The document discusses what makes a public-private partnership (PPP) framework attractive from the perspective of the project sponsor. It outlines several key factors: 1) Projects must have a high socio-economic utility and correspond to real needs and demand to ensure they are desirable and their costs are politically acceptable. 2) Countries must have stable institutions, a long-term infrastructure policy, and be willing to prioritize and monitor projects to provide credibility. 3) Risks must be appropriately allocated between public and private partners to increase bankability and lower costs. 4) Award processes must be transparent with multiple selection criteria including price, quality, and experience to select reliable operators and avoid opportunism that could

1. What makes a PPP framework attractive?
The project sponsor’s view
Gilles Erdogan
Project Director, VINCI Concessions
OECD, 7th Meeting of Senior PPP Officials, Feb 17th 2014

2. 1rst Part
What makes a PPP framework attractive?...
… for who?

3. The project sponsor's view?
What is VINCI Concessions ?
A private partner in charge of delivering infrastructure and services, to the benefit of users - citizens
 5 core business units

Highways & Bridges
Railways
Airports
Stadium
Car parks
Not only the view of the project sponsor, but also :
-
Constructor
Coordinator of contract and civil society stakeholders
Operator of the infrastructure
Service provider
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OECD, Senior PPP Officials, February 2014

4. Who expects what?
What are the private partner’s objectives?


Make reasonable financial profits
Improve reputation
What are the public authority’s objectives?



Have well-functioning infrastructure
Keep safe public finance
Be re-elected
What are users’ objectives?


Use high quality infrastructure and access services
Get Value for Money
Apparently diverging objectives… Make them converge and find win-win-win arrangements, in the
long run
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OECD, Senior PPP Officials, February 2014

5. 2nd Part
In which conditions shall we find the ground for long
term win-win-win arrangements ?
OECD, Senior PPP Officials, February 2014

6. Macroeconomic indicators (step 1)
Favourable GDP growth rate, even in low income countries
Infrastructure and facilities equipment rate
Car ownership rate
Stability of institutions
Transparency International indicators
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OECD, Senior PPP Officials, February 2014

7. Socio-economic utility of identified projects (step 2)
We only answer to projects that are desirable from the socio-economic point of view:
= projects that correspond to real demand and needs.
How can the « socio-economic utility » be assessed?
 Not only financial aspects are taken into account
 But also indirect aspects that measure the effects for the society: in terms of accessibility, reliability,
safety, time savings, environmental concerns, attractivity of the area
 The Socio-economic Cost-Benefit Analysis enables to valorize socio-economic aspects into quantitative
terms and compare them to the cost
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OECD, Senior PPP Officials, February 2014

8. Socio-economic utility of identified projects (step 2)
By experience, we know that a high socio-economic utility makes the payment of a toll by users /tax by
taxpayers, more politically acceptable [Piron, 2004].
On the contrary, «White Elephants »
low socio-economic utility, leading to:
 A decrease in the credibility of the public authority
 Alteration of our reputation
 Increase of the public debt
 In some cases, bankruptcy of the private operator
In the end of the day, a high socio-economic utility confirms the link between sound infrastructure
and growth… for all the parties!
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OECD, Senior PPP Officials, February 2014

9. Political will and institutional stability (step 3)
There must be a real long term infrastructure policy program, not only political gimmicks
A public authority ready to take on the role of monitoring
 Upstream: priorize the projects and define a functional program
 Downstream: Incentivize and monitor the results of the private partner
 Capacity building sometimes needed (OECD, WB, UN, EPEC or other international institutions
should be used)
 Importance of technical, financial and legal advisors
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OECD, Senior PPP Officials, February 2014

10. Project dimensioning (step 4)
Feasibility studies, showing project is
Technically feasible and
 Economically viable
 With objectives that are

-
Specific
Measurable
Achievable
Realistic
Time-bound
Bidding for a project is very costly for private partners. They will not bid if the environment is non-credible
Phasing projects, with the option to increase the scope of the investment later, in particular in countries with
limited experience, allows to ease the obtention of financings and to lower its cost.
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OECD, Senior PPP Officials, February 2014

11. Relevant risk distribution (step 5)
At the stage of pre-bid, main risk analyzed: the demand risk


Concessions: the private partner is paid thanks to users’fees (he bears the demand risk)
Availability contracts: the private partner is paid a fixed price by the public authority, based on his performance (he
does not bear the demand risk)
Depends on wealth, willingness to pay and acceptability
Unbalanced risk sharing increases the project cost and may kill the project (no economic equilibrium)
If availability contracts, importance of the credibility of the availability payment: PPPs are not a « free
lunch »
Proper risk
allocation
Increased
bankability
Reduced
availability charge
for the Authority /
toll for users
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OECD, Senior PPP Officials, February 2014

12. Transparency and credibility of the award process (step 6)
VINCI Concessions would not bid for projects in countries poisoned by corruption
VINCI Concessions would not lower its cost to the point of denying its quality standards. Our
reputation is at stake
The goal of the award process: select an efficient partner, prone to innovate and deliver services in the
long run
Importance of the award criteria
Usually, public authorities prefer the cheapest bid (price criteria) or the lowest duration. But 2 possible
drawbacks:
Reflect of a poor quality
 Aggressive bids [Guasch, 2004] and likelihood of later opportunistic renegotiation

OECD, Senior PPP Officials, February 2014

13. Transparency and credibility of the award process (step 6)
To avoid such drawbacks, and allow a win-win-win arrangement:
Prequalification: select operators with experience, technical skills related to the project and financial solidity
 Competitive dialogue: enrich the functional program and let innovative solutions emerge
 Weighted selection criteria: including price, quality (organisation skills, sustainable devpt, innovation),
respect of human and technical norms
Transparency & qualitative criteria are a feasible mix

Importance to eliminate candidates at each stage: lowers the cost for the Public Authority
Importance of a credible calendar: increases the quality of bids
Importance of reputation and experience of the selected private partner
OECD, Senior PPP Officials, February 2014

14. Transparency and credibility of the award process (step 6)
Importance of reputation and experience
of the selected private partner
Benefits for the
public and the
private partners
Gains of
opportunism:
low cost (PA)
and high markup (PP)
Good
reputation =
cooperation
in the long
run
Loss: no
working infra
(PA) and no
more contracts
(PP)
Time
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OECD, Senior PPP Officials, February 2014

15. To conclude, main messages summarized
Studying only the private partner perspective cannot lead to any recommandations for successful PPP
framework
Successful PPP framework
Make sure the perspective of all the parties is taken into account, for
long term win-win-win arrangements






We only go in countries with a potential for growth
We answer to projects with a high socio-economic utility
We go in countries with credible institutions and infrastructure development program
We bid for correctly dimensionned projects
We expect a relevant risk sharing, allowing affordability for users, and for taxpayers
Multiple selection criteria are necessary to select a reliable operator
OECD, Senior PPP Officials, February 2014