Decentralization and Central
       Coordination


                         Mauricio Portugal Ribeiro
           Head of t...
Horizontal Decentralization
   Decentralization among agencies of a certain level of Government

       Central PPP Unit...
Vertical Decentralization
   Decentralization among Central (or Federal),
    State and Local Government
       • It is a...
Main Challenges created by
    Decentralization
   Uniform legal and institutional framework
   Sector planning and proj...
Creating Uniform
    Legal/Institutional Framework
   Uniform legal/institutional frameworks

       Creation of a PPP m...
Sector planning and project
    development
   The main PPP program difficulty for many developing countries

         • ...
Recruitment and training of
    the Government officials
   Main concern is the recruitment and training of
    the Gover...
Recruitment and training of
    the Government officials
   Main concern is the recruitment and training of
    the Gover...
Developing model projects in
    each sector
   Reasons
        Access to international best practices and adaptation to...
Developing model projects in each
    sector
   Attempts to solve it

        Brazilian Federal Government has entered i...
Project Selection
   Definition of the minimum scale that offsets the transaction costs involved
    in a PPP
        In...
Fiscal Responsibility
   Fiscal responsibility requirements may
    limit the capacity of State/Local
    Government to e...
Financial Strength

   Credit rating of State/Local
    Government may not be enough

       Possibility of Federal Gove...
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Decentralization and Coordination of Government Agencies for the Implementation of a PPP Program

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Presentation on the Decentralization and Central Coordination of Government Agencies/Deparments for the Implementation of PPP Program. This presentation was first done in PPPI Days, 2006, which is a seminar organized by the World Bank Institute that used to be accessible only to the PPP Unit heads.

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Decentralization and Coordination of Government Agencies for the Implementation of a PPP Program

  1. 1. Decentralization and Central Coordination Mauricio Portugal Ribeiro Head of the Brazilian Government PPP Unit PPPI Days 2006 Washington, DC, June 6-8
  2. 2. Horizontal Decentralization  Decentralization among agencies of a certain level of Government  Central PPP Unit • Public enterprise or PPP (PUK model) • As part of the Ministry of Planning or of the Ministry of Finance  Decentralized approach – the Brazilian case • Development of projects, award of contracts, monitoring - Sector Line Ministries • Provide technical assistance to Government agencies, oversees the project development and procurement specially in the pilot projects - Ministry of Planning PPP Unit • Evaluates the fiscal impact of each project and oversees the compliance with the fiscal responsibility act requirements – The Treasury • The Federal Government PPP program is managed by CGP, a council in which the Ministers of Planning, Finance and the President Chief of Staff sit 2
  3. 3. Vertical Decentralization  Decentralization among Central (or Federal), State and Local Government • It is a legal and many times a Constitutional matter • The law attribute to a certain Government entity the responsibility to provide public utilities in a given sector • For an instance, in the case of Brazil: • Gas distribution - member States • Energy transmission and generation – Federal Government • Local transportation (bus) – Local Government • The Government can provide it directly, creating a public enterprise or under PPP arrangements 3
  4. 4. Main Challenges created by Decentralization  Uniform legal and institutional framework  Sector planning and project development  Capacity building  Project selection for PPP  Risk management  Financial strength of Regional/Municipal governments 4
  5. 5. Creating Uniform Legal/Institutional Framework  Uniform legal/institutional frameworks  Creation of a PPP market requires knowledge and confidence in the legal and institutional framework to implement PPP  It also reduces transactions costs  Means to create uniform legal/institutional frameworks  Federal Government has by law the power to issue standards on PPP  Federal Government • make available model laws (acts, decrees etc), contracts or provisions for State or Local Governments • provide assistance in the use of these models 5
  6. 6. Sector planning and project development  The main PPP program difficulty for many developing countries • Lack of capacity to adequately plan the investments in each sector and to develop projects • As a result, lack of trustable information on the projects  Historical roots: during the privatization process of the 90’s • No special strategy was adopted to maintain senior planning officers in the Government • Lost many of the senior officers to privatized companies and to regulatory agencies  This problem affects all levels of Government: the question is what can the Federal Government do to help State/Local Governments that are facing this problem? 6
  7. 7. Recruitment and training of the Government officials  Main concern is the recruitment and training of the Government officials  The Brazilian Federal Government obtained a donation from IADB (FUMIN) of U$ 2,5 million • among other things to invest in training of the PPP staff of Federal, State and Local Government • to provide assistance on the creation of State/Local legal and institutional framework to implement PPP 7
  8. 8. Recruitment and training of the Government officials  Main concern is the recruitment and training of the Government officials  On the focus of the training • In some countries might be the case that Local/State Governments • Have expertise to manage the procurement of public works • Focus of the training in this case must be in: • creating culture of service output specification • developing financial and legal expertise  How to avoid losing the trained personnel 8
  9. 9. Developing model projects in each sector  Reasons  Access to international best practices and adaptation to the domestic context  Models can be reproduced in other projects  Reduces transaction costs and tends to enhance the quality of the project documents  Learning by doing aspect of PPP projects  Specially important if there is  Underdevelopment of the domestic consultancy market which affects all levels of Government  Poor consultancy procurement practices and rules (use of price as the main criterion)  Historic underinvestment by the public sector in project development 9
  10. 10. Developing model projects in each sector  Attempts to solve it  Brazilian Federal Government has entered in agreements with multilateral organizations (IFC and CAF) to obtain technical assistance to develop projects  Brazilian Federal Government is considering the creation of a fund to be managed by a multilateral organization to fund project development of Federal, State and Local Governments  The challenge in the medium term is to  Have a model project in each strategic sector that can be reproduced  Enhance the public sector consultancy procurement and monitoring expertise • Development of model terms of reference and contracts for consultancy works by the Federal Government to States and Local Governments is an option  Have a real project pipeline, which allows the consultancy firms to invest in creating expertise and provide higher quality service 10
  11. 11. Project Selection  Definition of the minimum scale that offsets the transaction costs involved in a PPP  In Brazil • To be procured as a PPP, a project have to involve minimum of investment (PV) of R$20 million (approximately U$8m) • technical matter that have political unfoldments • Discussion on unconstitutionality of the minimum investment limit  Minimum scale maybe a condition for the Federal Government to support a Local/State PPP project  Scale can be obtained by bundle of projects (ex. the British Schools of the Future project) 11
  12. 12. Fiscal Responsibility  Fiscal responsibility requirements may limit the capacity of State/Local Government to enter in large PPP contracts  In Brazil, the PPP law limits annual expenses with PPP payments in 1% of the entity current net revenues  Financial support of the Federal Government to make certain projects viable (coordination issue) 12
  13. 13. Financial Strength  Credit rating of State/Local Government may not be enough  Possibility of Federal Government to backstop State/Local Government  The concern with the incentives 13

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