Public Private Partnerships Opportunities and Challenges
Key Lessons From the UK Experience of PPP Tim Steadman Partner PPP Group Clifford Chance LLP London 1
Clifford Chance Credentials • Rated 1 st by deal number and value - Public Private Finance survey 2004 • Well over 100 signed PPP deals • PFI Team of the Year 2004 - PPF Magazine • Involved since inception of PPP, in UK and internationally • Role includes policy shaping and deals 2
Scale of UK PPP - A Reminder • Some 300 projects signed since 1992, worth around £40 billion • Scale of PPP projected to remain roughly constant • Composition of UK PPP may change - eg less mega-projects and more initiatives such as NHS LIFT and BSF • Key lesson: PPP benefits accrue cumulatively once dealflow is achieved 3
Politics of UK PPP in 2005 A broad political consensus which places PPP: • Among a range of procurement options (see eg 2004 budget speech) • Squarely on the ideological foundation of value for money (see recent Treasury Guidance) • On many voters' and MPs' doorsteps • And which has consistently placed workforce issues near the top of the political and contractual agenda 4
Politics of UK PPP - Key Lessons • A clear and respectable rationale for PPP must be articulated at the outset • That alone won't be sufficient to win widespread support for the policy - completed schools, hospitals etc. do that job more effectively • The private sector understands workforce issues and can be flexible in accommodating them - eg the ROE model and pensions concordat 5
LIFT and BSF/PfS • Pressure to accelerate PPP and diversify supply chain • Both programmes based on partnering/framework concepts • Corporate as well as contractual tri-partite "partnership" created • Some key differences in theory and practice • Key lesson: PPP never stands still 6
Credit Guarantee Finance • Treasury initiative in 2003, now successfully piloted • Lowers cost of senior debt to overall public purse • And rebuts a traditional criticism of PFI 7
CGF - Key Features: • Government provides senior debt to the project company, potentially eliminating: • The incremental base cost of interbank funds over government gilts • The risk spread • The cost of hedging interest and/or inflation risk • Credit rated private sector guarantor unconditionally guarantees to the Government repayment of interest and principal (for a fee less than the above saving) • Key lesson: PPP is dynamic and the private sector does not hold a monopoly on innovation 8
Sharing of Insurance Risks • Uninsurability: SOPC 3 proposes test based on deemed standards of governance, not actual cessation of trading • Premium riskshare: updated guidance based on percentage banded system now in consultation - some issues remain • IMD: a clash between regulatory expansion and PPP contractual structure – at least partially resolved • Key lesson: standardisation, whether of terms or policies, will never be perfect; it does not need to be for the PPP sector to function adequately. 9
Jarvis • Projects restructured with minimum disturbance to public sector - single point responsibility confirmed • Reality of risk transfer underlined • Key lesson: whether by necessity or conviction, PPP really does tend to put service delivery ahead of profit. 10
"Hot" PPP Sectors in UK • Waste and water • Aquatrine • Alpha • Enhanced European waste diversion targets • Highway maintenance: • Portsmouth paves the way? • Medical equipment: • Multi sourcing and independent financing - but how much ringfencing? 11
Conclusion • PPP is a mature and uncontroversial feature of UK procurement • Adoption of PPP elsewhere (eg Western Europe) accelerating • Deep reservoirs of private sector capital, expertise and resource are available for the benefit of any government with a credible and sustainable PPP strategy 12
Contact details Tim Steadman Clifford Chance LLP 10 Upper Bank Street London E14 5JJ tim.steadman@cliffordchance.com www.cliffordchance.com 13
Further Reading and Research � www.pppforum.com � www.partnershipsuk.org.uk � www.nao.org.uk � www.hm- treasury.gov.uk/documents/public_private_partnerships � www.ippr.org.uk 14
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