Introduction to Public Private Partnerships

Module 1

2013

Module Structure

Good Governance
Funding PPPs
Developing an OBC
Effective procurement
Risks in PPPs
Sustainability
Lessons and recommendations








Definition of PPP

Public private partnerships (PPPs) are agreements between
government and the private sector for the purpose of providing
public infrastructure, community facilities and related services.

The private sector enter into a contract with government for
the design, delivery, and operation of the facility or
infrastructure and the services provided.

The private sector finance the capital investment and recover
the investment over the course of the contract.

The asset transfers back to the public sector at the end of the
contract
Range of PPPs
Adapted from Canadian Council PPP 2009
Design and build
Operate and maintain
Build and finance
Design build finance maintain
DBFM-operate
Concession
Privatisation
P
P
P

M
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s

Degree of private sector involvement
D
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e
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Principles of PPPs
Contracting Authority defines the service required
Design of the works to deliver that service lies with the private sector
Output based specification
The contract can be for 25/30 years plus

Long-term contractual
arrangements
Value for money
Transfer of risk
Competition will drive best value
Gives public sector access to innovation
Market competition
Whole life costing
Cost measured against conventional procurement.
Whole life costs and quality are combined to gauge VFM

Long term responsibility for building operation and maintenance
Focus on reducing cost

Transfer of design and construction risk
Risk of ownership transferred to the private sector
Typical SPV structure for PPPs
Government
PPP
Agreement
Private Sector
(Special Purpose Vehicle)
(SPV)
Loan
agreement
Debt
Subcontractors
Subcontractor
Construction
Subcontractor
Operations
Shareholding
Equity
PPP and Traditional
Procurement
Contract
management and
review
PPP
Assessment
Initial appraisal
Approvals PPP
procurement
assessment
Planning and
implementation
Post project
review
Establish
output
specification
Procurement
VFM assessment
Contract
award
PPP procurement
Traditional procurement
Governance - principles
Participation
Decency
Transparency
Accountability
Fairness
Efficiency
Funding - Project finance
The financing of long-term infrastructure is based
upon a non-recourse or limited recourse financial
structure where the debt and equity used to finance
the project are paid back from the cash flows
generated by the project.
Project finance
High gearing requiring less equity

Tax benefits

Public sector use of revenue

Long term debt funding
Why use PPPs?

Focus on outputs
PPPs make projects affordable
Better value for money over the lifetime of the project
More efficiency in procurement
Faster project delivery with more projects in a defined
timeframe
Risks are allocated to the party best able to manage
the risk
Why use PPPs? (2)
Outline Business Case

Strategic Context
Establish the Need for Expenditure
Define Objectives and Constraints
Identify and Describe Options
Identify & Quantify Monetary Costs
and Benefits
Assess Risks & Adjust for Optimism
Bias
Option 1 Option 2
Weigh up Non-Monetary Costs &
Benefits
Calculate NPV/(C)s and Assess
Uncertainties
Assess Affordability & Record Arrangements
for Funding, Management, Marketing,
Procurement, Monitoring, Benefits Realisation
and Ex-Post Evaluation
Results and Conclusion on
Preferred Option
Option n
STEP 1
STEP 2
STEP 3
STEP 4
STEP 5
STEP 6
STEP 7
STEP 8
STEP 9
STEP 10
Critical stages of a PPP
Initial feasibility

Procurement phase

Construction phase

Operation phase

Stages in procurement
Procurement strategy stage

Qualification and selection stage

Dialogue

Award
Phase 1
Pre-Procurement
Phase 2
Pre-
qualification
Phase 3
Competitive
dialogue
Phase 4
Final bid
financial
close
Phase 5
Contract
management
Pre -
Procurement
Official
Journal
European
Union (OJEU
Prequalification
questionnaire
(PQQ)
Invitation to
participate in
dialogue
(ITPD)
Invitation to
submit
detailed
solution
(TSDS)
Preferred
Bidder
Financial
Close
Contract
management
Prepare
Documents
Preparation and evaluation of bidder documents
Financial
Close
Procurement Process
Project Selection
Brief development
Market testing
Risks in PPP
Optimal risk sharing
Risk borne by the party best able to
manage it
Risk management
Identification
Allocation
Mitigation
Stages of risk management
Risk
identification
Risk
quantification
Risk allocation Risk mitigation
Risk monitoring
and control
Sustainability
Embedded environmental and social
safeguards

Focus on longer timescales

Public, business and government
working in partnership
What makes a successful
PPP?
Political will
Government commitment
PPP Champion
Clear output specification
Appropriate risk sharing
Value for money
Performance management
Conclusions
Undertake projects for the benefit of the citizens,
including the socially and economically disadvantaged
Allows governments to approach projects hitherto
unobtainable due to lack of funding
Provide incentives to the private sector to adopt green
criteria
Embraces the MDGs
PPPs allow the injection of private sector
capital

End-of-Module Questions
1. Which of the following best describes PPP projects?
a) Using funding from public borrowing.
b) Local government sets the specification
c) Public sector details design and pays for the construction
d) Government sets the required outputs and funding is provided by the
private sector.
Answer: d)
2. What is the name of the organisation created to design, build finance
and maintain the asset?
Answer: Special Purpose Vehicle - SPV

End-of-Module Questions
3. Which of the following are critical to good governance?
a) Funding for the project
b)Clarity and openness
c) Putting the public first
d)Transferring the risk to the private sector.

Answer: b) and c)
4. Which one of the following would not be described as an
international investor?
a) Banks
b) Pension funds
c) Insurance companies
d) Employees holding shares through an employee share
scheme.


Answer: d)
End-of-Module Questions
5. The term sustainability refers to?
a) Maintaining resource use at current or higher levels
b)Keeping the natural environment and society in a happy healthy
and functional state
c) Holding or increasing the value of human life
d)Focus on fulfilling short term need.

Answer: b)
6. Risks should be borne by the party best able to manage them.
a) True
b) False

Answer: a)
End-of Module Questions
7. What does an OBC demonstrate?
a) That a project is economically sound, financially viable and will be well managed
b)That a project meets market expectation
c) That significant profit will accrue for the public and private sector
d) None of the above
Answer: a)
8. What are the phases in a PPP project life cycle?

Answer: Initial feasibility, Procurement phase, Construction phase, and
Operational phase
9. Match up the boxes.
Service contracts Design, build, finance
Concession contracts Private sector managing services
Construction contracts Public sector provides
management support