Public Private Partnership (PPP) - The Singapore...

Public Private Partnership (PPP)- The Singapore Experience

Seah Chin Siong,CEO, IDA International

World Bank ICT Sector Week 2011Date: 28 March 2011

© 2010. IDA International. All rights reserved. Strictly Confidential.1

Outline

• What is PPP?What is PPP?• Why PPP?

When to use PPP?• When to use PPP?• VFM Assessment• Common misunderstandings about PPP

© 2010. IDA International. All rights reserved. Strictly Confidential.

What is PPP?

PPP is a Long-Term Partnering Relationship between the Public and Private sectors to deliver services.Public and Private sectors to deliver services.

New Approach to work with Private Sector Increase Private Sector Involvement in delivery of

Govt services

PPP Projects Desalination Plant

Ul P d NEW Pl Ulu Pandan NEWater Plant TradeNet Defence Executive Services


Defence Executive Services

Ulu Pandan NEWater factory

• Keppel Integrated Engineering (KIE) design, build, own and operate the Ulu Pandan NEWater factory

• Supply NEWater to PUB at specified quality and quantity for 20 years

Public sector will focus on acquiring services at the most cost-effective basisthe most cost-effective basis Move away from directly owning and operating assets Bring together the expertise and resources of the Bring together the expertise and resources of the

public and private sectors


How is PPP Different?

Increasing Involvement of Private Sector

Service Delivery Models

Government In-house Provision

Public Private

PartnershipPrivatization

Increasing Involvement of Private Sector

Partnership

Buys assets

Owns and Operates

Buys services Provide a stream of

Regulates the industry

assets

Delivers services

Provide a stream of payment

Monitors service performance

Sells assets Develops assets Delivers Services

Government

Sells assets Develops assets

Finances assets

Deliver services

Delivers Services PrivateSector


PPP vs. Traditional ProcurementPPP Traditional Procurement

Companies come together, usually as a consortium, to undertake the whole project

Public agencies engage separate companies to design, construct and/or maintain aundertake the whole project

Consortium is responsible for designing building financing

construct and/or maintain a facility

Government owns facilitydesigning, building, financing, and operating the facility

Consortium owns the facility

Government owns facility

Consortium owns the facility


Private Financing ≠ Free Money for Govtg y

• Private sector Finances AssetPrivate sector Finances Asset• Government eventually funds project with

stream of payments when services are p ydelivered

Government Payments

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25


YearsConventional procurement PPP

Roles of Public Sector and Private Sector

Public Sector = Service Purchaser– Specify the required outcomes/outputs

Monitor the performance of the PPP provider– Monitor the performance of the PPP providerPrivate Sector = Service Providers & Private Financiers

– Form consortium to bid for the PPP project– Propose innovative solutions to meet the public

sector’s objectivessector s objectives– Invest in the SPV (Equity Investors)– Lend to the SPV (Debt Providers)


Outline




Why PPP for Singapore?

PPP is a Win-Win-Win solution for:PPP is a Win Win Win solution for:• Members of the public

P bli S t• Public Sector• Private Sector


For Members of the Public• Brings together the best from Govt and private sector

to meet the needs of the publicp• Encourage greater innovation and competition in the

private sector to yield greater value, in terms of cost and qualityq y

Protect Public Interest - Government will ensure:P i t P id t bli d Private Providers can meet public needs effectively

Clear Accountabilityy Public security, health and safety are not

compromised


For the Public Sector

Best Value for Money (VFM)Best Value for Money (VFM)– Tap into Private Sector’s flexibility to innovate – Optimal Whole Lifecycle Costing– Better asset utilisation– Optimal Sharing of Responsibilities


For the Private Sector

Business OpportunitiesBusiness Opportunities– Deliver traditionally in-house Govt services– Provide wider range of servicesProvide wider range of services– Over longer contract periods

• Usually 15 to 30 years (Can be 7 to 10 years inUsually 15 to 30 years (Can be 7 to 10 years in some industries)

– More room to innovate and add value


For a start, PPP can be used for: Projects above S$50 million in capital value, and Projects in sectors with successful PPP examples abroad:j p

Water TreatmentIncineration PlantsSports Facilities IT Infrastructure

Student Education Facilities ExpresswaysHealthcare Facilities


Student Accommodation

Education Facilities ExpresswaysHealthcare Facilities

Outline




When to use PPP?

Define Service required

Define Service required

Does the Government have to be accountable

No Direct Private

Does the Government have to be accountable

No Direct Private

for delivering the service? Provision

Yes

for delivering the service? Provision

Yes

Can the private sector be contracted to provide the

service / part of the service?

No Government provide in-house

Can the private sector be contracted to provide the

service / part of the service?

No Government provide in-house

Yes

Consider PPP / Outsourcing

Yes

Consider PPP / Outsourcing


PPP / OutsourcingPPP / Outsourcing

Defining the serviceg

• Agencies understand and able toAgencies understand and able to define the required services– What are the services to be delivered to

the users?• Aim to define requirements in terms of

i t t / tservice outputs/outcomes– Greater clarity of desired outcome

Greater flexibility allowing for innovative– Greater flexibility, allowing for innovative service delivery


Accountabilityy

• Does Govt have to be accountable for delivering gservices?– YES

• How to deliver services in the most effective and cost-efficient way?

NO– NO• Private sector can directly provide services• Govt as regulator, not involved in actual deliveryGovt as regulator, not involved in actual delivery


Contracting with Private SectorContracting with Private Sector

• Considerations• Considerations– Can service requirements be clearly defined in

contractual terms?– Are there capable private providers?– Are there security concerns?

• If possible to contract with private sector– PPP or outsourcing?


Outline




VFM Assessment

• Optimum combination of whole lif l t d litlifecycle cost and quality

• Does not always mean lowest bidConducted at two crucial phases• Conducted at two crucial phases– Pre-Tender – PPP vs Traditional

Procurement– Pre-Award – Award vs Non-award

• PPP provider offers VFM?


Pre-Tender VFM assessment

• Viability – Desired outcomes are adequately specified i t t t tinto output terms– Outcomes, operational flexibility

• Desirability – Benefits of PPP likely to outweigh any y y g yincreases in costs– Risk management, innovation, incentive and

monitoring, lifecycle costsmonitoring, lifecycle costs• Achievability – Deal structure attracts private sector

participantsTransaction costs and capacity competition– Transaction costs and capacity, competition


Pre-award VFM assessment• Determine whether potential PPP provider can deliver better

VFM than traditional procurement (TP)• Assess whether to award tender• Compare bid price of recommended PPP tender’s base offer

with best estimate of cost under TP to procure same level of pservice. Other factors that contribute to VFM should also be considered in the evaluation process

• The agency should award the contract to the recommended PPP bidd ifPPP bidder if:– The recommended PPP bid price is not significantly higher; or– The recommended PPP bid price is higher but the additional

t j tifi blcosts are justifiable.


Pre-award VFM assessment

• The agency may consider not awarding the PPP tender if:Th d d PPP bid i i i ifi tl hi h th– The recommended PPP bid price is significantly higher than the estimated bid cost of TP ; AND

– The additional costs are not justified,

• Agencies should, however, be aware of the implications of non-award:– Additional costs, time and time delays of recalling tender via

TP– More expensive in overall economic terms to abort a PPP

tender after complex and lengthy procurement process



• Limitations of prescribed VFM approach• Limitations of prescribed VFM approach– Some VFM factors difficult to quantify in

dollar terms• Improved service delivery, private sector

management, innovationL k f f f thfi d j t– Lack of references for pathfinder projects

– Robustness of estimate of project cost under TPunder TP


Outline




General Misconceptionsp

• MISCONCEPTION: PPP may lead to poor design• MISCONCEPTION: PPP may lead to poor design due to– Limited input specs in PPPLimited input specs in PPP– Provider seeks to economize

• FACT: Design can be factored into evaluation gcriteria e.g. Sports Hub– Separately consider design via two-envelop system


General Misconceptionsp

• MISCONCEPTION: Necessary to engage advisors• MISCONCEPTION: Necessary to engage advisors for all PPP projects– Lengthen project timeline and increase costsLengthen project timeline and increase costs

• FACT: Advisors not necessary if expertise is present in-housep– TradeXchange – Only engaged legal advisors as IDA

has the technical expertise– Desalination Plant – Advisors for legal, financial and

technical aspects of deal


General Misconceptionp

• MISCONCEPTION: PPP is only attractive for• MISCONCEPTION: PPP is only attractive for projects where there is third party revenue

• FACT: The unitary payment from the procuring• FACT: The unitary payment from the procuring public agency forms the main stream of revenue for the PPP providerp


General Misconceptionp

• MISCONCEPTION: PPP will increase fees and charges payable by the publicpayable by the public

• FACT: PPP is merely an alternative form of procurement– Does not affect the agency’s revenue or subsidy policy

PPP h ld t i f d h t b th– PPP should not increase fees and charges set by the agency

– User charges set by the agencyA if f d h f h• Agency can specify fees and user charges as part of the service requirement

• Agency may also set – desired level of output, subsidy li i d t t t l i l tipolicy, industry structure, legislation


Thank youThank you


Public Private Partnership (PPP) - The Singapore...

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