Private sector engagement: Internal process and responsibilities

There are a few important differences that require further consideration when establishing and managing a PSE:

• Allow time to find a common vision: Partnerships with private sector actors require building a shared vision among stakeholders who often have fundamentally different roles, objectives, incentives, and institutional cultures. Reaching this common ground can take time and depends on context-specific factors, but it is essential for effective collaboration and successful outcomes.
• Analyse reputational risks thoroughly: The presence of one or more private sector actors entails specific reputational risks that must be analysed “ex ante” and appropriately mitigated or managed to assess whether engaging with such actors is desirable.
• Make space for a more complex governance structure: The governance of PSE projects is often more complex than that of more traditional development cooperation projects, due to their specific legal requirements. In particular, financial market-oriented PSE arrangements have specific administrative, financial, and contractual requirements that reflect specific financial risks, which must be thoroughly analysed

The SDC’s experience shows that establishing PSE projects takes time, as each project, structure, and contractual arrangement is often unique. To ensure effectiveness, a clear process and sequence must be followed when initiating, structuring, managing, and closing a PSE. The CEP plays a key role in guiding operational units through this process and must be involved in the structuring stage as early as possible. In addition, because drafting and negotiating non-standard contracts takes time, it is important to start early.

Specific sequencing

Given the type of partners involved and the type of instruments potentially used (especially investments), the structuring of PSE arrangements needs to follow a specific sequencing where several critical aspects have to be assessed in a systematic manner. This «logical sequencing» is particularly important in order to build up well balanced governance arrangements and contractual relationships with private partners in the context of partnership structures.

The PSE process management consists of six stages, in accordance with the PCM: 1) PSE exploration, 2) Prior to the Entry Proposal, 3) Prior to the Credit Proposal, 4) Prior to signing of contractual agreements, 5) PSE monitoring, and 6) Closing and evaluation.

Six typical stages of PSE structuring in project cycle management

The specific features of PSEs are reflected in the content of phases 1 through 4, while phases 5 and 6 will follow the same project monitoring logic as other SDC projects.

• PSE exploration

  The objective is to assess three different areas:

  • The compliance of the potential PSE idea with the mandatory elements as defined in the PSE Handbook (Why is a PSE needed; how does the PSE idea align with SDC’s strategic objectives and priorities; is there an opportunity for private sector partners to co-finance the idea and co-steer the implementation?)
  • The potential role and additionality of SDC
  • The basic nature of PSE arrangement (direct/indirect arrangement, potential PSE format, potential contribution of the private partners).

  The Competence Center for Private Sector Engagement (CEP) provides operational advice to the operational unit in charge of the development of the PSE idea, and a recommendation on whether or not to pursue the PSE idea. At the end of this phase, the Operational Unit (OU) takes a decision to make additional efforts towards the drafting of an entry proposal.

• Entry proposal

  The objective is to complement the assessment made and define the content of the PSE so as to present an entry proposal. This will concern in particular:

  • PSE development objectives and Theory of Change
  • SDC’s specific role and additionality
  • Intervention strategy
  • Parties involved
  • Direct versus indirect nature of the PSE from a contractual perspective
  • Possible PSE governance structure

  The operational unit (OU) will be responsible to conduct all the necessary analysis pertaining to the PSE. Linked to the analysis of parties involved, a critical element is to contact the CEP to decide which PSE risk assessment is needed. The CEP will be responsible for carrying out the standard PSE risk assessment in close coordination with the OU, and will also provide specific advice on the PSE structuring. At the end of this phase, the OU would submit an entry proposal to the OpCom , which would take a decision on the PSE proposal and next steps.

• Credit proposal

  The objective is to deepen the analysis of the PSE structure, confirm the PSE format and instruments to be used, carry out the necessary third-party due diligence, fine-tune the analysis of the contribution of the private partners in line with the requirements of the relevant legal framework (e.g. Swiss Subsidy law, Public procurement law etc..) and anticipate specific requirements in the contractual arrangements, so as to draft a credit proposal.

  The operational unit will be responsible to conduct all the necessary analysis pertaining to the PSE, and to reflect the main points and conclusions in the credit proposal. The CEP is expected to provide operation advice on this process (including on the next steps of PSE risk assessment) and to review the assessment made on the private partners’ personal contribution (and profits). At the end of this phase, the operational unit would submit credit proposal to the OpCom, which would take a decision on the PSE proposal.

• Contract

  The objective is to finalize the drafting of the contractual agreements/arrangements, in case of non-standard contracts and clauses with the support of the Contracts, Procurement, Compliance Division (CPC) and/or backstopping of external lawyers (e.g. for direct investments).

  After successful negotiations, the contractual agreements are expected to be signed according to the same signature rules as for any other SDC projects.

Roles and responsibilities across the organization

Operational unit OU

• Develops the PSE, submits entry and credit proposals, provides financing, negotiates and signs the contracts, and assumes the overall responsibility of the management of the PSE.
• Consults and coordinates with the CEP and CPC at the different stages of the PSE structuring processes.
• Responsible for internal PSE reporting

Competence Center for PSE (CEP)*

• Provides operational advice and backstopping in the structuring of all PSEs, as well as comments/opinions on the PSE projects in OpComs
• Mobilize SDC’s backstopping services for the standard PSE risk assessment, and provides guidance on the complementary PSE risk assessment (third-party due diligence if applicable) to be carried out.
• (*): Depending on the region, the first point of contact for PSE advice should be the RTA (Regional Thematic Advisor), who will then coordinate with the CEP.

Contracts, Procurement, Compliance Division CPC

• Provides legal advice to operational units on non-standard contracts and clauses, and decides on the need to involve external legal advice
• Provides support to operational units on the content and in the negotiation of contracts, as needed

Key documents