PUBLIC-PRIVATE PARTNERSHIPS United Nations Special Unit for South-South Cooperation September 18, 2006 Arthur L. Smith

President, NCPPP President, Management Analysis, Incorporated [email protected]

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PPP Objectives and Governance

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Public-Private Partnerships: Providing Public Needs on a Cost-Effective Basis

 Service Provision – Economic Objectives – Social Objectives Management Analysis, Incorporated O102004008OMI

Economic Objectives

 Reduce development risk  Obtain project financing  Reduce public capital investment  Accelerate service availability  Optimize value for money – Access to management expertise – Access to technology  Optimize risk allocation  Mobilize excess or underutilized assets  Foster local capital markets  Indirect economic benefits Management Analysis, Incorporated O102004008OMI

Social Objectives

 Achieve legitimate political goals  Improved service to the community, e.g., increased access to drinking water which meets WHO standards  Extend services to remote or marginalized regions or populations  Reduce income inequality  Provide environmental enhancement Management Analysis, Incorporated O102004008OMI

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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Case Study 1:

Pocahontas Parkway

The State of Virginia’s Public-Private Transportation Act (PPTA) is a legislative framework enabling the Virginia Department of Transportation (VDOT) to enter into agreements authorizing private sector entities to develop and/or operate transportation facilities. Proposal evaluation is a six-phase process: 1. Quality Control: Does the proposal address needs identified in the appropriate local, regional, or state transportation plan? Will it provide a more timely, efficient, or less costly solution than the public sector? Is there appropriate risk sharing?

2. Independent Review Panel: The proposal is reviewed by the panel with members from the State Transportation Board, VDOT, transportation professionals, academics, and representatives of the affected entities. Public Meetings and input are part of the process.

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Pocahontas Parkway

3. STB Recommendations; The STB reviews the proposals and recommendations of the IRP and recommends to VDOT whether to proceed with the project.

4. Submission and Selection of Detailed Proposals. VDOT forms a proposal review committee and requests detailed proposals. Based upon its review, VDOT may select none, one, or more proposals for further negotiation.

5. Negotiations. If the quality of proposals merits, VDOT will negotiate for the interim and/or the comprehensive agreement which will, among other things, outline the rights and obligations of the parties, set a maximum return of rate of return to the private entity, determine liability, and establish dates for termination of the private entity’s authority and dedication of the facility to the State.

6. Agreement. The negotiated agreement undergoes final legal review, and is then submitted for signature.

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Pocahontas Parkway

     New, 14.1 kilometer, four-lane road, including high-level bridge over the James River.

Connects two major commuter routes near Richmond, VA, reducing commute by 24 minutes per day.

DBFO Real Toll, with 63-20 public benefit corporation financing.

Financing: $354 million in tax exempt toll revenue bonds sold by 63-20 corporation; $27 M in government funds.

Bonds to be paid through toll receipts.

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Pocahontas Parkway

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Pocahontas Parkway

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Pocahontas Parkway

    Construction completed October, 2002 Tolls raised on August 1, 2004, due to revenues not meeting levels required for bond payments.

Project now financially stable For more information: www.pocahontasparkway.com

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Case Study 2:

Marion Davies Estate

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  

Marion Davies Estate

The Marion Davies Estate is a beachfront property facing the Pacific Ocean in Santa Monica, CA. The facilities were built for Hollywood actress Marion Davies in the 1920s by the newspaper titan William Randolph Hearst.

After her death, the property deteriorated. For many years, it operated as a private beach club. After earthquake damage in 1994, it was declared unsafe, and closed to the public.

In 1998, the City of Santa Monica, through public meetings and consultant support, developed a new site use plan which envisioned a public beach club and community meeting place, with conference space, banquet hall, and availability for films. The City formally approved the plan in 1999.

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Marion Davies Estate

 However, the City could not afford to implement the $25 million plan.

 In 2004, the City announced formation of a PPP to implement the plan. The structure included: – Funding from a charitable foundation, the City, and Federal government agencies – Long-term costs paid for by public-use activities on the renovated property  This long-deferred plan is now being implemented.

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Case Study 3:

Chesapeake Forest

In 1999, a lumber company offered for sale a tract of 58,172 acres in the Chesapeake Bay watershed, including shoreline property. This land, all in the State of Maryland, included large segments of unbroken forest and more than 4,000 acres of wetlands, as well as established populations of several threatened and endangered species. Much of this land bordered on existing State –owned parkland and forest, creating a unique opportunity to buffer a large area from deforestation and development. Management Analysis, Incorporated O102004008OMI

Chesapeake Forest

However, the State faced several obstacles to this environmentally desirable goal:  The State lacked the funding to acquire the land.

 The State lacked the resources to manage the land after purchase (the State estimated that four full-time foresters and associated support services would be required.

 Cessation of timber harvesting would cause unacceptable disruption of the local economy in this largely rural part of the state.

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Chesapeake Forest

The acquisition of the land was achieved through fairly traditional means. The State purchased one-half of the acreage using State funds, while the remaining 29,000 acres were purchased by an environmental non-profit which transferred ownership to the State. By December 2000, the State owned all of the Chesapeake Forest lands.

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Chesapeake Forest

The State, working with the non-profit environmental group, then sought to craft a Public-Private Partnership (PPP) with the following explicit objectives: –Providing a steady flow of economic activity and employment to support local businesses and communities; –Preventing the conversion of forested lands to non-forest uses; –Contributing to improvements in water quality, as part of the larger Chesapeake Bay restoration effort; –Protecting and enhancing habitat for threatened and endangered species; –Maintaining soil and forest productivity and health; and, –Protecting visual quality and sites of special ecological, cultural, or historical interest.

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Chesapeake Forest

To achieve these objectives, the State advertised, negotiated, and awarded a multiyear contract with a lumber company. This innovative agreement allows the company to harvest up to 1,000 acres of timber annually, an environmentally sustainable level. In return, the lumber firm is required to manage the Chesapeake Forest to the State’s silvicultural standards. Harvesting of timber is allowed only where consonant with the environmental objectives of water quality and wildlife habitat.

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Chesapeake Forest

The partners, State and timber company, share the profits generated from the sale of timber, with a 15 percent share of sales revenues also directed to the local county governments. To minimize risk to its private partner, the State agreed to compensate the lumber company for any losses in the first two years. However, this guarantee was never triggered, since the partnership has generated a profit every year since its inception. The lumber company is required to keep a fully accessible and transparent accounting system, open to the State’s review, and audited by an independent accounting firm.

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PPP Governance Categories

Governance can be defined as the exercise of political, economic, and administrative authority to manage a nation’s affairs. 11 key governance skills: 3 key outputs: • Create a Long-term Political Commitment • A Change in Thinking • Identify PPP Opportunities • Establish Legal and Procurement skills • Obtain Finance and Risk Distribution skills • Create a Communication Strategy • Manage Stakeholders • Measure Performance • Auditing and Accounting • Coordinate Expertise Transparency Accountability Sustainable Development Management Analysis, Incorporated O102004008OMI

The PPP Enabling Environment

POLICY FRAMEWORK PPP FINANCIAL INSTRUMENTS

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Policy Framework

 High-level Government Support  Clear Policy Statement  Central PPP Unit – PPP Centrum (Cz), Partnerships UK, Irish Central PPP Policy Unit, Kenniscentrum (Dutch PPP Knowledge Center) Management Analysis, Incorporated O102004008OMI

Concessions Legal Framework

 Create sound legislative basis for PPPs  Provide clear definitions and applicability  Provide stable legal framework  Provide fairness and transparency Management Analysis, Incorporated O102004008OMI

Legal Integration

 Establishment of a strong concessions framework does not provide the full legal structure necessary for successful PPPs.

 A holistic approach is required, in which statutes related to property rights, procurement, domestic and foreign investment, etc. are integrated with the concessions law.

 Consistent and objective judicial enforcement is required.

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Tendering Procedures

 Public advertisement of PPP opportunities, in a recognized (standard) source or sources, with provision of international exposure  Clear, detailed Requests for Tender, with full disclosure of all known risks  Opportunity for bidder comment on Request for Tender  Clear, detailed tender evaluation procedures, known to all parties, and providing a level playing field  Clearly stated project goals and objectives Management Analysis, Incorporated O102004008OMI

Tendering Procedures

(cont’d)

 Clearly stated performance standards for assessing project performance  Open participation in tender process, to include foreign owned firms  Qualified tender evaluation board, with subject matter expertise and no conflicts of interest  Objective, documented evaluation and negotiations process, consonant with the published evaluation factors  Public notice of award, with debriefing opportunity for unsuccessful bidders Management Analysis, Incorporated O102004008OMI

Arbitration / Dispute Settlement

 Inclusion of dispute resolution procedures, to include third-party arbitration and/or choice of forum (access to international arbiters or bodies) Management Analysis, Incorporated O102004008OMI

Financial Instruments

 Creation of financial structures which will facilitate generation of project capital  Availability to security instruments on the assets and cash flow of concessions, to include “step in” rights Management Analysis, Incorporated O102004008OMI

Achieving Sustainable Development

Economic Policy

Long-term Focus Sectoral Diversification Asset Investment Strategy

SUSTAINABLE DEVELOPMENT Fiscal Management

Revenue Stabilization Savings Exchange Rate Management

Good Governance

Institutional Capacity Human Capacity Transparency and Civil Society Participation Management Analysis, Incorporated O102004008OMI