesinsufficientinvolvementprivatesectorfinanceimplythatinfrastructurereturns

areinsufficient?

• WhatdoesthefactthatalargeshareofprojectsisfinancedbyMDBsorotherdonorstellus?

• WhatapproachesshouldPPFsusetobetterlockinprivatesectorfinance?

• Whatdoespreventamorefrequentuseofriskmitigationmeasures?

• Howcancitiesgainadditionalfinancefromtheprivatesector,ifcreditworthinesscannotbe

improvedandloanscannotbepaidback?

• Cansocialinfrastructureeverprovidesufficientreturnsforprivatefinancetostepin?

• Whatcanbedonetoachieveamoreenablingpoliticalenvironmentforinfrastructurepro-

jectimplementation?OrhowdoPPFsneedtobedesignedtoaddressthese?

• Howtodealwithinsufficientinstitutionalcapacitiesindevelopingandemergingcountries?

• Howhasprojectpreparationchangedwithinthelastfiveyears?Aretheresignificanttrends?

• HowcansuccessinPPFsbebestidentifiedandhowcanitbeshared?

Todebatethesequestions,variousexpertswhoareorwereinvolvedinPPFs,indevelopmentbanks

or as independent advisors have been consulted. This chapter summarizes their statements and

highlightsthekeypoints.EventhoughtheprofiledPPFshavedevelopedsophisticatedtoolsandex-

pertise,there isasetofrecommendationsthatcanbemadetofurtheroptimizesuccessfulproject

preparation.

5.3.1 ParticipationinProjectFinance

PPFsaresuccessfulinlinkingmanyprojectstofinancebutthevarietyoffinancinginstitutionsisquite

small.This leadsbacktothebaselineof thewholetopicthatwas introducedatthebeginning:be-

tweentheglobalinfrastructureinvestmentneedsandactualcurrentinfrastructureinvestment,there

isagapofmorethanUSD1trillionperyear,theexactnumberdependingonrespectiveestimates.

There is general agreement amongmost experts that public and development financewill not be

sufficienttoprovidetheinfrastructurerequiredfortheachievementoftheSDGs.Sowhileitisclear

whatisrequiredfrominvestmentsupply,theresultsoftheprofiledPPFsalsotellussomethingabout

thedemandsideofinvestment,thatis,theinfrastructureprojects.Theyallneedfinancebutdepend-

ingonthesector,notallprojectsareappropriateforthesametypeoffinance.Asanexpertofade-

velopmentbanksays,

„Whileprivatesectorinvolvementworkswellinseveralinfrastructuresectors,itneedseffi-

cientregulationfromthepublicsector.Additionally,theprivatesectorisbydefinitionmore

interestedinincomegeneratinginfrastructureprojects(liketollroadsorprivatehospitals4for

thewell-earning).Hence,thepublicsectorneedstodefinehowbestinfrastructurecanbe

4Whilehospitalsbelongtothesectorofsocialinfrastructureasdefinedatthebeginningofthereport,return-generating

privatehospitalsgenerallydonotsincetheydonotprovidehealthasabasicgoodbutratheracommercialservice.

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providedtothepoorerpopulations.Insomecases,thismightbetheprivatesectorincentiv-

izedwithsubsidies,inothercasesthismightbethepublicsectoritself.Bothwaysaresup-

portedbyInternationalDevelopmentBanks.“

So,loworinsufficientreturns,whichhavebeenidentifiedasamajorobstacleforprojectstoachieve

bankability,stillremainsachallenge.Theissueappliesoftenappliestoprojects,whichareessential

forclimatechangemitigationandadaptationortoprovidesocietywithbasicgoodsbutdonotyield

sufficientreturnsfortheprivatesectortostepin.Theobviousquestionthatfollowsishowsuchpro-

jects canget financed.Thereare severalapproaches to structure financeofprojects inaway that

theyattractinvestors.

TheblueprintoftheADB’sGreenFinanceCatalyzingFacility(GFCF,ADB,2017)aswellasthecatalytic

financefacilityenvisagedbyUSICEFwill,ifrealized,helpreducedefaultrisk.Saferinvestmentreduc-

estherequiredrateofreturnandthusreducespressuretogeneratehighreturns.Thesameistrue

forUSAID’sDCAandPIDG’sGuarantCo,whichprovideguaranteesforprivatesectorfinance.Howev-

er,PPFshavetobeawareofadditionalaspectswhenworkingwithriskmitigationinstruments.First,

guaranteesusuallycomeatacostfortheprojectdeveloper.TheDCAchargesmunicipalitieswithan

originationfee(one-timepayment)andautilizationfee(semi-annualfeebasedonthevalueofthe

loancoveredbytheguarantee)(DCA,2017a,2017b).Second,lowerrisk,whetherenabledbyblend-

edfinanceorguarantees,reducesthecostatwhichcitiescanachieveloansorissuebondstosome

degree.Yet, itdoesnot increase the incomeflowsgeneratedby theproject.Hence, itmaystillbe

difficultforaprojectwithlowreturnstosatisfyannualfinancecosts.Forinstance,aprojectwithhigh

social or climate relevance but zero returns will not attract private sector finance even if risk is

stronglyreduced.Thespaceforincreasingprojectrevenuestoaddressthisissueisoftenlimited.As

raisedbyseveralexpertsandidentifiedasaveryfundamentalissue,increasingreturnswouldrequire

makingtheservicesofaprojectmorecostly. Inthecaseofawastewatersystemraisingtariffsfor

householdsmay do this. However, the servicemight become unaffordable due to low household

budgets.

ThethirdpointisquiteafundamentaloneandisexpressedbyaprojectdeveloperengagedinAfrica:

“Sufficientinstruments,whicharegenerallywellfunded,alreadyexistinthemarkettoad-

dresssomeofthemajorrisksassociatedwithinfrastructureinvestmentsinAfrica.However,

theseinstruments,suchasguarantees,arenotavailabletomitigatethegeneralabsenceof

creditworthinessofsovereignoff-takers,whichremainstheprincipalchallengelimitingthe

growthofprivatesectorparticipationininfrastructure.“

Thisstatementcomesdowntotheargumentthattheuseofguaranteesisconditionaluponamini-

mumcreditworthiness. Ifcreditworthinessofacityisextremelylow,theguarantorexpectsthede-

fault riskof thecityand therefore theprobabilityofclaiming theguarantee tobehigh.Obviously,

guaranteesdonotjustreducetheoverallriskofaproject,theyalsotransfertheriskfromtheguar-

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anteetotheguarantor.Forthelattertobewillingtotakethisrisk,itmustnotexceedalevelconsid-

eredasaffordable.EventhoughthisstatementissetagainstthebackgroundofactivitiesinAfrica,it

is generally confirmed by all consulted experts that creditworthiness of cities in developing and

emergingcountriesisgenerallyverylow.AswasstatedbyESCIforLatinAmericaandtheCaribbean,

publicinstitutionsatthenationallevelareoftenreluctanttostepintoprovideguaranteesfortheir

cities–justforthisreason.

Thefactthatriskmitigationinstrumentsencounterseveralchallengesdoesnotinvalidatetheiruse.

However,theymayneedtobecombinedwitheffectiveprojectstructuringandpossiblywithsubsi-

dies.Forexample,projectsmaybedividedincomponents.Privatesectorinvestmentthenmayflow

tothecomponentswithsufficientincomegenerationwhilethepublicsectorordevelopmentinstitu-

tionsengagewith the remaining components. In this case, on theonehand,a LocalGovernment

maylosesomecontroloverprojectrevenuesbutontheotherhand,itsrequiredcontributionislow-

er.Alternatively,thepublicsectororotherpublicdonorsmightsubsidizeaproject inordertopro-

videprivatesectorfinancewithareturn.Again,thisinvolvesatransferfromthepublicsectortopri-

vateinvestors.Butthiscomesinexchangeforfinanceprovision.

Inadditiontothemechanismsofriskmitigation instrumentsthatmaybeusedtocrowd inprivate

sector finance, further economic and institutional challenges shouldbe taken into account aswell

when structuring project finance. The use of financing instruments like green bonds,municipality

bondsordevelopment funds to accessnew sourcesof finance, is a path tobedeveloped further.

Howeverinthecaseofgreenbonds:

“Greenbondsarenotreallymuchcheaperthanordinarybonds.Inaddition,theyinvolve

highertransactioncoststhan“boringloans”,whilethelattermaycontributejustasmuchto

greenfinanceinthattheycanfinancegreeninfrastructure.Traditionalloansandpooledloan

instrumentsmaybemoreappropriateforsmallerlocalgovernmentswithlesscapacity.”

Thisexpertstatementpointstothefunding,financingandinstitutionalconstraintsofprojectdevel-

opers.Highertransactioncostsofbondsandfunds,beingcausedbytheneedforatrustee,maypo-

tentially weigh heavily in terms of financial performance as well as required preparation efforts.

PooledgreenbondsmaybeexploredfurtherasanotheroptionforsecondarycitiesandsmallerLocal

Governments.Similarly,municipalitiesoftenhaveinsufficientcapacitiestodealwithPPPs.

“PPPsneedverygoodadvisors,thecostofwhichisrelativelyhigh.WhetherPPPsareappro-

priatedependsonthesizeoftheproject,thedepthofthecapitalmarket,thecapacityofthe

localgovernmentandthecapacityoftheirassistance.Iffacilitiesaretoprepareprojectsas

PPPs,theyneedaconsiderablebudget.”

This experience of an advisor coincideswellwith the experience of the profiled PPFs. It does not

necessarilymeanthatPPPsshouldnotbedone,buttheyarenotthemostefficientprojectstructure

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inallcases.SecuritizedprojectfinanceandPPPsarethusconditionalontheinstitutionalcapacityofa

cityinthisregard.Newfinancinginstrumentsmaycrowdinmorefinanceandlocalownership.Yet,

theirapplicationshouldbetailormadetoeachprojectandcitycharacteristics.Moreover,itisoften

foundthatduetothelackofcapacitymunicipalitiesarenotabletoachievefairagreementswiththe

privatesectorpartners.

5.3.2 FundingofProjectPreparation

A secondaspectwhereprivate sector finance is an issue is the fundingof theprojectpreparation

processitself.IntheprojectswheretheprofiledPPFsareinvolved,citiesreceivegrantstofundpro-

jectpreparation.Funding isprovidedeitherdirectlybythe facilitiesorbynational financial institu-

tions.Thiscoincidesperfectlywellwiththestatementofanexpert:

„Duringthedevelopmentphaseofaproject,itisabsolutelynecessarytoaccessgrantsand

patientcapital.“

Accordingtothisproposition,privatesectorparticipationattheearlystageofprojectdevelopmentis

quiteunlikelyduetohighriskanduncertainty in the firstphase.Grantsandpatientcapital (which

doesnotexcludeprivatesectormoneyapriori)arerequiredtoreduceearly-stagerisk.This issuc-

cessfullydonebythePPFs.Yet,grantsare limitedandtospreadsuccessfulprojectpreparationap-

proaches,waystoscaleupprojectpreparationfundingareneeded.Oneofthesolutionsinthisre-

gardisgivenbyanapproachthatavoidsfundingprojectpreparationservicesbygrants:costsofpro-

jectpreparationmaybeintegratedintotheprojectloanamount.Inthisway,costsbecomepartof

thewholeprojectandhavetoberepaidovertheprojectlifecycle.ClimateInvestorOne(2015)pro-

vides a model of such a funding and finance structure. Funding sources for project preparation

therebybecomelessconstrained,whichmakesiteasiertoshareandspreadsuccessfulapproaches

ofPPFs.InthelightofthethreeprofiledPPFs,thequestionariseswhytheideaofintegratingprepa-

rationcostsintoprojectfinanceisnotappliedbythem.ESCIhasoutsourcedthisquestioninaway

sinceitisuptocitiestofundthepreparationsupport.USICEFmaybeattooearlyastagetodothis

butmaypossiblyenvisage it for the future.ForCDIA, thereasonfornotdoing it isan institutional

one.EventhoughithasacloseconnectiontotheADBasitsleadorganizationnow,itwasoriginally

createdas“financingagnostic”,thatis,moreindependentofthebankthanitisnow.Anagreement

inthisregardthusismissing.Second,thereisanotherobstaclehamperingtheintegrationofprepa-

rationcostsintoprojectloans.Inmostprojects,CDIA’ssupportisfocusedonpre-feasibilitystudies.

Further support like feasibility studiesor technical assistance isoftenprovidedby theADB for full

grants.Somakingpre-feasibilityplanningby thePPFpartofa loanwhileproviding technicalassis-

tanceforfreewouldbeinconsistent.Ingeneral,itcanbeseenthatthewayaPPFissetupandtied

ornottiedtoafinancinginstitutionaffectsthestructurenotonlyofitsactivitiesbutalsoofitsfund-

ing.

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5.3.3 OrganizationalOptimizationofPPFs

Besidesthefinancingquestions,therearenumerousotherfactorsthataffectthequalityofproject

preparation ofwhich the general, enabling or non-enabling, environment is one. Expertsmention

several aspects thatPPFsmay consider tooptimize the “artofprojectpreparation” that can itself

haveaneffecton thegeneralenvironmentata systemic level.The firstaspectconcernsagain the

observationthatprojectpreparationismostlyfundedbygrants:

„PPFsshouldseriouslythinkaboutdevelopingmorecommercialbusinessmodelsinorderto

developtheprojectpreparationelementsthataremorelinkedtosuccess."

Accordingtothisstatement,successfulprojectpreparationcanonlybespreadiftherearepromising

commercialmodels insteadof grant funding. Thismeans thatnotonlyprojectsneed sufficient re-

turnstoattractprivatesectorinvestmentbutalsoprojectdevelopmentshouldbeorganizedaccord-

ing to thisprinciple inorder toscale itup.Makingpreparationcostspartofproject financeasde-

scribedabovemaybeonepossibilityinthisregard.Anexpertalsopointsoutthatsuccessrequiresa

moresophisticatedexpertise,whichcannotbeachievedbyatoobroad-basedPPF.Thus,

„PPFsmaywanttohaveasectoralfocus,allowingthemtoidentifyreplicablemodelsinaway

thatabroader-focusedPPFmaynot,sincethelattersimplywillnothavethesamelevelof

sectoralexposure.”

ThisactuallyappliestooneoftheprofiledPPFs,that is,USICEF,whichisexclusivelyfocusedonre-

newableenergy.WhileitseemstobeanaturalwayoforganizationformostPPFstofocusongeo-

graphicregions,sectoralfocusisamuchlessprioritizedprinciple.Bothnarrowandbroadfocihave

theiradvantagesanddisadvantages.Theformerallowsformoreexpertisewhilethelattermaymake

moreuseofsynergiesbetweendifferentsectorsatthecitylevel.Inadditiontothegeographicand

thesectoraldimensions,PPFsmayalsospecializeongovernment levels,that is,beingactiveatthe

subnational,nationaloreven international level. In somesense,everycity isa specificecosystem.

Hence,narrowing the focusmayevendistinguishbetween citiesofdifferent types. This is already

donebyseveralfacilities:whileCDIAandESCItargetmedium-sizedcountries,CFFemphasizesmega

cities like, for instance,MexicoCity.Eachchoiceonthematrixbetweendifferentdimensionsgives

risetoatrade-offanyPPFhastobeawareof.

Projectsintendingtomitigateandadapttoclimatechangemaybeincontrasttothecallforsectoral

focus.Asoneexpertnotes,greenprojects–iftheyaretobeindeedgreen–mostofteninvolvemore

thanonesectorevenifonlyonesectoristargetedintheprojectdesign.Asaprojectexample,abus

wayistoberealizedforclimateadaptationinacity.Itinvolvesrelocation,thedrainagesystemand

energyprovisionanddistributionifthebusesaretobeelectric.Hence,aPPFneedsa intersectoral

expertisethatcannotbeguaranteedbytoonarrowafocus.Advisorsmentionotherprojectswhere

insufficientattentionwaspaidtothemultidimensionalityofclimaterelatedissues.Theyturnedout

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nottobesustainableatallandhadtobemodifiedina largeefforttoenablesmall improvements.

This coincides well with the experience mentioned, for example, by ESCI that there is still little

awarenessofclimatechangechallengesincityandprojectdevelopment.

Finally,collaborationwithcitiesisessentialforanysubnationalPPF.Localconsultantsaretherefore

assignedakeyrole.Asoneexpertputsit,

“Theuseoflocalseniorconsultantsrespectedbylocalgovernmentasafocalpointforthe

PPFandasdesignconsultantsisveryeffective,butthereisadangerthattheyareveryaware

thatfutureworkmaycomefromsuchgovernmentandcaremustbetakenthattheyarenot

captured.”

Hence, hiring consultantswhoare knowledgeableof the local environmentbutwhoare still suffi-

cientlyindependentisadifficulttask.Ifpossible,PPFsshouldhiresuchalocalexpert(notaninterna-

tional)ineachcitywhereitisactive,whoactsasthelinkbetweenthePPFandthelocalgovernment.

Thismaynotbefeasibleinsmallercitiesbutwouldbeinlargecitiesforeitherbigprojectsorprojects

involvingcontinuouswork.

ThechoiceofPPFbusinessmodels,theselectionofaPPF’sgeographic,sectoralandinstitutionallev-

el focusaswell as thecollaborationwith citiesproducesnewexpertiseandbuilds capacity,which

itselfimpactslegislativeandregulativeframeworksaswellcitygovernanceandmanagement.Micro-

levelimprovementsthuscanhaveanimpactonthegeneralenvironmentandmakeitmoreenabling

for infrastructureproject implementation.SubnationalPPFsmayusetheirexperienceto foster the

verticalpolicydialogues.

6 Recommendations

The subnational PPFs presented as case studies in this report reveal that adequate functional ap-

proachesandtoolsforprojectpreparationexist.Profilingthembymeansofselectedqualitativesuc-

cessfactorshasshownthattheyaremostlydealingwithsimilarchallengesandbottlenecksandthat

they have developed suitable responses.Not all issues are resolved.Namely, questions of project

finance,projectpreparationfundingandthegeneralenvironmenthavebeendiscussedwithselected

experts.

Thisreporthasfocusedonsuccessfactorsforprojectpreparationandhaspresentedtools,identified

approachesandevaluatedexperiencesofexperts.Throughthewholeanalysis,thereporthasadopt-

ed theperspectiveof thePPF.ForPPFs, systemic-levelcircumstanceshave tobe takenasgivenat

leasttosomedegreeandactivitieshavetoadapttotheenvironmentinthebestway.Forthisrea-

son,thisreportsrestrictsitselftorecommendationsthateffectivelycomeoutoftheconductedanal-

ysisandexpertinterviewsandthatcanbeenvisagedandpossiblyadoptedbyPPFs.Thus,byformu-

latingtheconclusionsofthediscussionasasetofrecommendations,thisreportmayhopefullygive

someinspirationtoPPFsforoptimizingtheirwork:

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1. PPFsshouldmaketheapplicationofriskmitigationinstrumentsconditionaluponindividual

projectcharacteristicsandmatchthemwithprojectstructuring.Whethersuchinstruments

areeffectivedependsonaproject’sreturn,thedegreeofriskreduction,thecity’sinstitu-

tionalcapacityandcreditworthiness.

2. PPFsshouldmatchthestructureofprojectfinanceandpossiblePPPswithprojectcharacter-

isticsandcities’institutionalcapacity.Financeinstrumentsotherthanloansandfairandrisk-

balancedPPPmodelsrequiresufficientinstitutionalcapacity,projectpreparationfunding

andthussufficientprojectrevenues.Hence,formanyprojectsandcities,conventionalloans

maybethemosteffectiveapproach.

3. PPFsmayworkonmakingprojectpreparationamorecommercialbusinessinordertoscale

upsuccessfulapproachesandexpertiseinthemarket.Creatingabusinesscaseofproject

preparationwouldboostthesupplyofprojectpreparationservicesandthusallowforrealiz-

ingmoreprojects.

4. PPFsshouldcarefullychoosetheportfoliooftheiractivitiesaccordingtogeographic,sectoral

andinstitutionalleveldimensions.Eachchoiceoffocusinvolvesatrade-offbetweengaining

deepspecificexpertiseandbenefitingfrommulti-dimensionalexperience.

5. PPFsshoulddevelopexpertiseinclimateresilienceprojectsandtheirmultidimensionaland

multi-sectoralimplications.Projectsforclimatechangemitigationandadaptationareamong

themostpressingonesandtheirimplicationsforprojectpreparationareoftennotsuffi-

cientlyunderstood.

6. PPFsshouldputeffortintocollaborationwithexperiencedandindependentlocalconsult-

ants,whoactasalinkbetweenPPFsandcities.Theselocalconsultantshelpcreateaneffec-

tivelong-termlinkwithcitiesandcanalsoinformthePPFaboutthechallengesinaspecific

localcontext.

7. PPFsshouldsharetheirsuccessstoriesandsuccessfulapproaches.Thismaytakeplaceinthe

formofexperthubsoreventsliketheCCFLAProjectPreparationPractitionersForum.Suc-

cessmaybehiddeninthesmalldetailsofdailybusinessofPPFs.Thiscallsforregularinfor-

mationexchangeforthatsuccesscanbeshared.

8. PPFsmayexchangeinformationbeyondthePPFcommunityandalsocreateknowledge-

sharingspaceswiththefinancialsector(banks,developmentfinance,insurance)andproject

developers.WhilethelegalframeworkisgivenforPPFsintheircountriesofactivity,capacity

buildingcontributesto“pushingthelimits”towardsabetterenvironment.

9. Inthelongrun,PPFsmaycontributetoimprovedcreditworthinessofcitiesbyprovidingevi-

denceofatrackrecordofsuccessfulprojects.Citiesmayeitherbeeffectivelyratedasnot

creditworthyorexhibitsomecreditworthinessthatgoesunnoticedduetomissingrating.A

trackrecordofsuccessfulprojectsmayinforminvestorsoflocalinvestmentopportunities.

Taking these recommendations–built on the case studies and the interviews in this report– and

combining themwith thehigher-level andbroader-focused recommendationsand solutionsof the

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PPF literatureyieldsacompiledrepresentationofthemost important issuesthatneedtobetaken

intoaccountbyPPFsinordertoscaleupsuccessstories.Table4providesanoverview.

Buildingupontheserecommendations,theseedswereplantedaCOP23duringtheProjectPrepara-

tionPractitioners’ForuminBonnco-organizedbyCCFLA,FMDVandGIZwiththesupportofmem-

bersoftheProjectPreparationWorkingGroupofCCFLA(ICLEI,C40,GIB,UNEnvironment...),tode-

velop an initiative consisting of a subnational PP Platform to foster subnational climate fi-

nance.SuchaspacewouldenabletoexchangeontherenewaloftheinvestmentmodelsonProject

Preparation.

Table4 Mainbottlenecks,solutionsandrecommendationsinprojectpreparation

Bottleneck Relevantlevel Solution Relevantscope Recommendation

Fundingcon-

straintsforpro-jectpreparation

Local,national

andregionallevel

Scalingupfunding

sources

Enablingna-

tionalpolicies• Nationalgovernmentsshouldcon-

tributetoPPfunding;• FinancialincentivescouldencourageprivatesectorinvestmentsinPP.

Projectlevel ScalingupPPFca-

pacity

PPF:approach-

esandbusiness

models

• Projectpreparationcostscanbemadepartofprojectloans;

• PPFsmaydevelopmorecommercialbusinessmodelswhenappropriate

(RE/EEsectors).

Politicalbuy-in Localandre-

gionallevel

Makingneedof

climate-resilientinfrastructure

transparent

City:commit-

menttoclimatefinance

PPF:accessto

localauthorities

• Climaterisksshouldbecomeinte-

gratedpartofcities’developmentplansanddecisionprocesses;

• Localexpertsmayfacilitatecollabo-

rationwithcities;

• Strongdomesticfinancialinstitutions

mayensurethelinkagebetweenalllevels

Projectlevel Inclusionoflocalauthoritiesand

stakeholders(in-

cludinglocalfinan-cialinstitutionsand

civilsociety)inPP

PPF:inclusiveapproaches

PPFsshouldincludecitiesandstake-holders((includinglocalfinancialinsti-

tutionsandcivilsocietyorganizations)

fromthebeginningofPP

Lackofprivate

sectorparticipa-tion

Projectlevel Developmentof

PPPmodels

PPF:project

structuring• Solidlocalfinancialintermediaries

shouldbesupported;

• Cities’andPPFs’capacityforprivatesectorcollaborationshouldbe

strengthenedsincetheearlystageof

PP;

• PPFsshoulddemonstratetogov-ernmentsthatqualitytechnicalas-

sistanceinprojectpreparationre-

ducesinherentrisksandimproves

chancestoattracttheprivatesectorandachievefinancialclosure

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Table4 continued

Financialrisks,lowcreditwor-

thinessofmu-

nicipalities

Locallevel,projectlevel

Applicationofrisk-mitigationinstru-

ments,reductionof

early-stagerisksby

projectpreparation

PPF:riskmitiga-tionthrough

project

• PPFsshouldmakeuseofriskmitiga-tioninstrumentsincollaboration

withdevelopmentfinanceandpri-

vatesectorfinance;

• PPFsshouldsharesuccessstoriesandlessonslearntwithriskmitiga-

tioninstruments.

• PPFsmaycreateandsharetrack

recordofsuccessfulprojectstoraise

creditworthinessofcities

Insufficientpro-jectorganization

Projectlevel Improvingcapacityofprojectdevelop-

ers


• PPFsshouldbeengagedthroughoutthewholeprojectpreparationstage;

• PPFsshouldcarefullyselectsectors,regionsandscopeofactivitiestode-

velopsufficientexpertise;

• Localexpertsshouldbehired.


level

Improvingcapacityofprojectdevelop-

ers


• Nationalhubsofexpertisecouldprovidetherighttechnicaladvice

andensurethelinkagewiththeade-quatesourceoffunding;

• Identifysimilarprojectinitiativesat

higherlevelstoavoidduplicationof

workandfragmentedplanningLegalobstacles Nationallevel Legislativereforms Legalframe-

workNationallegalframeworksshouldbeimprovedtoraiseallocationofclimate

financeatthecitylevel.

Lackofinstitu-tionalcapacity

atlocalandregionallevel


Improvingcapacityoflocalandregional

governments

PPF:capacitydevelopment

• PPFsmaycombinepreparationwithcapacitybuildingforlocalandre-

gionalgovernments.

• Coordinationbetweendifferentlev-elsofgovernment

Economicandpoliticalrisks


level

Providingfinancethroughdevelop-

mentinstitutions

Generalenvi-ronment

PPFsanddevelopmentfinanceshouldlowerthehigheroverallriskbyproject

preparationandfinanceandcrowdinadditionalfinance.


Coordinationbe-tweendifferent

levelsofgovern-

mentacrosstime

PPF:accesstolocalauthori-

ties;General

environment

PPFsshouldpromotecontinuityandcoherenceofprojectsamidstcontinu-

ouspoliticalandinstitutionaltransi-

tions

Sustainability Projectlevel

MakingESGas-sessmentspartof

PPFapproaches

PPF:ESGduediligencewithin

procurement

rules

PPFsshouldmakesupportconditionaluponsustainabilityrequirements

of51

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Annex

Experts

ThefollowingrepresentativesoftheprofiledPPFsprovidedtheinformationinthequestionnaires:

• BrianCapati,MunicipalInfrastructureEngineer,CDIA

• BarbaraK.Buchner,Ph.D.,ExecutiveDirectorClimateFinance,ClimatePolicyInitiative

• AndreasWohlhüter,Consultant,IDB

Thefollowingexpertshavebeeninterviewed.Inafewcasestheinterviewwasbywayofemailcor-

respondence.TheconversationshavestimulatedthedevelopmentoftherecommendationsforPPFs

inChapter6.

• ShigefumiKuroki,GeneralDirector,DevelopmentBankofJapan

• StephenHammer,ManagerofClimatePolicy,WorldBankGroup

• GadCohen,CEO,Eleqtra• Dr.KlausLiebig,Director,KfWOfficeNairobi

• DariusNassiry,SeniorResearchAssociate,OverseasDevelopmentInstitute

• MichaelLindfield,Director,UrbanInfrastructureServices

• JorisVanEtten,ADBProgramManager,CDIA

• DhrubaPurkayasta,Director,USICEF,ClimatePolicyInitiative

PPFToolsandApproaches

PPF Approach Information

CDIA CityInfrastructureInvestment

Programming&Prioritization

Toolkit

http://cdia.asia/resources/tools/

USICEF Network of private service

providers

https://www.usicef.org/service-providers-2/

ESCI ESCIMethodology http://www.iadb.org/en/topics/emerging-and-sustainablecities/

implementing-the-emerging-and-sustainable-cities-program-

approach,7641.html

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