Transcript Aging Citizens - Madhya Pradesh

Closing the infrastructure gap:
The role of public-private partnerships
P R Srinivas
Industry Lead – THL
Deloitte Touche Tohmatsu India Private Limited
Organization
• Introduction
• The Case for Public Private Partnerships
• PPP Market Maturity Curve
• Moving Up the Maturity Curve
• Conclusion on PPP
• Tourism and PPP
©2008 Deloitte Touche Tohmatsu India
Introduction
The Global infrastructure gap
©2008 Deloitte Touche Tohmatsu India
Introduction
Impact of the infrastructure deficit
Competitiveness
Reduced Productivity
• Underinvestment can reduce a
country’s competitiveness.
• In Latin America,
competitiveness of many regional
companies reduced because
inadequate transport
infrastructure has increased
logistics costs.
• More than 50% of the decline in
labor productivity in US during
1970s & early 80s
• Driving on roads in need of
repair costs U.S. motorists $54
B per year in extra vehicle
repairs & operating costs - $
275 per motorist.
IMPACT
Traffic Congestion
• Imposes huge costs on the
economy- unpredictable travel
times, environmental damage,
property damage, delays & lost
production.
• Americans spend 3.5 billion
hours a year stuck in traffic,
costing the economy $67.5
billion annually.
Safety Problems
• Outdated & substandard road &
bridge design, pavement
conditions, & safety features
are factors in 30 % of the fatal
highway accidents each year.
©2008 Deloitte Touche Tohmatsu India
Introduction : Putting PPPs in Context
Traditional Funding vs. Public-Private Partnerships
PUBLIC-PRIVATE PARTNERSHIPS
• The public sector procures a service, not an asset, from the private sector
• The public sector requirements are defined in output terms as part of the
procurement providing opportunity for innovation and risk transfer
• Private sector generally responsible for design, build, finance, operation and
maintenance over long term contract period
• Payments linked with performance. Revenue earned through a mix of direct
tolls, availability payments and/or performance payments.
• Significant levels of risk transfer to the private sector over life of contract. Risks
are allocated to the party that is best able to manage them.
©2008 Deloitte Touche Tohmatsu India
Conceptual Model
Conceptual Model for Structure / Delivery Mechanisms and Financing Methods
Governance / Ownership Structures
Conventional Ownership
License / Franchise or
Concession
Public / Private Partnership
Sale / Privatization
Methods of Alternative Service Delivery
Special Operating
Agency
Direct Delivery
External Purchase of
Service
Licensing / Franchising
Partnership
Privatization
Transfer of Risk from Government to Partner
LOW
HIGH
Methods of Financing
Dedicated Government
Financing
User Fees / Revenue Sources
Capital Markets Financing
− Government borrowing
− Bonds
− Project-based financing
− Government grants
− Revenue stream
− Equity
− Government capital allocation
− Tolls
− Debt
− Shadow tolls
− Bank borrowing
− Availability payments
− Securitization / monetization of
assets
− Other like payments
Methods of Financing
Traditional
Innovative
©2008 Deloitte Touche Tohmatsu India
The case for PPPs
Benefits of PPPs
Bring
Construction
Forward
• PPPs enable public sector to spread cost of infrastructure investment over
the lifetime of the asset. Private sector has strong incentive to complete the
project ASAP because they need the stream of revenues to repay the capital
costs.
On-Time & OnBudget Delivery
• Payments are aligned to the delivery of project objectives- thus PPPs have a
solid track record of on-time or early construction completion.
Ensuring that
assets are
properly
maintained
• Well-designed PPPs help maintain infrastructure by transferring maintenance
requirements for a facility to the private partner.
Cost Savings
• Shifting long-term operation & maintenance responsibilities to the private firm
creates incentive to ensure long term construction quality as it is responsible
for those costs many years down the road. Experience from several
countries has demonstrated savings from PPPs during the construction
phase of the contract.
Strong
Customer Service
Orientation
• Private-sector infrastructure providers - rely on user fees from customers for
revenue –thus have a strong incentive to provide superior customer service.
Enables the
Public Sector to
Focus on
Outcomes & Core
Business
• Properly structured PPPs enable governments to focus on outcomes, instead
of inputs. Governments can focus leadership attention on the outcome-based
public value they are trying to create.
©2008 Deloitte Touche Tohmatsu India
The case for PPPs
Example Funding Model and Risk Profiles
Traditional Funding Example
Construction
Phase
Construction
Phase
$
Public sector pays for
services / assets as they
are provided. Full costs
of construction are paid
in advance of operational
commencement. Due to
limited risk transfer, most
cost overruns also
become liabilities for the
public sector.
Estimated
Capital Cost
0
Time overrun
Cost overrun
Running costs overrun
Estimated running costs
5
25 Years
©2008 Deloitte Touche Tohmatsu India
The case for PPPs
Example Funding Model and Risk Profiles
PPP Funding Example
$
Operating Phase
Construction
Phase
Direct charges to Users
Service payments and/or direct charges to
users
No Payment
0
5
Under PPP, the private
sector generally does not
receive income until the
service / asset is available
for use. Income is
generated from direct
charges to users and / or
payments from the public
sector. The public sector
only pays as services are
delivered. The private
sector accepts significant
level of risk transfer from
public sector in lieu of
opportunity to generate a
financial return.
25 Years
©2008 Deloitte Touche Tohmatsu India
The case for PPPs
PPP projects require a careful management of risks during
construction and operation
Sample high-level cost profile of delivery options
Value for Money
(value of risk transferred)
Cost
to
Public
Sector
Risks
Retained Risk
Raw Cost / Revenues
Raw Costs /
Revenues
Retained Cost /
Revenues
Retained Cost /
Revenues
Public Delivery
PPP Delivery
PPP Delivery includes
profit, taxes and cost of
capital
The PPP delivery approach may not have lower direct project costs. However, there are additional
benefits that must be quantified in the Value for Money analysis.
©2008 Deloitte Touche Tohmatsu India
The case for PPPs
Addressing objections to PPPs
Higher Cost of
Capital
• Comparison between the public and private sector cost of capital should be
appropriate. And the gap between private and public costs of capital has
narrowed over the years.
Failure to Realize
Value for Money
• PPPs by allocating the risk efficiently lower costs and bring more value for
money. Also private sector efficiency generates economies that outweigh
higher costs of borrowing .
Customers of the
Service Will End
Up on the Short
End of the Stick
• Fee increases can be limited by contract to pre-determined rate and by using
other mechanisms - availability fee, shadow tolling, subsidies, link to ability to
pay etc.
Govt. is Forced
to Bail Out PPP
Projects When
Demand Fails to
Meet Projections
• Private provider cannot take facility with it when it is unable to continue
contract - govt. gets free facility
©2008 Deloitte Touche Tohmatsu India
PPP maturity model
©2008 Deloitte Touche Tohmatsu India
PPP maturity model
Stage one:
Stage two:
• Establish policy & legislative framework
• Establish dedicated PPP units in agencies
• Initiate central PPP policy unit to guide
implementation
• Begin developing new hybrid deliveries models
• Develop deal structures
• Get transactions right & develop public sector
comparator model
• Begin to build marketplace
• Leverage new sources of funds from capital
markets
• Use PPPs to drive service innovation
• PPP market gains depth – use is expanded to
multiple projects & sectors
• Apply early lessons from transport to other
sectors
Stage three:
• Refine new innovative models
• More creative, flexible approaches applied to roles of public & private sector
• Use of more sophisticated risk models
• Greater focus on total lifecycle of project
• Sophisticated infrastructure market with pensions funds & private equity funds
• Underutilized assets leveraged into financial assets
• Organizational & skill set changes in government implemented to support greater role of
PPPs
©2008 Deloitte Touche Tohmatsu India
Moving up the maturity curve
Common pitfalls to avoid
Inappropriate PPP model
applied to project
Poor Setup
Lack of Clarity on Project
Objectives
Too much focus on the
Transaction
Common
Pitfalls
Lack of Internal Capacity
Inadequate
planning
Failure to Realize Value for
Money
©2008 Deloitte Touche Tohmatsu India
Moving up the maturity curve
Life-cycle perspective
• Governments need a full life-cycle approach (e.g., a clear framework) for partnerships
that confer adequate attention to all phases of a PPP—from policy and planning, to the
transaction phase, and then to managing the concession.
©2008 Deloitte Touche Tohmatsu India
Moving up the maturity curve
Use more innovative models
©2008 Deloitte Touche Tohmatsu India
Moving up the maturity curve
Selecting an appropriate model
Source: Building Flexibility: New Delivery Models for Public Infrastructure Projects , Deloitte Research, 2005.
©2008 Deloitte Touche Tohmatsu India
Moving up the maturity curve
Unlocking value from assets
• Governments are increasingly looking at their portfolio of assets to determine how
to realise the maximum value from these assets by exchanging them for other
assets or services that might serve more pressing needs.
• Public assets tend to be sited in prime locations; often have excess land or
control of adjacent properties. The government can use these as equity to
partner with the private sector to create new facilities and develop the existing
assets. This not only unlocks value from these assets but also helps to meet
critical infrastructure needs.
©2008 Deloitte Touche Tohmatsu India
Conclusion on PPP
• The infrastructure challenge before governments today may seem
overwhelming. Slowly governments are realizing that inaction is simply not an
option.
• PPPs alone are not a panacea. Rather, they are one tool governments have at
their disposal for infrastructure delivery—a tool that requires careful
application. By making the best use of the full range of delivery models that are
available and continuing to innovate, the public sector can maximize the
likelihood of meeting its infrastructure objectives and take PPPs to the next
stage of development.
• This development, in turn, will enable this relatively new delivery model to play
a far larger role in closing the infrastructure gaps bedeviling governments
across the world.
©2008 Deloitte Touche Tohmatsu India
Tourism and PPP
2nd Deloitte Central Europe PPP Training Seminar, Prague 12 & 13 April 2006
Tourism Planning – some fundamentals
Identify core ‘values’
Economic policy context
Long-term destination
‘vision’
Identify core assets
Competitive positioning
Regional cooperation
5-year development
strategy
Identify target markets
Physical masterplan
Sustainable framework
Individual projects
©2008 Deloitte Touche Tohmatsu India
New paradigms in destination
development and marketing
2nd Deloitte Central Europe PPP Training Seminar, Prague 12 & 13 April 2006
Visioning
2nd Deloitte Central Europe PPP Training Seminar, Prague 12 & 13 April 2006
What is a ‘vision?
• An inspired view of the long-term future
– a destination’s “place in the sun” at the end of the 21st century
• Aspirational
– Must appeal to aspirations and emotions of all stakeholders
©2008
Touche Tohmatsu India
A vision provides the inspiration that binds all stakeholders to
a Deloitte
common
Developing a vision
Tourism
Assets
State
economic
objectives
Stakeholder
aspirations
Tourism
Vision
For
MP
Competitive
Positioning
Consumer
Perceptions
Extensive study of the State’s economic policy, tourism assets, consumers and
consultation with all stakeholders is essential ©2008 Deloitte Touche Tohmatsu India
Tourism and Economic
Development
2nd Deloitte Central Europe PPP Training Seminar, Prague 12 & 13 April 2006
Tourism and economic development
• Today, tourism and economic development are inseparable and
mutually supportive
• “the images that a nation has in tourism, inward investment and …export inevitably
overlap and coalesce…Success will depend on handling this in a sophisticated and coordinated fashion…”
• “The creation of celebrity and emotional appeal through …(destination development and
marketing)… opens the way for other economic development-oriented agencies to
communicate to would-be investors...”
©2008 Deloitte Touche Tohmatsu India
Core values and assets
2nd Deloitte Central Europe PPP Training Seminar, Prague 12 & 13 April 2006
Destination ‘values’
• Tourism development must capture a destination’s “values”
– the very essence or spirit of the destination
– its ‘identity’
– its people – their spirit, their purpose, their values, their beliefs
– its culture
– its intellect
“The cultural aspect of national image is irreplacable and uncopiable because
it is uniquely linked to the country itself; it is reassuring because it links the
country’s past with its present; it is enriching because it deals with noncommercial activities; and it is dignifying because it shows the spiritual and
intellectual qualities of the country’s people and institutions.”
Extensive consumer research is required to identify a destination’s
core values
©2008 Deloitte Touche Tohmatsu India
New Zealand Campaign focussing on its core values
©2008 Deloitte Touche Tohmatsu India
Focus on unique assets
• Focus on principal ‘products’ that
are truly unique in the world
• Singapore
• Hong Kong product pillars
– Shopping
– Dining
– City-Harbour-Green
– Heritage & festivals
• Kerala focus areas
– Backwaters
– Eco-tourism
– Ayurveda
“Moving through Asia…you find city after city of ‘look-alikes’…As these cities
evolve, they increasingly resemble each other…”
©2008 Deloitte Touche Tohmatsu India
But what is today’s tourism product?
• Facilities and attractive urban environments, while necessary, are no
longer differentiators
• Today’s destination winners are:
– ‘experiences’ that meet aesthetic needs
– rich in emotional meaning
– ‘how do we want to feel on our holiday’
– provide symbolic and self-expressive benefits:
– ‘who can we be on holiday’
– lifestyle indicator
“One such destination… campaign which transcended the commodity nature of product and
which promised a unique (yet credible) experience was the ‘India Changes You’
campaign…It’s breathtaking.”
©2008 Deloitte Touche Tohmatsu India
Identification of target markets
• Target markets not based on
regions or countries
• Example - Life Stage segments as target
markets:
• Extensive and ongoing consumer
research
– perceptions, image, experience,
satisfaction, competition
– Young Couples, age 26-35yrs, no kids
– Mid-Career Married With Kids, 31-45yrs
– Achievers Married With Kids, 46-60yrs
• Today’s target markets are
prioritised by sub-segments:
– purpose of visit
– geographic sub-regions
– demographics and life stage
– behaviour and psychographics
©2008 Deloitte Touche Tohmatsu India
Competitive positioning
• Today’s tourism strategies are all about beating the competition and
stealing market share
• Competition has been re-defined
– experiences
– ‘clusters’
• Competitive assessment
– sophisticated, research-based
– performance within target markets
– strategies, plans, NTO capabilities
– consumer / trade perceptions
Successful destinations create points of parity where competitors are seeking an advantage, and amplify
points of difference in other areas to achieve competitive advantage
©2008 Deloitte Touche Tohmatsu India
Regional cooperation
• Cooperation, even with
competitors, is becoming crucial
for survival
• “Together in Asia”
– TAT, STB,. HKTB
• Asean Tourism Forum
©2008 Deloitte Touche Tohmatsu India
Tourism Strategy
2nd Deloitte Central Europe PPP Training Seminar, Prague 12 & 13 April 2006
Strategy - elements
Vision
Overall (master) strategy
Identify elements of strategy*
Analyse specific strategic issues under each strategy element (examples below)
Marketing
Product Development
Policy Framework
Destination
Management
Image and positioning
Product enhancement
Government-industry partnerships
Industry partnerships
Branding
Product additions
Investment environment
Visitor experience
Promotions and campaigns
Infrastructure
Facilitation
Service excellence
Market focus by regions
Competitive benchmarking
Regional issues
Host community issues
Market focus by segments
Human resource development
Visitor arrivals
Reduction of transaction costs
Visitor expenditure
International access
Visitor experience
PR and communications
Pricing
©2008 Deloitte Touche Tohmatsu India
The Master Planning Approach
Master Plans and Projects
2nd Deloitte Central Europe PPP Training Seminar, Prague 12 & 13 April 2006
Applicability
• State, regional, or local level
• Macro to micro
• Physical and institutional elements
©2008 Deloitte Touche Tohmatsu India
Overall approach
• Regional, competitive perspective
• Phased development
– Long term vision
– Short term implementation
• Intensive research
– Destinations and attractions
– Market
• Impact Scoping
– Environmental
– Economic
• Implementation oriented
– Investment / project / site specific
– Private sector participation
©2008 Deloitte Touche Tohmatsu India
Paramount objective
• Enhance economic benefits in a sustainable model:
– Increase visitation
– Increase length of stay
– Increase expenditure
• Increase investment (private) in tourism projects
©2008 Deloitte Touche Tohmatsu India
Regional and destination level
planning
2nd Deloitte Central Europe PPP Training Seminar, Prague 12 & 13 April 2006
Centres for development
• Regional development strategy:
– Destination hubs for development
– Attractions for development
– Attractions for improvement
– Bankable projects
©2008 Deloitte Touche Tohmatsu India
Site and micro level planning for
bankable projects
2nd Deloitte Central Europe PPP Training Seminar, Prague 12 & 13 April 2006
Site development micro plans
• Conceptual Plans
• Development Briefs
• Project Profiles
• Feasibility Studies
• Implementation Frameworks
©2008 Deloitte Touche Tohmatsu India
Way forward to implementation
2nd Deloitte Central Europe PPP Training Seminar, Prague 12 & 13 April 2006
Private sector participation
• Identification and availability of sites
and projects
• Concepts, Feasibility Studies,
Project Profiles
• Recommendations on ideal publicprivate partnership structure, per
project
• Valuation, public-private partnership
financial terms
• Terms of reference
©2008 Deloitte Touche Tohmatsu India
Other micro plans
• Economic and Financial Analysis
• Environmental Scoping
• Marketing Plan
©2008 Deloitte Touche Tohmatsu India
Strategy recommendations
• Infrastructure and Transport
• Other New Projects
• Investment and Financing
• Policy, Organisation, Institutions
• Human Resources and Training
• Linkages with other Sectors of Economy
• Conservation
• Environmental enhancements
©2008 Deloitte Touche Tohmatsu India
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