procuring public private partnerships (ppp)
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Procuring Public Private Partnerships (PPP). Martin Darcy Valletta, 25-26 January 2006. What is a PPP?. Can be any arrangement where the public sector works with the private sector to produce a mutually beneficial outcome. - PowerPoint PPT PresentationTRANSCRIPT
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Procuring Public Private Procuring Public Private Partnerships (PPP)Partnerships (PPP)
Martin DarcyValletta, 25-26 January 2006
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What is a PPP?What is a PPP? Can be any arrangement where the
public sector works with the private sector to produce a mutually beneficial outcome.
But…generally refers to arrangements where private finance and / or management is employed in public service
Other definitions……
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AcronymsAcronymsPSPPSP == PPrivate SSector PParticipation
PPIPPI == PPrivate PParticipation in IInfrastructure
PFIPPFIP == PPrivately FFinanced IInfrastructure
PProjects
PPPPPP == PPublic PPrivate PPartnerships
IPP IPP == IIndependent PPower PPlant
DBFO DBFO == DDesign BBuild FFinance and OOperate
BOOBOO == BBuild OOwn OOperate
BOT BOT == BBuild OOperate TTransfer
ROT ROT == RRehabilitate OOperate TTransfer
APOPAPOP == AAsset PProcurement and OOperating
PProgram
DOT / BROT / BLT / BLO / DBOM…etc……………...DOT / BROT / BLT / BLO / DBOM…etc……………...
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Old skills re-discoveredOld skills re-discovered
A history of private participation After 1945 Turning back the clock or
moving forward ? Increasing participation across
Europe and the World
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Government or private sector?Government or private sector?Different perspectives in different Different perspectives in different
countriescountries
Developed Economies Transition Economies
Airports Mainly Private Mainly Government
Utilities Increasingly Private Mainly Government
Roads Govt and some concessions
Government
Railways
Government
Government
Waste Management
Private
Government
Industry
Mainly Private
Partly Government
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Why do governments bringWhy do governments bringin the private sector ?in the private sector ?
Years of under investment mean the needs are great
To access better or wider skills People expect more….
greater access to services better services
Limited scope to finance investments via the budget
Tax increases politically unpopular Tougher legislation, for example,
environmental …… BUT …!!
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Private sector involvement in Private sector involvement in delivering public services is delivering public services is almost always controversialalmost always controversial
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Alleged risks...Alleged risks...
loss of control loss of in-house abilities and
skills inability to change private sector will make big profits
from citizens needs resistance to foreign ownership
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RealReal risks risks Unrealistic expectations (affordability,
timetable, development budget) Inability to develop and communicate
objectives of involving the private sector Poor co-ordination between government
bodies - weak institutional structure Poor project preparation Lack of experience in PPP / Privatization Bad advice Insufficient bidders to provide competition Post event issues - social, political,
economic Contract with poor change mechanisms Legal challenge to award process
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Service/mgt Contracts
Concession
BOT
Privatization
Asset ownership
Government
Government
Private then
Gov’t
Private
Investment finance
Government
Private
Private
Private
Commercial
risk
Government
Private
Gov’t/
Shared
Private
Operational risks
Government/
Shared
Private
Private
Private
Options summaryOptions summary
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Mapping PSP options to Mapping PSP options to government objectivesgovernment objectives
Objective:
Option
Technical Expertise
Managerial Expertise
Operating Efficiency
Capital Investment
Efficiency
Service Contract
√
X
X
X
Design-Build- Operate
√√
√√
√
X
Management Contract
√
√
√
X
Concession
√√
√√
√√
√
BOT
√√√
√√√
√√√
√√
Privatization
√√√
√√√
√√√
√√√
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Selecting a PPP optionSelecting a PPP option
Key steps:
identify the problem set objectives for private involvement assess government/stakeholders
willingness to accept the roles, duties and risks in various PPP options
consult the market – Technical Dialogue
choose the PPP option which best fits
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Potential ProjectsPotential Projects Water/Sewerage Power provision Airports / Seaports Highways / Bridges / Tunnels Hospitals Prisons and Court Buildings Schools / Colleges / Universities Libraries and Museums Government Buildings (National / Municipal) IT / IS / Telecoms Waste Management Car parking
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Requirements necessary to Requirements necessary to create private sector interestcreate private sector interest1. At a national level
Strong political will and leadership Clear and permissive legal framework A skilled co-ordinating entity at the centre of
government, providing support and drive Clarity about the overall objectives for
private sector involvement Setting priorities Awareness, education and training
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Requirements necessary to Requirements necessary to create private sector interestcreate private sector interest
2. At a sectoral level (the Ministry)
Commitment of the Minister
Realistic expectations
Identifying and supporting
priority projects
Concentrating efforts on the
priorities
Regulation where necessary
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Requirements necessary to Requirements necessary to create private sector interestcreate private sector interest
3. At the Project level Clarity about the objectives of the project
The project is clearly defined, necessary and affordable
Realistic timetable and development budget
Good quality, experienced advisers Clear support from the necessary
stakeholders Size of project Rights of access to perform works
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Basic Political requirementsBasic Political requirements
Orderly elections, and changes of
government
Government is subject to judicial review
Independent central bank
Limited tiers of government
Sustained national policies through
term and change of government
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Economic EnvironmentEconomic Environment
Currency - convertibility, liquidity, stability relative to benchmark currencies
Inflation targeting Credit rating Manageable debt and no debt default
history Banking system - well regulated, good
capital adequacy Transparency in Public Procurement system Educated workforce
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Legal EnvironmentLegal Environment
Enforceable contracts - is the authority able to enter into a concession contract?
Arbitration - International Chambers of Commerce Procedures and offshore
Appropriation of assets - is equitable reimbursement enforceable at law?
Continuity - can a political government commit future political governments?
Change of Law: does the authority accept economic
responsibility for Change of Law? No retrospective Changes of Law.
Experience - the above seen to be done.
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The InvestmentThe Investment O&M Contract - this is the core business of most
investors.
Operational control of the business.
Design control over new assets
Clear statement of objectives from the authority -
what does the authority want to achieve? Efficiency - optimising resources ?
Risk Transfer for Operations and Construction?
Asset design and build skills?
Funding of capital expenditure ?
Receipt of funds - privatisation ?
A combination of these ?
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Technical DialogueTechnical Dialogue
Current position is confirmed:
Before launching a procedure for the award of a contract, contracting authorities may, using a technical dialogue, seek or accept advice which may be used in the preparation of specifications, provided such advice does not have the effect of precluding competition.
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Competitive DialogueCompetitive DialogueNew procedure – where the award
criterion is ‘most economically advantageous tender’
for use in particularly complex contracts
where an authority considers that the open or restricted procedure will not allow the award of the contract
based on an inability to define the technical, financial or contractual solution to meet the needs
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Competitive DialogueCompetitive Dialogue
Definition“Competitive Dialogue is a
procedure in which any economic operator may request to participate and whereby the contracting authority conducts a dialogue with the candidates admitted to the procedure, with the aim of developing one or more suitable alternatives capable of meeting its requirements, and on the basis of which the chosen candidates are invited to tender”
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Competitive DialogueCompetitive Dialogue Authorities:
must publish a contract notice setting out the requirements, which they shall define in that notice and/or in an associated descriptive document.
can open a dialogue the aim of which is to identify and define (one or more) means best suited to satisfying their needs.
may discuss all aspects of the contract with the chosen candidates during this dialogue.
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Competitive DialogueCompetitive Dialogue During the dialogue, Authorities:
shall ensure equality of treatment among all tenderers. In particular, they shall not provide information in a discriminatory manner which may give some tenderers an advantage over others.
may not reveal to the other participants solutions proposed or other confidential information communicated by a candidate without their agreement.
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Competitive DialogueCompetitive Dialogue The procedure can take place in
successive stages in order to reduce the number of solutions to be discussed by applying the award criteria
The contract notice or the descriptive document must indicate this
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Competitive DialogueCompetitive Dialogue When the dialogue has been concluded and the
participants have been informed, authorities ask the candidates to submit their final tenders on the basis of the solution or solutions presented during the dialogue.
These tenders must contain all the elements required and necessary for the performance of the project.
Tenders may be clarified, specified and fine-tuned at the request of the authority.
However, this cannot involve changes to the basic features of the tender or the call for tender, if this is likely to distort competition or have a discriminatory effect.
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How a PPP project is createdHow a PPP project is created
Three main phases
1. Project preparation and development
2. The bidding and negotiation phase
3. Implementation and operating phase
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1. Project preparation and 1. Project preparation and developmentdevelopment
Define project objectives, need and business case Create the team (including external advisers) Risk assessment and strategy Technical Dialogue Procurement strategy and realistic timetable Develop bid evaluation criteria Draft contract documentation Approvals and marketing Without proper preparation the project will Without proper preparation the project will
probably fail (before or after award process )probably fail (before or after award process )
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2. 2. Procurement and negotiationProcurement and negotiation
Advertisement and calls for expressions of interest Prequalification and selection of bidders Issue of tender documents to selected bidders Return of bids Evaluation of bids Select ‘Preferred Bidder’ Contract negotiations Commercial / financial close At least 12 monthsAt least 12 months
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3. 3. Implementation,OperationImplementation,Operationand Regulationand Regulation
Creating a working partnership Managing contractual obligations Extracting the efficiencies Delivering / improving the services Change management
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Contractual Organisation ExampleContractual Organisation Example
Project Agreement
GovernmentClient
Special Purpose
Company Equity
Long TermDebt Finance
Design and Construct Contract
Operating Contract
Design Operating Subcontracts
Financial Advisers
Legal Advisers
Specialist Advisers
Financial Advisers
Legal Advisers
ConstructionSubcontracts
Financed by
Specialist Advisers
Principle
subcontracts
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Simple Funding Principles For Simple Funding Principles For A PPP Project using Private FinanceA PPP Project using Private Finance
100%
20%
0%
EQUITYEQUITY
Long termLong term
BorrowingsBorrowings
More riskMore risk
more equitymore equity
Debt is Debt is cheaper cheaper than equitythan equity
80%
Investment cost
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Differing Equity levels in Differing Equity levels in different sectorsdifferent sectors
Power projects 25-30% Airports 30% WWT 25% Telecoms 50-60% Highways 20-25% Seaports 30-35%
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Common ProblemsCommon Problems
Relationship failure between the parties
Problems of culture government objectives / private sector
objectives
Inability to understand the contract
Over ambition government
private sector
Inability to manage change
Contractual ‘time-bombs’
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Essentials for good value projectsEssentials for good value projects
Strong political will and leadership
Legal and institutional framework Transparency Comprehensive project
preparation Open and fair competitive
process Genuine partnership
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Benefits to the governmentBenefits to the governmentand citizensand citizens
Use of private finance for commercially attractive
projects frees more money for social schemes
Transfers risk from governments to private business
Encourages better project management and outcomes
Quality standards and long term maintenance built into
the project agreement
Brings forward investment and improvements to Brings forward investment and improvements to
servicesservices
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Difficult but PossibleDifficult but Possible
Establish political will Understand and communicate the
economic case Engage in Technical Dialogue Comprehensive preparation is essential Get outside help Transparent and fair competition