Private Provision of Education Services ' ' ' myth or reality

1
Private Provision of Education Services. . .
myth or reality ?
Mobilizing the Private Sector for Public
Education
Presentation by Robert Taylor and Ron Perkinson

International Finance Corporation

at


Kennedy School of Government, Harvard
University
5th 6th October, 2005
2
Global Trends

• The 90s witnessed a surge in private provision of
  infrastructure services (telecom, transport,
  power, water) in emerging markets,
  through privatizations/concessioning of
  government services and assets, BOTs, management
  contracts and leases
• Driven by
• The need for significant capital investment to
  meet rising demand (vs. tight government budgets)
• Public dissatisfaction with the quality and
  availability of public services

3
Private Provision of Infrastructure Services
Performance has been positive over all
4.0
11.1
11.1
terminated or in financial distress
US billions
12.8
37.5
Data for emerging markets
4
Lessons from Infrastructure Privatization

• Public expectations are high for service
  improvements
• Public tolerance is low for price increases,
  without evident service improvements
• Regulation is more difficult than expected
• Independence of regulator is difficult to achieve
• Lack of regulatory capacity/experience in most
  countries
• Less political will to privatize public services
  which are perceived as less commerical
• Also more difficult to sustain the implementation
• Pressures for government intervention
• Pressures to stop or rollback price increases

5
The 3rd Wave?

• Since mid-90s, many have forecast that
  privatization would progress from
• The 1st wave industry privatization in the 1980s
• The 2nd wave infrastructure privatization in the
  1990s
• The 3rd wave social sector privatization in the
  2000s
• While there have been some important initiatives
  (e.g. Bogota schools concessioning), private
  provision of public education has not taken off
  as predicted
• Why not?

6
The 3rd Wave?

• Possible reasons
• Generally not facing the same capital shortages
  as infrastructure
• In many countries, consumers can choose private
  schools
• Education is more politically sensitive (and not
  perceived as a commercial service)
• Teachers unions resistance
• But, some of the underlying drivers for
  privatization are still present in education,
  particularly
• Public dissatisfaction with government-managed
  public schools

7
The Privatization Spectrum
Political will to privatize is directly related
to the commercial viability of the public service
(and inversely related to government funding
required)
Political will to privatize
telecom
electricity
transport
water sanitation
health
education
Commercial viability
8
IFCs Role

• IFC has assisted governments in successfully
  implementing more than 100 privatizations,
  concessions and public-private partnerships
  (PPPs)
• Most of our work is in infrastructure
  transport, water/sanitation, power
• IFCs Advisory Services Group has a unit
  dedicated to implementing PPPs for health and
  education - Currently evaluating a large PPP
  project in Brazil for new schools
• IFCs Health Education Department has
  undertaken PPP initiatives in conjunction with
  project investments

9
IFC Examples of PPPs
YUCE Inc Turkey

• US9.6 million project
• Expand modernize YUCE School in Ankara
  
  expand enrollments by 40 to
  2,100 students
  assist the introduction of International
  Baccalaureate
• Education Software IT Training
  
  expand IT Training Academy
  
  
  finance further development of
  educational software and systems
  
  -
  assessment tools (testing, grading and reporting)
  - in use by 250 public schools
  and 160 private schools
  -
  supported by Ministry of Education
  
  - systems
  now used by CITO for PISA testing across Turkey

10
IFC Examples of PPPs

• Shanghai Second Medical University Shanghai
  Aerospace Corporation

SSMUs Role

Public university
providing distance delivery by satellite

upgrading nursing vocational certificates and
diplomas to bachelor degree level


lifelong learners - over 900,000 nurses without
bachelor degrees
SACs Role

strategy formulation


design, development and establishment of
platform technologies
establishing DLC and CME
transmission / receiving equipment
establishing DLC and CME
administration support centers
responsible for
technical investments, systems and courseware
development
IFC will finance the SAC platform operations
11
Public going Private

• Institute of Business Trinidad Tobago
  
  
  private company established by University of West
  Indies
  
  IFC financed
  construction of new facilities
  
  leading business school in T T
• SIBFI China
  
  Shanghai University of
  Finance Economics (public) and Bankacademie
  (private / Germany)
  
  joint venture to establish a professional
  training school for the China finance and
  banking sectors
  
  IFC participated in financing the new
  private JV entity (part equity / part debt)

12
Eduloan - South Africa
private financing for
students attending public institutions

• Started Yr 2000 initial IFC investment US2.8
  million

• Payroll-based lender collections through
  payroll deductions

• Students are working bank/employers share the
  risk

• Access to public University Technikon
  programs soon extends to professional training
  including nursing and other programs

• Delinquencies have been low (less than 2)

• EO 2003 there were 49,000 students being
  financed expected to reach US 40 million
  portfolio (est 97,000 students) by EO 2006

• Loan amounts per student are small - est. up to
  US 500 range
  repayable within 12 months

13

. . . how can PPPs leverage private sector
financing in education??
14
Examples of Risk Sharing Structures
Examples
Scenario 2
Scenario 1
Local Bank 60
Local Bank 50
Third Level
IFC 10 Foundation 10
Total 20
IFC 20
Mezzanine Level
University 10 Local Bank 10 Total
20
University 10 Foundation 10
Local Bank 10 Total 30
First Level
15
New innovations for donors . . .
Donors are beginning to look
for other options
how to better optimize the use of available
funds
Traditional method
25 million 5000 FTE students _at_ 5000 tuition
fees
16
1
Example Only
The Advent Of Donor Interest In Partnering With
Local Banks Investors?
Less 0.5m
40
30
First Level Risk
40m 8000 FTE Students
17
Previous vs. New
New
40m 8000 FTE Students



Total 5000 FTE Students
Total 11000 FTE Students
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1
Example Only
The Advent Of Donor Interest In Partnering With
Local Banks Investors?
Loan Facility securitized through risk sharing
structure
Loan Facility (assume) US40.5m Investors /
Banks participate


Other 15m 3000 FTE
Student Scholarships
Local Bank/ Investors 60
Senior Risk
Less 0.5m
Optimize use of 25m
40
IFC 10
Mezzanine Risk
30
First Level Risk

40m 8000 FTE Students
Cash Reserve/ Trust Fund Eg First 10m
25 Risk
5 Risk
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The 3rd Wave
Donors are interested in risk sharing initiatives
to leverage private sector financing
What about governments?
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Myth or reality ??
Can governments also play a role in PPPs that
will leverage private sector financing through
more effective use of public funds?
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Going Forward

• IFC is ready to provide
• Technical assistance to governments in
  structuring and implementing PPPs for education
• Financing (loans, equity and technical
  assistance) to the private sector partners
• For additional information, please contact
• Robert Taylor Ron Perkinson
• Advisory Services Education Investments
• Tel [phone] Tel [phone]
• rtaylor_at_ifc.org rperkinson_at_ifc.org