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An Introduction to Public Private Partnerships: Why Government needs to work with the private sector Vilnius 22 nd November 2006. Stephen Harris - Head, International IFSL Chairman: UKTI PPP EXPORT GROUP. PPP is About. Better procurement Public sector reform Better strategic planning
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An Introduction to Public Private Partnerships: Why Government needs to work with the private sector Vilnius 22nd November 2006 Stephen Harris - Head, International IFSL Chairman: UKTI PPP EXPORT GROUP
PPP is About • Better procurement • Public sector reform • Better strategic planning • Building and maintaining good infrastructure • Better services for the taxpayer • Sharing of risks between most appropriate parties • Public and private sectors working together
PPP is not: • Free infrastructure • Just about finance • Just building infrastructure • Just about involving the private sector • Privatisation, simple concessions, outsourcing or property development • A method to make a bad project good
Characteristics of PPP • Contractualarrangement between the public sector organisation & private sector provider • To deliver a service -usually a new asset • Output not input specification • Integrate design, construction and maintenance • Contractor/operator finances investment • Cost effective allocation ofrisks • Over a long term
Characteristics of PPP • Payment mechanism designed to ensure delivery and performance • Contract can terminate for non- performance • Penalties for not meeting contract terms • Government retains reponsibility for ensuring service delivery to agreed standard • Assets revert to Public body at end of contract - For letting out on another PPP - Or operating by Public body
Why do countries need to involve the private sector? • Governments seeing lack of funds for new infrastructure • Pressure on tax base • Traditional routes for raising finance not enough • Governments don’t maintain existing infrastructure • Economic growth leads to demands for new infrastructure
Leads to: Infrastructure gap • Can’t afford new infrastructure • Existing infrastructure deteriorating • Result: Poor Services for the public Value of Infrastructure In real terms Demand (GDP – led) Infrastructure Gap Supply (net investment) Time
Governments need to: • Build new infrastructure • Maintain new and existing infrastructure to a consistent standard • PPP provides: • Provision of assets or services otherwise unavailable • Better integration of operation and maintenance with design • A whole life approach to delivering services • A fairer way to raise money from the taxpayer • Result: Better services to the public in the long term
Problems of traditional procurement • Adversarial approach to contracts • Lowest bidder wins • Requirements ill-defined/changes • Cost / time overruns-poor value for money • Limited innovation in design or operation • May not exploit third party revenue • Focus on infrastructure not service • Unnecessary retention of risk • Poor strategic approach
Holyrood Horror -The Scottish Parliament • Original budget estimate(1997)-£10-20m • Original completion date estimate-July 2001
UK PPP: Evidence of Benefits 80% 30% Delivery on time and on budget On time On budget On time On budget Conventional Procurement PPP Performance of completed projects – No. of Projects Source: National Audit Office – UK Parliament - Expenditure Auditor
Asset deterioration 40% drop in quality 40% drop in quality €1 for renovation here will cost $€ here 12.5% of life
Benefits of proper maintenance $ millions Years
Problems of working with the private sector • PPP should be a Partnership • Public and Private sectors have very different drivers • Many relationships between public and private sectors are unbalanced • Problems caused by: • Lack of understanding of other party’s key drivers • Lack of equality in bargaining power
Problems of working with the private sector • We see the result in many privatisation, concessions and outsourcing deals • “bad” deal damages image • Fall out can make investors wary of market • A PPP programme should aim to give more balance • Between public sector, private sector and citizen • PPP gives Government more control • Government is responsible
PPP: Benefits • Value for Money/cost savings • Strengthens Infrastructure • A whole life approach to delivering services • Better mobilisation of Capital • Provides assets or services otherwise unavailable • Innovation • Elimination of cost overruns • Maintenance of assets to a high standard • Creates new business sector • Transfer of risk and accountability to private sector • Fairer finance burden on citizen
PPP Issues for Public Sector • Loss of control of service • Accountability remains • Introduction of business ethic in service provision • PPP projects take longer to procure • Commitment to long term agreement • Change in procurement practice • Integration with remaining publicly run services • Inexperience of public sector in monitoring and control • Union resistance
Service Provider Performance 89% 77% 12% 10% 1% 0% Performance measurement shows that the contract service levels are being achieved... Source: Report on Operational PFI Projects, PUK
User satisfaction 65% 20% 14% 1% 0% …and users are satisfied with the standard of services being delivered 79% Source: Report on Operational PFI Projects, PUK
Key relationships for the Public Sector • Selection of Advisors • Experienced advisors • Legal, Financial and Technical advisors • Mentor-type advisors • Private Sector delivery partner • International confidence • Number of players important to investors • Best not cheapest • Public concern over relationship • Quality of solution • Transparency of bidder selection
Importance of Training • Training and mentoring the public sector is a key role for: • The national, ministerial or municipal PPP unit • a private sector consultant • Developing internal capacity • Retaining expertise
How can IFSL Help? • Organising Workshops/Seminars locally • Organising visits to the UK • Facilitating training • IFSL modular courses locally • For public sector • For private sector
s.harris@ifsl.org.uk +44 (0)20 7213 9109 www.ifsl.org.uk