public investment management for public private partnerships pim for ppp jkim

8/13/2019 Public Investment Management for Public Private Partnerships PIM for PPP JKIM

1/19

PublicInvestmentManagementfor

Public

Private

Partnerships:

A

PIM

for

PPPDiagnosticFramework

JayHyung Kim

WorldBank,

PRMPS

ICGFMWinterConference,WashingtonDC

December911,2013


2/19

Outline

WhytheNeedforaUnifiedFrameworkIntegratingPIMandPPP?

BenefitsfromaUnifiedFramework

ChallengestoHavingaUnifiedFrameworkinPractice

UnderstandingtheDifferences:ThePPPContract

PIMforPPPDiagnosticFramework:EightplustheContractFeatures

Stage1:StrategicGuidanceandPolicyforPPP

Stage2:

A

Unified

Framework

for

Project

Appraisal

Stage3:IndependentReviewoftheAppraisal

Stage4:PPPProjectSelectionandBudgeting

AnExtraFeature:ThePPPContract

Stage5:

PPP

Project

Implementation

Stage6:PPPProjectAdjustmentbyRenegotiationandRefinancing

Stage7:PPP OperationandMaintenance

Stage8:PPPProjectCompletionandExPostEvaluation

2


3/19

WhytheNeedforaUnifiedFrameworkIntegratingPIMandPPP?

Mostcountrieshavebeenmanagingpublicprivatepartnership(PPP)

projectsseparatelyfromtraditionallyimplementedprojects(TIPs).

PPPshavebeenmostlyappraised,selected,budgeted,and

monitoredseparately

from

TIPs.

Thisdisparityhasunderminedadequatepublicfinancial

managementandcreatedunduefiscalrisks,causingfiscalconcerns

withrespecttoappropriateformsofaccounting,reporting,

budgeting,and

other

processes.

Fromafiscalpointofview,a principalkeytoinitiatingPPPprojectsisto

establishwhetheragovernmentcanmaintainthesameleveloffiscal

efficiencyandsustainabilitythroughPPPasthroughTIP.

Importantto

establish

the

fact

that

there

should

not

be

such

athing

aPPPprojectintrinsically PPPisaformofimplementingapublic

investmentproject.

AunifiedframeworkforintegratingbothTIPandPPPisinneed.

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4/19

BenefitsfromaUnifiedFramework

Helpensuring

consistent

assessment

and

decision

making

Thechoicebetweena PPPandTIPisoftenskewedbyfactorsotherthan

valueformoney.PoliticalpreferencefororagainstPPPsmayplayarole

inskewingchoicesandaffectingoutcomes.

Aunified

framework

has

the

potential

to

minimize

subjective

decisions

concerningTIPversusPPPimplementation.

Helpsupportingoptimalrisktransfer

Ifeachproject,whetherTIPorPPP,isseparatelymanaged,theconcept

ofoptimal

transfer

from

one

to

the

other

may

not

be

ensured.

Helpavoidingunmanagedfiscalriskswhileimprovingtransparency

Theframeworkmaydiscourageparallelbudgetingbyreportingthe

knownandpotentialfuturefiscalcostsofPPPsintraditionalbudget

system.

BystrengtheningproceduralcontrolsonPPPcommitments,the

frameworkhelpstoimproveoveralltransparencyinthePFMsystem.

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5/19

ChallengestoHavingaUnifiedFrameworkinPractice

Constraintsanddifficultiesremaintoswiftlyapplysuchaunifiedframework.

Itisimportantthereforetoidentifycommonalitiesanddifferencesbetween

TIPandPPP byrunningthroughthePIM stageswhichcorrespondtoeight

must

have

features

for

PPP

and

to

discuss entry

points

to

move

toward

such

a unifiedframework.

NeedtodevelopaPIMdiagnostictoolforPPP:PIMforPPP

Stage1:StrategicguidanceandpolicyforPPP

Stage2:

A

unified

framework

for

project

appraisal

Stage3:Independentreviewoftheappraisal

Stage4:ProjectselectionandbudgetingforPPP

Stage

5:

PPP

project

implementation Stage6:PPPprojectadjustmentbyrenegotiation/refinancing

Stage7:PPPoperationandmaintenance

Stage8:PPPprojectcompletionandexpostevaluation

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6/19

UnderstandingtheDifferences:ThePPPContract

KeyissuesthatthePIMforPPPwillneedtoaddressarethosethat

differentiatethetwoformsofimplementation.

PPPsaredifferentfromTIPsinthattheyneedtoattracttheattentionand

resources

of

private

investors,

lenders

and

operators

by

the

contract. InaPPPimplementation,thecontractTheProjectAgreementtakeson

evenmoresignificancethaninaTIPimplementationasitframesthe

entirerelationshipbetweentheresponsiblegovernmententityandthe

privateentity.

ThePPPContractshouldbesubjecttospecialattentioninPIMforPPP

assessment.

ThereisoneimportantexceptiontotheconsistencyofthePIMeight

musthavefeatures:thePPPContract.

ThePPPContract willdefinethemeansbywhichtheassetsunderlying

thecontractaredesigned,built,financedandoperatedforasubstantial

numberofyears.

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7/19

7

PIMforPPPDiagnosticFramework:

EightplustheContractFeatures

-

1

Guidance

&

Screening

2

Formal

Project

Appraisal

3

Appraisal

Review

4

Project

Selection

&

Budgeting

7

Service

Delivery

6

Project

Changes

5

Implement

ation

8

Project

Evaluation

ThePPPContract


8/19


StrategicGuidanceandPolicyforPPP(Stage1)

PPPsareoftenchosenwithoutanyintegratedstrategicguidanceand

coordinationbetweenTIPandPPPimplementationmethods.Theyaremostly

managedasstandaloneprojectsorinitiatives.

Establishing

strategic

screening

and

planning

guidance

for

potential

PPPs

shouldthereforebethestartingpointbecauseitoffersthefollowing

fundamentaladvantages:

BylistingPPPlegalandinstitutionalarrangements,somegovernmentscan

moredirectlysignalwhereandinwhichsectorsprivatecapitalisrequired

tobenefit

the

public.

Onemightarguethatsuchrestrictionslimittheflexibleandinnovative

natureofPPPs.However,anexplicitlegalandregulatoryframework

facilitatestheinitiationofPPPprojectsasitconcedestotheprivatesector

the

right

for

initiation

or

participation.

Thegovernmentshouldalsoissueguidelinesongoodpracticethatreflectsthe

importantdifferencesbetweenstakeholdermanagementinTIPandPPP.

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9/19


AUnifiedFrameworkforProjectAppraisal(Stage2)

ItisimportanttoprovidefiscalregulationforPPPprojectassessmentswiththesamecareappliedtoTIPimplementation.

Astandardizedexampleforprojectappraisalina unifiedframeworkcouldbe

composedof

two

phases:

(a)

decision

to

proceed

and

(b)

decision

to

implement.

(a)Decisiontoproceed(preliminaryfeasibilitystudy) Apreliminaryfeasibilitystudycouldbeconductedtoprepareforthe

decisiontoproceedandafullpreparationina laterstage.Thepreliminary

feasibilitystudy

not

only

assesses

whether

to

proceed

with

the

full

project

preparationbutalsopushesthegovernmenttoinvestinmoredetailedprojectpreparationinadvance.

(b)Decisiontoimplement(valueformoney[VFM]assessment) Iftheproposedprojectappearstobefeasible,aVFMassessmentwould

then

assess

the

implementation

optionsTIP versus

PPP.

Basically,governmentcostsandprojectinputsofan oftenknownpublicsectorcomparatorarecomparedagainstthoseoftheprojectedriskadjustedcostsofa PPPalternativetoassesswhetherthePPPmightachievebetterVFM.

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10/19


AUnified

Framework

for

Project

Appraisal

(Stage

2continued)

10

VFM(PPP) < VFM(PSC)VFM(PPP) > VFM(PSC)

Note: Note:VFM = value for money. PSC = public sector comparator. PPP = public-private partnership.


11/19


IndependentReviewoftheAppraisal(Stage3)

InthecaseofPPPs,theroleofindependentpeerreviewsmaybeespecially

importantgiventheroleofdedicatedPPPunits.

Themoretheevaluatingentityisindependentfromaparticular

deliverymethod

or

agency,

the

more

its

judgment

is

likely

to

be

unbiased,whichfavorsandfacilitatesanoptimalpartnershipbetween

twoparties.

PPPUnitasaPPPPromoteroraGateKeeper?

Thetwo

roles

of

the

unitas

aPPP

promoter

or

an

independent

appraisermayactuallybeinconflictwitheachother.

Inlightoftheserisksandpossibleconflictsofinterest,thekey

recommendationisthattherebestrictindependencefromthedirect

interestsofspendingministriesandagencies.

Thesystemofindependentreviewshouldbeformalizedor/andsupervised

bytheMinistryofFinance,andthereviewersarefullyindependentandhave

novestedinterestintheoutcome.

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12/19


ProjectSelectionandBudgetingforPPP(Stage4)

AccountingPPPs:

Theabsenceofclearandoperationallyrelevantaccountingstandardslimitsthe

enforcementofspendingcontrols,andthereforePPPprojectsoftencircumvent

spendingceilingsandfiscalrules.

However,recent

developments

in

international

accounting

and

statistics

standards,

suchastheIFRSandtheIPSAS,increasinglyreducetheopportunitiestousePPPsto

distortfiscalrealities.

BudgetingPPPs:

IMF(2006)andOECD(2012)addresstheprinciplethatbudgetdocumentationshould

transparentlydisclose

all

information

possible

regarding

the

costs

(capital

and

recurrent),explicitliabilities,andcontingentliabilitiesofPPPs.

WhengovernmentsprovideupfrontpaymentstoPPPs,thepaymentsrequiredare

similartothoseforTIPs,andtheycanbebuiltintoannualbudgetsandthemedium

termexpenditureframeworkrelativelyeasily.

SafeguardCeilingforPPPs:

Giventhedifficultiesindecidingwhethera particularPPPcommitmentisaffordable,

limitsorceilingsonaggregatePPPexpenditurecanbea helpfulwaytoensurethat

thegovernmentstotalexposuretoPPPsremainswithinmanageablelimits(for

examples:Brazil,

Hungary,

Korea,

etc.)

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13/19


ThePPPContract(AnExtraFeature)

AnextraassessmentofthePPPContract,whichlinkstheprojectselection

process(instagesof14)withtheprojectimplementationprocess(instages

of58),isimportanttoensureconsistentdecisionmaking.

Checkquality

and

comprehensiveness

of

the

Contract,

and

compare

with

internationalgoodpractices.

TheContract setsoutthewayinwhichtherisksareapportionedbetween

thepartiestotheagreement.Itprofoundlyaffectstheentireeffectiveness

andefficiencyoftheprojectanddeterminestheoutcomes.

Whilstitcouldbearguedthatthequalityofthecontractitselfisonlya

reflectionoftheoverallframework,itcannonethelesspointspecifically

toweaknessesinthatframeworkandinparticularintheknowledgeand

negotiatingskillsofpublicofficialsandtheiradvisers.

TIPprojects

have

contracts

too,

mainly

construction

or

engineering

contracts.Whilsttheseareimportantinthemselves,theydonot

encompassaworkingrelationshipbetweenpublicandprivatesector

entitiesforperiodsofupto25or30years.

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14/19


PPPProject

Implementation

(Stage

5)

DuringimplementationofaPPPproject,VFMoutcomesarecontingenton

effectivemanagementovercontractterms.

Poorcontract

management

with

the

private

partner

can

result

in

higher

costs,wastedresources,andimpairedperformance.

Acompetitivebiddingprocess(whilenottheonlypossiblewayofselection)is

essentialtoensureVFMandoptimalallocationofriskbetweenthepublicand

theprivatesector.

Itisusefultodevelopandannouncestandardimplementationguidelinesfor

decidingprocurementstrategy,managingbidprocesses,developingmodel

projectagreementandstandardclauses.

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15/19


PPPProjectAdjustmentbyRenegotiationandRefinancing(Stage6)

Asprojectsenterintotheimplementationphase,itisessentialtoclearly

understandtheprocessofPPPprojectadjustment,particularlyregardingthe

twodistinctcasesofrenegotiationandrefinancing.

Before

major

adjustments,

reassessment

of

economic

viability

and

VFM

is

requested;thiswouldenablethegovernmenttorechecktheimpactofchanges

inprojectcontentsorthebusinesscaseaswellastoscrutinizetheadequacyof

theadjustment.

Renegotiation:

Renegotiationmeansanadjustmentorchangeintheprojectagreement

betweentwoormorepartiesinaPPP.

ExanteVFMshouldnotbenegativelyaffectedwheneverrenegotiationis

made.Anyrenegotiationprocessshouldbemadetransparentlyand

subjectto

the

law.

Refinancing:

UnderthetermsofPPPprojectagreements,thegovernmentmayexpectto

sharetherefinancingbenefitsequallywiththeprojectcompany.

Thereshouldbeclearrulesinplaceformanagingrefinancing. 15


16/19


PPPOperationandMaintenance(Stage7)

Bydefinition,a largeportionofvalueformoneyinPPPsshouldbecreatedby

moreefficientmanagementofthedeliveryoftheservicesandoperationand

maintenanceoftheassets.

Toachievethevalueformoneyenvisagedatthesigningoftheproject

agreement,both

the

government

and

the

private

partner

need

to

make

surethattheplannedallocationof responsibilitiesisclearandthatrisks

areoptimallysharedandbalanced.

Eachpublicauthoritymanagesprojectsbyfollowingtheprotocolsstipulated

inthe

project

agreements

and

receiving

project

progress

reports.

Performancechecksareconductedasspecifiedinthestandardmaintenance

qualityrequirement.

Thepurposeoftheperformancecheckistoassesswhetherservice

deliveryoutputs

and

outcomes

are

in

accordance

with

the

project

agreementandoutputspecification.

Deductionscanbeappliedtothepaymentsfromgovernmenttoprivate

partnerforpoorperformancetopromoteprivatesectoraccountability

andincentivizebetteroperationalperformance.

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17/19


PPPProjectCompletionandExPostEvaluation(Stage8)

TheevaluationofPPPprojectsisextremelydifficultbecauseofboththe

conceptualslipperinessandthelargenumberofdisciplinesinvolved

economics,accounting,law,politicalscience,engineering,andsoon.

Difficultinpracticetoprovebettervalueformoney:TraditionalversusPPP

Intheoryandwishfulthinking:checkbetterVFMthroughprojectappraisal In

practice:twoseparatetracksfortraditionalpublicinvestmentandPPPs

Difficulttocheckandcompare.

OnewaytoevaluatePPPs,nonetheless,istotraceoutevidenceofcost

savingsand

efficiency

gain

as

well

as

evidence

of

PPP

contribution

to

the

nationaleconomy:

Froma project pointofview:whethergradualimprovements,comparedwiththecasesofconventionallyimplementedprojects, havebeenmadeintheefficiency

ofcosts,tollrates,andeconomicratesofreturn.

Froma widerpointofview:PPPcontributiontothenationaleconomy,whethertheyhaverippleeffectsonthenationaleconomythroughseveralchannels:

economicgrowthresultingfromtheinflowofprivatecapital;increasedsocial

welfareresultingfromthetimelydeliveryofsocialservices;andtheearly

realizationofsocialbenefits.

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18/19

Annex:APIMforPPPIndicatorAssessmentTool

18

PIMforPPP SubjectArea

StrategicGuidance

and

Policy

1 ScreeningofProjectsagainstPolicyPriorities

2 Effectivenessofthe RelevantLegalFramework

3 EffectivenessoftheRelevantInstitutionalarrangements

4 Stakeholdermanagement/engagement

5 RoleofAdvisers

ProjectAppraisal

6 Appraisal

rules,

guidance

and

practice7 PublicSectorComparator(PSC)

8 Comprehensivenessoftheappraisalprocess

9 Bundlingprojects

IndependentReviewofAppraisal

10 Qualityandpractices

Selection and Budgeting

11 FiscalRisk

12 Transparencyand

accounting

treatment

ThePPPContract

13 Qualityandcomprehensivenessofcontractsbasedonstandard

preagreedpositions

14 Comparisonofkeycontractualtermswithinternationalgood

practice

ProjectImplementation

15 Implementationpractices

16 ProcurementProcessandPracticesinPPPprojects

17 Timelinessofimplementation

ProjectAdjustment

18 AdjustmentPractices,EffectivenessandEfficiency

19 Refinancing

FacilityOperation

20 Contractmanagementpractices

21 AssetRegisters

CompletionReviewandEvaluation


19/19

ThankYou

19

public investment management for public private partnerships pim for ppp jkim

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