OECD, 7th Meeting on Public-Private Partnerships - Peter LIVESEY

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This presentation by Peter LIVESEY was made at the 7th Meeting on Public-Private Partnerships held on 17-18 February 2014. Find more information at http://www.oecd.org/gov/budgeting/ppp.htm

News & Politics

Public Private Partnerships - Where do
you start?
A Personal View
Peter Livesey
OECD
18 February 2014

Is PPP of any kind the right solution?
1. There must be a need for investment. A major
capital investment programme, requiring effective
management of risks associated with construction and
delivery.
2. It needs to fit with a PPP approach. The service
needed is appropriate, allowing the public sector to
define its needs as service outputs that can be
adequately contracted for and where risk allocation
between public and private sectors can be clearly made
and enforced.

3. Can you price what you are buying? The nature of
the assets and services identified as part of the scheme,
as well as the associated risks, are capable of being
costed on a whole-of-life, long-term basis.
4. Is it large enough to make financial sense? The
value of the project is sufficiently large to ensure that
procurement costs are not disproportionate.
5. Do you understand what you are buying? The
technology and other aspects of the sector are stable,
and not susceptible to fast paced change.

6. Will it be needed for a long time? Service delivery
planning horizons are long-term with confidence that the
assets and services provided are intended to be used
over long periods into the future.
7. Can the private sector deliver? Does the private
sector has the expertise to deliver? Is there good
reason to think it will offer VfM and robust performance
incentives can be put in place.

Which PPP?

1. Understand and examine all the models.
2. What is your appetite for risk and can you afford
it?
3. Making a decision.
4. Will your chosen PPP approach deliver the
programme’s objectives?

1. PPP – What are the models?

Degree of Private Sector Risk and Responsibility

10. Privatization
9. Build-Own-Operate
Service
Concession
Arrangements

8. Build-Own-Operate-Transfer
7. Design-Build-Finance-Operate
6. Design-Build-Operate-Maintain
5. Operations Concession
4. Design-Build

3. Management Contract
2. Service Contract
1. Government
Degree of Private Sector Involvement

2. PFI, PPP or something else? – What is the trade
off between risk and cost?

4. Could PPP deliver my programme objectives?

Advantages and Disadvantages
Conceptual advantages
Value for Money
Integrated whole life management
Risk transfer to private sector

Private Sector Capital
Banks capital at risk therefore risk
transfer incentivised

- Design Risk

Project finance discipline leading to
whole life costing

- Construction Risk

Bank step in on contractor default

- Financing Risk
- Technology & Obsolescence
- Operating and FM Risk
Focus on output specification

Conceptual disadvantages
Cost associated with risk transfer

Opportunities for innovation in service
delivery

Price must include profit margin

Long term certainty

Inflexibility

Private sector capital
May be off Government Balance Sheet

Success of Public Private Partnership projects is greatly influenced by proper management of the risks associated with the project. All projects which are undertaken using conventional procurement method or using a PPP approach have known risks and unknown risks. Risk identification plays an important role in development of PPP framework. The participation and investment of Private sector has been the main stay of the Government of India policy toward infrastructural growth. In this study main risk categories and factors of Public Private Partnership projects have been recognized. A total of 7 risk categories and 31 risk sub-factors for each category were identified for PPP projects safety listed under subheads. The questionnaire was prepared on the basis of literature review and was filled by 100 Stakeholders namely Consultant/Client, Project Manager/ Contractor, Engineer. Generally Analytic Hierarchy Process (AHP) is widely used as multi criteria decision making. Normally it is very hard to meet the consistence need of a comparison matrix in analytic hierarchy process. In this study AHP is used to categories the risks of PPP projects in different levels and the impact of those risks on the PPP projects are identified.

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