bridging the gap – meeting the needs of ppp projects

Bridging the gap – meeting the needs of PPP projects

David Freer, Alex Sundakov, Vishal Joshipura July 2016

Presentation Outline

a) Paper Objectivesb) Public Private Partnerships: Overviewc) What normally happensd) What can alternatively happen – an examplee) How to make this the norm

Paper Objectives

• PPPs are popular for transport projects– They however have a spotty track record of meeting traffic

projections• One potential reason for this track record is that traffic advisor

and the financial advisor often do not work in harmony on such projects

• The traditional approach for developing transport projects does not work for PPPs

• We worked on a project where the two advisors worked as a team successfully

• We want to share this experience with you…

Public Private Partnerships

• Long term contract between public and private sector

• Concessionaire is compensated based on performance

• Most PPPs are project financed– Only project cash flows

available to repay debt• PPPs may or may not transfer

revenue risk to the private sector– Where revenue risk is

transferred, traffic forecasting is critical

Some Australian examples..

What normally happens

Traffic Expert Financial Expert

Develops T&R model and forecasts

Conducts financial analysis using T&R forecasts

They start and end in isolation

What normally happens

What normally happens

Traffic Expert Financial Expert

Develops T&R model and forecasts

Conducts financial analysis using T&R forecasts

Complains that: - Traffic forecasts need

to be higher- Several additional

sensitivities required- T&R model is not

reliable

Complains that: - Traffic forecasts should

be conservative- T&R budget needs to be

higher- Others do not understand

the complexities of traffic forecasting

What normally happens

Traffic Expert Financial Expert

Develops T&R model and forecasts

Conducts financial analysis using T&R forecasts

What drives this disconnect?

× Different Incentives× Lack of Subject Matter Knowledge of the other expert× Lack of Communication× Insufficient Budgets

Where we want to get to

What could happen: Dhaka-Chittagong Expressway

• Largest PPP in Bangladesh (US$3.5bn)

• One year feasibility assessment

• Traffic advisor and financial advisor worked in-sync throughout the process

• High quality analysis appreciated by the client

• On time and on budget project delivery

What could happen: Dhaka-Chittagong Expressway

Success DriversConstant Communication

Final Delta Plan

Results Framework and

Monitoring Template

Additional Concept Notes

Draft strategies

BDP2100 team

outputs

Investment Plan team

outputsInitial

findings Report

Investment Plan

Feb Oct

Outline of Investment

Plan

Stakeholder Feedback

Report

Initial Ranking of projects and identification for Programs

Mar Apr May Jun Jul Aug Sep Nov Dec

Revisions to Investment

Plan (if necessary)

GEDProject proposals

Sample

What could happen: Dhaka-Chittagong Expressway

Success DriversKnowledge Sharing• T&R advisor explained approach and interdependencies • Financial advisor explained impact of T&R forecasts on viability analysis and

fiscal impact on government• Constant sharing of progress updates, information gaps and expected

delivery timeframes

Similar Incentives• Feasibility study separated from transaction advisory• Fixed fee assignment – no success fees for financial advisor

Project Management• Project plan required constant communication and exchange of information• Strong overall project leadership

How to make this the norm

• At Project Inception, clarify roles and responsibilities• Formalize ways to engage regularly (in-country missions,

scheduled check-ins, easy access to information)• Take time to educate team-members on work required and

interdependencies between tasks• Align incentives as much as possible• Change mind-sets!

– Client and consultants

Banora Point Upgrade, New South Wales, Australia

Thank You