Jordan Schwartz, executive vice president of the Inter-American Development Bank (IDB), during an interview in Panama City July 18. Eliezer Ruiz (IDB)
Governments in Latin America must invest in infrastructure capable of withstanding extreme weather conditions while keeping pace with technology, says Jordan Schwartz (New Haven, 57), executive vice president of the Inter-American Development Bank (IDB). The multilateral firm hosted one of its biggest events this week, PPP Americas 2023, which brought together around 500 people from the public and private sectors to promote public-private partnerships (PPPs).
“We see a growing need for infrastructure that protects us from environmental disasters,” Schwartz told EL PAÍS during the event at a Panama City hotel. “This will be an issue that we as a region will increasingly grapple with,” he adds.
Questions. According to the IDB itself, Latin America is the emerging market region with the highest private sector involvement in infrastructure. What remains to be done in terms of public-private partnerships (PPPs)?
Answer. Since the early 1990s, infrastructure provision in Latin America has functioned differently than in other middle-income regions. After the debt crises of the 1980s, there was a wave of privatizations and concessions in ports, water treatment plants and power plants, among other things. What we are currently seeing is a degree of digitization in almost all areas of infrastructure. The challenge lies in the sheer volume of the technology, the complexity of managing that technology, updating it and accessing the information it generates, such as: B. Consumption patterns. Buildings are getting smarter. Roads are built with sensors to control the flow of traffic. The complexity of delivering infrastructure services is increasing and may be the reason for the pressure we are seeing from governments to push the private sector into areas where they have not done so before.
Q Historically, PPPs in Latin America have been used primarily for electrification and highways. Which sectors need more investment now?
R The region is very diverse, each country has its own particular social and economic needs. However, we see a huge demand for infrastructure that deals with flood management and protection, availability of water resources and everything related to hydrology. Either the flow of rivers or the melting of glaciers for hydroelectric power plants. We must also incorporate modern approaches to turbine storage and efficiency as underlying water resources are dwindling. We see a growing need for infrastructure that protects us from environmental disasters. This will be an issue that we as a region will increasingly grapple with.
Q Following a number of corruption scandals, PPPs have met with skepticism from the general public. How can a clean process be guaranteed?
R We need to work with our governments to ensure we commit to a transparent process from start to finish. That’s not just rhetoric, it’s very specific to the competition and the way bids are made. It refers to the public information available about the main criteria for the selection of companies, the prices paid to contractors and the possibility of examining construction technology. There is one feature of PPPs that distinguishes them from public procurement: the company responsible for the operation and long-term maintenance of the facility is part of a consortium that built the facility. Therefore, there should be an incentive to build assets that last the full life of a traditionally long-term contract. And I should mention that we found that the role of the communities where the infrastructure is being built is clearly central.
Q What about the infrastructure to reduce CO2 emissions? Which projects does the region need most?
R The topic of emissions and thus the efficiency of energy use has permeated almost all of our projects in recent years. Even road projects. For example, asphalt quality and outgassing has become an important issue. It is built into the specifications of the road projects we fund. I think we will see efficiency and emission reduction being built into more and more projects, especially those that rely on multilateral development bank funding or even commercial bond funding. Financing providers who want to demonstrate that they are contributing to sustainable development and not what is most convenient for them.
Q How should a government choose or prioritize which sector to invest in?
R Governments are increasingly considering social and environmental aspects to prioritize their investments. The process is more complex since not everything can be monetized. Biodiversity, for example, cannot really be monetized. We can monetize emission reductions, but we would have to put a price on carbon and we haven’t yet reached an agreement on what the price of carbon should be and we don’t have functioning carbon markets yet. Very often these factors require a qualitative assessment. Where do we prioritize social impact? What social impact do we prioritize if the government doesn’t have enough money to build everything it wants to build? Which social needs do we want to alleviate? The IDB emphasizes access for the poor, the sustainability and low environmental footprint of the investment, and the economic and financial returns. Are we concerned with a global public good, such as reducing emissions, or with a local public good, such as port access to services? Here the design of the project structure has become more complicated.