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 PRECEPTS
Approach PPP infrastructure development as a
program rather than ad-hoc, one of a kind
transactions.
4
5. Chemonics PPP Precepts
Why?
• 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 PRECEPTS
Provide specialized Technical Assistance through
the entire project preparation process:
Alpha to Omega (A-Z)
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7. Chemonics PPP Precepts
Why?
• 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.
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8. Transaction Transaction
Design Implementation
Define Objectives/ Select PPP option Draft bidding documents/contracts
Due Diligence / Technical Project Design Local/International Promotion
Financial Structuring Pre-qualification
Risk Allocation & Mitigation Bidder due-diligence
Shadow Rating/Credit Enhancement Interaction with Bidders “negotiation”
Asses investor interest PPP Contracts/Procurement Process
Tech/Fin/legal Transaction Design Contract Award / Financial Closure
Consultation with key stakeholders: Build consensus, political commitment, and public support
10. Chemonics PPP Precepts
Why?
“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.
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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
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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
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 Port
a) 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 change
c) Negative externalities
d) $800 million in investments required 15
in Peruvian ports
17. Lima- South Breakwater
Peruvian
Capital
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”
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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.
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21. The Case of Montería,
Colombia PPP
PANAMA 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
Coverage
Water Coverage % 50 76
Sewage Coverage % 27 40
Water Production liters/sec. 659 915
Hours of Service Hours/day 3/4 18/24
Competition set the stage for generation of these results.
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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).
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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.
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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.
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
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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.
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