The following section provides the minutes of the discussion of the PPPUE facility.

Question: What are the priorities for capacity building?

Comment: Some secondary cities in the provisional National Programme countries (for example, in Nepal, Uganda and Zambia) are completely overwhelmed with the tasks of managing the cities themselves, not to mention their environmental problems. The lack of policy that exists inhibits the development of the private sector to step forward, so there is a real need for some kind of regulatory strengthening. Many of these cities would not be able to represent themselves well if a strong private partner were to be found. Having to establish and maintain a regulatory framework for private participation could prove to be very difficult in the short term given the context of other priorities resulting from decentralization. Training for capacity with respect to regulation could be premature.

Reply: Establishing water supply, waste management and energy services is a major part of the problem of managing secondary cities. PPPUE plans to work within the framework of existing priorities. The Programme is not necessarily designed to bring in new partners from the outside and create complicated regulatory frameworks, but will focus instead on imaginative ways of including the local private sector. Very often a municipality already has some arrangements with local businesses, NGOs and community group. They need support in making these efforts sustainable. Broad regulatory frameworks do have to be tackled, but this has to be designed at the country level.

Question: What is UNDP's comparative advantage in the field of PPP development and urban environmental infrastructure (in relation to the World Bank, for instance)?

Reply: First, UNDP will not be competing with the World Bank for projects. Rather, the activities of the two agencies will complement each other - each one focusing on its own strengths. This means that UNDP will focus only on water supply and sanitation, waste management and energy services, and will do so more on the community level and hand-in-hand with local governments. The size of the projects that UNDP will support would be too small to be very attractive to the kinds of investors with whom the PPIAF will be working. For their part, PPIAF (and the World Bank) will focus on much grander private sector investments and include sectors other than environmental services (for example, railways, telecommunications, and so on).

Second, UNDP's major advantage is the institution's permanent presence at the country level. UNDP enjoys a good relationship with host governments, is seen as an honest broker, and for many types of activities is viewed by local organisations as the preferred multilateral partner. This is the result, in part, of the fact that UNDP has to answer to a representative Executive Board. In terms of the specific advantages of the PPPUE, it is important to point out that PPPUE already has five years of experience in PPP research and project development. This means that PPPUE has been ahead of the curve for some time.

Question: What are the terms of the PPPUE/PPIAF Agreement?

Reply: The agreement is based on complementarities: PPIAF focuses on large-scale infrastructure projects across all of the different sectors and on the national levels and in mega-cities. UNDP focuses on small to medium-sized investments (< US $25 million) and specifically in the environmental services sectors (water supply and sanitation, waste management and energy). The agreement describes a clear delineation of responsibilities. UNDP would like to identify a core group of donors with a knowledge and understanding of both facilities.

The World Bank provides loans mainly to National Governments, although lately the Bank has been considering how it will work on the municipal level. (Up until now, municipal governments have had difficulty securing loans because the WB demands guarantees from the National Government - and usually these are hard to obtain in the context of decentralisation). UNDP is already at the local level, thanks to its network of country offices around the world and its track record in decentralisation and community empowerment projects. UNDP can use its offices to provide technical assistance more directly to subnational levels. This means that the organisation is in a better position to be service-oriented and to respond to municipal-level demands more easily and more cost-effectively. This ranks as one of UNDP's principal competitive advantages and offers the complementarity needed to fill certain gaps that are not covered under the PPIAF instrument.

Question: What are UNDP's areas of expertise in PPP development at the municipal level?

Reply: UNDP has significant experience in the water and energy sectors - right down to the local level, not just on the macro policy level. Over the past couple of years, PPPUE has also been building experience in legal, economic and policy development. The local support of country offices will also facilitate PPPUE interventions.

Question: What is PPPUE's relationship with other initiatives (Business Partners for Development, for example)?

Reply: There is no direct working relationship between Business Partners for Development and PPPUE at the moment. These programmes have a different approach in bringing in the private sector on a number of different issues and none of them specifically targets urban environmental services on the scale PPPUE is addressing. Again, one of PPPUE's priorities is working with national and local private sector partners, a constituency that is not necessarily associated with global groups like BPD.

Question: What PPP opportunities will not be supported and why?

Reply: There are a number of sectors and areas that PPPUE has excluded (transportation, large utilities, and telecommunications, for example). Poverty reduction is the ultimate objective of the Programme, and the three sectors that PPPUE focuses on - water supply and sanitation, waste management and energy - are considered to have the most direct impact on the urban poor. These are also the sectors that require the kind of expertise that UNDP has been developing over the last several years.

Question: Can the goals of the Programme be expanded in order to mainstream the ideas behind PPPs for urban services in order to change the attitudes of public sector managers who are still responsible for 70% of the necessary future investments?

Reply: Before mainstreaming can be accomplished, PPPUE has to demonstrate that PPPs are possible in secondary cities and on a small to medium scale. In the long term it will be better to mainstream, but for the moment PPPUE needs to start with some clearly defined projects that will demonstrate how to implement partnerships and create enabling policies and frameworks. It makes sense also to start out with a focus on secondary cities because this is where the major growth is occurring around the developing world. Before mainstreaming, PPPUE needs to provide governance capacity building to help future decision making. Combining this Programme with PPIAF can go a long way towards mainstreaming these issues. And mainstreaming at the national level may be something in which PPIAF holds the clear advantage.

Question: What are the hindrances of PPP development on the macro level? Can macro level issues be incorporated into the Programme or does PPPUE need a complementary Programme that works on the macro level?

Reply: During the preliminary phase, PPPUE identified a lot of the macro-level bottlenecks. Now we need to find out how these bottlenecks specifically effect PPP implementation from the municipal point of view. In this respect, the PPPUE/PPIAF coordination obviates the need for creating another programme at the macro level. Given the scale of PPIAF-related investments, many of its project partnerships will reveal more about what needs to be done to create an enabling macro environment. The PPPUE Management Team is on the Programme Council at PPIAF, which will allow them to take macro questions directly to the World Bank.

Question: How will the PPPUE National Programme relate to lengthy national reform processes?

Comment: Experience suggests that the reform process in some countries can take a very long time. Zambia has been undergoing "reform" for example for 30 years. Is PPPUE prepared to remain involved in a national Programme for such a long time?

Reply: PPPUE will strive to achieve a bottom-up approach. To wait for the government to reform completely prior to implementing projects would preserve the status quo for a very long time, and there are pressing needs for services now. In the energy sector, for instance, UNDP has experience in countries where PPPs may not be legally sanctioned, but rather than wait for legislative changes, UNDP can go to the local energy utility and find out where they have no plans to extend services in the short-term. That is where UNDP will then work to develop a project.

We are linked to sector reform, but from a different entry point - that is, municipal governance. So we want to focus on practical approaches without having to wait for national sector reform. We will focus on areas where decentralisation has already come a long way. Then we will work with those municipalities.

Question: Why focus on small and medium sized cities when sector reform is badly needed?

Reply: We are not excluding the bigger cities, but the focus on smaller cities is complementary to the activities facilitated under by PPIAF. Besides the needs are very high in secondary cities, which do not present attractive investment opportunities for a lot of private sector investors.

Question: How will the programme allocate and augment its resources? Reply: The National Programmes are the main focus of the overall PPPUE Facility. At present, the facility can provide $400,000 per country - a good basis for raising in-kind and matching funds at the national level. PPPUE will also try to engage local and regional consultants as much as possible.

Unlike the first batch of National Programmes, the Flexible Response Facility is still under-funded. The Global Learning Network, though an extremely cost-effective service, also needs a more substantial budget in order to be able to sustain its growth.

Overall, though, the idea behind the PPPUE is to use what few resources that are available very effectively.

Question: How can PPPUE help to direct capital resources to the poorest countries?

Comment: Although international private capital flows to developing countries have increased dramatically, there appears to be a significant gap among recipient nations. Very little of these resources are actually flowing to the poorest countries. The statistics on capital flows shows that 10 countries received 80% of all international flows.

Reply: We need to find out how to get the private sector involved in other countries. PPPUE can achieve this in part by establishing a market place of opportunities that will help to advertise PPP projects in the disadvantaged countries that otherwise receive little international attention. PPPUE plans to launch this marketplace at an international fora, such as Expo 2000, as well as on the Global Learning Network web page, which will have a relatively large component devoted to investment opportunities. Furthermore, the proposed National Programmes (Mozambique, Zambia and Uganda, for example) reflect PPPUE's focus on poor countries.

Question: What initiatives have occurred in the poorest countries that reflect sizable private sector investments?

Reply: It is important to point out that PPPUE does not focus entirely on bringing the international private sector to bear on local environmental services problems. Development of a national private sector to participate in these partnerships is also paramount (as is tapping in to national subsidiaries of international companies). At the level at which PPPUE is focusing, it will not be easy to get international investment, for these are smaller projects than the utility scale and therefore will have comparatively higher transaction costs/returns ratios. If PPPUE supports the ground work vis-à-vis capacity building and establishing an enabling environment for PPPs, then private sector partners can enter more easily the process and seize the opportunities that arise.

Question: How much will the private sector contribute to this initiative?

Reply: The answer to this question depends on whether you are looking at the Trust Fund that has been set up to pay for UNDP interventions, or if you take into consideration the direct development costs and investments of these projects, which should be mainly borne by the involved partners. Sometimes these costs are not strictly financial, and they can be calculated in terms of human resources and opportunity costs, as well.

We aim at expanding the base of donor governments participating in the PPPUE in order to make this a truly multi-donor facility.

Question: What are the criteria used to select the countries and how much flexibility is there in being able to influence decision-making at this point? What strategies are being applied at the regional level, if any?

Reply: The PPPUE Management Team recognizes that donor agencies have existing bilateral programmes and individual development priority areas. The PPPUE Facility is therefore designed with enough flexibility to include countries recommended by individual donors, provided the resources are available.

Different regional strategies may be called for. One of the roles of the GLN is to feedback lessons in order to provide enough data and information for identifying appropriate strategies and frameworks for different regions.

Question: How does PPPUE ensure that it is providing services to the poorest of the poor?

Reply: The design of the PPPUE Facility is based on an open-minded approach that includes non-traditional service providers other than formal private companies. The real innovation in reaching the poorest of the poor depends on developing the triangle between the public sector, the private sector and civil society.

Individual circumstances will dictate the best way to reach the poorest. In some cases it may be a matter of paying for an appropriate level of service, as opposed to the necessary hardware for a level of service that may not be practical in a given area.

Question: How will PPPUE support and facilitate UNDP reform?

Reply: The next few years will see significant changes within UNDP. The organisation has a new Administrator who feels strongly that UNDP needs to focus more and take into account the changing forces effecting development assistance. One major new focus is the role that partnerships and the private sector will play for the new UNDP, and some of the most exciting partnerships are in the field of the environment. The Administrator is convinced that UNDP's advantage lies in its ability to assist with improving governance. This may mean that the era of UNDP project assistance is over and that from now on, UNDP will be mostly focused on providing policy advice rather than project development, except where project development directly supports the strengthening of policy implementation.

The history of the PPPUE Facility reflects this institutional evolution. When it started, the Project Development Facility was primarily established to initiate projects. The new phase of the Programme has a stronger emphasis on policy development in line with the changing priorities of the institution.

Question: What plans does the PPPUE Facility have for expanding "knowledge management"?

Reply: One of the objectives of this conference was to identify what networks are currently being funded and how the GLN can tap into them. Another objective was to solicit ideas about where the gaps in knowledge lie and what needs to be done to try and address them. The GLN would benefit simply from a list of the topics that donors, experts and consultants think are the most relevant.

Question: The PPPUE Home Page is a very helpful tool for learning more about PPP activities and available expertise. Is there some way to increase private sector participation on the site itself or in the PPPUE and Global Learning Network activities?

Reply: One approach is through trade associations or organisations that bring private companies together. Another way to increase corporate involvement would be through identifying national subsidiaries of multinationals. After working with governments and service providers, the PPPUE and the GLN could raise awareness about specific sectoral problems in specified countries or cities and then discuss potential training options through the subsidiaries. Most international companies have training programmes already in place for developing national managers.

Specific recommendations and comments from the donors for developing the PPPUE further:

• When submitting a proposal for funding from one of the agencies, the PPPUE Facility should focus the Programme more narrowly in order to be able to target its interventions more clearly.
• In terms of comparative advantage, the Global Learning Network appears to be one of the strongest components for true differentiation and added value in an arena that has no alternative at the present time.
• From the point-of-view of providing services to the poorest countries, PPPUE has to consider how it will avoid business-as-usual. Participants in the working group on "PPP and Poverty" indicated that the poorest 20% of an urban population might still fall outside of the service area of a PPP arrangement. This has to do with issues concerning land tenure and the supporting infrastructure often associated with delivering environmental services (roads or favorable topography, for example). The PPPUE Facility has to propose a way to reach that last 10 or 20 percent. Then it will be a true innovation.
• PPPUE should consider assisting municipalities in joining forces to influence policy development at the national level. This might require coordinating efforts with PPIAF at the meta-policy level on behalf of a group of smaller municipalities in a given country. Or it might be as simple as supporting municipalities that are interested in pursuing this type of dialogue by setting up meetings with national government officials, agencies, or parliamentarians.
• Studies highlighting the prominence of expanded private capital flows should also indicate what percentages of those flows are going to the poorest countries. Likewise, the upcoming PPPUE phase should consider focusing specifically on those countries that are most disadvantaged and most commonly overlooked when it comes to international private investment. The first phase appears to have focused on middle income countries.
• SIDA is promoting a network of its own called Reforming Infrastructure and Public Enterprises (RIPE). RIPE aims at improving skills and promoting the sharing of information within and between SIDA and Swedish resources. The focus is on infrastructure projects (mostly energy and telecommunications) and examines public policy with regard to restructuring public companies and resolving management issues. RIPE also facilitates the creation of institutions that will help to establish enabling environments and services in connection with changes in ownership. RIPE and the GLN should, at the very least, establish links to each other's web sites.

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