Transcript Slide 1

Public-Private
Partnerships
UNITED NATIONS
Special Unit/South-South
Cooperation
September 18, 2006
Rick Norment
NCPPP Executive Director
Why Use Public-Private Partnerships?
 Demands
– General Citizenry
– Increasing Populations
– Business Development
– Special Interests
 Budgetary Limitations
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Private Sector and Public Works – The First
Step Toward PPPs
 Mass Transit Systems
 Railroads
 Electric Utilities
 Telephone and Telegraph
 Water/Wastewater Systems
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PPPs as a Public Policy Tool
 Private Sector Can Not Be “Unrestrained”
 The Evolution of Law During the 19th Century in
Europe and US
– Regulatory controls equally applied
– Anti-Trust laws enforced by the courts
– Enforced contract laws
• Between private and private
• Between public and private
 But a balance is needed so both private and
public Sectors win
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Public-Private Partnerships Defined
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.
source: www.ncppp.org
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Some Vocabulary
 B = Build
 D = Design
 F = Finance
 L = Lease
 M = Maintain
 O = Operate
 T = Transfer
BOT, BBO, DBO,
DBFOM, LOM, etc.
Any Combination = PPP
 DBFOM = PFI in Europe
 LOM – Concession
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Private Sector Strengths
The Result of Market Competition
 Management Efficiency
 Newer Technologies
 Workplace Efficiencies
 Cash Flow Management
 Personnel Development
 Shared Resources (Financial and other)
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Public Sector Strengths
 Legal Authority
 Protection of Procurement Policies (more on
this later)
 Broad prospective/balance the competing goals
to meet public needs
 Personnel – dedicated but constrained
 Capital resources & underutilized assets
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Successful Partnerships
Balance
The secret is to
balance the strengths of
each sector
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Partnerships at Work
The Experience of One Sector Helps Another
 Transportation
 Public Safety
 Water/Wastewater
 Social Programs
 Financial Management
 Environmental
Programs
 Urban Development
 Education
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Worldwide Major PPP Projects Since 1985 *
By Project Type

Roads
656
31%

Water
616
29%

Rail
247
12%

Buildings
253
12%

Airports
182
9%

Seaports
142
7%
TOTAL VALUE: $887.4 billion
* Projects of more than $5 million and not including O&M contracts
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Worldwide Major PPP Projects Since 1985
By Region

Europe
205
31%

North America
174
27%

Asia
137
21%

Latin America
126
19%

Africa
14
2%
TOTAL VALUE: $887.4 billion
Source: Synthesis of PPP Projects, on www.ncppp.org, under “resources”
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Recruiting the Private Sector
What will bring them to the table?
Remember:
– Development cost often over $1
million
– Risks are higher than a traditional
DBB
– Long-term is needed to repay the
initial capital investment
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The Private Sector’s Criteria
 Guarantee of property rights
 Established and enforceable contract law
 Enabling legislation in place
 Actual demand – Does the public really want this
project?
 Reasonable development timeframe
 Financially feasible (public, user fees, etc.)
 Manageable, shared risks
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The Private Sector’s Criteria Continued
 Political Climate
 Transparent Procurement Process
 Market Evaluation
 Environmental Evaluation
 Solid Partnership Philosophy of Public Sector
– Dedicated team for the processes
• Concept to RFP
• Management of negotiations
• Management of the partnership
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PPPs and Cost Savings = Part of the Puzzle
 Quicker delivery vs.
inflation
 Design-Build can be
another cost saver
 Economies of scale
– Engineering
– Materials
– Management practices
 Savings – 5% up to 40%
 Manage currency
fluctuations
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Cost Savings =
The Other is
Half the Benefits Income Generation
GENERAL RULE: TOLLS/USER FEES DO NOT
COVER THE TOTAL COST
 But can provide enough income to make a
project possible
 Provide a cash stream for private equity
investment - “enough dough to make it go”
 There are “cash cows”
– share the wealth with less fortunate parts of the
system
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Cost Savings =
The Other is
Half the Benefits Income Generation
Other Income Sources
 Dedicated Tax Districts and Tax Increment
Financing (TIF)
– DC’s New York Avenue Metro Station
 Underutilized Assets
– Economic Development
• Oyster School
– Transportation Oriented Development
• Union Station
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Non-Construction Project PPPs
 Operations and Maintenance
– All types of infrastructure
 Competitive Sourcing of Personnel Functions
– Social program delivery
– Financial management (debt collection, etc.)
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Managed Competition for Maintenance
 Public and Private compete for the same
contract
 Can have an even split on the winners
 Example: Highway Maintenance
– Massachusetts
• Saved $15 million per year (Harvard Study)
– Virginia
• Saved 12% on average
– Texas
• Expanding program rapidly because of savings
experience (again 12 to 15%)
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Asset Management Contracts
 Applies to any capital investment
 Energy Savings Performance Contracts
 Can be included with construction through a
defined life cycle
– Build better = lower maintenance
 Florida
– Saved over 15% in maintenance costs
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Six Keys to Successful PPPs
 Statutory and Political Environment
 Organized Structure
 Detailed Business Plan
 Guaranteed Revenue Stream
 Stakeholder Support
 Pick Your Partner Carefully
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Managing for Success – Six Keys
Component One:
The Environment
 Statutory authority and regulations
 Political leadership must be in place
– Leading Political Figure
– Top Administrative Officials
– “The Will to Change the System”
– A Strong Policy Statement
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Managing for Success – Six Keys
Component Two:
Organizational Structure
 Dedicated group (tied to the purpose of the partnership)
 Dedicated and TRAINED personnel to monitor
implementation
 Examples:
–
–
–
–
–
TXDOT
VDOT
PPP Centrum
Partnerships UK
Irish Government’s Central PPP Unit
 Need for Good Governance
– To assure an open and fair procurement process
– Consolidate staff = easier to monitor
– Independent authority (domestic/internal or international)
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Managing for Success – Six Keys
Component Three:
Detailed Business Plan
a.k.a. Enforceable Contract
 Performance goal oriented - Allow for innovative plans
 Best Value vs. Lowest Price
 Plan/Contract should include:
– Specific milestones and goals
– Reporting of metrics and frequency
 Risk Allocation
– Shift to the private sector can raise costs
– Identify best prices to retain, which to shift
 Dispute Resolution Methodology
 Workforce Development?
– Develop in-country resources/small businesses
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Managing for Success – Six Keys
Component Four:
Guaranteed Revenue Stream
 Funds to Cover the Long-Term Financing
– Tolls/Fees (real or shadow)
– TIF or other form of a Tax District
– Long-Term Maintenance Contracts
– Underutilized Assets
– Creative Approaches
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Managing for Success – Six Keys
Component Five:
Stakeholder Support
 Public Sector Employees
 Private Sector
 Labor Unions
 End Users
 Competing Interests
 Requires:
– Open and frank discussion between sectors
– Knowing the FACTS (no myths)
– Translating each other’s language
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Managing for Success – Six Keys
Component Six:
Pick Your Partner Carefully
 This is a long-term relationship
 Verify experience (technical capability)
 Verify financial capability
 Best Value vs. Lowest Price
 Remember each sector’s motivation
– Timely and effective execution
– Reasonable return on investment
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Managing for Success
The Most Critical is
Component One:
Strong LEADERSHIP makes
all the other factors
come together
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A Case Study:
Dakar, Senegal – Water system
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A Case Study Dakar, Senegal –
Water system
 Originally, less than 56% had access to potable water
 Government created an asset holding company -- Société
Nationale des Eaux du Sénégal (SONES)
 Component One:
 Component Two:
Political environment
Organizational Structure
 Developed a contract with a private consortium, with clearly
defined goals and penalties
– Maintenance specifications
– Upgrading of equipment
– Meet WHO standards for water quality
 Component Three:
Enforceable Contract
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A Case Study Dakar, Senegal –
Water system
 Financial agreement included partial funding from the World
Bank, and a gradual increase in the water rates with a “social
block”
 Component Four:
Guaranteed Revenue Stream
 Extensive contact with local officials for evaluating the program
before and during implementation
 Component Five:
Stakeholder Communications
 Award was made through an open competitoin, with the advance
and counsel of a Dutch consultant (not part of the private
consortium)
 Component Six:
Pick Your Partners Carefully
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Six Keys to Successful PPPs
 Statutory and Political Environment
 Organized Structure
 Detailed Business Plan
 Guaranteed Revenue Stream
 Stakeholder Support
 Pick Your Partner Carefully
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