Transcript John Nichols
An Introduction to Public Private Partnerships: Why Government needs to work with the private sector Vilnius 22
nd
November 2006 Stephen Harris - Head, International IFSL Chairman: UKTI PPP EXPORT GROUP
PPP is About
• • • • • • •
Better procurement Public sector reform Better strategic planning Building and maintaining good infrastructure Better services for the taxpayer Sharing of risks between most appropriate parties Public and private sectors working together
PPP is not:
• • • • • •
Free infrastructure Just about finance Just building infrastructure Just about involving the private sector Privatisation, simple concessions, outsourcing or property development A method to make a bad project good
Characteristics of PPP
• • • • • • •
Contractual
arrangement between the public sector organisation & private sector provider To deliver a service -usually a new asset Output not input specification Integrate design, construction and maintenance Contractor/operator finances investment Cost effective allocation of risks Over a long term
Characteristics of PPP
•
Payment mechanism designed to ensure delivery and performance
•
Contract can terminate for non performance
• •
Penalties for not meeting contract terms Government retains reponsibility for ensuring service delivery to agreed standard
•
Assets revert to Public body at end of contract - For letting out on another PPP - Or operating by Public body
Why do countries need to involve the private sector?
• • • •
Governments seeing lack of funds for new infrastructure Pressure on tax base
–
Traditional routes for raising finance not enough Governments don’t maintain existing infrastructure Economic growth infrastructure leads to demands for new
•
Leads to: Infrastructure gap
–
Can’t afford new infrastructure
–
Existing infrastructure deteriorating
•
Result: Poor Services for the public Value of Infrastructure In real terms Demand (GDP – led) Infrastructure Gap Supply (net investment) Time
Governments need to:
• •
Build new infrastructure Maintain new and existing infrastructure to a consistent standard
•
PPP provides:
•
Provision of assets or services otherwise unavailable
•
Better integration of operation and maintenance with design
• •
A whole life approach to delivering services A fairer way to raise money from the taxpayer
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Result: Better services to the public in the long term
Problems of traditional procurement
• • • •
Adversarial approach to contracts Lowest bidder wins Requirements ill-defined/changes Cost / time overruns-poor value for money
• • • • •
Limited innovation in design or operation May not exploit third party revenue Focus on infrastructure not service Unnecessary retention of risk Poor strategic approach
Cost and Time Overruns
Holyrood Horror -The Scottish Parliament
• Original budget estimate(1997)-£10-20m • Original completion date estimate-July 2001
Holyrood Horror – The Costs 450 400 350 300 £ millions 250 200 150 100 50 0 1997 1998 Year 2000 2004
UK PPP: Evidence of Benefits
80%
Delivery on time and on budget
On time On budget On time On budget 30% PPP Conventional Procurement Performance of completed projects – No. of Projects
Source: National Audit Office – UK Parliament - Expenditure Auditor
Asset deterioration ASSET LIFE CYCLE
Excellent Good Fair Poor Very poor Failed 0
€1 for renovation here will cost $ € here
5 10
YEARS 12.5% of life
15
40% drop in quality 40% drop in quality
20
Benefits of proper maintenance 6000 5000 4000 3000 2000 1000 0 Years
Problems of working with the private sector
• • • •
PPP should be a Partnership Public and Private sectors have very different drivers Many relationships between public and private sectors are unbalanced Problems caused by:
– –
Lack of understanding of other party’s key drivers Lack of equality in bargaining power
Problems of working with the private sector
• • • •
We see the result in many privatisation, concessions and outsourcing deals
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“bad” deal damages image
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Fall out can make investors wary of market A PPP programme should aim to give more balance
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Between public sector, private sector and citizen PPP gives Government more control Government is responsible
PPP: Benefits
• • • • • • • • • • •
Value for Money/cost savings Strengthens Infrastructure A whole life approach to delivering services Better mobilisation of Capital Provides assets or services otherwise unavailable Innovation Elimination of cost overruns Maintenance of assets to a high standard Creates new business sector Transfer of risk and accountability to private sector Fairer finance burden on citizen
PPP Issues for Public Sector
• • • • • • • •
Loss of control of service
–
Accountability remains Introduction of business ethic in service provision PPP projects take longer to procure Commitment to long term agreement Change in procurement practice Integration with remaining publicly run services Inexperience of public sector in monitoring and control Union resistance
Service Provider Performance
Performance measurement shows that the contract service levels are being achieved...
89% 77% 12% 10%
Almost always About half of the time
1%
Almost never Always
Source: Report on Operational PFI Projects, PUK
0%
Never
User satisfaction
…and users are satisfied with the standard of services being delivered 79% 65% 14% 20%
Almost always About half of the time
1%
Almost never Always
Source: Report on Operational PFI Projects, PUK
0%
Never
Key relationships for the Public Sector
• • •
Selection of Advisors
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Experienced advisors
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Legal, Financial and Technical advisors Mentor-type advisors Private Sector delivery partner
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International confidence
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Number of players important to investors
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Best not cheapest Public concern over relationship
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Quality of solution
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Transparency of bidder selection
Importance of Training
• •
Training and mentoring the public sector is a key role for:
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The national, ministerial or municipal PPP unit
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a private sector consultant Developing internal capacity
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Retaining expertise
How can IFSL Help?
• • •
Organising Workshops/Seminars locally Organising visits to the UK Facilitating training
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IFSL modular courses locally
• •
For public sector For private sector