Patricio Mansilla - Key PPP Precepts

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  • 1. Key PPP PreceptsDrawn from International Experience Patricio Mansilla Infrastructure Director Chemonics International
  • 2. PPP INFRASTRUCTURE PRECEPTSIDEAS AND CONCEPTS BEHIND SUCCESSFUL PPP PROGRAMS 2
  • 3. Chemonics PPP Infrastructure Precepts:• Approach PPP infrastructure development as a Program rather than ad-hoc transactions;• Provide specialized Technical Assistance through the entire project preparation-cycle (Alpha to Omega);• Do not “short-change” project preparation costs;• Promote vigorous, open, and transparent competition;• Look for opportunities to leverage public sector funding;• Strengthen the PPP legal/institutional regulatory framework over time. 3
  • 4. CHEMONICS PPP PRECEPTSApproach PPP infrastructure development as a program rather than ad-hoc, one of a kind transactions. 4
  • 5. Chemonics PPP PreceptsWhy?• Multiple projects support and drive PPP institutional development;• PPP transaction design and structuring is expensive; need to seek economies of scale;• Economical use of professional staff;• Need for a PPP institutional home: An in-country base for PPP knowledge and experience of what works and what does not work;Examples: PPP Unit / South Africa National Treasury; ProInversion / Peru; Philippines / Ministry of Finance PPP Unit 5
  • 6. CHEMONICS PPP PRECEPTSProvide specialized Technical Assistance through the entire project preparation process: Alpha to Omega (A-Z) 6
  • 7. Chemonics PPP PreceptsWhy?• The “Design Phase” of a PPP transaction is the easy part, the more difficult and important part is the “Transaction Implementation Phase”.End Objective• Build stakeholder consensus, political commitment, and public support, as well as, ensure essential private investment. 7
  • 8. Transaction Transaction Design ImplementationDefine Objectives/ Select PPP option Draft bidding documents/contractsDue Diligence / Technical Project Design Local/International Promotion Financial Structuring Pre-qualification Risk Allocation & Mitigation Bidder due-diligenceShadow Rating/Credit Enhancement Interaction with Bidders “negotiation” Asses investor interest PPP Contracts/Procurement Process Tech/Fin/legal Transaction Design Contract Award / Financial ClosureConsultation with key stakeholders: Build consensus, political commitment, and public support
  • 9. CHEMONICS PPP PRECEPTSDo not “short change” project preparation costs. 9
  • 10. Chemonics PPP PreceptsWhy? “A dollar saved is not necessarily a dollar earned.”• Most PPPs are capitol intensive and the private sector (both international and domestic) is being asked to assume substantial risk as they make the crucial decision to invest or not.• Sound project preparation is the key to building investor confidence. 10
  • 11. Technical Assistance (T.A) and the Case of Peru 1,000 Km Amazon North Highway_ Investment T.A. Cost $220 $4.7 Million Million 11
  • 12. Transport PPP Transactions Amazon North: 960 Km. Investments: $220 mil. O&M: $15 mil./year Awarded in: April 2005 FBT: 480 Km. Investments: $162 mill. Amazon Central: 854 Km. Investments: $115 mil. South Container O&M: $15 mil./year Terminal Port of Callao $364-$617mil.Awarded: June 2006 12
  • 13. 13
  • 14. Technical Assistance (T.A) and the Case of Peru Port of Callao (Lima)_ Investment T.A. Cost $430 $3.3 Million Million 14
  • 15. What’s wrong with this Picture? Callao Porta) Increase in Demand (Port moves more than 1 million TEU per year and serves 80% of Peruvian foreign trade)b) Overruns, low productivity and technological changec) Negative externalitiesd) $800 million in investments required 15 in Peruvian ports
  • 16. No Gantries in Callao Port
  • 17. Lima- South BreakwaterPeruvianCapital Option of second phase Container docks - ENAPU Currently demolished 7 ha
  • 18. In the Case of Peru $ 8.0 Million in $ 650 Million Government- in Private Financed Sector Technical Investment Assistance• Peru PPP Investment to Technical Assistance Ratio = 80:1• Moral of the story with respect to financing PPP design/structuring: Don’t be “Penny-wise and pound foolish” 18
  • 19. CHEMONICS PPP PRECEPTSPromote vigorous, open, and transparent competition. 19
  • 20. Chemonics PPP Precepts (cont.)Why?• PPP projects in themselves do not always guarantee lower prices or better services – competition does.• Additionally vigorous, open competition is the single best way to prevent corruption. 20
  • 21. The Case of Montería, Colombia PPPPANAMA Montería Water PPP: The first Water Montería VENEZUELA PPP in Colombia MONTERIA – year 2000 • Population: 300,000 (80% Low Income) • Water production: 600 lps. Bogota • Non revenue water: 55 % COLOMBIA • Metering: 0.7 % • Revenues: $4 M • Water Coverage: 50 % • Connections: 36,500 ECUADOR • Sewerage Coverage: 27 % • Connections: 14,600 BRASIL • Required Capital PERU investments: $70-80 mill
  • 22. The Case of Montería, Colombia PPP Montería 3 years after Water/Sewage Units Before Concession Concession CoverageWater Coverage % 50 76Sewage Coverage % 27 40Water Production liters/sec. 659 915Hours of Service Hours/day 3/4 18/24 Competition set the stage for generation of these results. 22
  • 23. Transaction Competitive Bidding Process Structure Amend Bidding:Prepare RFP & Pre- Consultation Business Model Proposals & Draft Contract Qualification “Negotiation” and Evaluation PPP Contract Local and International Project PPP Contract Promotion Award Constant Interaction with Bidders Financial Closure
  • 24. How is Competition Maximized?• Incentives for maximizing the number of qualified bidders submitting proposals.• In the case of Montería the transaction consultant received a scaled success fee payment: – 80% of success fee for 1 qualified bidder – 100% success fee for 2 qualified bidders – 120% success fee for 3 or more qualified bidders (FCC/VIVENDI, Azurix, and CEC/Venezuela). 24
  • 25. How is Competition Maximized? (Cont.)• Partial Credit Guarantee (PCG): The case of the Amazon North Concession in Peru.• Road shows to sell the country and the PPP project.• Solid technical and financial PPP Design / Structuring. 25
  • 26. Competition, Competition, and more Competition• Fundamental underlying precept at the core of PPP implementation philosophy;• PPP does not guarantee lower prices or better service, competition does…;• Essential that the public does not perceive that PPP merely substitutes a private sector monopoly for a public sector monopoly;• Procedural transparency and professionalism is critical to the success of PPP procurements.
  • 27. Chemonics PPP PreceptsLook for opportunities to leverage public sector financing 27
  • 28. Chemonics PPP Precepts (cont.)• Partial Credit Guarantees (PCG);• Right-sizing the government’s capital commitment to properly allocate risk between the public sector and private sector:  Amazonas Norte PCG  Callao Port and Monteria Water/Sewage 28
  • 29. Chemonics PPP PreceptsStrengthen the legal/institutional regulatory framework overtime; 29
  • 30. Chemonics PPP Precepts (cont.)• In the absence of established regulatory institutions to oversee specific PPP transactions, PPPs can and should move forward with regulatory provisions embedded in each PPP contract;• Overtime the regulatory/institutional framework will evolve and take root at the individual ministry level or in a special purpose regulatory body…in the meantime keep building the portfolio of PPP transactions. 30
  • 31. Thank You Very Much