Infrastructure Projects Ministry of Works & Urban Development - PowerPoint PPT Presentation

Public-Private Partnerships Infrastructure Projects Ministry of Works & Urban Development

Contents Introduction What are Public-Private Partnerships? Types of PPPs Potential Benefits & Risks of PPPs Identify the Business Need Possible Reasons for Involving Private Sector

Introduction  A public – private partnership ( PPP ) is a government service or private business venture.  Funded and operated through a partnership of government and one or more private sector companies.  Referred to as PPP, P3 or P 3 .

Introduction  A contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project .

What are PPPs  PPP refers to arrangements that are:  typically medium to long term,  between the public and private sectors  some of the services that fall under the responsibilities of the public sector are provided by the private sector  clear agreement on shared objectives for delivery of public infrastructure and/ or public services.

What is PPPs  PPPs combine the skills and resources of public and private sectors in new ways through sharing of risks and responsibilities.  Enables governments to benefit from expertise of the private sector  Allows them to focus on policy, planning and regulation by delegating day-to-day operations.

What is PPPs  For a successful partnership, a careful analysis of the long-term development objectives and risk allocation is essential.  Legal framework must adequately support this new model of service delivery and be able to monitor and regulate the outputs and services provided.

What is PPPs  A well-drafted PPP agreement would be informed by both the laws of the country and international best practices to clearly delineate risks and responsibilities.

What is PPPs  PPPs are used worldwide to develop the following infrastructure projects:  roads and bridges  airports and ports  power plants  water purification plants  sewerage treatment plants  hospitals  telecommunications  prisons.

Funding for PPP  Cost of using the service is borne exclusively by the users of the service and not by the taxpayer.  Capital investment is made by the private sector on the basis of a contract with government to provide agreed services.  Government can provide tax breaks or remove guaranteed annual revenues for a fixed time period.

Infrastructure & PPP  For infrastructure projects, the government may provide a capital subsidy in the form of a one-time grant, making it more attractive to the private investors.  Can be a means to enabling the development or improvement of energy, water, transport and telecommunications and information technology through the participation of private and government entities.

Infrastructure & PPP  Where governments are facing aging infrastructure and require more efficient services, a partnership with the private sector can help foster new solutions, including clean technology.

Common Types of PPP

Definitions of PPP Contract Types Existing or Acronym Definition Key Features New Asset The private party is contracted by the O&M Operations and Existing public authority to operate and Maintenance maintain an asset or set of assets, with compensation based on performance relative to the service levels specified in the contract. Operations, Similar to the O&M contract, but the OMM Existing Maintenance, private party is also given broader and responsibilities to manage the asset Management or assets. Sources: Castalia; National Council on Public-Private Partnerships. "Types of Partnerships

Definitions of PPP Contract Types The owner of an asset sells the asset and then Sale- Existing leases it back from the new owner. Such an Leaseback arrangement could be done with the public sector as the original owner, leasing the asset back from a private buyer, or it could be done in reverse. The private party builds an asset and leases it Lease- Existing to the public authority. The public authority Purchase operates the asset and accrues equity in the asset with each lease payment such that the public authority has full ownership of the asset at the end of the contract. Sources: Castalia; National Council on Public-Private Partnerships. "Types of Partnerships

Definitions of PPP Contract Types Build- Similar to a design-build arrangement BOOT New Own- except that the design specifications are Operate- pre-determined by the public entity, Transfer thus restricting the private party from any potential changes or improvements to the asset's design. The private party builds an asset and Build- BOLT New Own- owns it, but then leases it to the public Lease- authority. Similar to a Lease- Transfer Purchase, the public authority accrues equity and ownership lS transferred completely to the public authority at the end of the contract. Sources: Castalia; National Council on Public-Private Partnerships. "Types of Partnerships

Definitions of PPP Contract Types This is most similar to a traditional DB Design-Build New competitive public procurement; the private party designs and builds the asset, but the public sector owns and operates it In addition to the DB arrangement, Design-Build- DBOM New the private party also operates and Operate- maintains the asset, creating more Maintain space for cost-savings and a better incentive for the private sector to minimise lifetime service costs. Sources: Castalia; National Council on Public-Private Partnerships. "Types of Partnerships

Definitions of PPP Contract Types DBFOM Design-Build- Like a DBOM, but the New private party also rmses Finance-Operate- financing for the project. Maintain Like a DBOM, but the private Design-Build- DBOT New party owns the asset and then Operate-Transfer transfers ownership to the public sector at the end of the contract period. Sources: Castalia; National Council on Public-Private Partnerships. "Types of Partnerships

Definitions of PPP Contract Types Design-Build- Similar to the DBOT, but the DBOO New Own-Operate private party does not transfer ownership to the public sector; this is most similar to a full privatisation of the asset. Sources: Castalia; National Council on Public-Private Partnerships. "Types of Partnerships

Potential Benefits of PPP  The financial crisis of 2008-11 has brought about renewed interest in PPP in both developed and developing countries.  Governments are increasingly turning to the private sector as an alternative additional source of funding to meet the funding gap.

Potential Benefits of PPP  Outside of fiscal leveraging of projects, governments look to the private sector to help them deliver infrastructure for a number of other reasons:  Exploring PPPs as a way of introducing private sector technology and innovation in providing better public services through improved operational efficiency.  Incentivizing the private sector to deliver projects on time and within budgets.

Potential Benefits of PPP  Imposing budgetary certainty by setting present and the future costs of infrastructure projects over time  Utilizing PPPs as a way of developing local private sector capabilities through joint ownership with large international firms, as well as sub-contracting opportunities for local firms in areas such as civil works, electrical works, facilities management, security services, cleaning services, maintenance services, etc.

Potential Benefits of PPP  Using PPPs as a way of gradually exposing state owned enterprises and government to increasing level of private sector participation (especially foreign) and structuring PPPs in a way so as to ensure transfer of skills leading to capacitated entities that can eventually export their competencies by bidding for projects/ joint ventures.

Potential Benefits of PPP  Creating diversification in the economy by making the country more competitive in terms of its facilitating infrastructure base as well as giving a boost to its business and industry associated with infrastructure development (such as construction, equipment, support services, etc.)  Supplementing limited public sector capacities to meet the growing demand for infrastructure development

Potential Benefits of PPP  Extracting long-term value-for-money through appropriate risk transfer to the private sector over the life of the project – from design/ construction to operations/ maintenance

Potential Risks of PPP  Failure to attract qualified bids.  Poor value for the public sector from lack of competition.  Hidden fiscal costs.  Policy inflexibility (PPP contracts can be difficult and expensive to amend / terminate

Potential Risks of PPP  There is a cost attached to debt  While private sector can make it easier to get finance  Finance will only be available where the operating cash flows of the project company are expected to provide a return on investment (i.e., the cost has to be borne either by the customers or the government through subsidies, etc.)