The Private Finance Initiative UK Experience of PPP

1. The Private Finance InitiativeUK Experience of PPP Jim Wheeler Tato zakázkaje financována Evropskou komisí 3. a 10.9.2008 Zavádění systému partnerství mezi veřejným a soukromým sektorem v ČR, CZ05.02.04.02.0002, VZ60004428

2. Agenda Development of the Private Finance Initiative Benefits and Criticisms • Lessons Learned in Planning PPP • What happens when PPP goes wrong • Key lessons learned • Feedback from Operational PPP projects • 4P’s review of Operational PFI projects – 2005

3. Agenda Development of the Private Finance Initiative Benefits and Criticisms • Lessons Learned in Planning PPP • What happens when PPP goes wrong • Key lessons learned • Feedback from Operational PPP projects • 4P’s review of Operational PFI projects – 2005

4. PPP in the United Kingdom ‘Private Finance Initiative’ key method of PPP in UK Dartford River Crossing – 1987 PFI introduced – 1992 but very few projects at first Key growth in projects between 1995 and 2001 From 2001 – fewer projects but higher capital size

5. PPP in the United Kingdom

6. PPP in the United Kingdom Over 800 projects in UK under PFI or similar Approximately – £40 billion (120 bn CZK) of capital investment Wide range of sectors Transport Waste Housing Education (Schools, Universities) Health (Primary care, Hospitals) Defence Justice (Courts, Prisons) Emergency Services (Police, Fire, Ambulance) Public sector Buildings (Accommodation, Libraries, Leisure etc)

7. Agenda Development of the Private Finance Initiative Benefits and Criticisms • Lessons Learned in Planning PPP • What happens when PPP goes wrong • Key lessons learned • Feedback from Operational PPP projects • 4P’s review of Operational PFI projects – 2005

8. Benefits Value for Money Acceleration of Infrastructure provision Reduction in whole life costs Better risk allocation Better incentives to perform Improved quality of service Third party revenue generation Enhanced Public Management Harness private sector innovation and management skills

9. Criticisms Loss of control over budget Fear of “Privatisation” of public services – no change to core service provision Private Sector Profit from public services – VfM Concerns over rights and benefits of employees - TUPE Appear more costly – must allow for operations Changes are costly – plan and manage well

10. Agenda Development of the Private Finance Initiative Benefits and Criticisms • Lessons Learned in Planning PPP • What happens when PPP goes wrong • Key lessons learned • Feedback from Operational PPP projects • 4P’s review of Operational PFI projects – 2005

11. Examples of where PFI has gone wrong Cancelled procurements Inappropriate scope Empty PFI schools Contractor unable to fulfil obligations Refinancing gains BUT Handful of projects out of approx. 800+ In many cases could be avoided Many were early projects - lessons have been learned

12. Key lessons learned in Planning PPP PPP Not appropriate in all cases Low capital value projects – disproportionate procurement costs Projects prone to unpredictable changes – eg IT Refurbishment projects – complex risk Insufficient competition – typical Best Practice = 3+ bidders Other – eg Front line Defence Equipment

13. Key lessons learned in Planning PPP Standardised Guidance Reduces procurement time and costs – less document preparation Reduces negotiation time – position clear to both sides Tougher negotiation stance ‘Bankability’

14. Key lessons learned in Planning PPP Robust legislation, project development, and approval Good quality projects should not be delayed unnecessarily Long term contract – locked in and difficult to change Changes can be expensive under PPP Delays due to re-scoping are costly for both sides Poor quality projects dent market confidence – reduce VfM

15. Key lessons learned in Planning PPP Robust legislation, project development, and approval (continued) Legislative environment Clear Strategic need and well defined scope Objective evaluation of technical and procurement options Robust Business Case Comprehensive Risk identification and mitigation measures Appropriate Risk transfer Clear and realistic planning and timetable Effective approvals process

16. Key lessons learned in Planning PPP Developing Public Sector Expertise Suitably resourced Project Team • Identified Project Owner / Strategic Project Board • Strong Project Director - empowered • Core Project Team Experienced advisors Knowledge transfer Support from Central Unit (MoF, Departmental,…) Governance / Approvals Access to Guidance Feedback on lessons learned

17. Agenda Development of the Private Finance Initiative Benefits and Criticisms • Lessons Learned in Planning PPP • What happens when PPP goes wrong • Key lessons learned • Feedback from Operational PPP projects • 4P’s review of Operational PFI projects – 2005

18. 4P’s Review of Operational PFI projects Review of Local Government projects Carried out 2004-2005 Show PFI is generally working well Following slides show summary of relevant feedback

19. Review of Operational PPP Projects in the United Kingdom

20. Review of Operational PPP Projects in the United Kingdom

21. Review of Operational PPP Projects in the United Kingdom

22. Review of Operational PPP Projects in the United Kingdom

23. Review of Operational PPP Projects in the United Kingdom

24. Review of Operational PPP Projects in the United Kingdom