Draft PPP Rules 2012

draft PPP Rules 2012 embodies 7 principles - international standards1. Appropriate systems of procurement, based on

transparency, competition and objective criteria in decision-making that is effective in preventing corruption and a system of accounting & auditing & related oversight;

2. Public distribution of information on procurement procedures and contracts;

3. Establishment, in advance, of conditions for participation including selection & award criteria & tendering rules & their publication;

draft PPP Rules 2012 embodies 7 principles -international standards

4. The use of objective & predetermined criteria for decisions;

5. An effective system of domestic review, including an effective system of appeal;

6. Measures to regulate matters regarding personnel responsible for procurement, where appropriate, corrective action in case of failure of procurement officials to comply with …

7. Measures to mitigate unethical practices from bidders and sanctions for indulging in such behaviour.

Public Private Partnership (Preparation, Procurement and Management) Rules 2012 (draft)

• has 105 Rules under 12 chapters• It takes a stage-wise process approach

• - project preparation, - planning the procurement, -procurement process, - post award contract management and - audit of PPP project

• Public Private Partnership (Preparation, Procurement and Management) Rules 2012 (draft rules – yet to become formal rules)

• what is the Act from which PPP rules derive their authority?

• made by exercising powers conferred by relevant Section of Public Procurement Act

• that itself is in draft stage- yet to be enacted

• draft Public Procurement Bill 2012

draft Public Procurement Bill 2012

• "public procurement" means acquisition of works, goods or services or any combination thereof and

• includes all stages of the process of acquisition, by purchase, lease and licence or otherwise, including

• award of Public Private Partnership projects.

PPP: a project based on a concession

agreement which has a term exceeding five

years and is awarded by a public entity to

a private entity for providing any works,

goods or services to the public entity or to

specified users or class of users on

payment of user charges, annuity or

unitary payment, as the case might be, or

in lieu of other consideration such as land

or other natural resources,

Draft Public Procurement Bill 2012 has 7 conditions for PPP

1. arrangement is with a private sector entity (more than 51% of non-governmental ownership)

2. there is use of a public asset or provision of service for public benefit that is traditionally provided by the government

3. Investments are made by and/or management is undertaken by the private sector entity

Draft Public Procurement Bill 2012 has 7 conditions for PPP

4. operations/management would be provided by the private sector entity for a specified period

5. private sector entity concerned should share the risk of providing services

6. Payments are linked to performance of partnering private sector entity

7. delivery of services through compliance to pre-determined and measurable standards

• What is the likelihood of ‘draft public procurement bill 2012’ becoming an Act and PPP (PPM) Rules 2012 becoming reality?

• India in May 2011 became signatory to the United Nations Convention against Corruption (UNCAC) formed in December 2005.

• Article 9 of UNCAC - each State take necessary steps to establish appropriate system of procurement based on transparency, competition and objective decision making which are effective in preventing corruption.

• Public Private Partnership (Preparation, Procurement and Management) Rules 2012 (draft)

• has 105 Rules under 12 chapters• It takes a stage-wise process approach

• project preparation • planning the procurement• procurement process • post award contract management• audit of PPP project

• Chapter I : applicability and definitions

• Rule 5 says Contracting Authority (Department, HoD) should carry out the responsibilities in a fair & transparent manner with complete probity.

• They should disclose potential conflict of interest if any and have procedures to deal with

• They should not include (in the contract) any specifications or conditions which may be likely to favour a particular bidder.

Chapter II deals with project preparation

• Contracting Authority (CA) has to identify the projects that can be implemented through PPP.

• on the basis of socio-economic priority, value for money, suitability in creation of an asset/efficient service delivery (Rule 9).

• CA would appoint a Project Officer (PO) -responsible throughout the process –till signing the Concession Agreement.

• PO assisted by Project Management Team constituted by CO for this purpose

Chapter II deals with project preparation

• process involves defining the objectives of the PPP Project, its suitability,

• determining the value for money, payment & revenue mechanism, affordability for users,

• selection & appointment of legal advisor & transaction (financial) advisors and

• conducting a pre-feasibility study of the project (Rule 10). (Format prescribed)

Pre-feasibility report includes

• preliminary analysis of technical & operational practicalities of the project,

• environmental and socio-economic aspects,

• preliminary assessment of financial and economic viability

• and institutional capability.

project can proceed for clearance & registration- after the pre-feasibility report cleared by CA (Rule 12)

after it is cleared, the Contracting Authority has to apply for registration of the proposed project with the Public Private Partnership Appraisal Committee (PPAC) Secretariat in Dept of Economic Affairs (DEA) in the prescribed form (Rule 13 & Appendix - 2) and along with documentation of entire process.

once registered, it is entered in the database of the PPP Cell &website of the Contracting Agency (Department) for public display

CA-PO-PMT can start – PPP Project Preparation

PPP Project Preparation

• PO to prepare a budget to meet the expense on project preparation and procurement process

• prepare a work plan for the preparation phase of project with specific activities and timelines

• Contracting Authority (CA) can seek financial assistance for this purpose from IIPD Fund

(India Infrastructure Project Development Fund)

• CA can engage consultants and advisors on technical, legal & financial matters

Project officer to conduct feasibility study and due diligenceFEASIBILITY ASSESSMENT includes:

• Project background: type of infrastructure, location etc• Strategic needs assessment: current & future needs,

demand • Service standard: output expected, service gaps• Market assessment: potential market players, their

capability & appetite, competition, sources of revenues; demand projections etc

• Technical feasibility: technical solution, preliminary technical design of facilities, alternative design options, capital cost and operating & maintenance estimates based on preliminary design

Project officer – Project Preparation Feasibility study ……

• Financial feasibility: project costs, start-up capital, sources of financing, potential revenues, estimated returns

• Environment impact: environmental impact study• Legal framework: licences and/or requirements • Social impact analysis, stakeholder consultation and

public interest evaluation • Public sector comparator, value for money analysis and

recommendations: comparing the costs and benefits of a PPP Project with publicly financed (same) project

Project Officer should also prepare a structure of the PPP Project

• Risk assessment: all material risks associated with PPP, what risks proposed to be retained, shared, transferred to private entity

• Key commercial principles: payment mechanisms, relief, compensation, force majeure, default events, termination payments etc

• Evaluation criteria for selection of the preferred bidder

• Implementation plan: persons/entity responsible for implementation, time-lines of stages of completion

• Project resource requirement: during and after the project development period

Contracting Authority (CA) should examine Feasibility Report and Structure of Report prepared by PO with reference to project affordability

Whether users can afford proposed user charges

What risks are transferred to private participant

Review the project revenue assumptions

Whether the tariff revision framework (periodical or by a regulator) is predictable and transparent

CA to examine financial commitments – grants, annuity payments, management fee, revenue guarantees (minimum tariff), cash flows, land

Contingent Liabilities

Public sector comparator (PSC) to conduct value for money analysis

CA should conduct value for money assessment through the tool public sector comparator

Systematic comparison of discounted cash flows of the proposed project using the proposed PPP mode (capital cost, borrowing costs, operating, maintenance costs, discounted cash flows) with the - if government sets up the project

Sensitivity analysis of financial models under different scenarios with assumed IRR, NPV

• Table as example from quebec

• Contract Authority to decide on revenue support mechanism for the concession agreement

• Some of them are revenue sharing mechanisms

• CA to balance to see private party does not enjoy super normal profits and should not be exposed to high revenue risk

• If satisfied, CA can ask Project Officer to prepare draft tender documents (strictly using model tender documents of MoF)

• CA should seek approval from PPAC for ‘in principle clearance to proceed’ by sending all the related documents ; also procurement plan

Four major “families” of PPP modes are; Management Contracts, Lease Contracts, Concessions and Build-Operate-Transfer (BOT) and its variants

Lease Contracts are Build Lease Transfer (BLT) or Build-Own-Lease-Transfer (BOLT) or Build-Transfer-Lease (BTL) or lease. Build and Operate Contracts (BOT) are Design-Build-Operate (DBO), Build-Operate-Transfer (BOT)/ Design-Build-Finance-Operate-Transfer (DBFOT)Build-Own-Operate Transfer (BOOT) Contracts are Build-Own-Operate-Transfer (BOOT) or DBOOT, Build-Own-Operate (BOO).

In the roads sector, BOT is a common PPP mode, with revenues for the private operator often being from tolls (BOT Tolls contract) or from a fixed annual/semi-annual payment (BOT Annuity contract).

Bidding process is planned in single stage or multistage depending ....

Options Factors to consider

 How well defined is the project?

How well defined are the bidders? How much work will proposals require?

Single-stage: RFP (Request for Proposal)

Project scope is clear

Service options have been well-defined

Number of interested bidders is limitedPotential bidders are known and identifiedit is not necessary to identify interested bidders or to reduce their number

Multi-stage option 1:Project scope is not clear, extensive discussions are needed to finalise the service option

Potential bidders are known and identified, but number of interested bidders is largeRFQ (Request for

Quotation) + RFP (with or without RTP-Technical Proposal)

Considerable effort required by bidders to submit proposalsIn this case RFQ is useful to reduce number of bidders.

Multi-stage option 2: Project scope is not clear, extensive discussions are needed to finalise the service option

Number of interested bidders likely to be limited, but potential bidders not yet well known or identified

EOI + RFP (with or without RTP)

 

Considerable effort required by bidders to submit proposalsIn this case EOI is useful to identify interested bidders.

Multi-stage option 3:

Project scope is not clear, extensive discussions are needed to finalise the service option

Uncertainty about the level of interest in the project – unknown if interest is limited or large

EOI + RFQ + RFP (with or without RTP)

Potential bidders not yet well known or identified

Considerable effort required by bidders to submit proposalsEOI is useful to identify interested bidders and level of interest; RFQ is useful to reduce the number of bidders

Chapter IV of PPP Rules – Procurement Plan

• Project officer finalizes ‘procurement plan’ defining each stage of the procurement process

• CA should form Tender Evaluation Committee with members also from Finance Ministry

• CA to appoint ‘Independent Monitor’ to oversee tender proceedings – representative from ministry of finance, law etc.

• Independent monitor should be provided with complete information

Chapter VI – Expression of Interest (EOI)• Project scope is not clear, extensive discussions needed to finalise

the service option, there is uncertainty about the level of interest

• Project Officer prepares Request for Expression of Interest (REOI) with a brief description of the PPP Project, the request for expression of interest and a closing date for seeking clarifications, send to registered applicants.

• It would give the date for seeking clarification through a meeting (not less than 1 week from date of notification of REOI), date on which they would receive clarifications and amendments to EOI (not less than another 1 week) and due date of submission of EOI (not less than another 2 weeks).

• Process meant to list the interested bidders who prima facie seem to have that capacity, experience and resources

Next stage is Request for Qualification (RFQ)

• CA seeks registration of interested parties/ short listed from EOI

• interested bidders are available but is likely to be limited, but project scope is unclear

• some projects can start with RFQ (no EOI)RFQ should contain (model document to be

followed- deviations need PPAC approval) • project structure, description and schedule of

the tender proceedings and estimated cost• Conditions of eligibility of applicants

RFQ should contain (continued)

Criteria for evaluating qualification of applicants, and conditions, if any, for the disqualification

Criteria should be objective, equitable, unambiguous, and shall be clearly stated

Criteria should cover the experience, track record, ability to delivery, to secure funds and invest, net worth, turnover and support the contractual agreement that of longer period

Criteria reviewed by the Independent Monitor

RFQ should specify the schedule of pre-application

meeting, at least 3 weeks before Due Date.

Bidders should receive clarifications, amendments at

least 2 weeks to go before due date of submission.

Total period should not be less than 6 weeks from

floating of tender to date of submission

Submitted RFQ applications should be opened in the

presence of applicant who choose to attend

Evaluated by the Tender Evaluation Committee using

the qualifying criteria as specified in RFQ.

• objective of the RFQ stage is to allow the Contracting Authority to find qualified applicants who are most capable of meeting the project objectives for the next stage, RFP.

• In case of exceptionally complex projects, CA may issue Request for Technical Proposal (RTP) as an intermediary stage before proceeding to RFP stage.

• to have assurance that Qualified Applicants completely understand its requirements

• Otherwise RFP state would include or precede RTP