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Standpoint: PPP projects to expand health care infrastructure

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An interview with Geoffrey Hamilton (Chief, Cooperation and Partnership Section, UNECE) and Thomas Alberghina (Director Infrastructure, KfW IPEX-Bank).

In the 2030 Agenda for Sustainable Development, the United Nations (UN) defined 17 l goals aimed at assuring sustainable development at economic, social and environmental level. These Sustainable Development Goals (SDGs) apply for all countries, not just for developing countries. The goals emphasise the importance of the people who are “the focus of sustainable development”. UN and KfW IPEX-Bank see great potential for reaching SDGs together.

Geoffrey Hamilton
Geoffrey Hamilton
Geoffrey, what issues do you think urgently need to be tackled?

There are many issues that are extremely important for sustainable development and for the people living on our planet. The UN Sustainable Development Goals (SDGs) range from alleviating poverty and hunger to providing access to education and drinking water, protecting marine and terrestrial life, promoting energy, working conditions, responsible consumption and production, and much more.

I am particularly committed to expanding health care infrastructure as a key area for improving universal health coverage. UNECE has established the International PPP Centre of Excellence with specialized Centres in different sectors and regions. To this end, Germany has been identified as the perfect hub in healthcare and pharma expertise and thereby we greet an initiative to establish a specialized UNECE PPP Centre of Excellence in Sustainable Health in the city of Frankfurt am Main.

Thomas Alberghina
Thomas Alberghina
Thomas, is there even a role for a commercial bank like KfW IPEX-Bank given these kinds of social goals?

Absolutely! KfW IPEX-Bank in particular explicitly supports projects that contribute to improving living conditions. We are a wholly-owned subsidiary of the German promotional bank KfW, which is committed to responsible banking. And here at KfW IPEX-Bank, we continue to live up to this responsibility in our financing – including when it comes to expanding health care infrastructure, as demonstrated by our financing for the construction and expansion of hospitals.

SDG 3 aims to ensure access to better health care for the global population. SDG 17 aims to strengthen global partnerships necessary to achieve these internationally agreed goals. None of the goals can be achieved without strong partners.

Aufklärungsveranstaltung zur AIDS-Problematik in einem Krankenhaus
Geoffrey, what do you mean by “partnerships” in the health care sector? What role does the public partner play, what role does the private partner play – and what role do banks like KfW IPEX-Bank play?

Sustainable improvement and efficiency in health care cannot be achieved without the help of private companies. Innovative partnerships are required so that people can have access to high-quality care and at affordable prices. What public authorities are able to do in this area is not sufficient to meet healthcare needs.

Especially in poor and vulnerable countries, the need for investment in health care infrastructure is extremely high. Private financiers must have an incentive to invest, to make available the huge financial resources required over the long term. It is likewise important to sensibly integrate the high level of expertise of the private sector for the construction, operation and maintenance of healthcare infrastructure. The outcomes of healthcare projects should be “People-first”, putting “People” at the core. These outcomes should include: access to essential health services for all, equality in patient care, environmental sustainability of health infrastructure, economic effectiveness, replicability and stakeholder engagement.

Thomas, long-term partnerships to finance huge financial resources are not new to you. Right?

As a relationship bank, KfW IPEX-Bank maintains long-term partnerships. Financing medium and long-term projects is part of the core of our business model. We don't shy away from longer-term projects. For projects in the poorer countries, however, we need sustainable forms of protection against political risks.

Thomas, are there financing models that can reliably support such vital infrastructures as health care for the population?

Yes, of course. Public-private partnerships, a liaison between the public, private and financial sectors, are developing as a special form of these long-term financing structures. A complex, but very successful structure – and in terms of the model, the country is almost irrelevant. In this context, the key factor is that the risks are borne by those market participants who can influence them. For example, the construction company during the construction phase of a hospital. Or a clinic operator when the facility is in use. This is how incentives are created in the right places to achieve optimal, cost-effective and high-quality, reliable results over the life of the project.

To appreciate PPP as a procurement model, it is also important to understand that it makes the complexity of extensive infrastructure measures transparent. Construction and operation must be planned together and not handled separately, which is the case with conventional procurement. Often the building that is constructed cannot be optimally operated and maintained. This, however, requires not least of all experienced public sponsors.

Banks play an important role in this kind of PPP financing by exercising a monitoring function, as they accompany the construction and operating process together with consulting firms.

Geoffrey added:

The UN sees the PPP model as a viable solution in providing health care infrastructure for the people who need it. We have therefore redefined the PPP model and changed the emphasis to “people-first PPP”. We focus not only on “value for money”, but also on “value for people”.

Krankenschwester in einem Krankenhaus
Geoffrey, how do you define a people-first PPP? Isn't it just a new name for existing PPP structures?

Not at all. Typically many PPPs have been undertaken to achieve value for money for taxpayers relative to traditional public procurement. They were often set up for these reasons solely. This new model of PPP focuses more on sustainable development outcomes, putting people at its core towards the achievement of the UN SDGs.

To take just one example, PPP management lease contracts have been successfully used in haemodialysis projects in low-income countries, to increase access to this essential service for people who otherwise would have died due to lack of resources. This type of projects should be urgently replicated to more countries.

Thomas, can a commercial financing partner really be involved?

By all means. Supporting basic public services and health care in particular has been one of our core businesses for decades. We have already had many good experiences with this public-private partnership, as the examples of Nova Karolinska Hospital in Sweden, University Hospital Schleswig Holstein in Germany and many other hospital projects in the UK and Austria show.

It's up to the public sponsor in these cases to define the purpose and the main objectives of the project. If the private companies have achieved the intended goals of the public sector with the construction and operation of the health infrastructure, it is only fair to compensate the companies appropriately. Interest in this model can only be maintained if this kind of trust-based partnership exists between the government and the private sector.

The benefits for all stakeholders – public administrations, the private sector and society – are obvious.

Geoffrey, do you consider SDG 3 and 17 to be more or less already achieved?

Unfortunately not. The advocacy work for the complex PPP procurement model is time-consuming, especially in developing and emerging countries. A lack of transparency in procurement processes, inadequate incentive systems for the private sector, especially in long-term projects, as well as a lack of international guidelines and standardised agreements are some of the key challenges. – There's still a lot to be done in this regard to enable more confidence in the PPP model.

Experienced financiers like KfW IPEX-Bank can play an important role in supporting private investors and operators in this procurement model. Reliable banking partners can increase their willingness to take risks.

It is only through mutual trust, reliability and transparency that healthcare infrastructure can be developed, and most of all in places where services are urgently needed in the long run. When we think about the world, we have to think long-term – and act together, as partners.

Geoffrey and Thomas, thank you very much for your insights!