toolkit for ppp in roads & highways - world...

Overview of Toolkit / PPPs in the highways sector

Toolkit for PPP in roads & highwaysOverview of Toolkit / PPPs in the highways sectorPublic sector framework for PPP developmentPPP Policy FrameworkPPP Policy FrameworkKey project components for PPP and project cycleProject selectionjConcession contractsProject preparation: due diligence / feasibility / financial

/aspects / contract managementCompetitive selection of ConcessionairesPPPs and the current global economic crisis

1Toolkit Seminar - Delhi, 4/5th June, 2009

PPPs and the current global economic crisis

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PPP policy frameworkPPP policy framework

P tPresentersRobert Brown, Team Leader / PPP Specialist

Phili D t L l S i li t2Toolkit Seminar - Delhi, 4/5th June, 2009

Philippe Dewast, Legal Specialist

Lessons learned from existing programs

Full commitment across the ministries involved with a sufficiently powerful champion

Projects are often insufficiently prepared with inappropriate risk management/allocation

Even where projects are well developed and frameworks are in place, relatively minor defects in concession contracts can lead to weak and uncompetitive tenders.

Inconsistent laws and regulations can be worse than limited or no laws, where regulation by contract can operate at least initially.


Lessons learned from existing programs (2) Unsolicited bids are often preferred by the private sector but these Unsolicited bids are often preferred by the private sector, but these

undermine solicited PPPs and usually result in poorer deals for the government and often take much longer to implement.

Low bids have the potential for subsequent renegotiations

Ad hoc projects selection by Governments, rather than a properly developed pipeline of projects, often result in projects which either fail to be implemented or take many years to be developed.

Consultation and explanation of PPPs is vital but often insufficient to Consultation and explanation of PPPs is vital but often insufficient to convince

The role of IFIs, agencies and consultants is critical; PPP support


, g ; ppprograms need to be well designed

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PPP and Strategy Mid and Low Income Countries Mid and Low Income Countries Overcoming resistance to PPP Developing Policy Frameworks; Policy, Legal, Regulatory etc Ensuring effective PPP project implementation

Risk Management VfM/PSC Avoiding (substantial) Renegotiations Unsolicited Projects Financing and GuaranteesMarginal Projects

Other


Other

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PPP policy framework

A Policy Framework brings together the elements of promotion and control by Governments to: E PPP I t t Encourage PPP Investment

Inform widely within Government

Inform widely to Stakeholders including consumers/users Inform widely to Stakeholders including consumers/users



Experience with PPP worldwide, suggests that it is useful, if not essential, to have a PPP policy framework in place, to facilitate planning and implementation and instil confidence andplanning and implementation and instil confidence and understanding in all participants in the PPP process.

The framework is important for both public and private The framework is important for both public and private sectors/partners.



The PPP policy framework is not necessarily the ideal or even something to be aimed at in total at once.

It describes a framework that is considered will facilitate PPP development at least in the short or medium-term.


Adapting PPP to the country context

Development of PPP must take into account the differentenvironment in each country but basic principles should beobservedobserved.

The development of a successful PPP program requires keydrivers including political will and bankable projectsdrivers including political will and bankable projects.

The implementation of bankable projects necessitates that anenabling environment for PPP b t bli h d f fienabling environment for PPP be established for financeto be mobilized and the partnership to work effectively and tothe benefit of both parties.


Trying to get the best framework

The Toolkit describes many issues and hopefully addresses these issues to the benefit of PPP practitioners.

The many issues mean that PPP Development is not easy and frequently there is resistance from many quarters including sometimes the private sectorsometimes the private sector.

Therefore, while the perfect framework is rarely achieved, aiming for the best possible is still recommendedaiming for the best possible is still recommended


PPP Policy Frameworks A specific PPP policy framework would include: A specific PPP policy framework would include:

The Overall Policy; Objectives, Direction, Benefits, Costs etc

The legal and regulatory framework,

Procurement guidelines,

Model PPP contracts,

Risk Management Framework,

Financial guidelines (Inc. Tolls and Government support),

The Project Cycle and the role of Advisors,

Technical design and service standards,


Institutional and Approvals Framework (inc. Dispute resolution).

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Framework aspects

While there are many viable projects, there are also many economically and socially worthy projects that lack the ability to generate the requisite revenues to ensure adequate risk related returns for the investor.

Also infrastructure projects require long gestation periods to ensure affordable tariff levels, which may expose private investors' investment to undue risk.

However, the key message of the policy framework is that PPPs with appropriate arrangements in the sharing of risks in financing, operating and maintaining infrastructure services can provide the solution.

The implementation of PPP investments, especially at the provincial and municipal levels is a very challenging process and often major efforts do not result in closure of a transaction.


Government support


Regulation Types


Basis of Economic Regulation Generally market forces will normally be preferred to economic Generally, market forces will normally be preferred to economic

regulation.

Typically, the economic functions of a regulator include the yp y gauthority to: Issue, review and cancel licenses

Establish standards for the terms and conditions of supplying goods and Establish standards for the terms and conditions of supplying goods and services

Regulate rates (tariffs) and other service charges

Make market rules for the sector

Monitor performance of the regulated entities.

Arbitrate and settle disputes within the sector


Arbitrate and settle disputes within the sector.

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Basis of Economic Regulation (2) The economic regulations which govern transport are

important in situations where: the transport infrastructure or service involved is a natural monopoly

(such as a bridge or tunnel where there is no effective alternative), and/or

where it confers significant market power (for example a highway where where it confers significant market power (for example a highway where the alternatives are not attractive e.g. congested or difficult driving conditions etc.); and/or

when the rights and obligations contained within a PPP or concession agreement rely on regulatory interpretation.


PPP Legal and Institutional Framework

P tPresenter

Philippe DEWAST Legal ExpertPhilippe DEWAST, Legal Expert


PPP Legal and Institutional framework

WHY WHY- not an obvious requirement- general or specific (road sector)

WHAT- law (statute-case law) or contract or both



E bli l l f k th 3 ill f i d Enabling legal framework: the 3 pillars of wisdom

Enabling versus impacting legal framework

Assessing the legal framework

Adjusting the legal framework


The 3 pillars of wisdom: definition – content -featuresfeatures

DIVERSITY :

not one single definition of an enabling legal and institutional framework applicable worldwide, either law or contract, but a l i t f bi tilarge variety of combinations

some countries without legislation; others with extensive l i l tilegislation


The 3 pillars of wisdom: definition – content -features

FLEXIBILITY

C f tili ti i b th t

features

Cross fertilization in both systems

Find the right balance between what should be addressed in th l d h t h ld b l ft f th ti t ti t ithe law and what should be left for the parties to negotiate in the contract

E h / t t b d lt ith it it Each case/country to be dealt with on its own merits

Nothing carved in stone forever, BUT



SECURITY

B d th h i b t l l t t l f k

features

Beyond the choice between a legal or a contractual framework or a combination of both, there are a few principles that are critical to private participation in public infrastructures

Such principles are so important that they ought to be embedded in the country’s highest legal norm, so as not to be flouted by successive governments or legislatorsflouted by successive governments or legislators

Constitution; international treaty



SECURITY (cont’d)

T

features

Transparency

Fairness

Sustainability

Proportionality



SECURITY (cont’d)

T

features

Transparency Clear and readily accessible rules and procedures

Predictability enable investors to measure risks and costs Predictability enable investors to measure risks and costs

Fosters openness (public authorities must justify and publish decisions) and promote confidence in the country



SECURITY (cont’d)

F i

features

Fairness

Balances the interests of government who represents the bli i t t d th i t t t h h ld bpublic interest and the private sector operators, who should be

subject to the same rules



SECURITY (cont’d)

S t i bilit

features

Sustainability

Ensures the provision of public services in the long term with ti l tt ti tparticular attention to:

maintaining the most efficient balance between monopolistic and competitive provision of the public service p p p

environmental sustainability



SECURITY (cont’d)

P ti lit

features

Proportionality

Ensures that each measure taken should be necessary and i t i th li ht f th bj ti ht f th iappropriate in the light of the objective sought or for the issue

to be addressed



Transparency, fairness, sustainability and proportionality each imply specific rights and obligations, such as for example, the

right of access to information, the right of private ownership, the obligation not to discriminate, the right of access to judicial review etcreview, etc…

require the relevant institutions to implement them, such as an independent judiciary systemp j y y

To that extent, these principles belong to the institutional framework which underpins PPP in public infrastructure


framework which underpins PPP in public infrastructure

Enabling versus impacting legal framework A l i l ti f k i l d 2 t f l A legislative framework includes 2 types of laws

The laws that make PPPs possible, so called « enabling laws » which can be general such as a concession or a PPP law or gsector specific, such as a toll road legislation

The laws that have an impact on a PPP project, which can be numerous, since road concession/PPP are large, complex and multifaceted projects:

To quote a few: public procurement foreign investment propertyTo quote a few: public procurement, foreign investment,property, disputes resolution, company, security, tax, labor, IP,

environment, competition, tort laws


, p ,

Enabling versus impacting legal framework

The legal framework paradox

S l t i h d l d d i f t tSeveral countries have developed road infrastructure programmes without general or specific enabling legislation but on the basis of the general laws.

Detailed analysis made by EBRD in Central and Eastern Europe showed that there was no correlation between the existence of enabling legislation and the development of concession/PPPenabling legislation and the development of concession/PPP projects



Source: EBRD assessment of concession laws throughout countries of Central and Eastern Europe and the former Soviet Union

Contractual versus legal frameworkThe framework dilemna: legislate or not that is the question!The framework dilemna: legislate or not, that is the question!

Example: how to deal with the issue of whether a highway operator should have the exclusive right to provide the serviceoperator should have the exclusive right to provide the service or should face competition from other infrastructure facilities?

While it is legitimate for Government to decide how the road While it is legitimate for Government to decide how the road infrastructure market should be structured, with or without competition, setting this in the law might just be a deterrent to private investment from the outset Same result could easily beprivate investment from the outset. Same result could easily be achieved at the contract negotiation stage by providing for this in the request for proposals, or leaving it for the contract negotiation


g


WHY Wh t d it ? WHY. What purpose does it serve?

HOW should this be done?



The purpose of assessing one’s legal framework is to identify its strengths and weaknesses with a view to taking the measures required to improve its efficiency and make it moremeasures required to improve its efficiency, and make it more attractive to private investors.

IFIs have devised various evaluation methods World Bank IFIs have devised various evaluation methods. World Bank, EBRD

EBRD evaluation of the extensiveness and the effectiveness of EBRD evaluation of the extensiveness and the effectiveness of a legal framework.


Adjusting the legal framework Framework adjustment road map Framework adjustment road map

Most countries active in infrastructure concession have either adopted a new legal/statutory framework, when they had none (Russia), or adapted their existing framework, when they felt it necessary to attract private investors (India)

Th 17 i f d ti h i E t d The 17 year experience of conducting change in Eastern and Central Europe points to 2 main issues:

- Find the appropriate instrument to adjustFind the appropriate instrument to adjust

- Implement the various measures beyond the adoption of new laws : set up the administrative structures ; secure the legal and


financial expertise; the human and the financial resources


Framework adjustment road map (cont’d) The law may not be the best instrument to set detailed technical

and financial requirements

Many countries have preferred to enact regulations setting forth d t il d l t i l t th th l i i fmore detailed rules to implement the the general provision of

domestic laws on PPP concessions

Regulations were found easier to adapt to a change in Regulations were found easier to adapt to a change in environment (transition to market based economy or changing economic or technical conditions)



Another lesson from Eastern Europe Insufficient attention given to the specificity of PPPs

Legislative reform hurried through, under a separate agenda (adhesion of Eastern European countries to the EU)

led to confusion to the detriment of the PPP concession model, as well as to infrastructure PPP/concession programmes


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