Public Private Partnership

1. PPP Training
Program
3.6 – 3.8: Group
Exercise on PPP
Feasibility Studies

2. 2
• A growing number of municipal & regional governments
are implementing PPPs to recycle municipal solid wastes
• Focus on:
• Cardboard & paper materials
• Plastics
• Glass
• Compostable organic materials
• Common PPP structures are:
• Concession: City grants exclusive license (ie
“concession”) to private developer to collect &
process municipal solid wastes & then sell the
recycled products
2
PPPs in Waste Recycling & Processing

3. 3
3
Waste Recycling & Processing PPPs
Private Owner
/Investor
Banks &
Lenders
$
Gotham City
Government
Citizens &
Households
Waste Recycling
Concession (Exclusive)
PPP Contract
Loans
Repayment
Equity
PPP Private Partner
(Special Purpose
Vehicle – SPV)
Collection of
Solid Wastes
Local Businesses
& Institutions
Bulk
Purchasers of
Recycled
Products
LANDFILL
Sale of Bulk
Recycled
Products
Disposal of
Residual Wastes

4. 4
• Cost-Recovery: Often the revenues from sell bulk recycled materials
does not cover the entire costs of waste collection, separation,
processing, and disposal of residual non-recyclable materials. In this
case, the City may need to pay the private partner for collection, etc.
• Municipal Benefits: Often the benefit to the municipality is not
additional revenue-generation (ie revenue-sharing with the private
partner). Instead it is avoiding having pay the current costs of waste
collection & disposal.
• Waste-Stream Quality: Municipal Solid Waste can be very
heterogeneous. The percent of recyclable materials in the waste
stream can vary greatly over time, and differ from what a PPP
feasibility study & or PPP tender documents state. Municipalities are
often required to guarantee minimum quantities & qualities of wastes
for the private partner.
• Managing Stakeholder Impacts: Often small-scale, low-income,
informal, recyclers already depend heavily on existing waste
collection systems (ie no formal recycling) for their livelihoods. A new
PPP could completely remove their economic livelihood.
4
Waste Recycling PPPs: Key Challenges

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5
PPP Financial Model Case Example:
Background on KERFLOKISTAN
• Kerflokistan: An Emerging Market Economy
• GDP per Capita per Year: $4,000
• Population 40 million
• Current crisis in infrastructure & public services due to
decades of lack of public investment under previous single-
party regime.
• New economic reform policies of liberalization, competition,
and private sector-led growth expected to increase economic
growth from 1% to 4% over next 5 years.
• Inflation projected at 7% for next 5+ years
• New Government has launched a new Municipal PPP Unit
(MP3 Unit) to identify and accelerate local Government PPP
transactions in infrastructure

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6
“Informal recyclers”
Current Waste Collection
By Gotham City

7. 7
• Gotham City, a medium-sized city in Kerflokistan: population
300,000
• Gotham City currently spends $1,000,000 per year on
municipal waste collection & disposal
• However, waste collection service is not reliable, due to
inadequate maintenance of trucks. Illegal dumping of wastes
along road-side and on vacant plots of land is common.
• City has no official recycling program. However, recycling by
low-income “informal recyclers” is reportedly common. No
official data exists on the current levels of recycling by these
informal recyclers.
• National Policy is to encourage recycling and reduce waste
generation, but there is no official plan yet, with clear targets
or any clear financial incentives or supports for municipal
government recycling investments
• Gotham City lacks the funds to construct and operate a solid
waste management recycling program to address the problem
7
Gotham City, KERFLOKISTAN

8. 8
Group Assignment #1
1. Identify all of the key stakeholders who
would need to be included in this project as
a PPP
2. Identify the most important risks facing each
key stakeholder group
3. Propose how the risks should be allocated
(or shared) between the stakeholder
groups:
 Government (Gotham City)
 Interested Private Developers
8

9. 9
9
PPP Financial Model
3-CAPITAL INVEST.:
-Construction
- Depreciation
5-PROFIT & LOSS STATEMENT:
+Revenues(10 yrs.)
- O & M Costs
-Interest expenses
-Depreciation Exp.
-Taxes
-= Net Income
2-DEMAND: Vehicle Pop.
-Projected Pop. over 20 yrs.
= Required Capacity
6-CASH FLOW STATEMENT
Net Income
+ Depreciation
- Debt Principal Paymnts.
= Cash Flow
DSCR
IRR
4-FINANCING:
-Debt (term, %, DSCR)
-Equity (Gearing & RoE)
- Loan Repayment Sched
A.TARIFFS
Bulk-Purchasers/
City Support?
B. DSCR
Lenders
C. IRR
Investors
1-INPUTS & RESULTS

10. 10
• Municipal Solid Waste Stream Analysis:
10
Gotham City Recycling Project Feasibility
Study:Technical & Cost Estimations
Gotham City Regional Population (2016) # of People 300,000
Gotham City Regional Population Growth Rate % 1.5%
Total Municipal Solid Waste Volume (2016) tonnes/Year 100,000
Annual Growth Rate in Municipal Solid Waste Volume % 2.5%
Percent of Recycleable Paper & Cardboard % 17%
Percent of Recycleable Plastics % 12%
Percent of Recycleable Glass % 3%
Percent of Recycleable Metal % 1%
Total Percent of Recycleable Materials % 33%
Recovery Rate (% of Recycleable Materials Recovered) % 30%
Annual Growth Rate in Recovery of Recycled Materials (Years 1 - 5) % 5%
Annual Growth Rate in Recovery of Recycled Materials (Years 6 -10) % 0%

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Capital Investments
3 - CAPITAL EXPENDITURE Assumptions Units
Civil Works & Site Preparation $ $50,000
Recycling Facility Construction $ $500,000
Waste Sorting & Packaging Equipment $ $250,000
Number of Trucks # 6
Cost per Truck $ $70,000
Number of Recycling Bins # 500
Cost per Recycling Bin $ $500
Start-up Working Capital ( = 3 months x Total O&M Costs) $ $50,000
Total Capital Investment $ $1,520,000
Annual Depeciation Rate on Assets % 10%

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Projected Revenues
Revenues:
Sale Price per tonne of Recycled Paper & Cardboard $/tonne $125
Sale Price per tonne of Recycled Plastic $/tonne $45
Sale Price per tonne of Recycled Glass $/tonne $50
Sale Price per tonne of Recycled Metals $/tonne $400
Annual Growth Rate in Recycled Materials Sales Prices % 1%
Annual Subsidy Payment from Gotham City $200,000
Total Revenues (Year 1) $1,164,500

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Financial Model Results
RESULTS
Internal Rate of Return (IRR) on Equity % 35.1%
Reinvestment Rate % 10.0%
Modified Internal Rate of Return (MIRR) on Equity % 23.6%
Minimum Debt Service Coverage Ratio (DSCR) Ratio 1.48

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($1,000,000)
($800,000)
($600,000)
($400,000)
($200,000)
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
1 2 3 4 5 6 7 8 9 10 11
Project Year
Gotham City Recycling PPP: Private Investor's Net Cash Flows

15. 15
• What if the percent of recyclable wastes falls from 30% to
25%? Is the PPP project still bankable?
• The proposed structure includes an annual payment from
Gotham City of $200,000 per year? Is this beneficial to the
City, or not? Should a PPP that is getting revenues from
selling bulk recycled waste also receive an Availability
Payment from the City – Or is this just wasting public money
on “subsidizing private profits”?
• Should the City offer to guarantee of minimum level of
supply of solid waste to the private partner?
• Should Gotham City ask for a revenue-sharing agreement,
for revenues that are above a minimum-level?
• What role should the City take regarding the impacts on the
current informal recyclers in this PPP process?
15
PPP Case Exercise Questions:

16. 16
Gotham City’s PPP Tender for Municipal
Solid Waste Recycling
• Gotham City issued a Request for Qualification
(RfQ) & short-listed 4 private bidding consortia:
1. Roma Recycling Inc. (RRI)
2. Poa Kachizi Pickers, Inc. (BPI)
3. Enviro-Tech, Inc. (ETI)
4. Garbage-In & Garbage-Out (GIGO)
16

17. 17
• Concession structure: 10 year concession. Concessionaire earns its own revenues
from sales of recycled wastes to bulk purchasers + payment from Gotham City
Gotham City Recycling PPP Structure
PPP Risk Category Government Private Concessionaire
Land Acquisition Gotham City Administration
Construction Cost Risk Private Concessionaire
Financing Risk All financing for project is raised by the Private
Concessionaire
Completion Risk Private Concessionaire (Concessionaire provides a
performance bond equal to 1 year of estimated
annual revenues during construction)
Performance Risk (Ability to meet
perform all required waste collection
standards & procedures)
Private Concessionaire (Concessionaire provides a
performance bond equal to 1 year of estimated
annual revenues until year 20)
Demand Risk Gotham City guarantees:
• A minimum annual payment to the private
partner, set through competitive tender.
Private concessionaire assumes demand risks for
any levels above the guaranteed annual payment
from Gotham City.
Political & Regulatory Risks Gothem City Adminstration
Inflation Shared (Private Concessionaire may petition
Gotham City Administration for payment
changes due to inflation as needed during life
of the contract)
Shared (Private Concessionaire may petition
Gotham City Administration for price changes due
to inflation as needed during life of the contract)
Environmental Risks Private concessionaire is liable for any
environmental impacts during the life of the PPP
contract
17

18. 18
• Capacity:
• Provide capacity to collect and sort up to 150,000 tonnes of municipal solid
waste per year, and an average of 75 tonnes per day.
• Ability to recover and to sell four different types of bulk recycled waste
products:
• Paper & Cardboard
• Plastics
• Glass
• Metals
• Ability to transfer and dispose residual non-recyclable waste projects in a
sanitary landfill
• Timing: Facility must be operational within 1 year of the private concessionaire’s
reaching of financial closure for this project. Concession term of 10 years.
• Performance:
• Reliability: Private partner must be available to provide waste collection and
recovery service 99% of the time, according to its scheduled hours of
operations.
Gotham City’s Recycling PPP Project Output Standards
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19. 19
PPP Technical Proposal Evaluation Criteria: “Technically
Responsive, or Not?”
• Legal: Are all of the legal conditions and risk-allocation measures contained in the
model Concession Contract acceptable to the private bidder?
• Design: Is the design determined to be technically feasible and provide the
capacity to meet the performance standards of the PPP project?
• Timing: will the private partner be able to reliably provide the services by the
required start date and throughout the 10-year life of the contract?
• Strategy for Raising Financing: does the private partner have a realistic and
practical plan for raising the financing required for the project?
• Operating Plan & Performance: Will the private partner be able to meet all of the
required technical performance output standards including both safety and
emission standards?
19

20. 20
PPP Technical Proposal #1:
Roma Recycling, Inc. (“RRI”)
• Legal Structure: All terms & conditions in the model Contract acceptable
• Technical Design & Operation:
• Construction of a 6,000 m2 Recycling Facility
• Purchase of 6 trucks
• Hiring of 75 total staff
• Timing: Construction will be completed 12 months of financial closure
• Strategy for Financing the Project:
• Limited-recourse project financing basis, require 1 year reach financial closure
• Operating Plan & Performance:
• We will provide the capacity to collect & process 150,000 tonnes of wastes per
year and an average of 75 tonnes per day
• Reliability: Our facility will be available a minimum of 99% of the time Average
inspection time:
• Expected hours of facility operation: 9AM to 5PM (8 hours per day), 260 days
per year (5 days per week)
• Will meet all technical standards as required by the PPP Tender Documents
20

21. 21
PPP Technical Proposal #2:
Poa Kachizi Pickers, Inc. (“BPI”)
• Legal Structure: All terms & conditions in the model Contract acceptable
• Technical Design & Operation:
• Construction of a 3,000 m2 Recycling Facility
• Purchase of 4 trucks
• Hiring of 125 total staff
• Timing: Construction will be completed 12 months of financial closure
• Strategy for Financing the Project:
• Limited-recourse project financing basis, require 1 year reach financial closure
• Operating Plan & Performance:
• We will provide the capacity to collect & process 150,000 tonnes of wastes per
year and an average of 75 tonnes per day
• Reliability: Our facility will be available a minimum of 99% of the time Average
inspection time:
• Expected hours of facility operation: 7AM to 11PM (16 hours per day), 360 days
per year (7 days per week)
• Will meet all technical standards as required by the PPP Tender Documents
21

22. 22
PPP Technical Proposal #3:
Enviro-Tech, Inc. (“ETI”)
• Legal Structure: All terms & conditions in the model Contract acceptable
• Technical Design & Operation:
• Construction of a 4,500 m2 Recycling Facility
• Purchase of 5 trucks
• Hiring of 90 total staff
• Timing: Construction will be completed 12 months of financial closure
• Strategy for Financing the Project:
• Limited-recourse project financing basis, require 1 year reach financial
closure
• Operating Plan & Performance:
• We will provide the capacity to collect & process 150,000 tonnes of wastes
per year and an average of 75 tonnes per day
• Reliability: Our facility will be available a minimum of 99% of the time Average
inspection time:
• Expected hours of facility operation: 9AM to 5PM (8 hours per day), 314 days
per year (6 days per week)
• Will meet all technical standards as required by the PPP Tender Documents
22

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PPP Technical Proposal #4:
Garbage-In, Garbage-Out (“GIGO”)
• Legal Structure: All terms & conditions in the model Contract acceptable
• Technical Design & Operation:
• Construction of a 5,500 m2 Recycling Facility
• Purchase of 6 trucks
• Hiring of 80 total staff
• Timing: Construction will be completed 12 months of financial closure
• Strategy for Financing the Project:
• Limited-recourse project financing basis, require 1 year reach financial closure
• Operating Plan & Performance:
• We will provide the capacity to collect & process 150,000 tonnes of wastes per
year and an average of 75 tonnes per day
• Reliability: Our facility will be available a minimum of 99% of the time Average
inspection time:
• Expected hours of facility operation: 9AM to 5PM (8 hours per day), 260 days per
year (5 days per week)
• Will meet all technical standards as required by the PPP Tender Documents
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Working Group Assignments:
1. Evaluate each of these 4 Technical PPP proposals.
2. Decide whether each bid is “technically-
responsive” or not.
• (The next step will be the separate opening and
evaluation of the PPP cost proposals.)

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Opening of Cost Proposals:
Gotham City Solid Waste Recycling PPP
BidderName 1 2 3 4 5 6 7 8 9 10
#1 RomaRecylingInc.("RRI") $180,000 $180,000 $180,000 $180,000 $180,000 $180,000 $180,000 $180,000 $180,000 $180,000
#2 PoaKachiziPickers,Inc.("BPI") $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000
#3 Enviro-Tech,Inc.("ETI") $160,000 $160,000 $160,000 $160,000 $160,000 $135,000 $135,000 $135,000 $135,000 $135,000
#4 Garbage-In,Garbage-Out("GIGO") $175,000 $175,000 $175,000 $175,000 $175,000 $175,000 $175,000 $175,000 $175,000 $175,000

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$100,000
$110,000
$120,000
$130,000
$140,000
$150,000
$160,000
$170,000
$180,000
$190,000
1 2 3 4 5 6 7 8 9 10
Gotham City Recycling PPP Bids
#1 - Roma Recyling Inc.
("RRI")
#2 - Poa Kachizi Pickers, Inc.
("PKPI")
#3 - Enviro-Tech, Inc. ("ETI")
#4 - Garbage-In, Garbage-
Out ("GIGO")