Institutional Framework for PPP Projects and Project Development Stages

1. Institutional Framework for PPP Projects and Project Development Stages Md. Abu Rashed Sr. Consultant, IIFC

2. Agenda • Nature of Various Forms of PPP • PPP Institutions Globally • Institutional Framework in Bangladesh

3. Service Contracts • Management Contracts • Lease Arrangements • Concessions • BOOT • BOT • BOO • BT • BTO • ROT • ROM • SOT

4. Service Contracts Public Authority Used for:Maintenance, emergency repairs, public information and education Private Sector Service Contract • Responsible for contracted services • Managing own personnel and services efficiently • Responsible for cost but not revenue • Overall responsibility except scope of services that are contracted out • Bears all commercial risk • The contract period is short-1 to 2 years • Offers frequent competition • Encourages efficient performance • Payment to the contractor linked to the work performed.

5. Management Contracts Public Authority Used for: Hotels, Ports Private sector Management Contract • Financial responsibility to provide funds for working and investment capital • May charge and collect charges from the users either itself or engage anybody to collect and pay to Government • Responsible for entire operation and maintenance of the system • No direct legal relationship with consumer • Contract period is generally 3 to 5 years • Private company get freedom to make day to day management decisions without assuming any commercial risk • Payment to contractor proportional to physical parameter

6. Lease Contracts Used for: Port terminal, railway line, Optic Fiber Cable Public Authority Private Sector LeaseContract • Owner of the asset • Responsible for capital expenditures for new projects, replacement of vehicles, debt service, tariff and cost recovery policies. • Capital investment risk • Rent the facilities from pubic authority • Responsible for operation, maintenance management of the system. • Can charge the users • Commercial risk • Contract period:medium or long (5 to 20 yrs) • Fixed fee plus incentive related element • Provision for periodic revisions of the contractor rate using price index formula • Establish good billing and collection practice

7. Concession Contracts: Build- Own-Operate-Transfer (BOOT) Used for: Power sector, transportation sector Public Authority Private Sector BOOT • Finance , build, owns and operates a specific new facility. • Responsible for operation, maintenance management of the system. • Substantial risk • Ownership is transferred to public authority after a predetermined time. • Responsible for determining the demand and size of the facility • Its variations are: • BOT and BOO (Land Ports, Power Plants) • BT (Annuity Payment, Roads) • SOT, ROT etc. (Container Terminal) • And many other possible variations

8. Joint Venture Agreement Objective: Ownership sharing by public and private sector Public Authority Private Sector Joint Venture Agreement • Jointly with Governmental authority finance, construct, operate and maintain a project foe a specified period. • Majority representation on the board of directors of new firm • More responsible for day to day management • Jointly with Governmental authority finance, construct, operate and maintain a project foe a specified period. • Majority representation on the board of directors of new firm • More responsible for day to day management • Jointly with investor finance, construct, operate and maintain a project for a specified period • The project may or may not be transferred to govt authority • Initially equal share and later may sell off its share • May keep golden share with special power to be used in specific situation. • New company has to be formed with equity • from both the parties

9. PPP Institutional Structure Across the Globe

10. PART B: PPP Frameworks of Bangladesh

12. PPP Status (Fiji) • Completed: • 1. Set legal and regulatory framework – PPP Act 2006; • 2. Established the policy framework ; • 3. PPP Unit established under the Department of Public Enterprises • 4. Analyze the feasibility of the proposed PPP projects – Consultancy funded AusAid & ADB • 5. Short listed three projects earmarked to be implemented – early 2008

13. Indian Structure for PPPs • Constitution of a Committee on Infrastructure (CoI). • Prime Minister is the Chairperson. • Ministers of Infrastructure Ministries; Finance Minister and Deputy Chairman, Planning Commission are members. • Empowered Sub-Committee of CoI chaired by Dy. Chairman, Planning Commission and represented by Ministries. • Secretariat for CoI in the Planning Commission. • Ministries retain their role but work closely with CoI to develop & implement vision for world-class infrastructure. • Greater reliance on inter-ministerial & inter-disciplinary dialogue to enrich outcomes & eliminate conflicts of interest.

14. Instruments of Governance • PPP Appraisal Committee • Appraises & recommends all PPP projects of the Central Government. • Approves proposals for Viability Gap funding. • Chaired by the Finance Secretary. • Appraisal Unit in the Planning Commission. • India Infrastructure Finance Company (IIFCL) • Raises funds against sovereign guarantees. • Provides upto 20% of capital costs as long-term debt. • PPP Cells • Created in Central Government Ministries/State Governments • Coordinate, develop and implement PPP projects

15. Financial Support to PPPs • Scheme for Financial Support: Leverage scarce budgetary resources for addressing critical gaps in private sector financing. • Viability Gap Funding upto 20% of capital costs, another 20% by sponsoring Ministries/State. • Roads, ports, airports, railways, tourism infrastructure and urban transport. • Indian Infrastructure Finance Co. Ltd.: SPV to provide long term debt to viable infrastructure projects. • Direct lending to PPP and public sector projects. • Refinance for private projects.

16. PPP Arrangements in Indonesia KKPPI CMEA, Bappenas • The Committee on the Policy for the Acceleration of Infrastructure Provision (KKPPI) established under Perpres 42/2005; • A Risk Management Unit on Fiscal Support already up and running since 2006 in the Ministry of Finance. • PPP Nodes established in the (MEMR, MPW and MOT) • P3CU will be established soon in Bappenas Contracting Agency (Sector Ministries, SOE, Local Govt.) MOF PPP Nodes (PPP Units) Project Identification, Preparation, Monitoring & Quality Control: -- Screening -- Due Diligence -- Bid Documents -- Transaction & Post-transaction Process Secretariat/P3CU Policy Analysis, Development and Planning & Coord. Monitoring & Quality Ctrl Identify Projects requiring Government Support Resolving cross-sector issues Risk Mgt Unit Assess GS Issue & Manage Guarantee SOEs Project Dev’t Project Impl. & Monitoring Local Gov’t & ROEs Project Development Project Impl. & Monitor Project Dev.Fac. Guaran- tee Fund Land Fund, etc. 16 16

17. DEFINITION OF P3 CENTRAL UNIT FUNCTIONS AND AUTHORITIES 17

18. Government Commitment, Support and Risk Management in Indonesia PDF to fund project preparation and transactions Government financial support can be made available (PMK 38/2006) Land acquisition fund for the toll road sector IIFF (already set-up) and IGF (imminent) to provide catalyst for PPP project financing National Land Agency (BPN) to produce action plan to accelerate land acquisition Government Investment Center can invest in PPP projects 18 18

19. A PPP Unit was set up in July 2002 (initially known as the PPP Secretariat).The PPP Unit: - drafted the PPP legislation - produced the PPP Guidance Manual PPP Unit in Mauritius Kenya has a similar PPP Structure

20. Responsibilities of PPP Unit • Make an assessment of a project submitted to it and gives its recommendations to the relevant contracting authority • Develop best practice guidelines in relation to all aspects of PPP • Formulate policy in relation to PPP projects • Develop PPP awareness in the country.

21. General Policy Framework The Build-Operate-Transfer (BOT) Law BOT Law’s Implementing Rules and Regulations (IRR) Charters of Government Owned and Controlled Corporations Mandates of Implementing Agencies (Republic Acts) The Local Government Code (RA 7160) Government Procurement Reform Act (RA 9184) Legal Framework for Philippine PPPs

22. Contracting Parties (enters into PPP/BOT) Implementing Agencies Government Corporations Local Government Units (Province, City, Municipality) Other Concerned Agencies Line Agencies (policymaking) Regulatory Agencies (Finance, Economic Planning, Environment, Securities and Exchange, Central Bank, etc.) Other Sectoral Regulators (e.g. toll regulatory board) Review and Approving Bodies (inter-agency) Investment Coordination Committee Local government councils Coordinating and Monitoring Body The BOT Center PPP Institutional Framework n Philippines

23. Project Development Technical/Advisory assistance Financial assistance/ capacity-building through the Project Development Facility (PDF) Marketing and Promotion Capacity-building/training Project monitoring and facilitation Policy Review and Advocacy Philippines BOT Center Functions

24. The Project Development Facility in Philippines • A Revolving pool of funds sourced from international funding institutions (USAID and ADB) managed by the BOT Center • Accessed by implementing agencies/local government units in packaging/structuring BOT/PPP projects and tendering • Consultants are procured to assist the agencies/LGUs in the preparation of project studies • A success fee (for the consultant) component usually included • Repaid by the winning bidder(s),

25. Vneshekonombank PPP center (Russia)\ • Vneshekonombank initiated establishment of the Center as an independent structural branch as a result of realization of the Bank’s function as the basic Russian system development institution in the sphere of state policy in PPP • PPP center was established on June 8, 2008 • The Mission – to support and speed up development of national, regional and municipal infrastructure projects as well as to raise the quality of municipal services in infrastructure development through usage of PPP instruments • The Objective – skilled service of municipal work in application of PPP instruments for realization of sectoral and regional development strategies and improvement of such instruments • Fields of the PPP Center projects Services and functions of the Center Buildings and equipment Investment consulting Education Networks Regulatory framework Roads Information 25

26. South Africa’s Regulatory Framework for PPPs • Public Finance Management Act • PFMA Treasury Regulation 16 • Public-Private Partnership Manual • Standardised Public Private Partnership Provisions • Public Private Partnership Toolkit for Tourism • Municipal Finance Management Act • Local Government: Municipal Systems Act • Municipal PPP Regulations • Municipal Service Delivery and PPP Guidelines

27. PPP Unit in South Africa • Established by a Cabinet Memorandum in 2001 • A division of the Budget Office Directorate in National Treasury • Reports through the Deputy Director-General: Budget Office to the Director-General and the Minister of Finance • Head of PPP Unit is a Chief Director

28. The PPP Unit in South AfricaCurrent Staffing Minister Director General Deputy Director-General Head: PPP Unit Project Evaluation Financial Analysis Business Development Municipal Desk IT Performance Monitoring & Evaluation

29. Bureau of Infrastructure Investment (BII), Srilanka • Set up as a separate unit under the Board of Investment of Sri Lanka in 1996 which came under Ministry of Finance. • The BII was the successor to the Secretariat for Infrastructure Development (SIDI) which was a US AID funded project under Ministry of Plan Implementation • BII had specialists in Finance, Legal, Structuring of projects, Negotiations and worked with line ministries for technical input • Responsible for facilitating private sector investment in BOO, BOT projects

30. PPP Institutional Framework in Bangladesh

31. How the PPP Guidelines were Formed (PSIG) • In Aug. 2003, a committee formed to prepare PPP Guidelines • IIFC was engaged as consultant to carry out wide consultation and prepare a draft • Extensive consultations made • with public sector • with private sector • Guidelines approved in Oct 2004 • Private Infrastructure Committee (PICOM) established, with the BOI as its Secretariat • IIFC engaged by PICOM through BOI to operationalise the Guidelines

32. List of the Projects approved under former PSIG

33. PPP Institutional Framework (Latest as per the PPP Policy and strategy 2010)

34. New Institutional Framework • The institutional framework for developing strategy, identification, formulation, appraisal, approval, monitoring and evaluation of PPP projects is presented below: • Public-Private Partnership Advisory Council (PPPAC) • Cabinet Committee on Economic Affairs (CCEA) • PPP Office • Line Ministry/Executing Agency

36. PPP Advisory Council (PPPAC) • PPAC will advise on the overall PPP policy reforms and give broad guidance to PPP Cell. • PPPAC may provide instructions for the various bottleneck issues relating to inter-ministerial coordination. • PPPAC will monitor and advise MOF, Ministry of Planning and other project related ministries

37. PPP Office • PPP Office • Will act Under the Prime Minister’s Office • will consist of members from line ministries and executing agencies having knowledge and expertise on PPP projects • Supports Executing Agencies for: • Assessing Technical and Financial Viability of PPP Projects • Assessing and Approving Funding request

38. PPP Office • Organogram CEO

39. PPP Triangle Structure

40. Finance Division • FD will Manage and Administer the PPP Budget Components • Disburse technical assistance fund to executing agencies • Disburse VGF and annuity fund to the project sponsor • If requested, may authorize executing agencies to use their own fund for the upfront development of PPP projects. • Administer and manage the BIIF with support from other existing government financing facilities like IPFF and IDCOL.

41. Key Stages in Project Development 41

42. Lenders/ Institutional Investors Equity Investors Debt Finance Equity Investment Debt Service (Principal + Interest) Dividends Concession Agreement Executing Agency Government of Bangladesh Borrower / Concessionaire Performance Guarantee Toll Payments Project Construction, Operations and Maintenance Revenue Revenues/Cash Flows Toll Rate/ Fare Collection AnnuityPayments

43. Technical Considerations in Private Infrastructure Projects

44. Broad Technical Considerations • Why technical considerations are important in a private infrastructure project • Unless broad technical parameters are locked in • The operation and management of the facility can not be envisaged • The technical parameters can not be translated into money terms, and therefore profitability of the project can not be assessed. • However, unlike public sector projects • Private infrastructure projects should not be restricted with detail technical specifications • Because the private investor needs the flexibility to achieve desired efficiency

45. Broad Technical Considerations • Rather, broad functional specifications need to be defined • to achieve desired level of services and • performance standards • Government has a duty to see that the users get the desired services from the facility • Government needs to earmark the land/area of the facility • Provide the desired layout of the positions and areas of the building and equipment to be provided • Government may also need to specify • capacities and number of equipment to be provided, in some cases, to ensure desired services

46. Flow from Technical Parameters • Translates to • Revenue • Project cost • Financing cost • O&M cost etc • Broad Technical Parameters • Land and Location • Broad specifications of the equipment • Required Commercial Operations Date • Performances standards and service level Technical considerations fits into profitability!!! • These fit in a financial model for determining profitability

47. Feasibility Study • Feasibility study is the main document • contains project parameters and boundaries, scope of work of the investor • determines broad technical parameters • The feasibility study is frequently used to prepare the information memorandum to the investors • The executing agency should carry out own feasibility study • The difficulty is that government wants information from the investor • But the investor has his own interest • The government loses or over-tightens due to lack of realistic information

48. Feasibility Study (contd.) • In preparing the feasibility study • some technical parameters are pre-defined by the executing agency • and some are derived from the study itself • The study should also • Contain sufficient details of the inter-relationship between the private investor and the executing agency • The model of private sector participation • Commercial aspects: Tariff, royalty etc • Risk allocation principles • Service Standards, O&M performance standards etc • Roles and responsibilities of each party to maintain desired performance standards

49. Capacity building means: increase in skills, organizational and personal development and resource building of the persons involved or likely to be involved in releasing infrastructure projects to the private sector. Capacity building Required to Understand Technical Issues

50. Capacity Building is essential for following areas: tendering process, agreements, negotiations, financing process and other legal, technical and commercial issues. Issues for Capacity Building