ppp international best practice and regional application overview of public private partnerships...
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PPP International Best Practice and Regional Application
Overview of Public Private Partnerships (PPPs)
23-25 April, 2008Tegucigalpa, Honduras
Filip DrapakWorld Bank Institute
Why PPP
• Large infrastructure gap in both developed as well as developing countries
• Risk management
• Project management skill
• Lack of public funding available for infrastructure
• Procurement efficiency
How is PPP defined?
• Long term contract
• Between Private and Public body
• Contract contains risks that are withhold by private sector
Roles of Partners
Successful project
Public partnerPrivate partner
Rules of the game set up by public sector:
- Legislation and regulation- Institutions- Procedures- Procurement
Project inputs set up by private partner:
- Design- Construction schedule and content- Maintenance schedule- Subcontractors
Types of PPP
1. Who is paying? 2. Who has a demand risk?
Concession type PFI type
• User pays principle• Demand risk with private partner
• Public body pays on behalf of users• Demand risk with public partner
Hybrid type
• Shared payments between Public and User• Demand risk with private partner, public partner or shared
Contractual types of PPPs
• M&O ?– long term operation and maintenance contract
• DB ?– Design Build• BBO ?– Buy Build Operate• BOT – Build Operate Transfer• BOO – Build Own Operate• BOOT – Build Own Operate Transfer• DBFO- Design Build Finance Operate• Concession
How to make it a success?
Project
Public partner
Private partner
Finance providersUsers
Meet objectives of all stakeholders
Public sector objective
• Output based delivery of infrastructure and service
• Value for Money• Procurement according to regulation• Risk transfer to Private partner
Private partner objective
• Profit• Lowest possible procurement risks• Reference• Long term use of own capacity• Risks transferred to subcontractors• Projects pipeline
Financier objective
• Save return of loan• Profit margin reflecting the risk• Risks not with borrower (transferred to
public sector or to subcontractors)
Users objective
• Low or no user fees• Transparency of tariffs and procurement• Quality of infrastructure and services
Is there a Best practise?
Rules of game
Capacity
Political will Market capability
Political will
• Demonstrated political will
• Ideally not dependent on election terms
• Political rationale
Rules of game
• Clear procedures of project management
• Public procurement legislation
• Policy and regulation
• Law and legislation optimisation
• Standardised contacts
• Clear tolls of avaluation
Market capacity
• Availability of Experienced sponsors
• Availability of reliable subcontractors
• Availability of long term finance at a given risk profile
• Availability of risk mitigating instrument
Capacity
• Capacity (public) on national level
• Capacity (public) on executive level
• Institutional capacity, memory and experience
• Capacity with private sector – Advisory– Project Sponsors– Financiers
What is different in PPP?
• Extra costs:– For preparation and procurement– Cost of capital – Expensive debt
• Benefits– Life time costing– Risk transfer– Innovation
Fiscal space
• The Extent to which fiscal decisions can be made by a public body– Fiscal space is a key driver for PPPs– Successful PPPs tend to enlarge fiscal space– Fiscal space can be jeopardised by “bad”
PPPs
Project Finance and PPP
• Financing infrastructure using Public Debt is in terms of financing most cheapest ways, however each new debt can affect overall rating and make all debts more expensive
• Project finance is most expensive way of financing projects, however its influence on overall rating and fiscal space can be limited
• To accept all risks and use Project finance is the worst solution for a Government
Project Finance - Risk Analyses
Force major risks
Risk mitigation and credit enhancement
Sovereign risks
On-project risks
Construction risk
• Key risk in PPP/PFI
• Difficult to measure
• Fully transferred to Subcontractors
• Some issues:– site conditions, potential delays, credit rating
and track record of Subcontractor, new or existing project, vulnerability of project, risks of currency and inflation, planning risks
Demand risk
• Key risk in projects that apply user fees
• Difficult to predict
• Difficult to mitigate
• Some issues:– Users willingness to pay, level of fees,
alternatives, who is responsible if there is not demand….
What can jeopardise PPP
– Tender is not competitive or transparent– Project risks are not well defined and
contractually transferred– Risks are to high and can’t be mitigated– Change in political will
