Public Private PartnershipThis Game is a Doubles Match

JULY 2010

Sudesh Prabhu

sudesh.prabhu@sybase.com

A New Game

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 shares in the risks and rewards potential in the delivery of the service and/or facility.

This Game is a Doubles Match

Private Sector Strengths

1.Management Efficiency

2.Newer Technologies

3.Workplace Efficiencies

4.Cash Flow Management

5.Personnel Development

6.Resources

Public Sector Strengths

• Legal Authority

• Protection of Procurement Policies

• Broad prospective/balance the competing goals to meet public needs

• Personnel – dedicated but constrained

• Capital resources

Successful Partnership

• Maximize the use of each sector’s strength

• Reduce project/development risk

• Mobilize excess or underutilized assets

• Improve efficiencies/quicker completion

• Improve services and cost effectiveness

• Share resources; Share risks

• Mutual rewards

Six keys to success

• Statutory and Political Environment

• Organized Structure

• Detailed Business Plan

• Guaranteed Revenue Stream

• Stakeholder Support

• Pick Your Partner Carefully

The Value over longer term

0 2 3 4 5 6 7

Year

Com

pany

Pro

fit

1

Customer acquisition cost

Profit from price premium

Profit from referrals

Profit from reducedoperating costs

Profit from increasedpurchases

Base Profit

Source: Harvard Business Review

What PPP should Not be used for

• To circumvent fiscal constraints for infrastructure investment

• PPPs can, but should not, be used to solely• By-pass expenditure controls• delay borrowing• delay or move public investment• move debt off the government balance sheet

• Can lead to Public Sector left bearing most of the risk involved, facing potentially large fiscal costs over the medium term

Managing for SuccessClassic Model: Design-Build-Finance-Operate

• Arrangements where the private sector supplies infrastructure assets and services that traditionally have been provided by the government.

• Main characteristics:

• Private execution and financing of public investment

• An emphasis on investment and service provision by private sector

• Risk transfer from government to private sector

Managing for SuccessCommitted Model: JV/Special Purpose Entity

An SPE is an entity that is created, through the transfer of assets, liabilities, or rights, to carry out a well-specified activity or series of transactions•These activities are directly related to the specific purpose for which it was formed•SPE’s can be in non-financial and financial corporate sector•In public sector, SPE activities are often instrumental to public private partnerships, BOOT schemes, or joint ventures

Managing for SuccessRisk Transfer, Leasing, and Ownership

•Risk transfer from government to private sector has significant influence on whether PPP is more efficient and cost-effective alternative to public investment and government provision of services

•Have to assess risk transfer and ownership by looking at:• Risks in owning asset• Risks in operating asset• Establish economic owner of asset by asking who bears the ultimate

risk or most of the risks associated with ownership• And how does government, then impute a financial lease through

which government acquires the asset when and if required

Introduction to NEGP

• National eGovernance Program’s goal is the provision of improved, more convenient government services countrywide through on-line delivery at local service centers.

• Fully recognized as key part of national development plans.

• Involves central and all state governments. Is led centrally and implemented locally.

• Is a Implemented over 8-year period (FY2006-2013) at a cost of roughly USD 4 billion.

• Supported by USD 1 billion World Bank project in two phases

Span of Scope

E-CourtsTreasuriesNational IDNational GIS for planning

Other

EDI (customs & foreigh trade)E-BIZE-Procurement

Commercial TaxesExciseCompany affairs

Services to Business (G2B)

Common Services Centres: Single-window public service delivery points eventually reaching all the 600,000 villages in India State Wide Area Network SWAN: fiber optic connectivity up to block levelCountrywide State Data CentersAll India PortalNational E-Governance Gateway

Land recordsProperty registrationRoad transportAgricultureMunicipalitiesPanchayatsPoliceEmployment ExchangeEducationHealthFood Distribution & other welfare programs

Income TaxPassport, visa and immigrationE-Posts

Services to Citizens (G2C)

IntegratedStateCentral

Governing Principals

• Measurably improved citizen/business service delivery

• Ownership by line ministry/ state department

• Acceptable BPR (Business Process Reengineering) & change management plan

• Emphasis on poor & rural communities

• Use of PPP (Public Private Partnership)

Responsibility with Government

PROGRAMME

Leadership & Vision

Program Development

Program Management

Project Development

Project Management

•Policy Formulation•Committing Resources•Taking hard decisions

•Preparing Roadmaps•Prioritization•Frameworks, Guidelines

•Monitoring Progress•Inter-agency Collaboration•Capacity Management

•Conceptualization•Architecture •Definition (RFP, SLA…)

•Bid Process Management•Project Monitoring•Quality Assurance

PROJECT

Summing Up: Mantra for Success

• Good projects• Choose right projects (strategy, prioritize)• Do PPPs for the right reasons (value for money, include in medium-

term budget framework)

• Good laws• Introduce a clear and consistent legal framework• Integrate proposals and guarantees with budget cycle• Clarify roles and responsibilities

• Good institutions• Management and oversight framework

• Good accounting and reporting