Industry Agenda African Strategic Infrastructure Initiative Managing Transnational Infrastructure Programmes in – Challenges and Best Practices Prepared in collaboration with The Boston Consulting Group

May 2014 © World Economic Forum 2014 - All rights reserved.

The viewpoints expressed herein attempt to reflect the collective opinion of various individuals who have contributed to the research and development of this report. They do not necessarily imply an agreed position among them or institutional endorsement by any participating company or organization involved in the work or mentioned in the report, or of the World Economic Forum.

REF 060514 Contents

4 Foreword 6 Executive Summary 9 Introduction 11 Drawing Some Distinctions 11 A Matter of Terminology 12 A Classification of Transnational Infrastructure Programmes 15 Transnational Infrastructure Globally and in Africa 19 Key Challenges for Transnational Infrastructure Programme Management – and Their Specific Relevance for Africa 20 Financial Challenges 20 Technical Challenges 22 Regulatory Challenges 22 Personnel/Cultural Challenges 23 Governance-related Challenges 25 A Best Practice Framework for Transnational Infrastructure Programme Management 25 Presentation of the Framework and Overview of Best Practices 29 Institutionalized Cross-border Collaboration 32 Integrated Infrastructure Plans and Regional CBA 34 Aligned Delivery Model and Harmonized Concession Framework 34 Bankable Feasibility Study for Transnational Programmes 35 Balanced Cost, Benefit and Risk Allocation, and Harmonized Regulation 37 Competitive, Transparent Tendering and Optimal Financing Structure 38 Alignment of the Construction Process and O&M Requirements 39 Conducive Enabling Environment 41 Conclusion 43 Contributors

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 3 Foreword

Increasingly, political leaders around the world share a and to facilitate the delivery of transnational programmes, common vision of regional integration – to open up regional such as the ones included in the PIDA PAP, on schedule, markets, link production clusters in different countries, at cost and at the right quality. These programmes can facilitate the free movement of goods, services and people, make a huge contribution to social and economic welfare and foster political stability and peace. Accordingly, a further by boosting transnational trade, connecting landlocked common ambition is to promote transnational infrastructure countries to world markets and by improving access to, and as a physical backbone of this regional integration, and security of, electricity supply by linking large power plants with initiatives are under way to give greater priority to cross- neighbouring countries. border programmes. We would like to thank the many World Economic Forum In Africa, for example, the Priority Action Plan of the Partner companies and the many organizations which have Programme for Infrastructure Development in Africa generously contributed their expertise and time as members (PIDA PAP) encompasses 51 programmes of regional of the Business Working Group: A.P. Møller-Maersk, Arup, importance in the transport, water, energy, and information ABB, Absa Capital, African Rainbow Minerals, Anglo and communications technology (ICT) sectors, with an American, AngloGold Ashanti, ArcelorMittal, BT, Development investment need of $68 billion. The aim has been to get Bank of , Eskom, Flour Mills of , First these programmes implemented by 2020, but the realization Bank of Nigeria, General Electric, Industrial Development of that aim is hampered by the tremendous challenges the Cooperation of , Leighton Oando, Old Mutual, programmes face, often because more than one country Overseas Infrastructure Alliance, Prudential, Royal Philips, is involved. Although these challenges might arise in any Sasol, SNC Lavalin, Sun Group, Standard Bank, Standard region, they are particularly severe in Africa. The Chartered Bank, Telkom SA, Transnet, UBS, United is so heterogeneous – with 34 official languages, in addition Phosphorus, Vale, Yara, Africa Capacity Building Foundation, to a plethora of local tongues, and more than 40 currencies, International Finance Corporation, Mo Ibrahim Foundation, with great variation in the financial capacities of individual NEPAD Business Foundation, The Office of Gordon and countries. Moreover, the maturity of public institutions remains Sarah Brown, The Infrastructure Consortium for Africa and inadequate, and serious shortcomings persist in the capability The World Bank. of and capacity for managing transnational infrastructure programmes. We would like to make a special acknowledgement of the leadership provided by our Partners, We are delighted to introduce this second report as part Commission, African Development Bank and NEPAD of the activities of the World Economic Forum’s Business Planning and Coordinating Agency. We thank them for their Working Group on Infrastructure in Africa. The Group genuine, relentless interest and commitment to the activities has been created in 2012 by the World Economic Forum of the Business Working Group. in partnership with the African Development Bank, the African Union Commission and the NEPAD Planning The experience, perspective and guidance of all the above and Coordinating Agency and it has been working as people and organizations substantially contributed to a a coordinated business voice to support infrastructure number of remarkable discussions at the Business Working development in Africa and in particular help accelerate the Group meetings in Johannesburg, , Dar es Programme for Infrastructure Development in Africa (PIDA). Salaam and the World Economic Forum Annual Meeting 2014 in Davos-Klosters. PIDA was approved by the African heads of state and government at their summit in Addis Ababa, , in Alex Wong January 2012, signifying high-level political buy-in and Senior Director ownership of the programme. Developed by the African Head of Business Engagement (Geneva) Union Commission in partnership with the United Nations Economic Commission for Africa, African Development Bank Pedro Rodrigues de Almeida and the NEPAD Planning and Coordinating Agency, PIDA Director specifically calls for new models of partnership between Head of Infrastructure & Urban Development Industries business, government and donors to implement the 51 Priority Action Plan (PAP) infrastructure transnational projects Elsie Kanza already identified. Director Head of Africa This second report of the Business Working Group, “Managing transnational infrastructure programmes in Africa – Challenges and best practices”, identifies the key hurdles that have to be overcome. It also presents a best-practice framework to guide policy-makers, sponsors and managers,

4 African Strategic Infrastructure Initiative

Executive Summary

Increasingly, political leaders around the responsibilities and processes are often distributed unequally across the world share a common vision across countries, and to overcome participating countries, it is important to of regional integration – to open up national interest in staffing. In addition, conduct a regional cost-benefit analysis regional markets, link production the multicountry setting increases the (CBA) in order to establish a regional clusters in different countries, facilitate risk of (unilateral) political changes, business case. As a second step, the the free movement of goods, services and tends to delay decision processes involved governments should take an and people, and foster political stability even more. All of these challenges will aligned decision on the delivery model, and peace. Accordingly, a further vary in intensity, of course, according and should harmonize their concession common ambition is to promote to the phase, size and complexity of frameworks – ideally issuing a single transnational infrastructure as a a programme, as well as the enabling concession for the whole facility rather physical backbone of this regional environments within the countries than several concessions in each integration, and initiatives are underway involved. country. to give greater priority to cross-border programmes. In Africa, for example, the Although these challenges might arise When it comes to the programme’s Priority Action Plan of the Programme in any region, they are particularly preparation phase, a bankable feasibility for Infrastructure Development in severe in Africa. The continent is study is needed. Next, the costs, Africa (PIDA PAP) encompasses 51 so heterogeneous – with 34 official benefits and risks of the programme programmes of regional importance languages, in addition to a plethora need to be carefully allocated to the in the transportation, water, energy, of local tongues, and more than 40 involved countries. That work should and information and communications currencies, with great variation in be assigned to a strong, impartial and technology (ICT) sectors, with an the financial capacities of individual respected arbiter, such as a regional investment need of $68 billion. The aim countries. Moreover, the maturity of development bank. The arbiter would has been to get these programmes public institutions remains inadequate, also develop a detailed compensation implemented by 2020, but the and serious shortcomings persist plan for those people adversely affected realization of that aim is hampered in the capability of and capacity for by the infrastructure programme. A by the tremendous challenges the managing transnational infrastructure further imperative during this phase programmes face, often because more programmes. would be to harmonize the regulations than one country is involved. and technical standards across the Finally, unlike the European Union various countries: as far as possible, Financial challenges exist, such as (EU), for instance, Africa’s Regional existing national standards should be agreeing on the sharing of programme Economic Communities (RECs) lack the adopted, and regulations should be costs, risks and benefits, and then resources and the mandate to drive the radically simplified. implementing agreements in the implementation of such programmes. absence of a supranational authority; or This concept paper presents a best- Finally, during the implementation structuring the financing with different practice framework for the management phase, a competitive, transparent currencies and different national financial of transnational infrastructure tendering process and an optimal capacities. Other challenges are programmes in Africa. It is descriptive financing structure are required. In technical (aligning different standards rather than prescriptive in nature, but the Economic Community of West – the gauge width of a cross-border the framework should help policy- African States (ECOWAS) region, the railway network, for example – and makers, programme sponsors and procurement process has increased in different operating requirements) and managers to get their bearings, and will transparency thanks to a procurement regulatory, including the provision facilitate the delivery of cross-national committee staffed by all participating and enforcement of legal agreements programmes on schedule, at cost and countries and involving neutral experts. and the alignment of procedures. The at a high quality. To secure the best financing structure, human factor is present as well: the the programme sponsors should need to build relationships based on The various phases of a transnational establish regional financing instruments trust, to overcome historical legacies infrastructure programme raise different and make use of risk-mitigating of political differences and to bridge issues. In the origination phase, the instruments such as guarantees. During language barriers. In transnational initial priority is to integrate the individual the construction phase, the processes programmes, the number and variety national infrastructure plans. To achieve should be aligned across all participating of stakeholders is amplified, as is the that, the programme sponsors in the countries, in order to ensure, for cultural diversity of the teams. Finally, involved countries should devise a example, that different stretches of a programme governance poses its regional sector planning framework, with railway track can be interconnected own challenges: aligning different appropriate institutional arrangements. at the border as scheduled; or, that national agendas, and ensuring that all Given that the costs and benefits a cross-border transmission line is participating countries have appropriate (both pecuniary and in externalities) in place so that a new hydroelectric ownership. It is difficult to coordinate of a cross-border infrastructure facility power plant does not remain unused.

6 African Strategic Infrastructure Initiative The programme sponsors should change: it would be established only need a conducive environment, which also ensure that the operation and after the origination phase, but would includes an appropriate regulatory maintenance (O&M) of the infrastructure then drive the preparation phase by system in all countries. Moreover, the facility is properly coordinated across conducting the technical, environmental, environment should have the right borders. This coordination is particularly social and economic studies. (This task management capacities and capabilities pressing in cases where consumption could be outsourced to an infrastructure in the public sector (e.g. ministries and and production are located in different project preparation facility [IPPF].) public agencies), as well as in national countries, as necessary repair works Once the preparation phase ends, and and regional finance institutions (e.g. will affect the supply of water, oil or assuming the involved governments development banks), parastatals (e.g. electricity abroad. give the go-ahead for the programme, national utility and railway companies) the SPPA would prepare the tender and the programme management unit Over the programme’s entire life cycle, documents, select contractors and (e.g. the SPPA). A final crucial factor it is crucial to institutionalize cross- issue contracts. During the construction – good relationships between the border collaboration. That task could phase, the agency would supervise relevant parties – requires trust, and the be fulfilled by a special purpose public the construction process and ensure investment of time and effort in building agency (SPPA), established through a alignment across borders. (This task those relationships. Institutions, treaties special treaty between the countries. could be outsourced to a professional and agreements can support bilateral The SPPA could take various forms: a project management company; the and multilateral cooperation, but they public consortium, a private venture, SPPA’s role would then be to supervise are no substitutes for trust. a public-owned private enterprise or this contractor.) During the O&M phase, a public-private partnership (PPP), in the agency would commission and The relevance and applicability of which the organization would be jointly supervise all maintenance processes the various best practices has to be owned by the public sectors of the and again ensure alignment across determined on a programme-by- involved countries and by the private borders. Over the whole life cycle, programme basis. Adopted and applied sector. The agency would have overall the SPPA would be in charge of appropriately, they should remove accountability for the programme and coordinating with all stakeholders of the roadblocks to the realization of regional ensure that it is managed coherently, programme, and would provide a single infrastructure programmes, and help rather than as individual projects. point of accountability. to make PIDA a reality – with all its In addition, the SPPA should be associated benefits, such as improved issued with special rights. Over the For transnational infrastructure public health, a boost in local prosperity programme’s life cycle, its role would programmes to flourish, they also and greater regional integration.

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 7

Introduction

Transnational infrastructure programmes When neighbouring countries agree other challenges. Difficulties in the have been difficult to establish in to share an infrastructure project, they financing, technical design, regulatory the past because of intercountry could be motivated by a variety of environment and governance of these rivalries and the fear of invasion.1 factors. On the one hand, geographical programmes exist, all the more so in With increasing democratization reasons could play a role; for example, view of the cultural differences often and globalization, however, attitudes a hydroelectric power plant might be involved. The aim of this concept have changed dramatically. Around located on a river forming the border paper is to identify these challenges in the world, political leaders now between two countries. Economic transnational infrastructure programme share a vision of regional integration. reasons, on the other hand, can management and their specific Transnational infrastructure assets – not also figure, such as a highway or an relevance to Africa, and to outline the just in the transport sector, but also integrated rail network that would best practices for addressing them. The in energy, water, and information and facilitate trade between the countries findings are based on expert interviews communication technology (ICT) – are involved; or, a large power plant that and extensive research into previous the backbone of cross-border exchange might become economically viable if transnational projects – the difficulties of people, goods and services. nearby foreign countries contract to that these projects encountered, and off-take an agreed amount of electricity. the ways in which the difficulties were Recognizing the importance of Furthermore, the diplomatic dimension addressed and resolved. infrastructure for creating regional exists; a railway bridge might serve markets, connecting production not just as a bridge for trains, but also This paper does not cover the clusters in different countries and as one for fostering cordial bilateral challenges inherent in the physical linking these clusters with markets, relations. construction of transnational governments around the globe have infrastructure assets (from the recently taken many initiatives to One key characteristic of transnational perspective of an engineering, pursue infrastructure ventures with their infrastructure programmes is that the procurement and construction neighbours. In , for example, costs and benefits – both monetary contractor, for instance); it remains the Helsinki Declaration of 25 June and as externalities – occur in more focused on the planning and 1997 lays out a set of principles for than one country and are often implementation process, the a European transport policy,2 while distributed unequally. For instance, a governance structure and the regulatory Articles 170-172 of the Treaty on the hydroelectric power plant in country A environment of a transnational Functioning of the European Union might produce electrical energy mainly infrastructure programme. The target provide the basis for trans-European consumed in country B, while the dam audience includes programme and networks in the transport, energy involved causes irrigation problems project officials in the public and private and telecommunications sectors.3 In further downstream in country C. Or, sectors, as well as policy-makers South-East , the Greater Mekong a transport network might connect and government representatives in a (GMS) programme oversees industrial centres in countries A and C, position to influence the programme a portfolio of 58 projects, with an while country B serves mainly as a mere environment. investment volume of $26.5 billion in transit country without major benefits. hard and soft infrastructure across The challenge is to quantify the direct Cambodia, the People’s Republic pecuniary costs and benefits and to put of China (China), Laos, Myanmar, a value on the externalities, as well as to Thailand and Vietnam.4 In Africa, devise a scheme for distributing them several organizations – the African fairly across the countries involved. Union Commission (AUC), the New In the meantime, as countries often Partnership for Africa’s Development remain concerned about not getting a Planning and Coordinating Agency fair share, or about providing a subsidy (NEPAD Agency) and the African to a neighbouring country, the number Development Bank (AfDB) – set up of transnational projects remains well the Programme for Infrastructure below the social optimum.5 Development in Africa (PIDA), with a Priority Action Plan (PIDA PAP), to be In addition to assessing and implemented by 2020, that covers 51 allocating the costs and benefits, the transnational programmes in the energy, organizations managing transnational transportation, water and ICT sectors. infrastructure programmes face several

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 9

Drawing Some Distinctions

This section begins by defining and a clearly defined output. An not consistently applied in practice. For the elements of any cross-border infrastructure programme is a group instance, PIDA is more characteristic infrastructure programme and of closely related or interdependent of an infrastructure portfolio than an outlining its key characteristics, and projects, jointly planned and managed infrastructure programme. then differentiates three types of for greater efficiency – for example, a programmes. water distribution system, including a The hierarchy of elements in a reservoir or dam; a water purification transnational transport programme plant; and a network of piping and are shown for the Central Corridor metering.7 The joint supervision enables (Figure 1), which forms part of the A Matter of specific benefits that would probably wider PIDA portfolio.8 The Central not emerge if the projects were Corridor programme can be divided Terminology supervised individually – benefits such into subprogrammes, according to as reductions in overall procurement the sector: rail, road and port. One When the preparation and and operating costs. An infrastructure or more different projects can be implementation of physical infrastructure portfolio is a group of loosely related under each subprogramme, such as is under discussion, three phrases or unrelated projects or programmes, the upgrade of a road section or the are commonly used: an infrastructure jointly sponsored or facilitated at a high creation of a one-stop border post. A project, an infrastructure programme, 6 level, serving a broad strategic objective; transnational programme can generally and an infrastructure portfolio. An for example, a regional healthcare be broken down into national projects, infrastructure project is a specific upgrade, including a water distribution or subprojects if the infrastructure asset and temporary undertaking, aimed system and a network of clinics and is located on the frontier, as with a one- at producing a defined structure – a hospitals. This distinction is well stop border post or a bridge crossing a new airport terminal, for example, or established in project management and border river. a water purification plant. The project engineering; however, the definitions are has a clear timetable for delivery,

Figure 1: Structure of a Transnational Infrastructure Programme: An Example

Portfolio e.g. PIDA

Programme e.g. Central Corridor

Subprogramme Subprogramme Sub-Programme Sub-Programme Subprogramme e.g.e.g. Railrail networknetwork upgradeupgrade andand e.g.e.g. Roadroad networknetwork upgradeupgrade andand e.g. port upgrade and expansion extension extension

Project Project Project Project Project e.g. road upgrade e.g. Construction of one- e.g. road upgrade Dar es e.g. road upgrade Dodoma – e.g.stop construction border post of onone- Salaam – Dodoma border – Kigali border Tanzania/Rwandastop border post border on Tanzania/Rwanda border

Subproject Subproject e.g. work on e.g. work on Tanzania side Rwanda side

Tanzania Rwanda

Sources: World Economic Forum analysis

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 11 While such a structuring enables the management of the programme, it does not make programme management obsolete, as the specific benefits would remain unrealized if the projects were managed individually. Consider, for instance, the upgrades of the road sections from the city of Dodoma to the Tanzania/Rwanda border, and from the border to Kigali: they could be managed individually, of course, but that would forfeit the advantages, such as aligned work schedules, common technical standards and the joint procurement of supplies that will derive from the overarching management of the programme.

A Classification of Transnational Infrastructure Programmes

Transnational infrastructure programmes can be broadly classified into three different types, according to the degree of transnational collaboration needed (Figure 2).

Figure 2: Types of Transnational Infrastructure Programmes

Low/medium transnational complexity High transnational complexity

1. Transnational planning/ 2. Transnational 3. Cross-border physical policy coordination infrastructure network infrastructure

– Main physical facility located – Physical infrastructure network – Physical infrastructure asset within one country spans national borders located in two countries Description – Coordination of policies and – Usable at national level, but – Either physical infrastructure on strategies to align investment transnational connection greatly the border or main transmission decisions increases its value line into other countries

– Business case positive, – Business case usually positive, – Realization in a single country regardless of any interaction with regardless of interaction not possible, or business case other countries – Interconnection increases depends strongly on foreign internal rate of return consumption Business case

– Nacala port expansion – Abidjan-Lagos coastal corridor – One-stop border posts – Walvis Bay new container – North-South multimodal corridor – Batoka hydroelectric plant terminal – - pipeline – Regional hub port and rail – Highlands Water Project – PIDA example PIDA master plan water and energy components

Sources: World Economic Forum analysis

12 African Strategic Infrastructure Initiative Very broadly, the transnational The stretch that lies within any one collaboration of the three types can be country is usable and valuable in itself, characterized as optional, preferable but extra value is derived from the and crucial. The challenges grow interconnections. In other words, the increasingly complex with each type. transnational whole is greater than the sum of its national parts. In type 1, or transnational planning/ policy coordination, the infrastructure Finally, in type 3 or cross-border facility is located entirely within one physical infrastructure, the facility country (e.g. a container port). The straddles two countries; or alternatively, business case for such a project is much of its output is transferred across positive, regardless of any interaction the border, as with a hydroelectric with other countries, but it is reinforced plant or an oil pipeline. The project by the development of a joint strategy. depends on joint participation (it would The strategy, for example, allows for be economically unviable if restricted to specialization, exploits economies of one country); or, the physical structure scale and reduces the likelihood of needs to be sited on two national overcapacity. This type of transnational . infrastructure refers mainly to “soft” aspects, such as legal, regulatory, procedural and other supporting policy frameworks, as well as to human and institutional capacities.9

In type 2, the transnational infrastructure network, the facility or network extends between two or more countries – a highway or railway system, for example.

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 13

Transnational Infrastructure Globally and in Africa

Two broad factors determine the for a hydroelectric power plant are in next indicator is the proportion of land need or demand for transnational another (the Mphanda Nkuwa project border vs the border’s total length; infrastructure. The first is the spatial in ), demand for cross- since coastal regions can be easily distribution of economic activity national energy transmission arises. served by ships, a large share of land and natural resources, underlying border suggests the need to build the exchange of people, goods and The second broad factor is the road and rail links across borders. The services between economic clusters. geographical layout and political number of border countries is the third Trade between two markets generally boundaries that determine the need indicator; the greater the number, the increases with their size, and decreases to build infrastructure across borders. more opportunities a country has for with the distance between them.10 If Four indicators to measure this need connecting with other countries and, the markets are in different countries are listed on the right side of Figure 3 hence, the need for more transnational and cannot be served directly by ship (none of them is sufficient on its own to infrastructure projects. Regarding or plane, the demand for transnational explain the existence of or determine the last indicator, the average size infrastructure assets arises. More the need for transnational infrastructure; of countries in a region indicates a specifically, if mining resources located and, the indicators are interdependent smaller size would usually increase the in a landlocked country, such as and often directly related). The first desirability of cross-border transport, copper in and , indicator is the number of landlocked communications, water and energy are needed abroad (for example, for countries in a region: the higher the networks for the sake of greater furnaces located in China), a demand number, the greater the need for efficiency. Moreover, a smaller country for pit-to-port infrastructure across transnational (transport) infrastructure, would be less likely to contain more borders clearly exists. Similarly, if since these countries need to be linked than one major economic centre, and energy is needed in one country (e.g. to world markets, usually through hence more likely to need access to South Africa), but the best conditions roads and railway lines to a port. The cross-border markets.11

Figure 3: Key Indicators for the Necessity of Transnational Infrastructure

Regional overview Key indicators

Number of landlocked countries 16 13 7 5 2 00

Africa EUR 1 CA2 SEAP 3 LAC4 ME5 NA6

Land border as share of total border (%) 7

84 66 60 56 49 38 9

Africa ME LAC CA SEAP EUR NA

Average number of border countries 8 6.0 4.5 4.0 4.0 3.6 3.1 1.5

Africa (54) Latin America and the Caribbean (34) CA Africa ME EUR SEAP LAC NA (12) Central Asia (10) Europe (43) South-East Asia and the Pacific (38) Average country size 9 9,906 (2) 2,207 144 498 614 851 1,146 Notes: — Number of countries within region in brackets EUR ME Africa LAC SEAP CA NA — Landlocked countries in dark shading, coastal countries in light shading — 193 United Nations (UN) member countries considered in analysis

1. Europe 2. Central Asia 3. South-East Asia and the Pacific 4. Latin America and the Caribbean 5. Middle East 6. North America 7. On regional level – total length of all land borders/all land borders + coast (excluding islands) 8. Within region (excluding islands) 9. Within region, in '000 square kilometres (excluding islands)

Sources: World Economic Forum analysis

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 15 Among the world’s seven regions, Africa Despite this need, transnational trade as a share of total intraregional ranks first in the number of landlocked infrastructure is still greatly and international trade for the seven countries and in land border’s share underdeveloped on the African world regions. With an average of total border. It ranks second in continent. Levels of intraregional trade intraregional trade of 13.3%, Africa the average number of neighbouring are low, both cause and consequence ranks only fifth – well below South- countries, with 4.5 (first is Central Asia, of the missing interlinkages in transport: East Asia and the Pacific, Europe, mainly because of Russia’s 14 border on the one hand, low traffic volumes North America, and Latin America and countries), and ranks third in average render most transnational transport the Caribbean. Only Central Asia and country size. Taken together, all the projects financially unviable and the Middle East score lower, and in indicators point towards a strong need therefore difficult to find financing for; on both cases, their overall international to build infrastructure projects across the other, the lack of adequate transport trade volume is even more inflated borders in Africa – a stronger need than facilities seriously hampers intraregional than Africa’s by the export of natural in other regions of the world. trade by significantly increasing trade resources (mainly oil and gas). costs.12 Figure 4 shows intraregional

Figure 4: Intraregional Trade as Share of Total Trade, by World Region 2008-2012 (%)

55.3 53.4

25.1 19.5 13.3 10.6 5.8

South-East Asia Europe North America Latin America Africa Central Asia Middle East and the Pacific and the Caribbean

Note: Total trade comprises intraregional and international trade; average for 2008-2012

Sources: Calculated from: United Nations, UN Comtrade Database, 2014

As mentioned, three prominent their regional importance and because The origination, preparation, organizations – the AUC, NEPAD they involve, directly or indirectly, implementation and operation of Agency and AfDB – recognized the more than one country. For the three transnational infrastructure programmes need for transnational infrastructure in types of transnational infrastructure is hampered by a number of challenges Africa and set up PIDA, which operates programmes already described, the – particularly in the African context. in four sectors (energy, transportation, average number of countries involved The next section provides an overview water, and ICT) and has four key is: 24 for transnational planning/policy of these challenges, and outlines their objectives: coordination, 11 for transnational specific relevance for the continent. infrastructure network and 6 for cross- – Increase energy access and reduce border physical infrastructure.13 From power generation costs a sector perspective, the average number of countries involved is, for the – Reduce transport costs and boost energy sector: 6 for energy-generation intra-African trade programmes, 7 for transmission – Ensure water access and food programmes and 3 for pipeline projects; security and, for the transport sector: 14 for road programmes and 3 for rail programmes. – Increase global connectivity Experience shows that implementing PIDA PAP is a cumbersome endeavour. The Priority Action Plan of PIDA Progress is often slower than (PIDA PAP) covers a subset of 51 anticipated, at least partly because infrastructure programmes, to be of the very high number of countries implemented by 2020 and with an involved in most of the programmes. investment need of $68 billion. The PIDA programmes were selected for

16 African Strategic Infrastructure Initiative Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 17

Key Challenges for Transnational Infrastructure Programme Management – and Their Specific Relevance for Africa

The management of a transnational value; rigorous risk management must An overview of both types of challenges infrastructure programme faces many be applied; contracting strategy and shows five categories: financial, of the same difficulties as managing procurement needs to be refined; and technical, regulatory, personnel/cultural any large infrastructure programme. scarce resources must be secured.14 and governance-related (Figure 5). Requirements for meeting the budget, However, some challenges are specific quality standards and schedule to transnational programmes or, at are: capital expenditure needs to least, are aggravated by transnational be minimized; the design of the aspects. programme should aim to optimize

Figure 5: Challenges of Transnational Infrastructure Programmes

Financial Technical Regulatory Personnel/Cultural Governance

Challenges that arise from the transnational nature of a programme

• Reach and • Align different • Provide and enforce • Build relationships • Align different implement technical standards legal agreements based on trust, and national agendas, agreement on • Align different • Harmonize different overcome historical and ensure sharing risks, costs operating procedures legacy of political ownership of and benefits requirements differences programme in • Optimize financing • Overcome language countries involved structure across barriers • Coordinate countries with responsibilities within different economic and between the capacities participating • Structure financing countries under different • Overcome national currencies interests in staffing • Structure supranational business unit

Challenges that are aggravated by the transnational nature of a programme

• Manage greater • Manage the technical • Manage the risk of • Coordinate a large • Manage the risk of demand and cost complexity and regulatory changes number and variety political changes in risks construction risks in all participating of stakeholders with all participating countries diverse interests countries • Manage a • Deal with inertia and heterogeneous team lengthy decision- making processes

ource: World Economic Forum analysis

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 19 currency other than the one in which Weak balance sheets are typically

Financial Challenges revenues are generated; contractors registered by their public energy, water have to be reimbursed in more and transport companies. In addition, Four of the key challenges fall under this than one currency; or, revenues are exchange rate problems are arguably category: collected in more than one currency more severe in Africa than in other – things are complicated enough at regions of the world, with 40 different 1. Get the participating countries to any given moment. The difficulties national currencies on the continent, agree on sharing the risks, costs can be formidable over the project’s most of which are extremely volatile.18 and benefits, and to implement the entire life cycle, with fluctuating Finally, the donors and development agreement exchange rates and perhaps some banks that regularly help to finance The costs include those for project very volatile currencies involved, infrastructure projects in Africa tend to preparation, construction work and especially since no appropriate have differing regulations, procedures operating the facility throughout hedging products are available. and focus countries, and these the life cycle. Revenue-sharing Risks stem not only from potential inconsistencies add a further layer of might be based on the countries’ gyrations in exchange rates, but complexity to financing transnational respective investments, and on the also from unexpected restrictions projects. relative benefits the countries derive by governments on the free from the programme. However, convertibility and use of currencies.16 measuring those benefits could

be complicated, especially if the 4. Manage the higher demand and Technical interconnection’s value is much cost risks greater for one country than for the With any infrastructure project, Challenges others, and if the calculation has to forecasting the use of a physical include not just pecuniary values infrastructure asset and the This category includes three of the key but also externalities.15 Moreover, associated revenue streams is challenges: the multicountry setting could lead difficult. However, if more than one governments to adopt strategic country is involved, this difficulty 1. Align different technical standards behaviours that make it difficult to intensifies owing to the potential The participating countries might reach or implement agreements. heterogeneity of the catchment have diverse and sometimes This challenge is particularly geography, as predictions have conflicting specifications and common in off-take agreements to be made for several economic protocols – voltages, information for cross-border energy and water areas. Similarly, with project technology (IT) systems, projects: how much of the output will costs: given that they are regularly telecommunication networks, railway each country buy during the project’s underestimated in purely national signalling systems and even railway life cycle, and at which price; and, projects, the risk is all the greater gauges. These will need to be how can the operator secure the in cross-national projects, in view brought into some kind of alignment, countries’ commitment to maintain of the larger number of local either through standardization or that level of off-take? Conversely, subcontractors involved and the conversion techniques (retaining how can the countries secure the uncertain developments in various different standards but ensuring they operator’s commitment to maintain local material and labour markets.17 are compatible and interoperable). or upgrade the facility and thereby guarantee continuity of output? The In the African context, these challenges 2. Align different operating agreements will have to be binding are aggravated still further by the requirements yet flexible – a delicate balance. generally low levels of economic The design and set-up of

development, and the consequent infrastructure projects can be 2. Establish an optimal financing difficulties in financing transnational affected when the countries differ not structure infrastructure programmes. The low only in their technical standards, but Raising funds can be particularly levels of economic development also in their operating requirements. difficult when multiple countries, and internal trade tend to correlate Consider the maximum length of and often multiple donors or with limited transport volumes and a a train, the maximum axle load for lenders, are involved. The donors/ limited ability to pay for electricity – trucks or the minimum rest periods lenders will tend to impose varying limitations that hamper the financial for drivers and other transport conditions, particularly when the viability of cross-national infrastructure personnel: continued misalignment participating countries vary in their programmes and make financing of these operating requirements creditworthiness. And, when the difficult. Furthermore, national would restrict the efficient use of countries themselves contribute governments often have little capacity a transnational transport network. funding to the programme, how to raise financing on the international Another example is differing border should a fair share be established, capital markets. Only four African post operating hours; until these especially if they have very different countries currently have an investment- are brought into harmony, the full economic capacities? Finding the grade rating: , , South benefits of a one-stop border post right formula will be a complex task, Africa and (Figure 6). The will remain unrealized. which frequently delays the progress asymmetries between neighbouring of transnational infrastructure countries compound this generally 3. Manage the larger technical programmes. weak financing capacity of national complexity and construction risks

governments (some neighbouring While managing such risks is a major 3. Structure the financing when countries have far weaker financing challenge for all megaprojects, it is different currencies are involved capacity than others), and further generally even more troublesome Loans may have to be repaid in a impede a suitable financing structure. for cross-border projects, given the

20 African Strategic Infrastructure Initiative Figure 6: Sovereign Debt Rating and Maturity of Public Institutions in Africa

Sovereign debt rating Maturity of public institutions

Tunisia

Mauritius Botswana

South Africa

Investment grade rating 1 High maturity (4.5 – 7.0) Lower B rating 2 Medium maturity (3.5 – 4.5) No credit ranking available Low maturity (1.0 – 3.5) No data available

1. From at least one rating agency (Standard & Poor's, and Fitch: BBB+ or higher; Moody's: Baa3 or higher) 2. Standard & Poor's, and Fitch: BB+ to B-; Moody's: Ba1 to B3

Source: World Economic Forum, The Global Competitiveness Report 2013-2014; Trading Economics, Country List Rating/Economic Indicators/Data List by County, March 2014

need to coordinate a larger number of different contractors and handle diverging technical requirements.19

In Africa, technical standards such as the rail gauge differ as a result of colonial history. For instance, most of the southern part of Africa uses cape gauge, while metre gauge is used in some countries in eastern and western Africa, and standard gauge is the predominant track gauge in northern Africa. These different technical standards complicate the interconnection of railway tracks across borders, and severely reduce network efficiency. Unlike Europe, where the European Community represents a strong supranational authority for driving the alignment of technical standards, Africa has no such authoritative body. The Regional Economic Communities (RECs) could play that role (Box 4), but they lack the power, capacities and capabilities to harmonize technical standards effectively.20

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 21 public institutions and the rule of societal and environmental impact Regulatory law. In particular, countries in Central owing to their size. Challenges and northern Africa (Figure 6) rank low on this measure, according to Cultural challenges in transnational Three key challenges fall under this the World Economic Forum’s Global projects in Africa are heightened by the 22 category: Competitiveness Report 2013-2014. continent’s tremendous diversity; as for language barriers, Africa is home 1. Provide and enforce legal to 34 official languages in addition to a agreements plethora of lingua francas, local tongues 24 Transnational infrastructure Personnel/Cultural and dialects. Moreover, the continent programmes require specific legal Challenges has a long history of ethnic warfare, or regulatory agreements. Issues of interstate conflicts and political unrest that hinders the establishment of trustful national sovereignty arise, and are This category has three key challenges: especially difficult to resolve when relations. no common framework exists. If 1. Build trusting relationships, one country follows the English legal regardless of political or historical system and another the French, differences Governance-related their national laws on any given Contractual agreements are not topic might be difficult to reconcile. enough to ensure smooth progress; Challenges For a one-stop border post in the the human factor is crucial as well. Economic Community of West Trust is needed to open doors and The final six key challenges fall under African States (ECOWAS) region, for deal with unforeseen obstacles, this category: instance, the operating agreement and troubled historical or personal took two years to negotiate. And for relationships need to be set aside – 1. Align the distinctive national the Inga power transmission line, not only between high-level political agendas, and ensure all participating one of the agreements – between representatives, but also on the countries have appropriate the Democratic Republic of Congo working level. Building trust is even ownership of the programme (DRC), Republic of Congo and harder if widely varying cultural For a programme to realize its full – necessitated three cabinet values are involved.23 potential, it needs dedicated political, approvals and the alignment of

three utility systems with different technical and financial support from 2. Overcome language barriers balance sheets. Even once the all participating countries; only in Language differences represent agreements are signed, the question that way can they claim, and feel, an ever-present potential of enforcement remains. It is sure proper ownership or commitment. to be hampered by the lack of a problem. Beyond the anglophone, That support might be hard to obtain supranational authority. francophone and lusophone if it fits uneasily with a country’s preferences is an abundance of national agenda; and, even if 2. Harmonize different procedures indigenous African languages among obtained, the support’s continuity The participating countries might programme workforces. In practice, is always under threat, as a new favour divergent approaches to language barriers are easier to government might downgrade its tendering and procurement, for overcome at the intergovernmental importance. Establishing support for example, and this misalignment than at the technical working level, a transnational programme appears could cause serious delays at such as the daily interactions to be particularly difficult where various points during a project between site inspectors or passport national assets such as railways or programme. Similarly, border officers. If accredited interpreters and rolling stock are concerned. agencies might traditionally impose or translators have to be engaged, The European Commission (EC) different clearing requirements on transaction costs will rise and reports that transnational network vehicles or travellers, and until these progress might be slowed. But projects have been reduced to a low are brought into line, a one-stop if they are engaged, the risk of priority by some member states, and border post could not function misunderstandings will increase. delayed by uncertainties associated properly. with the planning processes and the 3. Coordinate a large number and complexity of coordination.25 3. Manage the risk of regulatory variety of stakeholders with changes in all participating countries diversified interests 2. Coordinate responsibilities within Regulatory changes are a risk Any large infrastructure project is and between the participating factor in any long-term investment. influenced by a large number of countries The involvement of more than one stakeholders from the public and Within any one country, the various jurisdiction simply multiplies the risk private sectors, and also from civil processes and accountabilities and the subsequent complications; society. To manage these different related to the programme will consider, for example, if just one groups and to balance their interests be divided between numerous participating country decides to will require great skill in project and agencies or ministries, including reduce or suspend road tolls on a programme management; this even the ministry of foreign affairs, the transnational highway.21 more in the context of transnational finance ministry, the environmental infrastructure programmes, since agency, and the departments of These regulatory challenges are they involve stakeholders from more transport, energy and industry. The aggravated in Africa by the frequently than one country, enjoy a higher programme manager will have to modest showing in the maturity of visibility and often have a larger coordinate these multiple contacts.

22 African Strategic Infrastructure Initiative To make things even more difficult, sector regularly involve a large located on or crosses the border. One the distribution of responsibilities number of different stakeholders, reason is that such projects typically is unlikely to be symmetrical in the each of which might seek to involve just a single infrastructure facility, participating countries; cross-border influence the project’s location, so costs and revenues cannot be counterparts might therefore come design and operation. At the same easily split. Another reason is that these from quite different backgrounds time, the stakeholders are under projects, by their nature, require joint and be based in different agencies, close scrutiny of the public, and technical standards and fully aligned and the programme manager might decisions have to be taken at a high operating requirements. By contrast, the struggle to deal with them jointly. political level. Lengthy processes for set of governance-related challenges decision-making may result, which apply about equally across the three 3. Overcome national interests in can be slowed down further by types of infrastructure programme, staffing having to align public- and private- since all three rely heavily on national In the run-up to an infrastructure sector interests, as well as civil- commitment and high-quality staffing. programme, participating countries society concerns, not just within one might occasionally aim to maximize but across the range of participating Finally, and notably, the challenges their influence over it by getting their countries.29 might vary in intensity during different own citizens appointed to many key phases of a programme’s life cycle positions within the programme’s These regulatory challenges are (origination, preparation, implementation organization. Such national interests even more pronounced in an African and operation). The challenges tend could prove detrimental to the overall context. As discussed, the region to be at their most intense during success of the programme, and – characterized by a large number the preparation phase, which covers should therefore be resisted. But that of landlocked countries, a relatively feasibility studies, technical design, does not mean that a proportional small average country size and a financing and procurement. The representation system is the right large number of border countries on reasons are that this phase is the approach either.26 The correct average – tends to have an unusually most varied and most uncertain one, approach is the best candidate high number of countries participating and that the contractual foundation is principle, although sometimes in any transnational infrastructure laid during the preparation period for it might have to yield slightly to programme. The Central Corridor, the programme’s entire life cycle: the diplomatic considerations. If national for example, directly involves five planners need to establish a business interests were to heavily influence countries (Tanzania, Uganda, Rwanda, case for the programme, broker staff selection, the programme and DRC), and the West agreements on the split of costs and organization might end up not African Power Transmission Corridor revenues, secure financing and define only biased, but also lacking in the involves seven (, Guinea-Bissau, technical standards. In the following requisite capabilities. Gambia, , , Côte phases, during construction and d’Ivoire and ). At the same time, operation, the environment tends to 4. Structure a supranational a dearth of capabilities in the public be less volatile and risky; some serious business unit for the preparation, sector to manage large infrastructure challenges can still arise, of course – implementation and operation of the programmes often exists. not least, the challenge of enforcing or programme adapting agreements if required. The For the implementation of a These various challenges, however, are very first or origination phase seems transnational programme, a legal not independent of each other. One to be the least demanding, except for organization is required, which could challenge can strongly influence the personnel/cultural and governance- take one of three different forms: others; for instance, differing national related challenges: a promising an entity owned by the respective agendas and a lack of ownership programme might fall at the first hurdle public sectors, a public-private in a participating country could because of inadequate trustful relations partnership (PPP), or a private- obstruct a proposed high-quality off- between the countries; or, one of the sector company or consortium. take agreement. Similarly, language countries might be reluctant to commit Structuring such an organization will barriers or a lack of trust could hamper to ownership, or conversely might be often involve coping with different negotiations on sharing costs and overzealous in claiming senior staffing laws, regulations and the lack of a revenues. positions for its own citizens. supranational framework.27 Moreover, the relevance of each 5. Manage the risk of political changes challenge differs from country to in all participating countries country, according to each country’s Infrastructure projects necessarily economic, political, social and involve the host country’s public regulatory conditions; and, the sector (e.g. as sponsor, co-owner, challenges are not equally relevant for all regulator), making the projects types of infrastructure programme. As susceptible to political changes. a general rule, the technical challenges The greater the number of countries are more relevant to those programmes involved, the more serious this in which the collaboration of two or risk becomes for transnational more countries is indispensable, rather programmes.28 than merely efficiency-enhancing. Particularly at issue here are the type 3 6. Cope with inertia and lengthy or cross-border physical infrastructure decision-making processes programmes already described, where Megaprojects in the infrastructure the infrastructure facility or fabric is

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 23

A Best Practice Framework for Transnational Infrastructure Programme Management

To identify the best ways of responding project would not be implemented align the processes and requirements to all the various challenges, the authors without a regional CBA. The next step across countries. The stabilizing of this report undertook extensive in the origination phase is to secure framework for achieving all of these research. This included conducting agreement among all participating aims is a close and institutionalized 12 interviews with experts from countries on the programme’s delivery multinational collaboration – one that private companies, representatives model, and to establish a harmonized covers the whole programme life cycle of development banks and RECs, concession framework if a concession and provides a platform for securing and consultants; reviewing the latest is issued. alignment and taking decisions. In academic literature; and analysing In the preparation phase, it is crucial addition to these programme-specific numerous reports on transnational to develop a bankable feasibility study best practices, a broader need infrastructure projects published by for the cross-national programme. exists; namely, a conducive enabling the AfDB and the World Bank.30 On Even more important is to allocate the environment so that transnational the basis of the research, the authors risks, costs and benefits fairly to all infrastructure programmes can be modified the framework that had been affected countries, and to harmonize efficiently identified, prepared and developed in the World Economic the regulations. For the implementation implemented. The elements of such an Forum (2013b) report, Strategic phase, the tendering process must environment are: a rigorous regulatory Infrastructure: Steps to Prepare and be transparent and competitive, and system for transnational programmes; Accelerate Public-Private Partnerships, the financing structure needs to take a set of the requisite capacities to deal with the specific circumstances into account the specifics of a cross- and capabilities for handling such of transnational infrastructure border programme. Finally, during programmes in each affected country; programmes. construction as well as operation and and a set of trustful relationships at both maintenance (O&M), the priority is to high political and working levels. Presentation of the Framework and Overview of Best Practices

Figure 7 presents the framework of high-level best practices for managing transnational infrastructure programmes throughout their life cycles. In the origination phase, the priorities include integrating the national infrastructure plans with a regional infrastructure plan, and establishing a cost-benefit analysis (CBA) on the regional level to assess the programme’s economic viability. As discussed later, it could easily be that a programme’s negative effect in one country is outweighed by a larger, offsetting benefit in another. Such a

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 25 Figure 7: Best-practice Framework for Managing Transnational Infrastructure Programmes

Alignment of construction Integrated process & O&M infrastructure Implementation requirements plans & regional CBA Origination phase phase

Conducive enabling environment Competitive, transparent Regulatory system for Aligned transnational programmes decisions on tendering delivery & optimal Capacities & capabilities model; financing for handling harmonized structure transnational programmes concession Trustful transnational scheme relationships

Balanced cost, benefit & risk Bankable allocation across feasibility countries; study for harmonized transnational regulations programmes

Preparation phase

Source: Adapted from World Economic Forum, Strategic Infrastructure: Steps to Prepare and Accelerate Public-Private Partnerships, 2013

Each of the framework’s high-level best practices is supported by one or several more specific best practices, summarized in Figure 8 and described further in some detail.

26 African Strategic Infrastructure Initiative Figure 8: Overview of Specific Best Practices

Institutionalized cross-national collaboration

– Establish a strong unit for programme implementation and – Build strong relationships with all key stakeholders operation with special rights – Agree on a single language – Arrange a fair representation of all participating countries in all – Ensure high-level political commitment from each government, governance bodies and highlight the value of communication – Distribute corporate activities fairly across all participating – Make early use of private-sector expertise countries

Integrated infrastructure plans & regional CBA Aligned delivery model & harmonized concession

– Establish a regional sector planning framework with appropriate – Award a single concession institutional arrangements – Establish a regional business case that includes all pecuniary costs and externalities – Leverage regional development banks as a way of involving isolated regional areas

Bankable feasibility study for transnational programmes Balanced risk allocation & harmonized regulation

– Develop a broad and flexible off-take agreement – Find and commission a strong, impartial and respected arbiter to – Remove revenues from national government control apportion costs and benefits – Harmonize and radically simplify technical standards, regulations and specifications, taking advantage of international models – Regulate the programme through special treaties or a regional agency Competitive tendering & optimal financing structure Aligned construction, operation & maintenance

– Set up a procurement committee that includes neutral experts – Set up an expert committee to supervise construction – Establish regional financing instruments – In the off-take agreement, specify management protocols for – Leverage risk-mitigating guarantees aligning demand and maintenance requirements – Reduce exchange rate risks by reflecting revenue currencies proportionally in financing structure – Make use of purchasing-power-parity protection to insure against exchange rate risks

Conducive enabling environment

– Establish a single integrated framework for planning and – Build up dedicated capacities and capabilities designing transnational programmes – Invest in building relationships based on trust

Source: World Economic Forum analysis

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 27 when more than one public entity phases, but will also limit the risk Institutionalized is involved (e.g. ministry, regulatory of unilateral changes by one of the Cross-border authority, public enterprise), and all participating countries. the more so in a transnational setting. Different levels of cross-border Collaboration This is particularly the case in Africa, collaboration can be distinguished, which lacks a pervasive sovereign according to their degree of As mentioned, one of the reasons jurisdiction such as the EC to align the sophistication: separate planning why transnational infrastructure differing interests of different countries without coordination, separate planning programmes are perceived as riskier and reduce transaction costs.31 with coordination, and institutionally than purely national ones is their Many of the challenges listed earlier integrated planning (Box 1). increased complexity – the result can be overcome if the collaboration of the need to coordinate planning, across countries works well and financing, procurement, construction the right governance structure is and operation across borders. found. Institutionalizing cross-border Coordination is difficult enough, and collaboration will not only facilitate critical enough, for national programmes the alignment across all programme

28 African Strategic Infrastructure Initiative Box 1: Cross-border Collaboration

Regarding cross-border collaboration, whether in a bi- or multilateral setting, three basic levels of coordination can be identified (Figure 9).

Figure 9: Three Levels of Cross-border Coordination

Separate planning Separate planning with Institutionally without coordination coordination integrated planning

– Each country has an individual – Each country has an individual – Countries delegate the planning

Description planning process planning process to a dedicated programme unit – No alignment and coordination – The planning is coordinated – Countries give up part of their exist across countries between the different countries national sovereignty

– No additional governance bodies – Some kind of coordination body – Programme planning and exists, e.g. interministerial implementation unit with special secretariat or technical alignment decision rights forum – Alternatively, transfer of planning

Bodies – Alternatively, supranational process to supranational authority (e.g. RECs) could authority (e.g. RECs) assume coordinating role

– North-South Multimodal Corridor1 – Maputo Corridor Logistics – West African Power Pool (WAPP) Initiative Example

– Not desirable, since programme – Minimum requirement for reaping – Potential to manage is not managed as such some programme-level benefits transnational infrastructure as a – Programme-level benefits are – Risk of unilateral deviation from real programme not realized coordinated planning – Hard to realize, since national

Assessment sovereignty is curtailed

1. The Memorandum of Understanding, which is between all participating countries of the North-South Corridor and would provide an operational framework, is still pending signature. However, progress has been made in implementing individual projects.

Source: World Economic Forum analysis

The first level involves separate consistently managed as a programme, surrender of national sovereignty, as planning in each country without formal but at least the coordination provides a decision-making powers are transferred cross-border coordination between way to address the challenges and reap to the programme preparation and governments. Even though this loose some of the programme-level benefits. implementation unit. arrangement is common and mainly In addition, it is fairly practicable and in transportation projects, it is clearly easier to implement than the third level. undesirable, as it ignores the challenges Finally, the planning is institutionally of a transnational infrastructure integrated in the third level in a programme, and the programme-level dedicated programme unit. This benefits remain unrealized. arrangement allows for the proper In the second level, each country has managing of the endeavour as its own planning mechanism, but there an infrastructure programme, for is some kind of formal coordination addressing all the challenges and between the countries as through an securing all the programme-level interministerial secretariat or a technical benefits. However, it requires a very alignment forum. In this arrangement, high political commitment from all the infrastructure asset is still not sides, since it involves the partial

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 29 To achieve the highest level of bilateral treaty forming the legal basis for country and the private sector, or a coordination or “institutionally integrated the establishment of a special purpose purely private cooperation owned by planning”, a separate unit with special public agency (SPPA), which could a single company or a consortium. rights should be set up to plan, become either a public consortium or This SPPA would be governed by its implement and operate the programme, a publicly-owned private corporation. statues and by-laws, which need to for example as a potential structure In the case of a PPP, the corporation be as detailed as possible to minimize in a two-country setting (Figure 10).32 would be either jointly owned by the potential disputes. The two governments sign a special public sector of each participating

Figure 10: Proposed Governance Structure for Public Delivery of a Transnational Infrastructure Programme

Infrastructure project preparation facility (IPPF) invests invests provides preparation financing and technical advice

signs signs Government A Special bilateral treaty Government B

establishes provides capital, provides capital, guarantees and subsidies Special purpose guarantees and subsidies public agency (SPPA)

pays commissions commissions pays investment investment

Net revenues A Net revenues B

Construction O&M O&M Construction

Revenues A Revenues B

Country A Country B Monetary flows Contracts

Source: Adapted from Conthe, M. Financial Structures for Transnational Infrastructure Projects in the IIRSA Context, 2002

The main responsibility of this unit costs of the infrastructure piece, all whole preparation process and take is to administer and manage the revenues should flow to the SPPA. over the viability risk. infrastructure, and arrange for the If governments provide subsidies programme’s design, construction, to make the programme financially O&M and financing.33 The SPPA will act viable, these should also be paid to on behalf of the governments, and also the agency. Finally, if the SPPA raises award contracts for the infrastructure financing itself on the capital market, for asset’s design, construction and O&M. example through securitization of future While asset ownership will remain with revenues, the national governments the national governments in the case might need to provide guarantees to the of a public delivery, the agency will agency. Preparation of the transnational supervise the preparation, construction programme could be supported by and operation of the infrastructure an infrastructure project preparation facility (Box 2).34 Capital received from facility (IPPF), which will provide financial the national governments will pay for resources and technical assistance, or the construction, and to cover O&M might even be commissioned with the

30 African Strategic Infrastructure Initiative Box 2: The Role of the SPPA - from Preparation to Implementation

Figure 11 outlines the role of the SPPA tasks, it could receive financial and and award the contracts. The agency over the infrastructure programme’s technical assistance from an IPPF. would be accountable for supervising life cycle. During the origination Alternatively, the whole preparation the construction and ensuring alignment phase, the agency has no role since process could be outsourced to the across all projects in the programme. it is only established once the national IPPF. The decision on whether or not to A professional project management governments decide to go ahead implement a programme will be taken company could be commissioned with with a programme. In the preparation by the national governments. If they this task for complex programmes. phase up to the financial close, the decide not to build the infrastructure, Finally, the SPPA would be in charge of SPPA would commission all relevant the SPPA will be dissolved. When it supervising the operation and making studies and secure financing for comes to tendering, the SPPA would sure that maintenance requirements are construction and O&M. For these prepare the documents, assess the bids aligned over the whole programme.

Figure 11: The Role of the SPPA over the Programme’s Life Cycle

Implementation decision to be taken by national governments Origination Preparation Implementation

Feasibility Design Financing Tendering Construction Operation

– No role – Commission – Commission – Secure – Prepare tender – Supervise – Supervise operation all relevant technical financing for documents, construction and and ensure studies design studies the select ensure alignment alignment across (financial, programme contractors across countries countries technical, from public and issue environmental) and private contracts sources

Could be outsourced to the IPPF (including the Could be outsourced to viability risk); if the programme is implemented, a project management the SPPA pays back the preparation expenses company (which will be plus a return to the IPPF supervised by SPPA )

Signing of special bilateral Could be a joint concession for construction treaty and operation – SPPA supervises the and concessionaire; alignment across countries is establishment done by the concessionaire of SPPA

Over the whole life cycle: coordinate with all stakeholders and be the single point of accountability

Source: World Economic Forum analysis

In addition to creating a strong be carefully allocated in governing appoints two representatives from programme implementation bodies, such as the steering each country to its six-member unit, the project sponsors (the committee, general assembly Board of Directors. respective ministries, e.g. transport, and board of directors. In the infrastructure, public works, energy, structure shown in Figure 10, it – Distribute corporate activities fairly telecommunications; or, utilities) should would mean sharing out positions across all participating countries pursue a number of more specific fairly in the SPPA. For example, Even if most of the operations occur best practices under the category the implementation authority of the in one country, it is still crucial to of institutionalized cross-border Maputo Corridor created a dual- have a physical representation in collaboration: chair structure, with one chairperson all participating countries to avoid each from Mozambique and the perception that the project – Arrange a fair representation of South Africa. And, for its General is dominated by one partner. In all participating countries in all Assembly, the power utility company the proposed set-up (Figure 10), governance bodies Société International d’Électricité des the SPPA would be physically To balance national interests and Pays des Grands Lacs (SINELAC) established in the two countries, with to ensure commitment from all hosts the energy ministers of all some corporate functions in one countries involved, positions should three member countries, and country and others in the second. In

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 31 this light, two contrasting examples implementation authority, only can be considered. In the first, an English was used. Although this Integrated ill-fated case of a cross-border single-language policy reduces Infrastructure Plans railway service, the operator based the effort required and avoids almost all its corporate activities in process delays (notably, those and Regional CBA the country with most of the traffic, due to necessary translations), it and limited its visible presence to does not fully eliminate the risk of For successful preparation and just a small sales office in the other different interpretations, especially implementation, the programme country. This under-representation by non-native speakers. Moreover, needs to be embedded into the duly led to allegations of favouritism, it requires sensitive monitoring to national infrastructure plan of each and a sense of disadvantage and ensure against any undue advantage participating country. Thus, the resentment. The second example for one party in negotiations. various plans need to be aligned and is the more successful approach integrated, to ensure that the specific taken by SINELAC, which has set up – Ensure high-level commitment from programme enjoys the same priority management and a power plant in each government, and highlight the in all countries, and that sufficient the DRC, but the dispensing station value of communication financial resources are made available and regional interconnection in In a large infrastructure programme, at the right time. In addition, the full Rwanda. several levels of governments are benefits might depend on individual often involved. In order to avoid countries’ attending to supplementary – Build strong relationships with all key mismatches in prioritization and infrastructure – assets that are not stakeholders resource allocation, the highest part of the transnational programme, According to a recent World Bank political leadership must have and such as feeder roads, or national report, early engagement with communicate a clear strategic vision grids in the case of cross-border stakeholders is essential, as their for regional infrastructure.36 Also, a transmission lines. The assessment expectations often clash, and clear political commitment should of a programme’s economic viability need reconciling if the project is exist to pursue bi- and multilateral should be taken at a regional level and to proceed smoothly. One key coordination. The Chirundu one-stop involve all the affected countries, since responsibility of a strong programme border post is an interesting case the costs and benefits of a transnational unit (the SPPA) is interacting with all in point: its rapid implementation infrastructure programme are often stakeholders, as well as coordinating was helped by the strong support unevenly distributed, and a holistic them. Different ministries and received from senior government picture provides the best basis for an agencies often remain isolated in officials in Zambia and Zimbabwe. accurate decision. At this stage, all “silos”, and a skilled programme Such backing is even more helpful national governments need to agree unit will work to draw them out when clearly communicated to all on the programme’s exact scope, and and get them more actively stakeholders. Mozambique and how to break the programme down into engaged. Sometimes, however, South Africa, for example, issued a individual subprogrammes, projects and such engagement is best managed prominent press release when their subprojects.37 by outside professionals. In one presidents agreed to support the example, a cable network provider one-stop border post on the Maputo Specific best practices in this category relied on independent experts and Corridor. The programme managers are to: even political lobbyists to consult as well should put great effort with and reconcile the various into communication. To maintain – Establish a regional sector planning stakeholders. Another successful engagement and momentum, they framework with appropriate case is that of the Chirundu one- should communicate conscientiously institutional arrangements stop border post between Zambia with their political contacts in each Cross-border infrastructure and Zimbabwe. Broad-based participating country by sending programmes must be planned and stakeholder consultations were regular progress reports and implemented to align with the overall conducted very early on with requesting feedback. medium-term development strategy representatives of the Common of each country involved; in addition Market for Eastern and Southern – Make early use of private-sector to that, however, they should be Africa, the secretariats of the expertise studied within a regional planning Southern African Development The private sector’s specialized framework.38 The framework should Community (SADC) and ordinary knowledge can be leveraged very not only utilize the existing tools for members of the Zambian and early on, while the scope of the sector planning (such as least-cost Zimbabwean public. In addition, the programme and the technical planning), but also include strategic private sector was engaged at the design are still being determined. discussions at a high political level, outset to advise on the design of Private-sector companies can as well as technical consultations the project and to serve on various provide valuable input on the latest at the working level. For example, subcommittees. technology and on cost-effective within the GMS programme, a construction options. However, care broad hierarchy of institutional – Agree on a single language must be taken not to rely exclusively arrangements was established to To minimize transaction costs in a on any one company’s services, or a prepare subregional strategies, multilingual setting, the participating conflict of interest could arise in the including ministry-level working countries should agree on a single tendering phase. groups for energy and transport, working language for documents supported by several bodies for and correspondence. For coordinating work at a technical instance, in the Maputo Corridor level.39

32 African Strategic Infrastructure Initiative – Establish a regional business case is not enough; the externalities are – Leverage regional development that includes all pecuniary costs and critical as well (Box 3). Externalities banks as a way of involving isolated externalities are notoriously hard to quantify, regional areas When calculating the costs and and the assessment of monetary The planning and implementation benefits of an infrastructure facility, impacts of infrastructure projects process of a transnational analysts should not confine their tends to exaggerate the benefits and infrastructure programme often analyses to the individual countries, underestimate the costs. Analysts neglects outlying or isolated regional but should also look at the impact therefore need to be particularly areas. If regional development on the region as a whole, i.e. assess cautious in their calculations.40 banks apply pressure, however, the the regional effect of, for example, programme can be adapted to give increased trade or a transnational these remote areas a greater role, as rail or road network. Calculating only has been successfully accomplished the pecuniary costs and benefits in the Northern Corridor linking China to Thailand via Laos.41

Box 3: Costs, Externalities and Benefits of Transnational Programmes – A Numerical Example

The asymmetrical distribution along the same route and thereby To establish a regional business of pecuniary costs, externalities increasing its agricultural productivity. case, all the programme’s pecuniary and benefits of a cross-national Constructing the railway track within costs, externalities and benefits are infrastructure programme, and the country A incurs monetary costs of 100 considered. The total net benefit of importance of establishing a regional units. Country B has monetary costs 250 units makes the programme business case, can be illustrated by of 50 units for laying track, and has no economically viable. However, countries a simple numerical example (Table). benefits – unfortunately, the line runs B and C have a negative net benefit, Assuming a three-country setting, in through a sparsely populated nature and therefore, in a national assessment, which country A is landlocked, country reserve with a rich biodiversity and have no incentive to build the railway B is a transit country and country C thus negatively affects the flora and line. As a result, country A will need to has a port: the plan is to build a railway fauna there; these externalities amount share its net benefit, and make a side line from country A through country to an estimated 50 units for Country payment to country B and country B, to connect to the port in country C. B. Country C has to build the largest C of at least 100 units and 50 units, Country A enjoys a benefit worth 500 share of the railway network within its respectively. units over time, derived in two ways: by boundaries, at a cost of 300 units; the exporting its mineral resources through associated economic benefits, however, the port, and by importing fertilizers are only 250 units.

Table: Distribution of Costs, Externalities and Benefits

In Units Impact Country A Country B Country C Total

Costs (100) (50) (300) (450) Externalities – (50) – (50) Benefits 500 – 250 750

Total 400 (100) (50) 250

Source: World Economic Forum analysis

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 33 in South Africa to the port of Maputo infrastructure assets. If the SPPA in the Aligned Delivery in Mozambique. In contrast, for a governance structure is commissioned Model and railway line in eastern Africa, two to conduct the feasibility study, special separate concessions were awarded, care is needed to identify and put into Harmonized which differed in the concession fee, place the right incentives. Generally, the the transport haulage target and the SPPA’s management has an incentive Concession investment prescription. This two- to get the programme implemented, concession system has complicated so its objectivity is at risk, and an Framework and hindered the management of external validation becomes even more the railway line as a single piece of important. Once a transnational infrastructure infrastructure. For instance, if rolling programme has been identified and its stock from one country is kept Two specific best practices have been economic viability established through a in the other for more than a few identified for this category: regional business case, the participating days, the owner country is entitled countries should align on a delivery to reimbursement; revenues have – Develop a broad and flexible off-take model and harmonize their concession to carefully divided and allocated agreement frameworks. Both processes should between the two countries, and An off-take agreement should of be driven by the SPPA (Figure 10). A each concession requires separate course be based on the predicted joint delivery model, such as a PPP reporting. levels of consumption – but not or a public delivery in the form of a exclusively so. The designers of the design-bid-build contract, will help to agreement should adopt a holistic reap the programme-level benefits. view, taking account of, for example, For instance, single-model delivery of Bankable risk sharing, capital investment the whole programme will realize scale requirements, maintenance effects in procuring goods and services, Feasibility Study obligations and interlinkages with and will greatly facilitate management other projects. In addition, they and coordination of the preparation, for Transnational should specify key performance implementation and operation of Programmes indicators, such as the ability to cope individual projects. If a concession is with peak demand. Finally, they tendered for an infrastructure asset’s A bankable feasibility study is particularly should define criteria for adjusting construction and/or operation, the terms relevant when participating governments and renegotiating the agreement. of the concession framework should choose to put a concession out to The concession agreement for be closely aligned across all involved tender for the infrastructure programme. the Maputo Corridor, for instance, jurisdictions. For a transportation However, even if the choice is for purely contained a formula for adjusting programme, for example, all countries 43 public delivery, the programme sponsors tariffs on a yearly basis. While all involved should agree on common should ensure that the technical, these features are advisable for any standards, including the concession environmental and financial studies are off-take agreement, they become fee as a percentage of revenues, the conducted very diligently, and that they particularly relevant for agreements minimum traffic volumes, the investment meet the same quality standards as in a bi- or multilateral setting, as and maintenance requirements, and the those of a PPP or private delivery. This no national government could contract’s duration. This harmonized diligence is crucial because, currently, adjudicate in disputed interpretations concession framework will once the studies do not automatically receive of the agreement or in cases of again help the management of the external validation from a private- alleged non-compliance by one programme and make life easier for the sector company or consortium. A full party. concessionaire, which would otherwise feasibility study is just as important for have to comply with several differing transnational infrastructure programmes – Remove revenues from national sets of requirements. This, in turn, as for purely national ones: the government control will lead to greater competition in the sponsors must be able to make realistic Infrastructure projects are long-term tendering process. forecasts of the demand for the asset, endeavours that depend on public- One specific best practice in this and to work out the most innovation- sector support, either directly if category has been identified: friendly, yet realistic and cost-efficient subsidies are required, or indirectly technical specifications. To assess the if regulation influences a project’s – Award a single concession programme’s commercial attractiveness, financial viability. At the same time, If the infrastructure programme they need an accurate idea of its infrastructure facilities often generate involves awarding a concession, revenue potential – based not only on revenues (e.g. through tolls or the ideally a single joint concession user charges and government subsidies, sale of electricity), and national should be given rather than but also on sources such as ancillary governments might be tempted to separate concessions in each of business opportunities, earmarked taxes spend these revenues not simply the involved countries. Once the and land value capture. The sponsors on funding the projects’ O&M or single joint concessionaire has been should then conscientiously test this compensating stakeholders for the decided, the task of managing the bankability through internal business externalities, but for other purposes. construction and/or operation is case analysis and external market- In the case of a multinational transferred from the SPPA to the sounding.42 infrastructure programme, several concessionaire. The Maputo Corridor governments could be tempted to is a successful example: a single As mentioned earlier, demand withdraw funds from it, even at other concession was tendered for the forecasting is generally more countries’ expense. To reduce this whole road, from Gauteng Province cumbersome for cross-border risk, an integrated cash management

34 African Strategic Infrastructure Initiative system should be set up. The SPPA thus exaggerating their negative important task, since most of the should control all revenues generated externalities.47 immediate benefits would accrue to by the transnational programme, China and Thailand.53 Other potential wherever they derive from, and use Another crucial need is to harmonize candidates for the role of a neutral them to cover all costs, wherever regulations and standards. Unaligned arbiter are the RECs or the AUC. In they occur.44 This applies to revenues or conflicting regulations and technical the governance structure already in any form – for example, tolls, standards cause inefficiencies, and outlined, the SPPA, as a non-political ancillary revenues, and taxes on prevent the programme from realizing its instrument, should be in charge increased land value. The SPPA full potential. Without aligned technical of financially compensating the should also control the subsidies standards, the physical infrastructure stakeholders in all affected countries, paid by the national governments, might simply be unusable; at best, the in accordance with the predefined and even non-financial contributions cross-border interconnection will be plan.54 such as guarantees. With regard to very complicated. The harmonization of earmarked taxes, raised to finance regulations, procedures, controls and – Harmonize and radically simplify transnational infrastructure in general laws, among others, will facilitate reaping technical standards, regulations and rather than a specific programme, the rewards of infrastructure assets. Of specifications, taking advantage of those funds should be controlled by course, the harmonization should be in international models a multicountry institution, such as the a positive direction: harmonizing serves To maximize the efficient use of relevant REC, to prevent them from no purpose if the shared feature is an the infrastructure asset and to being used for other purposes.45 In inefficient model or practice.48 minimize disruptions at the border, Europe, for instance, a proportion technical standards, regulations and of revenues from common external For this category, three specific best specifications need to be harmonized tariffs is earmarked specifically for practices have been identified: across countries. The choice of regional infrastructure or related specific standards will depend purposes, and is put under the – Find and commission a strong, on the type of project. Broadly, control of the European Union (EU). impartial and respected arbiter to three degrees of cross-border apportion costs and benefits harmonization exist (Box 4). One of Since countries have an incentive to the challenges cited very often by overstate their costs and understate those in the research was that of Balanced Cost, their benefits, the allocation should differences in national procurement be overseen by a strong and impartial regulations. Such incompatibility can Benefit and Risk arbiter. This arbiter will conduct lead to conflicts and process delays. and/or apply a standard CBA.49 An effective and face-saving solution Allocation, and Involving the host countries in the is to put aside all national standards, assessment is essential, as without and base the agreement instead on Harmonized their support, collecting information internationally accepted procurement could be very expensive and time- standards, such as those set by the Regulation consuming.50 In addition, involving World Bank or the EU. This approach civil society organizations is helpful; succeeded in overcoming the As illustrated by the numerical example they can play a very useful screening procurement challenge for one-stop (Table, Box 3), the costs and benefits of and monitoring role, ensuring that border posts in the ECOWAS region. a transnational infrastructure programme transparent processes are in place, are frequently distributed unequally and can give a voice to stakeholders – Regulate the programme through across participating countries. Indeed, adversely affected by the special treaties or a regional agency some countries might have no benefits at programme.51 Once the organization To harmonize the technical all, but plenty of pecuniary costs and/or serving as arbiter has determined the standards, regulations and externalities. The danger in this uneven fairest allocation, it should develop a procedures, all participating countries distribution is that it could prevent the detailed compensation plan based could enter a special bi- or multilateral implementation of an economically viable on the allocation scheme, stating treaty regulating the programme. programme that has a clear, overall net which party in which country receives (This approach would be at the benefit to society. which type of compensation, and at second level – “programme-specific what time. Such a plan should also regulations” – in the classification Hence, the crucial need for a carefully take into account all transnational discussed in Box 4.) Such a treaty balanced allocation of costs, benefits externalities, including the spread of would not only drive the regulatory and project risks. First, all externalities HIV/AIDS, the erosion of social values alignment, but also reduce the should, as a rule, be internalized by and cultural identities, and human risk of unilateral changes by one the programme; in other words, full trafficking.52 In the GMS programme, jurisdiction, and thereby increase compensation should be offered, the Asian Development Bank stability.55 Alternatively, a regional expressed as an explicit monetary sum. assumed the role of arbiter or honest agency could be created to regulate Secondly, the individual governments broker, and supported Laos as a a specific programme or even, more should support the programme transit country in the negotiations efficiently, a whole sector.56 For financially (e.g. through capital, subsidies, over pricing policy, to ensure that the example, the Pacific Aviation Safety guarantees), in proportion to the benefits newly created infrastructure assets Office was established to reduce their countries receive from it.46 As a would not impose an undue fiscal overall supervision costs and meet cautionary note, countries might seek burden on the country. The bank international standards – by avoiding a “free ride” at times, by overstating also worked actively to ensure costs duplication, creating economies of the benefits other participants would and benefits were fairly distributed scale and harmonizing regulatory receive and understating their own, across the countries – a particularly systems.57

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 35 Box 4: Three Levels of programme, the process should be and procedures that differ from those driven by national governments or applied elsewhere in the countries. (Of Harmonization regional entities such as the RECs. course, programme-specific regulations Private companies can also take this might turn out to be a first step towards When participating countries have approach; Transnet, for example, urged cross-national standardization, as the differing standards and regulations, the defining of regional rail standards agreed standards might subsequently these differences have to be resolved, (e.g. safety, signalling) through bilateral be incorporated into revised and at least far enough for the project to agreements with a number of countries, harmonized national policies.) An proceed. Resolution could be pursued including Zambia and Mozambique. The example of this approach is the Maputo on three different levels, which vary in same method is now adopted for ports. Corridor, where Mozambique had a their effectiveness and complexity. However, cross-national standardization lower maximum axle load than South is probably impracticable if it requires Africa. Since the road was constructed Cross-national standardization is major changes to existing infrastructure for the higher standard, trucks on this the highest-level, most effective yet assets. Standardizing a region’s rail road were allowed to have a higher also most complex form of resolving gauge, for example, might mean axle load than on other roads in regulatory differences. It involves the upgrading all existing railway lines in one Mozambique. Since this approach is agreement to and adoption of bilateral of the countries, which would not be programme-specific, it should be driven or regional regulations that are widely cost-effective. by the project implementation unit in applicable, rather than restricted to collaboration with the governments of just one project. What makes this In such cases, the second, lower the involved countries. standardization so difficult are the level of harmonization might be more issues of national sovereignty raised. appropriate: agreement on programme- Finally, at the lowest level, the most A country, for instance, might resent specific regulations. In this type, straightforward and least complex type having to abandon a long-standing countries negotiate a set of agreed of harmonization is regulatory alignment. norm on maximum axle load, meaning standards that would apply exclusively A simple review of existing regulations compromises might have to be made. to the project in question. For instance, and processes will identify the overlaps Successful examples of cross-national two countries might agree on specific and contradictions, and suggest standardization include uniform procedures for a one-stop border procedural adjustments. National protection systems and transmission post. Alternatively, the countries could regulations remain untouched, but the standards in the Southern African agree to entrust certain decisions new procedures help with the transition Power Pool and WAPP, and the joint to the organization in charge of from one system to another, and standards for one-stop border posts in preparing, implementing and operating simplify the border-crossing process. the SADC. Since this approach might the infrastructure programme. They For technical standards, the transition involve adapting existing regulations, would endow that organization with can usually be accomplished through and might not be specific to a particular special rights to draw up regulations existing solutions: transforming the

36 African Strategic Infrastructure Initiative voltage in cross-border electric power Five specific best practices have been transmission; using a variable gauge Competitive, identified for tendering and financing: system at the border to switch from Transparent standard to narrow gauge; or defining – Set up a procurement committee interfaces for IT systems to enable the Tendering and that includes neutral experts flow of information. Aligning processes The ECOWAS region serves as a usually takes little effort – the adoption Optimal Financing worthy model in its efforts to balance of joint forms at a one-stop border national interests and increase post, for instance – and saves much Structure transparency. For the procurement red tape. Since the national regulations of one-stop border posts, a of individual countries are not affected With the sensitive topic of procurement, procurement committee was set in this approach, the process could national interests are particularly up, with members drawn from all be driven independently by the prevalent, and the assignment of large beneficiary states plus one observer implementing organization. construction contracts or operating from the EU. concessions is prone to opacity Notably, different harmonization and corruption. To reduce those – Establish regional financing approaches might be most appropriate dangers, and to ensure a competitive instruments for different aspects of a single and transparent tendering, the Regional connectivity is a public programme. Two existing railway programme sponsors need to create good with large or substantive networks with different gauge widths, the right governance structures and positive externalities. Accordingly, for example, are upgraded and processes. Equally important, they multilateral and regional institutions connected, and a one-stop border post need to establish an optimal financing should play a prominent role in is erected. Since the tracks already structure for transnational infrastructure the financing of transnational exist, it might not be efficient to bring programmes. As explained earlier, infrastructure programmes. For them to the same technical standard. financing such programmes is very example, the EU established the first A technical solution is thus required to difficult – particularly in the African mechanisms for supporting cross- bring trains from one gauge width to context, owing to low development border infrastructure programmes the other (regulatory alignment). The and usage levels, limited financial in 1994.58 Today, it helps to finance one-stop-border post, in contrast, capabilities and significant heterogeneity intraregional connectivity and could be governed by newly introduced of neighbouring countries’ economies regional competitiveness, using regulations and procedures, which and cultures. “structural funds” at below-market become valid for all one-stop border rates, while the European Investment posts in the region (cross-national Bank has a substantial role as well in standardization). financing these programmes.59

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 37 – Leverage risk-mitigating guarantees generated in country A and 250 in in the nominal exchange rate only While the careful allocation of risk country C.62 Since two-thirds of the mirror differences in inflation rates. to all relevant parties is essential, it revenues are generated in country Historical data show that real is equally important to reduce risk A’s currency, so, too, should two- exchange rates are far less volatile by applying adequate instruments. thirds of the financing be provided than nominal exchange rates, As discussed earlier, foreign in this currency, with the remaining meaning this type of protection investors and lenders often perceive one-third in country C’s currency. against devaluation is cheaper than the political risk of transnational As already mentioned, however, this traditional instruments.66 To be totally programmes as being higher than structure remains a purely theoretical effective, this instrument requires that of purely national programmes. one for many African countries, as tariffs that are fully inflation-linked Therefore, multilateral institutions local currency financing is simply not so that the local purchasing power should provide credit enhancements available.63 remains stable. and guarantees, such as the insurance offered by the World Bank – Make use of purchasing-power- Group’s Multilateral Investment parity protection to insure against Guarantee Agency (MIGA). exchange rate risks Alignment of the Alternatively, exchange rate – Reduce exchange rate risks by risks can be mitigated by an Construction reflecting revenue currencies insurance scheme or “exchange proportionally in the financing rate guarantees” provided by Process and O&M structure public authorities in the countries Requirements When a transnational infrastructure involved.64 However, such insurance programme involves different or guarantees can be prohibitively The benefits that arise from managing a currencies, one of the key challenges expensive in the case of very volatile transnational infrastructure programme is to optimize the financing structure. African currencies. A potential as a programme, rather than as Specifically, if revenues are not solution was developed by the US individual projects, occur not only generated in the same currency Government’s Overseas Private in the origination and preparation as that for the financing, the risk Investment Corporation (OPIC) phase, but also during construction 60 of exchange rate issues arises. to cover the exchange rate risks and operation of the facility or asset. In theory, this risk can be easily of a $300 million bond issued by Regarding construction, for example, eliminated if the financing structure a Brazilian company to finance the dovetailing of processes will ensure 65 uses the same currency proportions a hydroelectric power plant. In that the different stretches of a railway 61 as the expected revenues. this approach, the guarantee or track can be interconnected at the Referring to the numerical example insurance covers only that part border as scheduled, or that a cross- (Table, Box 3), and assuming that of the local currency against the border transmission line is available on all benefits can be monetized loan currency, which is not offset schedule so that a new hydroelectric as revenues, the project’s total by inflation differentials. This power plant does not remain unused. monetary costs and externalities are technique is based on the notion As for maintenance requirements, 500 units; and, the total revenues that purchasing power parity holds they should ideally be aligned for the are 750 units, of which 500 are in the long term, so that fluctuations whole infrastructure programme. This

38 African Strategic Infrastructure Initiative lengthy processes, a formalized institutional or legal framework is far preferable to a system of managing programmes ad hoc and one-by- one.68

– Build up dedicated capacities and capabilities The smooth preparation, implementation and operation of megainfrastructure projects and programmes – national or transnational – demand a broad set of legal, financial, technical and project management skills, among others. These capabilities are needed in the public sector (e.g. ministries, public agencies, RECs), in national and regional finance institutions (e.g. development banks), in parastatals (e.g. national utility or railway companies) and in the programme management unit (e.g. the SPPA). The governments involved should build up the required capacities and capabilities at an individual and institutional level, is particularly the case if production is production are not located in the particularly through dedicated located in one country and consumption same country, as necessary repair training programmes. in another, as in transnational energy works will affect the supply of water, or water programmes, given that oil or electricity abroad. The off-take – Invest in building relationships based maintenance issues might jeopardize agreement should therefore specify on trust the supply abroad. In the governance management protocols for bringing Trust between the relevant parties structure already outlined, the SPPA maintenance requirements in line is essential for a fruitful relationship. would be in charge of aligning the with demand. These protocols will While institutions, treaties and infrastructure facility’s construction and help to align supply and demand agreements can support bi- and O&M. over time, to cope with peak multilateral cooperation, they demand periods and to ensure that are no substitutes for trust. Two specific best practices have been maintenance on the production Governments need to make political identified in this category: side does not impact adversely on efforts to develop mutual trust consumption. It would be the SPPA’s and understanding – by fostering – Set up an expert committee to responsibility to implement these dialogue and interactions among supervise construction management protocols. politicians, experts, the news media To support the SPPA in overseeing and citizens.69 Moreover, trust is the construction process, a crucial at both the political and committee should be established working level, given the possibility with experts from all participating Conducive Enabling of dealing with cross-national teams countries: they could include or foreign clients. A one-stop border representatives of multilateral Environment post will involve new procedures institutions as well as governments, So far, all the best practices listed and relationships for border and would support the screening officials, while a new transnational and supervision of contractors to have applied to specific infrastructure programmes. However, a more general transmission line will necessitate reduce the chance of delays to the unfamiliar dealings with foreign 67 need also exists – for an enabling entire programme. The committee customers. When such changes would also help to maintain good political and regulatory environment, one that will help in originating, fostering and are introduced, staff should be working relations with the relevant educated on the advantages, or public-sector stakeholders in all the realizing any number of transnational infrastructure programmes. at least the purpose, of the new countries involved and throughout system; otherwise, some staff will the operation of the infrastructure remain uncommitted, or might even asset. For this category, three specific best practices have been identified: become disruptive. In addition, other imaginative interventions – In the off-take agreement, specify – Establish a single integrated should be considered to ease the management protocols for transition. When cross-border staff aligning demand and maintenance framework for planning and designing transnational programmes begin working together for the first requirements time, organizing social activities, for Maintenance is a particularly To minimize transaction costs, reduce the risk of failure and avoid example, can help foster mutual delicate topic if consumption and understanding and build trust.

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 39

Conclusion

Despite the political vision of an national megaprojects. The best roadmap for successful implementation. integrated economy in Africa, practice framework described herein This concept paper is descriptive, transnational infrastructure is still provides guidance on how to manage not prescriptive, in its motivation: lagging behind its ambitions on the transnational infrastructure programmes it distils the lessons learned from continent. African leaders established over their entire life cycles – from previous programmes in Africa the PIDA initiative to provide the physical integrating national infrastructure and around the world, rather than backbone of regional integration: plans and balancing the allocation presuming to give instructions on the idea was to define multicountry of costs and benefits, to aligning the implementing future programmes. Still, infrastructure programmes in the construction and O&M processes. if it helps infrastructure policy-makers, transportation, energy, water and ICT The value of a conducive enabling programme sponsors and managers sectors, and to assign them the highest environment for such programmes is to get their bearings, it will enable the priority for implementation. However, clear, as is the need to institutionalize delivery of cross-national programmes these programmes face formidable cross-border collaboration throughout on schedule, at cost and of high inherent challenges, and their realization a programme’s lifespan. The specific quality. That, in turn, will encourage a has been hampered accordingly. The best practices identified for each part of proliferation of regional infrastructure challenges and issues vary in intensity, the framework should help programme programmes and the benefits they according to the type of programme, sponsors and managers put the bring – including improved public health the phase and the conditions prevailing framework into practice. Just as the through better water and electricity in the participating countries. challenges vary from programme to supplies, a boost in local prosperity and The consensus is that cross- programme, so too does the relevance greater regional integration. border infrastructure projects are of the best practices. even more demanding than purely In other words, there is no simple

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 41

42 African Strategic Infrastructure Initiative Contributors

Initiative Co-chairs Aboubakari Baba Moussa Director, Infrastructure and Energy

Gordon Brown Maurice Niaty-Mouamba Chair, World Economic Forum Global Strategic Infrastructure Consultant, Transport Engineering Initiative; UN Special Envoy for Global Education; Prime Minister of the (2007-2010); Global Agenda NEPAD Planning and Coordinating Agency (NEPAD Agency) Council on Infrastructure Ibrahim Assane Mayaki Arif M. Naqvi Chief Executive Officer Founder and Group Chief Executive, The Abraaj Group Adama Deen Doug Peterson Head, Infrastructure Projects and Programmes President and Chief Executive Officer, McGraw Hill Financial Elsabeth T. Tedros Michel M. Liès Senior Investment Officer, Programme Implementation and Group Chief Executive Officer, Swiss Re Coordination Directorate Danny Truell Chief Investment Officer, Wellcome Trust Uwe Krüger Chief Executive, WS Atkins plc African Strategic Infrastructure Business Working Group Partners

Initiative Partners A.P. Møller-Maersk Lars Reno Jakobsen African Development Bank (AfDB) Senior Vice-President, Group Representative Sub-Saharan Donald Kaberuka Africa President Pieter Egbers Alex Rugamba Manager, Business Development (Africa Middle East Region) Director, Regional Integration and Trade ABB Shem Abraham Chalo Simuyemba Nthabiseng Dube Chief Infrastructure Economist Director, Marketing and Communications Zakhele Mayisa Absa Capital Principal Infrastructure Finance Officer, Regional Integration Colin King and Trade Principal, Project Finance Tonia Kandiero African Rainbow Minerals (ARM) Resident Representative Tanzania Imrhan Paruk Patrick Musa Executive, Corporate Development Transport Engineer Anglo American Joseph Ribeiro Richard Morgan Resident Representative Mozambique Advisor, International Government Relations Joao Mabombo AngloGold Ashanti Infrastructure Specialist Yedwa Simelane Executive Vice-President, Stakeholder Relations and African Union Commission Marketing Elham M.A. Ibrahim Commissioner for Infrastructure and Energy Development Bank of Southern Africa Rieaz (Moe) Shaik Chief Executive Officer, International Division

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 43 Mohale Rakgate Sasol General Manager, Project Preparation Haiko Alfeld Group General Manager, Stakeholder Relations and Alvino Wildschutt Community Affairs Specialist, Infrastructure Programmes Standard Bank Michele Ruiters Ntlai Mosiah Sector Specialist, Regional Programmes Sector Head, Power & Infrastructure, Telecoms & Media Deevani Pillay Standard Chartered Bank Senior Investment Officer Alan Sproule Elliot Monama Director, Project Finance Africa Specialist, Project Preparation Telkom SA Diageo Galetlene Juliana Rasethaba Ish Ahamed Chief, Corporate Governance Director, Customer Service, Logistics and Planning Transnet Development Mervin Chetty Eskom General Manager, Africa Strategy Steve Lennon Sunday Kapesi Group Executive, Sustainability Business Development Manager, Segomoco Scheepers Overseas Infrastructure Alliance Senior General Manager (Southern Africa Energy) Suresh Chaturvedi Lungisa Magwentshu Group Chairman Senior Manager, Programme Management UBS First Bank of Nigeria Sean Bennett Adenrele Oni Head, UBS South Africa and Sub Saharan Africa General Manager, South Africa Vale Frontline Development Partners Olivier Rwamasirabo Arun Kumar Corporate Affairs Manager, Africa Senior Financial Associate

General Electric (GE) Nils Tcheyan Head, Africa Policy Experts to the African Strategic Sukhin Bhandari Infrastructure Business Working Group Project Development Leader, Transportation John Douglas Aurecon Project Development Manager James Scheepers Mamadou Toure Technical Director, Traffic Engineering and Transportation Managing Director, Sales & Project Finance, Sub-Saharan Planning Africa Willem van Zyl Industrial Development Cooperation (IDC) of South Africa Consultant Vivian Ramathuba (EAC) Project Manager, Strategic High Impact Project SBU Gratian Rutaserwa Peter Lekgethe Senior Engineer, Materials and Pavement Senior Business Development Economic Community of West African States (ECOWAS) Leighton Chris Appiah Iain Speirs Specialist, Transport Executive General Manager, Leighton Africa International Finance Cooperation (IFC) Old Mutual Ram Mahidhara Jurie Swart Portfolio Manager, Infrastructure, ICT, and Natural Resources, Head, Infrastructure and Development Assets Sub-Saharan Africa Royal Philips Infrastructure Consortium for Africa (ICA) Juan Jacques van Dongen Callixte Kambanda Chairman and Chief Executive Officer Chief Specialist, Infrastructure Sonja Hoess Expert, Water Financing

44 African Strategic Infrastructure Initiative Infrastructure & Development Advisory Practice (IDAP) Project Team Ravi Naidoo Chief Economic Officer Fabian Barthel Project Manager, African Strategic Infrastructure Initiative, Genesis Analytics Infrastructure & Urban Development Industries Taz Chaponda Partner, Infrastructure and PPP Advisory Marie Lam Frendo Associate Director, Head of Infrastructure Initiatives Harith General Partners Sollie Nortje Guido Battaglia Head, Project Development Senior Project Manager, African Strategic Infrastructure Initiative, Infrastructure & Urban Development Industries Ministry of Infrastructure Development, United Republic of Tanzania Reuben Coulter Aunyisa Meena Senior Community Manager, Africa Principal Economist, Transport Jesmane Boggenpoel Mo Ibrahim Foundation Associate Director, Head of Africa Membership Nathalie Delapalme Director, Research and Policy Editors NEPAD Business Foundation Lynette Chen World Economic Forum Chief Executive Officer Alex Wong Senior Director, Head of Business Engagement (Geneva) Laetitia Habchi Head, Infrastructure Desk Pedro Rodrigues de Almeida Director, Head of Infrastructure & Urban Development Peter Varndell Industries Manager, Africa Infrastructure Desk Elsie Kanza Rift Valley Railways Director, Head of Africa Moritz Eichhöfer General Manager, Commercial Services & Strategy The Boston Consulting Group (Adviser and Knowledge Partner) Seacom Philipp Gerbert Mark Simpson Senior Partner, Global Head of Infrastructure Chief Executive Officer Tenbite Ermias Southern African Development Community (SADC) Partner and Managing Director, Head of Sub-Saharan Africa Remigious Makumbe Director, Infrastructure and Services Armin Lohr Partner and Managing Director, Head of Infrastructure Africa/ Trademark South Africa Middle East Graham Smith Programme Manager Wim van Schalkwyk Expert, Information Systems Office of Gordon and Sarah Brown Cormac Hollingsworth Adviser USB Executive Development Willem Louw Director, Centre for Business Management of Projects World Bank Andrew Roberts Senior Operations Officer, Africa Regional Integration Department Philippe Dongier Country Director, Tanzania, Burundi and Uganda

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 45 Program Management. Newtown Square, USA: Project References Management Institute, 2008. – Rilo, R., Gerbert, P., Koch, A., Le Corre, J., Martelli, – Barberà, S. Designing Decisions Rules for Transnational M., Jiménez, D. Eight Key Levers for Effective Large- Infrastructure Projects, 2003. Washington DC: Inter- Capex-Project Management: Introducing the BCG LPM American Development Bank. Octagon. Boston: The Boston Consulting Group, 2012. – Barka, B.H. Border Posts, Checkpoints, and Intra- – Tanzi, V. Building Regional Infrastructure in Latin Africa Trade: Challenges and Solutions, 2012. African America, INTAL-ITD Working Paper -SITI- 10, 2005. Development Bank Chief Economist Complex, Tunis: – Tinbergen, J. An Analysis of World Trade Flows. In African Development Bank. Shaping the World Economy; Suggestions for an – Beato, P. Issues and Options on Transnational Projects. Interanational Economic Policy, Tinbergen, J. (ed.), In Integration and Trade, 2008, 12(28):11-23. 1962. New York: Twentieth Century Fund. – Cárcamo-Díaz, R., Goddard, J.G. Investing in – Trading Economics, Country List Rating/Economic Multinational Transport Infrastructure: Coordination Indicators/Data List by County, http://www. Perspectives for Latin America. In Integration and Trade, tradingeconomics.com/country-list/rating, March 2014. 2008, 12(28):83 90. – Turró, M. Going trans-European: Planning and financing – Central Intelligence Agency (CIA), 2014. The World transport networks for Europe, 1999. Oxford: Elsevier Factbook, https://www.cia.gov/library/publications/the- Science Ltd. world-factbook/. – United Nations, 2014. UN Comtrade Database, – Commission of the European Communities, 2003. http://comtrade.un.org/. A European Initiative for Growth, Final Report to the – World Bank, 2013. Modernizing the Delivery of Complex European Council, Brussels. Transformational Regional (Infrastructure) Projects in – Conthe, M. Financial Structures for Transnational Africa, Regional Integration Department – Africa Region, Infrastructure Projects in the IIRSA Context, 2002. mimeo. Madrid: Analistas. – World Economic Forum, 2013a. The Global – European Union, 2008. Consolidated Version of the Competitiveness Report 2013-2014, Geneva: The Treaty on the Functioning of the European Union. In World Economic Forum. Official Journal of the European Union, C115/47. – World Economic Forum, 2013b. Strategic Infrastructure: – Flyvbjerg, B., Bruzelius, N., Rothengatter, W. Steps to Prepare and Accelerate Public- Private Megaprojects and Risk – An Anatomy of Ambition, Partnerships, Geneva: The World Economic Forum. Cambridge: Cambridge University Press, 2010. – Fung, K.C., Garcia-Herrero, A., Ng, F. Foreign Direct Investment in Cross-Border Infrastructure Projects, ADBI Working Paper Series No. 274, Tokyo: Asian Development Bank Institute, 2011. – International Transport Forum, 1997. Helsinki Declaration: Towards a European Wide Transport Policy: A Set of Common Principles, http://www. internationaltransportforum.org/IntOrg/ecmt/paneurop/ pdf/DeclHels97.pdf. – Jaafari, A. Construction Management Know-how for Transnational Projects. In International Journal of Project Management, 1984, 2(4):198-206. – Kuroda, H., Kawai, M, Nangia, R. Infrastructure and Regional Cooperation. In Annual World Bank Conference on Development Economics 2007, Global: Rethinking Infrastructure for Development, edited by François Bourguignon and Boris Pleskovic, Washington DC: World Bank. – Navajas, F. Infrastructure Integration and Incomplete Contracts: Natural Gas in the Southern Cone. In Integration and Trade, 2008, 12(28):25-48. – Project Management Institute. The Standard for

46 African Strategic Infrastructure Initiative 13 The high number for transnational planning/policy coordination is Endnotes driven by continent-wide regulatory alignment programmes, such as the Single African Sky programme to create a high-level, satellite- based air navigation system for the African continent, and the Smart 1 “Transnational infrastructure” refers to any type of hard or soft Corridor Programme to develop a model smart corridor technology infrastructure that involves more than one country. See Section 2 and to design and implement a system for monitoring the efficiency for a detailed definition and classification. In this concept paper, the of continental and regional corridors. The number for cross-border terms “transnational”, “cross-national” and “cross-border” are used physical infrastructure is largely due to those with a transnational interchangeably. split of production and consumption, as when electricity is 2 International Transport Forum (1997). produced in one country and transported to consumption centres in other countries through cross-country transmission lines. 3 European Union (2008). 14 Rilo et al. (2012). 4 Fung et al. (2011). 15 Beato (2008). 5 Beato (2008). At least two other explanations exist for the 16 underprovision of transnational infrastructure. First, regarding Conthe (2002). transport assets: given the complexities of binational or multinational 17 Conthe (2002). transport networks, and the uncertainties of investment, the 18 CIA (2014). dominant game theory strategy for both or all governments, as Cárcamo-Díaz and Goddard (2008) show, is to refrain from 19 Conthe (2002). investing in the project even in a dynamic game setting. Second, 20 Barka (2012). regarding energy transmission projects: as Navajas (2008) argues, cross-border contracts are bound to be incomplete, given the many 21 Conthe (2002). unforeseeable contingencies. Accordingly, investors tend to shy 22 World Economic Forum (2013a). away from such projects. 23 Jaafari (1984). 6 Project Management Institute (2008). 24 CIA (2014). 7 The role of a programme manager is to integrate, monitor and control the interdependencies among the components to achieve 25 Commission of the European Communities (2003). the programme benefit. Specific tasks include: coordinating 26 In any case, the basis for proportioning is problematic. supplies; resolving resource constraints that affect multiple projects; Proportional to what, exactly – to the countries’ investment levels, mitigating risk activities that affect several components of the their likely consumption levels or their populations? programmes, such as contingency planning; resolving issues of scope, costs, schedule or quality; and tailoring interfaces and 27 Commission of the European Communities (2003). processes (Project Management Institute, 2008). 28 Conthe (2002). 8 For illustrative purposes, this is a very simplified version of the 29 Jaafari (1984). actual Central Corridor programme. 30 While both organizations publish a comprehensive database with 9 Fung et al. (2011). In contrast, “hard” refers to physical project reviews, most of the projects are not transnational, but are infrastructure components; for example, transmission lines in the implemented in only one country. Among those that involve more power sector, paved roads and railway tracks in the transport than one country, very few exist that are type 2 or 3. Instead, most sector, pipes and aqueducts in the water sector, and subsea transnational projects in the database concern policy alignment or telecommunication cables in the ICT sector. the joint management of resources. Even in these project reports, 10 This relationship is described by the so-called gravity model of most of the challenges and lessons learned deal with national rather trade (Tinbergen, 1962). than transnational problems. 11 While the gravity model (see endnote 10) implies that the demand 31 Fung et al. (2011). for transnational trade is higher between two large countries, the 32 The structure shown is a slightly adapted version of the one necessity of connecting them is higher for smaller countries. presented in Conthe (2002). To simplify the illustration, only two 12 Numerous other reasons for the low level of intra-African trade countries are shown, but the structure could easily accommodate exist, such as the small size of the markets, low production more than two countries. capacities, limited trade and investment opportunities, weak human 33 A good example of such an entity is the CLSG Regional and institutional capacities, political instability and insufficient trade Transmission Company, created to manage the power facilitation. Other factors curtailing potential trade include the lack interconnection project for Côte d’Ivoire, Liberia, Sierra Leone and of complementarity, lack of diversification of production structures, Guinea. Another example is the implementation authority for the high production costs, inadequacy of other forms of infrastructure Maputo Corridor, which had a clear political mandate from both (e.g. ICT), shortcomings in soft infrastructure (e.g. import quotas, South Africa and Mozambique, and was commissioned and duly anti-dumping regulations, countervailing duties, border tax authorized to sign the concession contract. adjustments, subsidies and technical barriers such as sanitary measures and rules of origin) and excessive red tape (Barka, 2012). 34 The term “programme life cycle” is used since the SPPA is managing a programme of different projects (see Figure 1). 35 World Bank (2013).

Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices 47 36 Fung et al. (2011). 60 This is true of intranational infrastructure projects as well, if local currency financing is not available. 37 Such a consistent definition is frequently missing in the case of PIDA, and hampers its implementation. 61 Conthe (2002). 38 Fung et al. (2011). 62 This calculation assumes that the externalities are fully internalized and that compensation is paid to the affected society in country B. 39 Fung et al. (2011). It also assumes that all costs (including externalities) need financing. 40 Flyvbjerg et al. (2010) review the empirical evidence (from projects 63 If long-term financing has to be raised in US dollars, exchange in developed countries), and warn that the regional trade effects of rate risks could be eliminated by indexing tariffs to the exchange transport infrastructure are often heavily overestimated. rate (Conthe 2002). However, such an approach is often not 41 Fung et al. (2011). politically feasible, and would put enormous pressure on users if the local currency were to experience severe devaluation. 42 World Economic Forum (2013b). 64 Conthe (2002). 43 This concession agreement contained another interesting clause to mitigate the risk for the concessionaire (who bore the 65 Presented in Conthe (2002). full commercial risk, as no traffic volume was guaranteed): if one 66 The purchasing power parity holds in the long term, since short- of the countries failed to raise the tariffs as agreed, both countries term fluctuations in the real exchange rate will tend to cancel each could be held jointly and separately liable for the concessionaire’s other out. Hence, the longer the maturity of the foreign exchange sustained loss. borrowing to be hedged, the safer the coverage. Such protection 44 Conthe (2002). will also improve the loan’s credit rating and will therefore lower financing costs. 45 Tanzi (2005). 67 Conthe (2002). 46 Conthe (2002). In the example cited in the Table, country A will need to provide all the financial resources for the programme, since 68 Fung et al. (2011). it is the only country with a positive net benefit. 69 Fung et al. (2011). 47 Conthe (2002). 48 Tanzi (2005). 49 Unfortunately, even a standard model assessment of costs, benefits and evaluation of externalities is unlikely to produce an objective and undisputed solution. It is thus particularly important that the arbiter should be neutral, well respected and trusted by all participating governments. To reduce the complexity of the decision process, Conthe (2002) suggests the arbiter should offer the participating countries a limited choice of options for burden- sharing; in a two-country setting, for example, the options of offer might be [0:1], [1/3:2/3], [1/2:1/2], [2/3:1/3] and [1:0]. Unless exceptional circumstances arise, such as a natural disaster affecting the infrastructure asset asymmetrically in different countries, the allocation defined at the beginning should be upheld throughout the programme’s life cycle. 50 Beato (2008). 51 Fung et al. (2011). 52 Fung et al. (2011). 53 Fung et al. (2001). The outcome of the process was that China and Thailand shared two-thirds of the investment and provided concessional financing to Laos. 54 Conthe (2002). 55 Conthe (2002). 56 If setting standards for a specific programme, the agency would usually set “programme-specific regulations”. However, if the agency is able to overrule national regulations, and if the new standards are also applied to existing infrastructure assets in the sector, the work would amount to “cross-national standardization”. 57 Fung et al. (2011). 58 Turró (1999). 59 Fung et al. (2011).

48 African Strategic Infrastructure Initiative List of Figures

Figure 1: Structure of a Transnational Infrastructure Programme: An Example Figure 2: Types of Transnational Infrastructure Programmes Figure 3: Key Indicators for the Necessity of Transnational Infrastructure Figure 4: Intraregional Trade as Share of Total Trade, by World Region 2008-2012 (%) Figure 5: Challenges of Transnational Infrastructure Programmes Figure 6: Sovereign Debt Rating and Maturity of Public Institutions in Africa Figure 7: Best-practice Framework for Managing Transnational Infrastructure Programmes Figure 8: Overview of Specific Best Practices Figure 9: Three Levels of Cross-border Coordination Figure 10: Proposed Governance Structure for Public Delivery of a Transnational Infrastructure Programme Figure 11: The Role of the SPPA over the Programme’s Life Cycle

List of Tables and Boxes

Table: Distribution of Costs, Externalities and Benefits Box 1: Cross-border Collaboration Box 2: The Role of the SPPA - from Preparation to Implementation Box 3: Costs, Externalities and Benefits of Transnational Programmes – A Numerical Example Box 4: Three Levels of Harmonization

List of Abbreviations

AfDB African Development Bank AUC African Union Commission CBA Cost-benefit analysis CLSG Côte d’Ivoire, Liberia, Sierra Leone, Guinea DRC Democratic Republic of Congo EC European Commission ECOWAS Economic Community of West African States EU European Union GMS Greater Mekong Subregion ICT Information and communications technology IT Information technology IPPF Infrastructure project preparation facility MIGA Multilateral Investment Guarantee Agency NEPAD New Partnership for Africa’s Development O&M Operation and maintenance OPIC Overseas Private Investment Corporation PIDA Programme for Infastructure Development in Africa PIDA PAP Programme for Infastructure Development in Africa – Priority Action Plan PPP Public-private partnership REC Regional Economic Community SADC Southern African Development Community SINELAC Société International d’Électricité des Pays des Grands Lacs SPPA Special purpose public agency UN United Nations

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