Public Private Partnership Kumar Bijoy Financial consultant [email_address] 09810452266

Background… “ What takes the government 50 years to achieve can be done by the private sector in a tenth of the time” - Milton Friedman . “ Non-Government is Effective” (A Sarkari- Asarkari) - Binoba Bhave

“ What takes the government 50 years to achieve can be done by the private sector in a tenth of the time”

- Milton Friedman .

“ Non-Government is Effective” (A Sarkari- Asarkari)

- Binoba Bhave

Terminology… PSP: Private Sector Participation PFI: Private Finance initiatives PPP: Public Private Partnership PPPP: People Public Private Partnership

PSP: Private Sector Participation

PFI: Private Finance initiatives

PPP: Public Private Partnership

PPPP: People Public Private Partnership

Agenda… PFI: a precursor for PPP in 1992 by conservative govt. in UK PFI was for reduction of Public Debt Quest for “Value for money” got central focus (Tony Blair-1997) PPP was developed in response for the quest i.e. “ Value for Money ”.

PFI: a precursor for PPP in 1992 by conservative govt. in UK

PFI was for reduction of Public Debt

Quest for “Value for money” got central focus (Tony Blair-1997)

PPP was developed in response for the quest i.e. “ Value for Money ”.

Definition… IMF/OECD: “ Public-private partnerships refer to the private sector financing, designing, building, maintaining and operating infrastructure assets traditionally provided by the public sector.” Government and a private corporation combine to provide a public service through the creation and use of new assets for a set time period

IMF/OECD:

“ Public-private partnerships refer to the private sector financing, designing, building, maintaining and operating infrastructure assets traditionally provided by the public sector.”

Government and a private corporation combine to provide a public service through the creation and use of new assets for a set time period

PPP…example Highway example – usual arrangements Government borrows money or Tax Public, pays to get a Highway built, Public uses the facility for free but pay in form of Increased Tax PPP Private firm borrows money, builds Highway, Public pay fee to use the highway, Firm hands over the property to Govt. after say 20 years

Highway example – usual arrangements

Government borrows money or Tax Public, pays to get a Highway built, Public uses the facility for free but pay in form of Increased Tax

PPP

Private firm borrows money, builds Highway, Public pay fee to use the highway, Firm hands over the property to Govt. after say 20 years

PPP… global examples Canada The 407 ETR toll road in Toronto, Ontario The Royal Ottawa Hospital in Ottawa, Ontario The William Osler Hospital in Brampton, Ontario The Viva bus rapid transit network in York Region, Ontario Confederation Bridge construction in Prince Edward Island India NISG , Hyderabad..

Canada

The 407 ETR toll road in Toronto, Ontario

The Royal Ottawa Hospital in Ottawa, Ontario

The William Osler Hospital in Brampton, Ontario

The Viva bus rapid transit network in York Region, Ontario

Confederation Bridge construction in Prince Edward Island

India

NISG , Hyderabad..

PPP… global examples United Kingdom Private Finance Initiative The maintenance of London Underground (since 2003) National Air Traffic Services (since 2001) Some National Health Service (NHS) hospitals and other agencies Firrhill High School Williamwood High School

United Kingdom

Private Finance Initiative

The maintenance of London Underground (since 2003)

National Air Traffic Services (since 2001)

Some National Health Service (NHS) hospitals and other agencies

Firrhill High School

Williamwood High School

PPP… global examples United States California Fuel Cell Partnership (CaFCP) California State Route 125 , San Diego, California Central Park , New York City Chicago Skyway Bridge, Chicago , Illinois Indiana East-West Toll Road , ( Interstate 80 / Interstate 90 ), Northern Indiana Southern Indiana Toll Road , ( Interstate 69 , proposed ), Martinsville to Evansville, Indiana Las Vegas Monorail , Nevada

United States

California Fuel Cell Partnership (CaFCP)

California State Route 125 , San Diego, California

Central Park , New York City

Chicago Skyway Bridge, Chicago , Illinois

Indiana East-West Toll Road , ( Interstate 80 / Interstate 90 ), Northern Indiana

Southern Indiana Toll Road , ( Interstate 69 , proposed ), Martinsville to Evansville, Indiana

Las Vegas Monorail , Nevada

PPP…why? Aging infrastructure Shrinking Govt. budget Constituent demands PPP = AN answer, and Not the answer

Aging infrastructure

Shrinking Govt. budget

Constituent demands

PPP = AN answer, and Not the answer

PPP…challenges ahead to bring P & P together “ Failure to Communicate” “ We Don’t Speak the Same Language ” – “Business Speak” • Customer Satisfaction • Return on Investment • Risk/Reward Evaluation – “Public Speak” • Responsibility • Accountability • Risk Avoidance

“ Failure to Communicate”

“ We Don’t Speak the Same Language ”

– “Business Speak”

• Customer Satisfaction

• Return on Investment

• Risk/Reward Evaluation

– “Public Speak”

• Responsibility

• Accountability

• Risk Avoidance

But Are These Really Different? BUSINESS GOVERNMENT Customer Satisfaction Responsibility Return on Investment Accountability Risk/Reward Evaluation Risk Avoidance

BUSINESS GOVERNMENT

Customer Satisfaction Responsibility

Return on Investment Accountability

Risk/Reward Evaluation Risk Avoidance

Private Sector Strengths

Private Sector Strengths Management Efficiency Newer Technologies Workplace Efficiencies Cash Flow Management Personnel Development Shared Resources (Money?)

Management Efficiency

Newer Technologies

Workplace Efficiencies

Cash Flow Management

Personnel Development

Shared Resources (Money?)

Public Sector Strengths Legal Authority Protection of Procurement Policies Broad prospective/balance the competing goals to meet public needs Personnel – dedicated but constrained Capital resources

Legal Authority

Protection of Procurement Policies

Broad prospective/balance the competing goals to meet public needs

Personnel – dedicated but constrained

Capital resources

Successful Partnerships The Secret is to Balance the Strengths of Both Sectors The Experience Of One Sector Helps Another

The Secret is to Balance the Strengths of Both Sectors

The Experience Of One Sector Helps Another

Advantages of PPPs Maximizes the use of each sector’s strength Reduced development risk Reduced public capital investment Mobilizes excess or underutilized assets Improved efficiencies/quicker completion Better environmental compliance Improved service to the community Improved cost effectiveness Shared resources Shared/allocated risks Mutual rewards

Maximizes the use of each sector’s strength

Reduced development risk

Reduced public capital investment

Mobilizes excess or underutilized assets

Improved efficiencies/quicker completion

Better environmental compliance

Improved service to the community

Improved cost effectiveness

Shared resources

Shared/allocated risks

Mutual rewards

Risk Factors for PPP… Lack of political leadership, vision and strategy Not implemented in a context of wider change/ administrative reform Poor costing or lack of resources – creeping commitments Inappropriate definition of project goals and scope

Lack of political leadership, vision and strategy

Not implemented in a context of wider change/ administrative reform

Poor costing or lack of resources – creeping commitments

Inappropriate definition of project goals and scope

Risk Factors for PPP… Automation without process reengineering Hurried implementation Management of change-resistance from vested interest Use of untested fancy technology Inadequate attention to monitoring and evaluation

Automation without process reengineering

Hurried implementation

Management of change-resistance from vested interest

Use of untested fancy technology

Inadequate attention to monitoring and evaluation

Six Keys to Successful PPPs Statutory and Political Environment Organized Structure Detailed Business Plan Guaranteed Revenue Stream Stakeholder Support Pick Your Partner Carefully

Statutory and Political Environment

Organized Structure

Detailed Business Plan

Guaranteed Revenue Stream

Stakeholder Support

Pick Your Partner Carefully

Managing for Success – Six Keys The Environment Statutory authority and regulations Political leadership must be in place – Leading Political Figure – Top Administrative Officials – “The Will to Change the System” – A Strong Policy Statement

The Environment

Statutory authority and regulations

Political leadership must be in place

– Leading Political Figure

– Top Administrative Officials

– “The Will to Change the System”

– A Strong Policy Statement

Managing for Success – Six Keys Organizational Structure Dedicated group (tied to the purpose of the partnership) Dedicated and Trained personnel to monitor implementation Best Value vs. Lowest Price – Difficult to Administer but… Need for Good Governance – To assure an open and fair procurement process – Consolidate staff = easier to monitor – Independent authority (domestic/internal or international)

Organizational Structure

Dedicated group (tied to the purpose of the partnership)

Dedicated and Trained personnel to monitor implementation

Best Value vs. Lowest Price

– Difficult to Administer but…

Need for Good Governance

– To assure an open and fair procurement process

– Consolidate staff = easier to monitor

– Independent authority (domestic/internal or international)

Managing for Success – Six Keys Detailed Business Plan Performance goal oriented - Allow for innovative plans Best Value vs. Lowest Price Plan/Contract should include: – Specific milestones and goals – Reporting of metrics and frequency Risk Allocation – Shift to the private sector can raise costs – Identify best prices to retain, which to shift Dispute Resolution Methodology Workforce Development? – Develop in-country resources/small businesses

Detailed Business Plan

Performance goal oriented - Allow for innovative plans

Best Value vs. Lowest Price

Plan/Contract should include:

– Specific milestones and goals

– Reporting of metrics and frequency

Risk Allocation

– Shift to the private sector can raise costs

– Identify best prices to retain, which to shift

Dispute Resolution Methodology

Workforce Development?

– Develop in-country resources/small businesses

Managing for Success – Six Keys Guaranteed Revenue Stream Funds to Cover the Long-Term Financing – Tolls/Fees (real or shadow) • Intelligent transportation systems – TIF or other form of a Tax District – Long-Term Maintenance Contracts – Availability Payments – Underutilized Assets – Concession Model (limited application) – Creative Approaches

Guaranteed Revenue Stream

Funds to Cover the Long-Term Financing

– Tolls/Fees (real or shadow)

• Intelligent transportation systems

– TIF or other form of a Tax District

– Long-Term Maintenance Contracts

– Availability Payments

– Underutilized Assets

– Concession Model (limited application)

– Creative Approaches

Managing for Success – Six Keys Stakeholder Support Public Sector Employees Private Sector Labor Unions End Users Competing Interests 􀂃 Requires: – Open and frank discussion between sectors – Knowing the FACTS (no myths) – Translating each other’s language

Stakeholder Support

Public Sector Employees

Private Sector

Labor Unions

End Users

Competing Interests

􀂃 Requires:

– Open and frank discussion between sectors

– Knowing the FACTS (no myths)

– Translating each other’s language

Managing for Success – Six Keys Pick Your Partner Carefully This is a long-term relationship – Verify experience (technical capability) – Verify financial capability – Best Value vs. Lowest Price Remember each sector’s motivation – Genuine need (market value to the project) – Political / statutory environment – Reasonable return on investment and manageable risks – Timely and effective execution vs. development costs

Pick Your Partner Carefully

This is a long-term relationship

– Verify experience (technical capability)

– Verify financial capability

– Best Value vs. Lowest Price

Remember each sector’s motivation

– Genuine need (market value to the project)

– Political / statutory environment

– Reasonable return on investment and manageable

risks

– Timely and effective execution vs. development costs

Managing for Success The Most Critical is Component One: Strong LEADERSHIP makes all the other factors come together

The Most Critical is

Component One:

Strong LEADERSHIP makes

all the other factors come together

PPP models: Public develops – Pvt. Operates & maintains Public & Pvt. jointly develops and maintains. Pvt. Develops and Public finances the gap Pvt. Develops and Public only facilitates Public and Pvt. Work independently but in coherence. Pvt. Develops, Public facilitates and People monitor the development and pay charges for use (PPPP)

Public develops – Pvt. Operates & maintains

Public & Pvt. jointly develops and maintains.

Pvt. Develops and Public finances the gap

Pvt. Develops and Public only facilitates

Public and Pvt. Work independently but in coherence.

Pvt. Develops, Public facilitates and People monitor the development and pay charges for use (PPPP)

Extend of participation of the private sector

PPPs becoming a global business across developed & emerging markets

selected group of OECD and developing countries… Top Countries: PPPs in Highways Cumulative sum of # projects & estimated costs since 1985 Country Number of Projects Project Cost (US$ billion) United States 74 42.7 United Kingdom 37 30.5 China 53 21.6 Spain 47 21.1 Mexico 78 20.4 Italy 3 18.5 Germany 34 17.1 Republic of Korea 18 16.2 Japan 1 14.4 Greece 11 11.8 Brazil 44 11.4 France 8 10.2 Portugal 15 9.8 Australia 12 8.6 Malaysia 18 7.8 Canada 22 7.7 Russia 2 6.6 Chile 24 6.3 Argentina 20 3.7 Ireland 14 3.0 Denmark 1 2.7 South Africa 6 2.3 Czech Republic 2 2.2 Indonesia 6 2.1 Thailand 3 2.1 0 50 100 150 200 250 300 350 Developed World Latin America and the Caribbean East Asia and Pacific Europe and Central Asia South Asia Sub- Saharan Africa Middle East and North Africa Number of Projects Project Cost ($bn) Number of Projects – Project Cost (US$ billion) Regional distribution

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