The document discusses public-private partnerships (PPPs), including: 1) PPPs involve long-term contracts between private and public entities, where the private entity provides an asset/service and bears risk, while payment is linked to performance. 2) PPPs can improve efficiency, innovation, and access to financing, but involve high transaction costs, require steady income streams, and balancing risk/control is challenging. 3) Risks should be allocated to the party best able to control, impact, and absorb each risk at lowest cost. Typical PPP structures involve a special purpose vehicle contracting with the government.

1. Designing a Sustainable
Public-Private Partnership

2. Outline
• Understanding concept of Public-Private
Partnership (PPP)
• Basic Structure of PPP
• Benefits and Challenges of PPP
• Applying Risk Allocation Principles to identify
potential PPP opportunities
• Exercise: Using Basic PPP Screening Tool to
identify potential PPP project

3. PPP Defined
The PPP Reference Guide* provided a broad
definition of PPP, as
• a ‘long-term contract
• between a private party and a government entity,
• for providing a PUBLIC asset or service,
• in which the private party bears significant risk
and management responsibility,
• and remuneration is linked to performance’.
*Source: The World Bank, ADB, IADB, 2014, Public-Private Partnerships Reference Guide Version 2.0
http://documents.worldbank.org/curated/en/600511468336720455/Public-private-partnerships-reference-guide-version-2-0

4. Basic Distinction between
Public and Private Goods
Divisibility of Benefits
Yes No
Rivalry of
Consumption
Yes
Private Goods Common-pool
Resources
No
Club Goods Public Goods
Mobile Phone
Car
Clothing
Food
Fish Stock
Timber
Grass Land
Satellite TV
Cinema
Private Park
National
Defense
Public Area
Cleansing

5. Why PPP is useful?
• Efficiency Enhancement
– As public institutions are often influenced by political considerations
which do not generally focus of operation efficiency and often divert
resources for other purposes.
– Value for the Money analysis to evaluate savings/gains from PPP
comparing with a purely public project
– Transparency and Accountability
• Technological Advancement, Innovation, and Know-How
• Financial Benefits especially in the case where investment demand
exceeds public resources
– Sources of Financing:
• Government Financing – domestic and international debts
• Corporate Financing – debt and equity
• Project Financing – loan can be provided directly to the project company (or a
Special Purpose Vehicle, SPV) where lenders rely on cash flow of the project
for repayment.
Source: Delmon, J. 2009, Private Sector Investment in Infrastructure, 2nd ed., Kluwer Law International and the World Bank

6. Challenges of PPP
• Potentially high transaction cost and long lead time
• Private party requires steady stream of income to repay its debt financing
• Public perception that tariff/user fee will increase with private sector
involvement
• Private party will only do what it is paid to do according to a contract and
no more
• Balancing between taking more risk and control of the operation
• Government oversight is still required as the public will still hold the
government accountable. However, the role of the government would
evolve from service provider to regulator, auditor, and evaluator. These
skills and procedures need to be built.
• Unenforceable law and regulation could lead to failure in enforce the
contract and hold the private party accountable
• As PPP has a long-term nature, it is unlikely to identify all the risks up-
front. Therefore, both parties should anticipate periodically negotiation to
adjust the contract to suite the situation at that time.
Source: Adopted from PPP in Infrastructure Resource Center, 2016, Government Objectives: Benefits and Risks of PPPs, the World Bank
https://ppp.worldbank.org/public-private-partnership/overview/ppp-objectives

7. Risk Allocation Principles
Each Risk should be allocated to the Party:
• Best able to control the likelihood of the risk
occurring
• Best able to control the impact of the risk on
project outcomes, by assessing and
anticipating a risk well and responding to it
• Able to absorb the risk at lowest cost
Source: The World Bank, ADB, IADB, 2014, Public-Private Partnerships Reference Guide Version 2.0
http://documents.worldbank.org/curated/en/600511468336720455/Public-private-partnerships-reference-guide-version-2-0

8. Example of Risk Allocation in
PPP Arrangement
Source: Cities Development Initiative for Asia (CDIA), 2010, CDIA PPP Guides for Municipalities
http://cdia.asia/wp-content/uploads/2014/09/PPP-guide-for-municipalities.pdf

9. Spectrum of PPP Arrangement
Source: Independent Evaluation Group, The World Bank, 2012, World Bank Group Support to Public-Private
Partnerships: Lessons from Experience in Client Countries, FY02–12
https://ieg.worldbankgroup.org/Data/reports/ppp_eval_updated2_0.pdf

10. Typical PPP Structure
Source: The World Bank, ADB, IADB, 2014, Public-Private Partnerships Reference Guide Version 2.0
http://documents.worldbank.org/curated/en/600511468336720455/Public-private-partnerships-reference-guide-version-2-0

11. Basic Decision Tool to
Identify PPP Potential
Source: Cities Development Initiative for Asia (CDIA), 2010, CDIA PPP Guides for Municipalities
http://cdia.asia/wp-content/uploads/2014/09/PPP-guide-for-municipalities.pdf
What If, the investment
can save public
expenditures?
What if, the
investment can be
done cheaper by
the private party?

12. Risk Management Tool for
An Irrigation Project
What is the Risk?
Describe the Identified
Risk
How is risk currenly
managed?
Impact
1=Insignificant
2=Mild
3=Moderate
4=Significant
5=Catastrophic
Likelihood
1=Highly
Unlikely
2= Unlikely
3=Occasional
4=Likely
5=Highly
Likely
Risk Score
What Measures can you
do to better manage the
risk?
Responsible Unit
0
0
0
0
0
0
0
0
0
Basic Risk Management Tool
Siting Residents may
oppose to
land
acquisition
Legal Action 4 4 16 Consultation Irrigation
Department
Operation Low service
quality due to
lack of
operation and
maintenance
expenses
Annual Budget
Request
4 4 16 Engage Private
Sector
Irrigation
Department
and Water
User Group

13. Exercise: Using Risk Allocation and
Decision Tool to Identify PPP Project
Medium-Size Reservoir
and Distribution System
• What the Risk
Allocation would look
like?
• Is there a potential for
revenue generation?
Early Warning System
• What the Risk
Allocation would look
like?
• Is there a potential for
revenue generation?

14. PPP Checklist
Political Issues
•Potential political
deal breaker
•Ownership
Legal Framework
•Laws and regulation
•Transparency and
accountability
•Internal
coordination
•Standard document
and procedures
Economics and
Financial
Consideration
•Business model
(e.g., Value for
Money
•Financing
•Fiscal issues
Execution
•Implementation
capacity
•Procurement
•Contract
management
Source: Adopted from World Bank, 2014, A Checklist for Public-Private Partnership Projects.
http://ppp.worldbank.org/public-private-partnership/sites/ppp.worldbank.org/files/documents/global_checklist_ppp_g20_investmentinfrastructure_en_2014.pdf