Transcript PPP is above all a robust and disciplined procurement process

PPPs and Competitiveness
PPP
is above all
a
robust and disciplined
procurement process
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The virus spreads ...
Countries with active / developing PPP programmes
include: Australia, Austria, Brazil, Belgium, Bulgaria,
Canada, Chile, Colombia, Cyprus, Czech Republic, Egypt,
France, Germany, Greece, Hungary, India, Indonesia,
Ireland, Italy, Jamaica, Japan, Korea, Malaysia, Malta,
Mexico, Morocco, Netherlands, Nigeria, Pakistan, Peru,
Poland, Portugal, Romania, Russia, Saudi Arabia,
Singapore, Slovak Republic, Slovenia, South Africa, Spain,
Taiwan, Trinidad & Tobago, Turkey, US and UK…and
more…
Now more than 50 countries have PPP programmes…..
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PPP / PFI in the LAC region
National PPP / PFI programme
Incipient PPP / PFI programme
Subnational PPP programme
MIF support to PPP
MIF / IDB evaluation
Relevant prior experience
Common Sectors
Transport
Education
Prisons
Health
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Common Sectors (cont’d)
Defence
Government Offices
Also
• Housing
• Courts
• Technology
Leisure
Waste Treatment
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…… and now
Climate Change
Mitigation
&
Adaptation
Scale of PPPs
• Large-scale infrastructure
– Transport
– Education
– Health
– Government Buildings – facilities management
• Smaller initiatives
– Alliances with business partners
The weakness of traditional procurement
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Project selection often driven by political rather than social or economic priorities
Project design and structuring is inadequate : modern infrastructure projects are technically,
financially and institutionally complex
The public sector’s negotiating capacity vis-a-vis the private sector places it at a significant
disadvantage at every stage, both prior to award and during project implementation
Project implementation is usually marred by significant delays and cost-overruns, which make
a nonsense of the project’s projected economic viability, and, owing to inadequate risk
distribution, lead to growing contingent liabilities for government
The quality of the asset is often below standard, leading to high maintenance costs or even
premature replacement or abandonment
The quality of the projected services consequently falls well below public expectations,
leading to loss of political credibility and public perceptions of cronyism between the political
and private sector
Poorly designed projects either find it difficult to raise finance and when they do succeed, it
often comes on punitively expensive terms and conditions
From the private sector’s viewpoint, badly designed projects often bring financial problems
which threaten their very survival
Overall, projects take longer and are delivered more unsatisfactorily than election promises
made, with inevitable erosion of popular political support.
PPPs are not standardised internationally
Each Country’s approach to PPP is:
• Designed to meet the policy objectives of its Government
• Developed to complement other public procurement and public
service delivery methods
• Implemented according to the available public and private sector
resources
• Adapted to local best practice and procurement context
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Guiding Principles
• Project decisions
– Deciding on project scope, affordability etc
– Investigating the benefits of different procurement strategies
• Managing the procurement process to deliver the required project
benefits
– Good deal for the public sector – risk transfer, price etc
– Timescales
– Bid Costs
– Institutional Capacity to deliver the procurement process
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Common features of PPP Programmes
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Applied across a broad range of sectors where major
capital investment is required
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Based upon long-term (e.g. greater than 10 years)
arrangements
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Private sector capital at risk to performance in the
delivery of public services
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Fixed price, output-based contracts
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Optimal risk transfer to the private sector
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Key Principles of UK PPP Contracts for Services (Private
Finance Initiative - PFI)
1. Authority transfers responsibility and risk for asset / service to
Contractor.
2. Contractor takes on obligations for c.20-30 years.
3. Contractor designs, builds, finances, operates (DBFO), maintains
asset and provides services.
4. Lenders fund Contractor on limited recourse basis.
5. Authority pays “Unitary Charge” for available / acceptable service.
6. The PPP Contract (and associated documents) must regulate a
network of relationships.
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JV vs. PPP
PPS as public service facilitator
Public Sector
Private Sector
Assets
Public Sector
Private Sector
$$$
$$$
O&M
Assets
Service
Contract
O&M
Project
Project
Service
Product
End User
Shared Risk and Responsibility
“Conflict of Interests”
Service
Public
Service
End User
Public Sector retains responsibility
& Optimal Risk Transfer
Why embark on a PPP Programme ?
• Improved value-for-money procurement of public services.
• Reform / modernisation of public services.
• Contestability in delivery of public services.
• Antidote to short-termism in both public and private
sectors.
• Improved transparency of costs of public services delivery.
• Overcome capital budget constraints.
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Comparison with Conventional Procurement
Under conventional public sector procurement, expenditure
is input-based: ie., the Government pays whether or not
the required service is delivered
Whereas:
Under PPP, the public sector only pays if and to the extent
the required services are delivered, year-after-year
“output – based”
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Key Drivers of Value for Money
• Output based contracts
• Whole life-of-asset costings
• Single point responsibility – integration / scope
• Innovation
• Competition
• Economies of scale
• Capital at risk to long term performance
• Risk transfer
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Value for Money:
Traditional Cost / Payment Pattern
Paying for
“inputs”
Quality of Asset
Cost Overruns
Construction
Cost Overruns
Extension
O & M Costs
0
3
10
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Time (Years)
“40 %”
Optimism bias
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Value for Money: PPP / PFI Payment
Mechanism
Public Sector pays for service/outputs
0
Construction
period
Operational period
no payment
Payment against delivery
3
10
Time (Years)
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Benefits of Project Finance
• Limited recourse finance projects are more highly structured
commercially than public sector or corporate financed alternatives
• Each party is to bear only those risks which are appropriate
• Only way to fund much-needed infrastructure
• Increased flow of inward investment
• Greater pool of project sponsors and associated innovation
• Financial and commercial know-how transfer
• More projects implemented
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Lender Due Diligence : Public Sector Ally
Risk identification, assessment, allocation and
sharing
• Environment
• Technical
• Commercial
• Markets
• Financial
• Insurance
• Legal
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Benefits of Long Term Contracts
• Security of supply / service provision / asset availability
• Security of cashflow / asset allocation / utilisation
• Amortisation of asset capital cost over economic life – ease
authority affordability
• Price certainty for Authority
• Revenue reliability for finance
• Raising term debt finance (maximise gearing)
• Investor confidence to commit with capital and resources
• Aids off balance sheet treatment
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PPPs in Suriname
• Infrastructure
– Transport
• Roads
• Regional Airports
– Education
• Primary Schools
– New Build
– Refurbishment
The link between school buildings
and better education
– “Wider Markets Initiatives”
• New uses for existing public sector assets