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Introduction to Public Private Partnerships

Module Module 11

2013

2013

Module Structure

Good Governance

Funding PPPs

Developing an OBC

Effective procurement

Risks in PPPs

Sustainability

Lessons and recommendations

Definition of PPP

Public private partnerships (PPPs) are agreements between government and the private sector for the purpose of providing public infrastructure, community facilities and related services.

The private sector enter into a contract with government for the design, delivery, and operation of the facility or infrastructure and the services provided.

The private sector finance the capital investment and recover the investment over the course of the contract.

The asset transfers back to the public sector at the end of the contract

Degree of private sector risk

Models

PPP

Range of PPPs

Adapted from Canadian Council PPP 2009

Degree of private sector risk Models PPP Range of PPPs Adapted from Canadian Council PPP 2009

Privatisation

Degree of private sector risk Models PPP Range of PPPs Adapted from Canadian Council PPP 2009
Degree of private sector risk Models PPP Range of PPPs Adapted from Canadian Council PPP 2009

Concession

DBFM-operate

Design build finance

maintain

Build and finance

Operate and maintain

Design and build

Degree of private sector risk Models PPP Range of PPPs Adapted from Canadian Council PPP 2009

Degree of private sector involvement

Principles of PPPs

•Cost measured against conventional procurement. •Whole life costs and quality are combined to gauge VFM •Transfer
•Cost measured against conventional procurement.
•Whole life costs and quality are combined to gauge
VFM
•Transfer of design and construction risk
•Risk of ownership transferred to the private sector
•Long term responsibility for building operation and
maintenance
•Focus on reducing cost

Typical SPV structure for PP

Typical SPV structure for PP Government PPP Agreement Private Sector (Special Purpose Vehicle) (SPV) Subcontractor s

Government

PPP Agreement Private Sector (Special Purpose Vehicle) (SPV) Subcontractor s
PPP
Agreement
Private Sector
(Special Purpose Vehicle)
(SPV)
Subcontractor
s

Equity

Equity

Shareholdi

ng

Loan

agreement

 

Debt

Debt
Typical SPV structure for PP Government PPP Agreement Private Sector (Special Purpose Vehicle) (SPV) Subcontractor s
Typical SPV structure for PP Government PPP Agreement Private Sector (Special Purpose Vehicle) (SPV) Subcontractor s

Subcontractor

Construction

Subcontractor

Operations

PPP and Traditional Procurement

PPP and Traditional Procurement

Governance - principles

Participation Decency Transparency Accountability Fairness Efficiency

Funding - Project financ

The financing of long-term infrastructure is

based

upon a non-recourse or limited

recourse financial

structure where the debt

and equity used to finance

the project are

paid back from the cash flows generated by

the project.

Project finance

High gearing requiring less equity Tax benefits Public sector use of revenue Long term debt funding

Why use PPPs?

Focus on outputs PPPs make projects affordable

Better value for money over the lifetime of the project

More efficiency in procurement

Faster project delivery with more projects in a defined timeframe

Risks are allocated to the party best able to manage the risk

Why use PPPs? (2)

Why use PPPs? (2)

Outline Business C

Outline Business C

Critical stages of a PPP

Initial feasibility Procurement phase Construction phase Operation phase

Stages in procureme

Procurement strategy stage

Qualification and selection stage

Dialogue

Award

Procurement

Process

Procurement Process Prepare Documents • Project Selection • Brief development • Market testing Preparation Preparation and
Procurement Process Prepare Documents • Project Selection • Brief development • Market testing Preparation Preparation and

Prepare

Documents

Project Selection

Brief

development

Market testing

Preparation Preparation and and evaluation evaluation of of bidder bidder documents documents Financia l Close
Preparation Preparation and and evaluation evaluation of of bidder bidder
documents documents
Financia
l Close

Risks in PPP

Optimal risk sharing

Risk borne by the party best able to manage it

Risk management

Identification

Allocation

Mitigation

Stages of risk management

Stages of risk management

Sustainability

Embedded environmental and social safeguards

Focus on longer timescales

Public, business and government working in partnership

What makes a successful PPP?

Political will

Government commitment

PPP Champion

Clear output specification

Appropriate risk sharing

Value for money

Performance management

Conclusions

Undertake projects for the benefit of the citizens, including the socially and economically disadvantaged

Allows governments to approach projects hitherto unobtainable due to lack of funding

Provide incentives to the private sector to adopt green criteria

Embraces the MDGs

PPPs allow the injection of private sector capital

End-of-Module

Questions

1. Which of the following best describes PPP projects?

  • a) Using funding from public borrowing.

  • b) Local government sets the specification

  • c) Public sector details design and pays for the construction

  • d) Government sets the required outputs and funding is provided by the private sector.

Answer: d)

2. What is the name of the organisation created to

design, build finance and maintain the asset?

Answer: Special Purpose

Vehicle - SPV

End-of-Module

Questions

3. Which of the following are critical to good

governance?

a)Funding for the project

b)Clarity and openness

c)Putting the public first

d)Transferring the risk to the private sector.

Answer: b) and c)

4. Which one of the following would not be

described as an international investor?

a) Banks

  • b) Pension funds

  • c) Insurance companies

  • d) Employees holding shares through an

employee share scheme.

Answer: d)

End-of-Module

Questions

5. The term sustainability refers to?

a) Maintaining resource use at current or higher levels

b)Keeping the natural environment and society in a

happy healthy and functional state

c)Holding or increasing the value of human life

d)Focus on fulfilling short term need.

Answer: b)

6. Risks should be borne by the party best able to

manage them.

a) True

b) False

Answer: a)

End-of Module

Questions

  • 7. What does an OBC demonstrate?

    • a) That a project is economically sound, financially viable and will be well

managed

b)That a project meets market expectation

  • c) That significant profit will accrue for the public and private sector

Answer: d) a)

None of the above

  • 8. What are the phases in a PPP project life cycle?

Answer: Initial feasibility, Procurement phase, Construction

phase, and

Operational phase

  • 9. Match up the boxes.

Service contracts

 

Design, build, finance

Concession contracts

Private sector managing services

Construction contracts

Public sector provides management support