Organised by Civil Service College, Dhaka

Nazrul IslamExecutive Director and CEO

Infrastructure Investment Facilitation Center 11 February 2012

Basics of Public-Private Partnerships (PPP)

11

22

PART A: PPP ConceptsPART A: PPP Concepts• IntroductionIntroduction

• Type of PPP’sType of PPP’s

• PPP History in BangladeshPPP History in Bangladesh

PART B: Commercial Aspects & PPP PART B: Commercial Aspects & PPP ModelsModels

PART C: TransactionsPART C: Transactions

PART A: PART A:

PPP ConceptsPPP Concepts

33

PPP can be defined as a

“long term business partnership

between the public and private

sector through a contract or license,

for providing infrastructure

services”Examples: Power stations (IPPs), toll roads and

elevated expressways, container terminals

55

Non-Infrastructure (competitive)Non-Infrastructure (competitive) Investors free to take up project Investors free to take up project

anytimeanytime No Bidding necessaryNo Bidding necessary

Infrastructure (Govt. monopoly)Infrastructure (Govt. monopoly) Investors not free to take up projectInvestors not free to take up project Majority Projects SolicitedMajority Projects Solicited Bidding necessaryBidding necessary Government gives right to do Government gives right to do

businessbusiness

By default, all infrastructurebelongs to the Public Sector

TYPENon-

Infrastruc-ture

Infrastruc-ture

Public Sector

Private Sector

xPPP by shares by contract

Medium to long term relationship between the public and private Sector

Enable Government to work with private sectors to provide infrastructure

Involves sharing and transferring of risks and rewards between public and private Sector

Attempts to utilise multi-sectoral and multi-disciplinary expertise to structure, finance and deliver desired policy outcomes

Clear governance structures established to manage the partnerships

Achieving improved value by

• utilising the private sector’s innovative capabilities and skills to deliver economy, efficiency and effectiveness

Leveraging private sector capital

• to obtain efficiency gains in service delivery and asset creation

Life-cycle responsibility, value for money, output specification, risk transfer fundamentals

88

Service ContractsService Contracts Management ContractsManagement Contracts Lease ArrangementsLease Arrangements ConcessionsConcessions

• BOT (Build-Operate-Transfer)BOT (Build-Operate-Transfer)• BOO (Build-Own-Operate)BOO (Build-Own-Operate)• BOOT (Build-Own-Operate-Transfer))BOOT (Build-Own-Operate-Transfer))• BT (Build-Transfer)BT (Build-Transfer)• BTO (Build-Transfer-Operate)BTO (Build-Transfer-Operate)• ROT (Refurbish-Operate-Transfer)ROT (Refurbish-Operate-Transfer)• ROM (Refurbish-Operate-Maintain)ROM (Refurbish-Operate-Maintain)• SOT (Supply-Operate-Transfer)SOT (Supply-Operate-Transfer)

99

Duration (yrs)Increasing level of delegation, risk & irreversibility

Service Service contractscontracts

ManagemeManagement nt contractscontracts

LeasesLeases

ConcessionsConcessions

DivestituresDivestitures100 % non-public 100 % non-public ownershipownership

100 % Public 100 % Public ownershipownership

5 10 15 20 25 30

BOTBOT

BOOBOO

Provider

Enabler/ Regulator

Government’sRole

1010

PART B: PART B:

Commercial Commercial Aspects and PPP Aspects and PPP

ModelsModels1111

Model A: Model A: Users Pay FullyUsers Pay Fully

Model B: Model B: Viability Gap Funding (VGF)Viability Gap Funding (VGF)

Model C: Model C: Direct PaymentsDirect Payments

PPP projects can be broadly categorized as follows

Project Viability:Project Viability: The project needs to be viable The project needs to be viable Demand Risk:Demand Risk: Investor bears the risk Investor bears the risk Tariff:Tariff: Tariff is fixed by the contract Tariff is fixed by the contract Bidding Parameter:Bidding Parameter: Highest fixed or variable royalty Highest fixed or variable royalty Implications to Budget:Implications to Budget: No need for allocating budget No need for allocating budget

GoB

Investor User

Right to do a Business

Royalty

Services

Charges

GoB

Investor User

Right to do a Business

Royalty

Services

Charges

Project Viability:Project Viability: The project need not be The project need not be fullyfully viable viable Demand Risk:Demand Risk: Investor bears the risk Investor bears the risk Tariff:Tariff: Tariff is fixed by the contract Tariff is fixed by the contract Bidding Parameter:Bidding Parameter: Lowest VGF payment Lowest VGF payment Implications to Budget:Implications to Budget: Budget needs to be allocated Budget needs to be allocated

Right to do a Business

VGF

Services

ChargesUser

GoB

Investor

Right to do a Business

VGF

Services

ChargesUser

GoB

Investor

Project Viability:Project Viability: Not relevant Not relevant Demand Risk:Demand Risk: Not assumed by the investor Not assumed by the investor Tariff:Tariff: Bidding parameter determines the tariff Bidding parameter determines the tariff Bidding Parameter:Bidding Parameter: Lowest annuity or levelized cost Lowest annuity or levelized cost Implications to Budget:Implications to Budget: Budget needs to be allocated Budget needs to be allocated

Right to do a Business

Annuity Payments

Services

Optional Charge

GoB

Investor User

Right to do a Business

Annuity Payments

Services

Optional Charge

GoB

Investor User

1616

Equity Investors

Lenders/ Institutional Investors

Borrower / Concessionaire

Executing Agency

Dividends

Equity InvestmentDebt Finance

Debt Service (Principal + Interest)

Concession Agreement

Toll Payments

Revenues/Cash FlowsProject

Construction, Operations and

Maintenance

Toll Rate/ Fare Collection

Revenue

Government of

Bangladesh

Performance Guarantee

Annuity Payments

PART C: PART C:

PPP TransactionsPPP Transactions

1717

1818

Procurement TypesProcurement Types• Solicited ProjectsSolicited Projects

• Unsolicited ProjectsUnsolicited Projects

Both need engagement of Transaction AdvisersBoth need engagement of Transaction Advisers Conduct commercial feasibility study to satisfy the Conduct commercial feasibility study to satisfy the

requirements of the executing agency, approving requirements of the executing agency, approving authorities, private sponsors and potential lendersauthorities, private sponsors and potential lenders

Prepare the contract documents (PPA, CA etc)Prepare the contract documents (PPA, CA etc) Prepare necessary bidding documents and assist in bid Prepare necessary bidding documents and assist in bid

evaluations evaluations Assist the implementing agency in contract negotiations Assist the implementing agency in contract negotiations

and contract finalisation. and contract finalisation.

1919

Shareholders Agreement

Shareholders Agreement

Power Purchase Agreement

Power Purchase Agreement

Fuel Supply AgreementFuel Supply Agreement

EPC ContractEPC Contract

O&M Agreement O&M Agreement

Insurance Agreement Insurance

Agreement

Implementation Agreement

Implementation Agreement

Loan Agreement Loan Agreement

Sub-ord Loan Agreement

Sub-ord Loan Agreement

Power Authority

Power Authority

ShareholdersShareholders

GovernmentGovernment

Senior LendersSenior

Lenders

Sub-DebtSub-DebtInsurance

CompaniesInsurance

Companies

O&M Operator

O&M Operator

Construction ContractorConstruction Contractor

Fuel Supplier

Fuel Supplier

2020