Post on 24-May-2015
Public-Private Partnership
Prajwal Mani PradhanTaifa Siddika Moyeenul Islam
Overv
iew
of th
e
pre
senta
tion
• What is PPP?
• Key questions revolving around PPP
• International instruments
• PPP Theories
• Balancing the score board
• Six keys for successful partnership
• PPP making Sense– Bangladesh– Nepal
INTRODUCTION (P3)
Address PPP as
Public : Of or concerning the people as a whole; open to
or shared by all the people of an area or country (oxforddictionaries.com)
Government and all its form, federal, state, UN.
Private: Belonging to or for the use of one particular
person or group of people only. (oxforddictionaries.com)
Corporations, MNC, foundations, NGO
Address PPP as
Partnership: An association of two or more people as
partners: a business or firm owned and run by two or more partners. (oxforddictionaries.com)
Introduction
It is also referred to as PPP or P3 or P .₃ PPP’s are used to provide both economic and
social infrastructure.
The ultimate goal of PPP is to obtain ‘value for money’.
Based on the concept that citizens are considered as client or customer.
History
Long history in many countries but grew popular in 1980.
longest tradition in the USA. In the 1950’s and 1960’s P3’s were used as a tool for stimulating private investment in the inner city infrastructure and regional economic development.
UK, 1979 Conservative government concluded that government is too involved in the economy and needed to step down in favor of private capital. Thatcher administration turned to P3’s as a method of economic regeneration.
History
Spain; early examples 1960’s; Toll roads developed by 1968.
Netherlands introduced the P3 idea in its government policy statement of 1986.
Australia; started back in early 1990’s and developed toll roads, hospitals, water and power plants, schools, courts, sea ports and airports.
Norway initially did not need private capital due to its oil revenues, but is cooperating with the private sector now for infrastructure projects.
Definition
‘… is a contractual agreement formed between public and private sector partners, which allow more private sector participation than in traditional’.(U.S. DOT 2004)
“…a cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.”
(Canadian Council on Public-Private Partnerships)
OBJECTIVES OF PUBLIC-PRIVATE PARTNERSHIPS
1. to ensure government services are delivered in the most economical, effective and efficient manner;
2. to create opportunities for private sector growth and to contribute to the overall economic development through the stimulation of competitiveness and initiative;
3. to ensure the best interests of the public, the business sector and the community are served through an appropriate allocation of risks and returns between partners.
PPPs how does the public sectors role change
Required shift
Hit or miss Uniformity Provisions Inputs Generalization Talk equity Received wisdom Regulations Haphazard development Demarcation Looking up
Sustainable standard Diversity Choice Customer/citizen Outcomes Specificity Deliver equity Data and best practice Incentives Continuous development Flexibility Looking beyond the restricted
area
From To
Reason and Typical uses
To keep pace with infrastructure investment needs and the growing public demands for services.
Increased mobility of capital (availability in the private sector).
Dominance of new ideas and reliance on market incentives.
Contracting with a private company to- Renovate Construct Operate Maintain And/or manage a facility or system.
Benefits
For Govt. and Taxpayers- Improve service delivery. Improve cost effectiveness. Increase investment in public infrastructure. Reduce public sector risks. Deliver capital projects faster. Improve budget certainty. Expedited project completion. Access to new sources of private capital.
Benefits
For private sector- Access to secure, long-term investment
opportunities.
Expansion of capacity and expertise.
Generation of business with the relative certainty and security of a govt. counterpart.
High return with low risks, at the long term expense of taxpayers and the public.
Four Basic Dimensions of P3
Although each is unique, all P3’s include four basic characteristics:
Shared goals Shared resources (time, money,
expertise, people) Shared risks Shared benefits
Risks
Financial risks.
Performance/availability risks.
Demand risks
Construction risks.
Residual value.
Typical Funding Sources
Tolls Tax Increment Finance Fees Grants Loans Bonds Other Revenue Streams
Privatization vs. P3
In privatization, Govt. has no longer a direct role but , whereas with a P3 the govt. retains ultimate responsibility. (Grimsey & Lewis, 2005)
Pure public
Public-
private partnership
Pure Private
The level of public control and oversight
High Low
Popular PPP Models
Service contract Operation and management contract
Leasing-type contracts# Buy-Build-Operate(BBO)
#Lease-Develop-Operate(LDO)#Wrap-Around Addition(WAA).
Build-operate-transfer(BOT)#Build-Own-Operate-Transfer(BOOT)
#Build-Rent-Own-Transfer(BROT)#Build-Lease-Operate-Transfer(BLOT)
#Build-Transfer-Operate(BTO)
Design-Build-Finance-Operate(DBFO)
#Build-Own-Operate(BOO)#Build-Develop-Operate(BDO)#Design-Construct-Manage-
Finance(DCMF)
Source: IMF, Public-Private Partnerships, March 12,2004,p.8.
Public-Private Partnership
Providing policy support by
Public sector
Capital accumulation
and investment of Private sector
Trade liberalizati
on
Promoting FDI
Encourage Private sector
investment
Industrial developmen
t
Employment generation
Poverty alleviation
National wealth
generation
1. Law and order.2. Legal
enforceability.3. Required
infrastructure.
Providing policy support by
Public sectorTrade
liberalization
Promoting FDI
Encourage Private sector
investment
Balancing the scoreboard
The Result of Serving the Public Trust
Legal Authority
Protection of Procurement Policies
Broad prospective/balance the competing goals to meet public needs
Personnel – dedicated but constrained
Capital resources
The Result of Market Competition
Management Efficiency
Newer Technologies
Workplace Efficiencies
Cash Flow Management
Personnel Development
Shared Resources
Strengths of Public sector
Strengths of private sector
http://www.ncppp.org/howpart/PPPfundamentals.html
Successful Partnership The secret is to balance the strengths of both
sectors Maximizes the use of each sector’s strength
Reduces development risk
Reduces public capital investment
Mobilizes excess or underutilized assets
Improves efficiencies/quicker completion
Better environmental compliance
Improves service to the community
Improves cost effectiveness
Shares resources
Shares/allocates risks
Mutual rewards
Six Keys for Successful Partnership • Statutory Authority & Regulations and Political Leadership must be in place- Strong policy
statement - Will to change the
system - Top Administrative
officials engaged in execution
Statutory & Political Environme
nt
Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html
Call for a good governance regime - Best value vs lowest
price - Dedicated & trained
personnel to monitor implementation
- Dedicated group (tied to the purpose of the partnership
Organized Structure.
Six Keys for Successful Partnership
Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html
Six Keys for Successful Partnership
Encompasses goal oriented performances - Specific milestones
and goals - Reporting metrics and
frequency - Risk Allocation - Dispute resolution
methodology - Development of
workforce
Detailed Business
Plan
Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html
Six Keys for Successful Partnership
Long-term financing plan- Availability of
Payments - Underutilized
Assets - Concession Model - Creative
Approaches
Guaranteed Revenue Stream.
Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html
Six Keys for Successful Partnership
Require open discussions, knowing the FACTS, Translating each other’s language - Public & Private
sector officials- Labor unions- End users - Resolution of
Competing interests
Stakeholder
Support.
Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html
Six Keys for Successful Partnership
Long-term relationship calls for each sector’s motivation - Technical capability- Financial capability- Reasonable Return on
Investment - Timely execution vs.
development costs - Political & statutory
environment
Picking Partners
Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html
P3 Project management
Crafting the partnership.
Implementing the partnership.
crafting
• Genesis • Feasibility• • Plan and test
implementing
• Procure• Implement• Operate
INTERNATIONAL INSTRUMENTS
Initial steps
• ICPD (5-13 September, 1994) Cairo, Egypt• Phrases like public and private started to
appear in official documents often involved NGO, never mentioned corporations
Paris Declaration (2 march 2005)
Ownership Partner countries exercise effective
leadership over their development policies and strategies and co-ordinate development actions.
Alignment Donors base their overall support on
partner countries national development strategies, institutions and procedures
Paris Declaration (2 march 2005)
Harmonisation Donors actions are more harmonised,
transparent and collectively effective.
Managing for results Managing resources and improving
decision-making for results.
Paris Declaration (2 march 2005)
Mutual accountability Donors and partners are accountable for
development results
Other int’l instruments
Istanbul 1996
UN agenda 21, (3-14 June 1992)
International Health Partnership (Sept 2007)
Agenda for action, Accra, Ghana (4 Sept 2008)
International Health Partnership signatories
CONTEMPORARY THOUGHTS ON PPP (P3)
The groupJoan Veon
Thoughts
• Uncertainty over a long horizon.
• Changing govt. objectives.
• Lack of commitment for both-– Private sector (Bankruptcy/exit).– Government (Break contract/renegotiation)
Thoughts• Private financing is more costly and risky than
public financing.
• Risk transfer is mostly one-sided or often results heated debate.
• Private sectors profit maximizing tendency.
Thoughts
• Public private partnership is just like marriage, you discover each others strength and weakness as time passes by.
• Partners have different footings, (equal footing partnership needed)
Joan veon
• Re-inventing government,1999
– Citizen/tax payers addressed as CUSTOMERS!!!
• To the point where we won’t even recognize the government.
Joan veon
• How the private control over public asset
• Solution for government that is broke.
• GLOBAL CORPORATE FACISM
• Transfer of wealth
• Uses deceit, deception and distortion
• Fleecing of tax payers
Joan veon
• A lady asked Franklin as they were debating what kind of government structure 13 colonies would have? She asked what kind of government do we have? He replied “Madam, you have a republic IF you can keep it.”
“… the players with the most money control the partnership.”
Joan veon
PPP MAKING SENSEBANGLADESH
History of PPP in Bangladesh
1996- Private Sector Power Policy To promote private sector participation
1997- Infrastructure Development Company Limited (IDCOL)
To promote private sector investment in infrastructure development
IIFC- Infrastructure Investment and Facilitation Centre
To provide Technical Assistance to ministries and divisions
History of PPP in Bangladesh
2004- Public Sector Infrastructure Guideline (PSIG)
Serve as the basis for present PPP policy
2007- Investment Promotion and Financing Facility (IPFF)
A fund of Bangladesh Bank to support govt. PPP (4.18 billion)
2008- Public Private Partnership (PPP)
Policy to encourage participation in public sector
Continues…..
• 1970 and 1980- BIRDEM Hospital Established under ADP by diabetic association.
• One road in Sirajgonj district constructed which is the first toll road in the country.
Resource Gap
Fiscal Year 2009-10 10-11 11-12 12-13 13-14
GDP growth (%) 6.0 6.8 7.5 8.0 8.0
Required Investment (billion USD)
24.59 30.63 37.18 43.82 49.69
Investment (billion USD)
23.55 27.10 31.36 35.54 40.29
Deficit (billion USD) 1.04 3.53 5.82 8.27 9.40
Source: Preliminary Estimates of Finance Division under Mid-term Macroeconomic Framework
Benefits of PPP
Public Sector
Helps to Maintain Economic Stability
Importing Innovation and Expertise from Private Sector
Competitive Costing and Efficient Management
Help to Achieve Desired Growth Rate
High Quality Project Implementation.
Benefit Continues…..
Private Sector Expansion of Business
Get a Ground for Implementing Innovations
Public or User
Accountability Ensured
Make Government more Responsible
Risk Avoidance
PPP Models in Bangladesh
• BOO- Build-Own-Operate
• BOT- Build-Operate-Transfer
• BOOT- Build- Own- Operate - Transfer
• Private sector manages the infrastructure. Example: Independent Power Producer.
• Private sector manages the structure for a specified time.
• Pvt. sector manages for a specified time then transfer to the govt.
Potential Areas of PPP in Bangladesh
• Power and Energy• Transport Infrastructure• Pure Drinking Water and Sewerage• Information and Communication Technology• Air Transport and Tourism• Industry• Education• Health• Housing
Human resources
Project Implemented under PPP
IDCOL 22 projects worth BDT 13 billion
IPFF 5 power sector projects worth BDT 8.67 billion. IPFF- 51%, Private sector-32%, Banks- 17%
IIFC Under contract to design 30, technical support to 8 and consultancy support to 16 projects
Selection of Appropriate Options
Required Technical Skill
Quadrant 3:
RTS-High
RC- Low
Quadrant 4:
RTS- High
RC- High
Quadrant 1:
RTS- Low
RC- Low
Quadrant 2:
RTS-Low
RC- High
Required Capital
GOVERNMENT PLAN FOR PPP
In Energy Sector
Govt. Plan for PPP in Energy Sector
• Initial fund BDT 1500 crore• A professional fund manager from pvt. Sector• 5 member investment committee by FM• Tenure 12- 15 years• 7000 megawatts (mw) electricity by 2013 and
20,000 mw by 2021• Next 5years govt. needs BDT 66,000 crore for
generation, transmission and distribution• Saling of bond to expatriates/ share to stock
market
Govt. Plan Continues…..
• Creation of 3 new expenditure heads-• Technical Assistance- for feasibility study and
preparatory work- BDT 1.0 billion• Viability Gap Funding- BDT 3.0 billion for
subsidy or seed money to attract pvt. Initiative• Infrastructure Investment Fund- BDT 21.0 billion
to provide loan to pvt. Investor.
SUCCESS STORIES
Chittagonj Custom House Automation
Customs House
GoB
Chittagonj Chamber of Commerce
Data Soft
Army backed taskforce- ‘Bravo’
Active Stakeholders
(17)
Policy
Patronization
Facilitation
CommunicationCoordination
Support
Fund Return on Investment
Software
Source: Idea taken from Baniamin, H.M and Monem, M., 2010.
Achievements of the Project• Glowing example of ‘BOOT’• 42 steps cargo assessment process decreased
to 6 steps only• Entry cost reduced from BDT 180 to BDT 50• Doubling of revenue income in 2 years• Saving business cost up to 70%• Saving custom processing time about 80%• Ensuring transparency• Better risk management.
Partnership in EPI
NGOsGovernmentCoordination
Community
LGUHFPO
UPCoordination
ImamsPrivate Sector
Policy, Vaccines, Training, Monitoring, Quality Assurance
Human Resource, Training, Advocacy, Reporting
Reporting
Communication materials and Community mobilization
Community Mobilization
DisseminationCommunity Mobilization
Involvements….
Donors- JICA, WHO, UNICEF, USAID, Rotary International, Swedish International Development Agency, GAVI (Global Alliance for Vaccination and Immunization).
BRAC, CARE, RDRS (Rangpur Dinajpur Rural Services), PROSHIKA and ICDDR,B.
EPI program was launched in Bangladesh in 1979 but got the momentum in 1985-90 with GO-NGO participation.
TEAM PROPOSAL FOR PPP
InBangladesh
Manpower Development
Civil Construction
Driving and Maintenance
Hi-tech and Heavy
Industry
Garments and Textile
Consortium
Manpower
Skilled Labor Force
Labor Market
Government
Embassy andHigh Commission
Training
PolicyFinancial Support
Remittance
LoanRecruiting Agencies
Risks Associated with PPP
Loss of ownership of public properties
Approval of inflated costs
Overlooked public interest when pricing the services
Dysfunctional infrastructure once ownership is handed over to the government.
Challenges in PPP Implementation Absence of unique formula to develop a sound PPP
framework.
Private investors want to privatize the profit i.e. profit will be personal but loss will be social.
Judging the economic viability of the project (since costing and pricing is crucial).
Formation of a comprehensive policy and regulatory framework.
A match between asset, liability and cash flow is vital. Because repatriation of foreign currency may create pressure on reserve.
Our Suggestions
Careful and project specific policy formulation
Public ownership of the property is maintained
Technical assessment to be done meticulously
For pricing and costing people’s welfare must be kept in mind
Quality of the infrastructure ensured even after hand over to the govt.
Suggestions Continues…..
Only potential and high investment project should be considered.
Politically non-biased projects should be taken in PPP project so that continuity maintained even after regime change
PPP MAKING SENSENEPAL
Joint ventures: Salt Trading Corporation, founded in 1963
not quite a PPP: completely devoid of competition and the full rigours of the market mechanism.
http://telegraphnepal.com/news_det.php?news_id=5237
Liberal economy in 1990 resulted in very prominent Nepali innovations towards PPP in the infrastructure sector, as for example,
Hydropower Act 1999;
BOT Policy 1999.
Public private partnership, 2003 etc
http://telegraphnepal.com/news_det.php?news_id=5237
After 2000 the concept got well underway in full steam with the initiative of the UNDP to bring about mass awareness and to formulate and promote projects for implementation at the level of the municipalities.
http://telegraphnepal.com/news_det.php?news_id=5237
first incorporated as a part of the national budget for 2003-04 under the theme ‘people-public-private partnership’ (P4 as it were) by Finance Minister, Dr. P.C. Lohani.
The 4th P, so to speak, was added to imbibe a sense of ‘people’s participation’ in development at the grass roots by mobilizing cooperatives and user groups in the agro-forestry, irrigation and energy sectors --- areas of opportunity not quite yet perceived by the envisioned scope of PPP prevailing in Nepal at the time.
http://telegraphnepal.com/news_det.php?news_id=5237
FNCCI with its call for a One-Village-One-Product (1V1P) based on the tried and tested model of Thailand.
e.g. cold storages; chilling centres, cooperatives in the dairy product areas.
Different ppp models used in the health sector of nepalService Contracts
Blood transfusion NRCCFamily planning services FPANSafe abortion service marie stoppes clinicEye services with nepal netra jyoti sanga
Management Contract Lamjung district hospital and dadeldhura
hospital with NGO human dev and community services
Jiri hospital with local community
Build Own Operate and Transfer (BOOT)Maternity hospital thapathali by Paropakar
national NGOManipal medical college, pokhara 50 years
contractBharatpur medical college, chitwan 50 years
contract
Build and TransferLahan hospital Several eye hospital
Build Operate and TransferTrisuli hospital, nuwakot
Build, Transfer and Operate Western regional hospital, Pokhara with INF
Joint VentureNepal eye hospital
Leasing Pharmacy services in several hospital
Contracting + pay for performancePrevention and surgery of uterine prolapsed cases
(under design)
Contracting via social franchisingPotential model for drug supply management
2005-06 Budget welcomed PPP in social sectors like school education and public health.
They consume around 20% of the national budget and employ most human resources with the government.
Budget of 2008-09 presented by the Finance Minister, Dr Babu Ram Bhattarai, accepts PPP as the basis of the new economic policy for the new Nepal.
Prime Minster Pushpa Kamal Dahal, alias Prachanda, is on record as having said that there no alternative to this model of development.
One perceives that the neo-Maoists ideology believes that this is the only way forward to build a ‘nationalist capitalist society’, which is so vital, for them, to eradicate the remnants of feudalism and thus move forward rapidly towards socialism and ultimately communism.
Its projected 7% GDP growth in 2008-09 and 10 % per year in 3 years later is premised on this model.
2008-09 Budget, unlike 2005-06, totally rejects privatization.
On the contrary, it seeks to revive liquidated public enterprises- albeit mostly founded on Chinese aid to Nepal in the 1960s-70s.
the concept of PPP seems, on the one hand, to have received a national consensus as an appropriate—or even ‘best’ -- model for Nepal’s economic growth and development.
However, on the other hand, it remains to be seen under what macro-economic paradigm it is to proceed henceforth: namely, in ‘mixed enterprise system’ or‘liberal market system’ embodied in the full and free
play of market forces under WTO regulations -- being duly regulated by law to protect consumers, environment and labour from monopolistic, rent-seeking practices.
Will the benefits and costs of PPP be maximized under a regime of ‘market capitalism’ or ‘state capitalism’?
It also remains to be seen if the scope of PPP is to be limited to economic sectors or also extended to social sectors.
We may see many PPPs in such projects as:
Petrol pipeline from Raxaul to Amlekhganj;
Kathmandu- Terai Fast Track Road under BOOT;
Construction of an international airport at Nijgarh, and
Regional airports at Pokhara and Bhairawa