Project preparation facilities: the transaction-only approach

Chapter 5 explains how DFID’s faith in PPPs reached its zenith with its support for transaction-only PPFs like IFC PPP Advisory and the Private Infrastructure Development Group (PIDG). DFID strongly supported IFC-managed trust funds used to reduce the transaction costs incurred by IFC’s PPP Transaction Advisory. DFID also helped to create and fund PIDG, a collection of facilities designed to structure and help finance private investment transactions in low-income developing countries. Both IFC PPP Advisory and PIDG focused on transactions, with the expectation that policy and institutional reforms needed to make private investment beneficial and sustainable would be addressed by other development partners like the World Bank. PIDG quickly became DFID’s flagship PPF, promising its growing collection of donors that it would help private investment projects reach financial closure while recovering project preparation costs from private and public partners. Achieving full cost recovery was expected to demonstrate the commercial viability of these kinds of projects in the poorest developing countries and motivate replication by other actors. PIDG’s original ambitions were quickly frustrated, but both PIDG and IFC continued to complete handfuls of isolated, opportunistically selected projects. Both programs continue to receive donor funding despite achieving little in terms of project replication.