public-private partnerships...qingdao, china. overview ... quick history. united states . 1600....

Public-Private Partnerships

2009Skikda , Argelia

2010Chennai, India

Under construction (2012)Qingdao, China

Overview

• Terminology• Quick History• Basic Rules• Financing Structures• Closing

Terminology

“PPP”

• A Public-Private Partnership is a contractual agreement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party also shares the risks and rewards potential.

Source: Council for Public-Private Partnerships

“PPP” (crayon version)

• A Public-Private Partnership is private financing of public infrastructure.

Quick History

United States

1600 1700 1800 1900 2000

United States

1600 1700 1800 1900 2000

1652 – First privately-owned water system; Water Works Company of Boston agreed to provide drinking water to local citizens.

United States

1600 1700 1800 1900 2000

18th and 19th Centuries – Predominantly private water systems (domestic, industrial and agricultural).

United States

1600 1700 1800 1900 2000

20th Century – Broad trend of public acquisition and consolidation of privately-owned water systems as a means of reducing water-borne disease and improved standards.

Benefits of Public Systems

• Dramatic improvements in public heath.• Significant increase in public revenues.• Low customer rates.• Excess revenues available to supplement the

general fund.• Increase in public sector employment.

Challenges for Public Systems

• Established an effective public monopoly on water resources and customer bases.

• Inherent political pressure to keep rates low.• Budgetary competition with other public

financial obligations.• Low investment in long-range planning and

capital replacement programs.

Opportunities for PPP Today

Public Sector• Significant new capital investment is

needed:• To replace aging infrastructure• To develop new infrastructure to meet new

demand• To meet increasing stringent drinking water

standards• Diminishing amount of public funding is

available

Opportunities for PPP Today

Sources: EPA

Opportunities for PPP Today

Sources: EPA

Opportunities for PPP Today

Drinking Water Wastewater Total

Annual Capital Spending $12 billion $10 billion $22 billion

Sources: EPA, CBO, AWWA, WIN and DWNS.

Opportunities for PPP Today

Drinking Water Wastewater Total

Annual Capital Spending $12 billion $10 billion $22 billion

Annual Capital Need

$12 to $24 billion

$15 to $23 billion

$27 to $47 billion

Sources: EPA, CBO, AWWA, WIN and DWNS.

Opportunities for PPP Today

Drinking Water Wastewater Total

Annual Capital Spending $12 billion $10 billion $22 billion

Annual Capital Need

$12 to $24 billion

$15 to $23 billion

$27 to $47 billion

Annual Gap $0 to $12 billion

$5 to $13 billion

$5 to $25 billion

Sources: EPA, CBO, AWWA, WIN and DWNS.

Basic Rules

1. Service is Paid For

PaymentService

Consumers

Infrastructure

1. Service is Paid For

PaymentPotable Water

Consumers

Desalination Plant

2. PPP Needs a Reason

• Financial Need: Public entity is unable (or unwilling) to use public financing options.

• Technical Need: Technology solution requires skills for design, construction and/or operation not held by the public entity.

• Both

3. Risk Drives Cost

Risk = Increased Cost

Financing Structures

PublicFinancing Consumers

PublicFinancing

O&M

Equity

Consumers

Service

Public Entity

Fees and Taxes

PublicFinancing

O&M

Equity

Consumers

Service

Public Entity

Loan

P&ILenders

Fees and Taxes

PublicFinancing

O&M

Equity

Consumers

Service

Public Entity

Loan

P&ILenders

Fees and Taxes

Designer

Design Contract

PublicFinancing

O&M

Equity

Designer Builder

Design Contract

Construction Contract

Consumers

Service

Public Entity

Loan

P&ILenders

Fees and Taxes

PublicFinancing

O&M

Equity

Designer Builder

Design Contract

Construction Contract

Consumers

Service

Public Entity

Loan

P&ILenders

Fees and Taxes

Infrastructure

PrivateFinancing Consumers

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

SPV

Water Supply Contract

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

SPVLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPVLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPVLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

Infrastructure

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPV Operator

O&M ContractLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

Infrastructure

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPV Operator

O&M ContractLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

Infrastructure

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPV Operator

O&M ContractLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

Infrastructure

Demand Risk

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPV Operator

O&M ContractLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

Payment Risk

Infrastructure

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPV Operator

O&M ContractLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

Performance RisksInfrastructure

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPV Operator

O&M ContractLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

Infrastructure

Engineering Risk

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPV Operator

O&M ContractLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

CurrencyRisk

Infrastructure

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPV Operator

O&M ContractLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

Infrastructure

Legal Rights Risk

PrivateFinancing Consumers

Fees and TaxesService

Public Entity

Design Builder

Design- Build Contract

SPV Operator

O&M ContractLoan

P&ILenders

Water Supply Contract

Equity Partners Dividends

Equity

Infrastructure

RegulatoryRisk

Closing

Risk Responsibility

Development

Design

Construction

Financing

Maintenance and Lifecycle

Operations

PublicFinancing

Risk Responsibility PublicSector

Private Sector

Development X

Design X

Construction X x

Financing X

Maintenance and Lifecycle X x

Operations X

PrivateFinancing

Risk Responsibility PublicSector

Private Sector

Development X

Design x X

Construction X

Financing X* X

Maintenance and Lifecycle x X

Operations X