Government structures for managing PPPs – an overview

1. Government structures for managing PPPs – an overview Clive Harris Practice Manager, PPPs World Bank Institute

2. The PPP challenge for governments • Two important ways in which PPPs are different from traditional public sector approach: • involve commitments to future net spending that aren’t picked up by traditional budgeting and accounting: either long-term payments (like debt) or risk bearing (like guarantees) • Long-term nature of contracts raises issues related to how the PPP will continue to meet evolving consumer and public sector needs • Structures put in place which address • Who approves PPPs? • What analysis is done before approval? • How are risks allocated? • How are contracts overseen? • Substance matters: types of PPPs being done are important driver in • PPP challenge for WB: how do we as a minor financier fit into this picture?

3. Structures for PPP oversight • Typical approaches involve: • Structure for inter-ministerial coordination and oversight of PPPs • Standard approaches for project preparation and analysis • Standard contractual provisions or even standard contracts • Specialized unit or group(s) working on PPPs (“PPP units”) • (Sometimes) developed approaches towards contract monitoring and management • Korea: • All projects – whether PPP or public – undergo a prefeasibility study. Projects are implemented as PPPs based on results of feasibility study, value-for-money and availability of government resource for fiscal support • For large national level projects the PPP Committee is convened. The Committee is chaired by Ministry of MSF (Finance), and attended by all vice-ministers of concerned line ministries. • PIMAC (PPP unit) works as a technical arm carrying out most of the study and analysis, and reports to MSF and the PPP Committee. PIMAC has developed standard documents for project evaluation, FS, VFM Test, RFP, Output Specification by Sector, and Concession Agreement • India • For large national level projects the PPP Appraisal Committee (PPPAC) is convened. The PPPAC consists of Secretaries from MOF (two departments), Planning, Legal Affairs and of the concerned sector ministry. • The PPPAC has developed standard approaches for project review and clearance. Line agencies prepare feasibility studies (financial and techno-economic) and project documents and submit these to the PPPAC for in-principle clearance • Standard contract documents developed, use of these streamlines processes here (and also for Viability Gap Fund)

4. What do PPP units do?

5. Details of approaches (including procurement) likely to be related to type of PPP • UK, Australia – much of PPP programs are social infrastructure projects where government buys under a long-term contract (PFI/”unitary charge”) • Very different to some user-fee based PPPs e.g. toll road: • If payment for service is left to the user then part of quality issue can be left to the market • For government-purchased projects often important for government to use bidding mechanism to understand range of solutions available • Mechanisms for the latter include: • eg Chile hospitals, 2nd phase (prior to final bidding) soliciting technical solutions from a prequalified set of bidders • eg UK, dialogue phase for long-listed bidders (can be done in stages, to reduce number of bidders) • Idea is to refine procuring authority’s understanding of solutions capable of meeting needs • Need to ensure confidentiality of technical solutions and also adherence to prescribed procedures

6. Rules on number of bidders

7. UK: actual number of bidders

8. Time lines for PPP procurement * times for a well managed relatively un-complex PPP projects (times can be much longer). ** based on fastest times actually achieved: average total actual time based on 7 projects is 23 months. *** indicative timelines based on S A Treasury procurement guidelines. In practice these may be longer: average total actual time based on 7 projects is 22 months. **** maximum penalty-free period allowed in the Model Concession Agreement.

9. Large PPP programs need developed institutional architecture (UK approach, about to be changed!)

10. Management of PPP contracts is essential • Reviews of PFI-type programs (UK, Victoria in Australia) suggest savings versus public alternatives of 9-17% over project life cycle: • UK NAO (2003): 76% PFI projects delivered on time versus 30% public projects AND 78% delivered on budget vs 27% for public projects • Risk transfer : KPMG survey of UK PFI projects found 63% had incurred payment reductions due to performance • Fitzgerald (Victoria, Australia) – savings of 9% • BUT though experience varies, concern in many countries over contract adjustment during operation: • UK: between 22%-60% of PFIs saw cost uplift: but this is all driven by change in public sector’s requirements • UK: NAO (2008): “changes to operational PFI deals are often poor value for money” • Competition not used for larger changes • Wide difference in costs for same adjustment across different contracts • Chile: additional expenditures approx. 39% of original investment, most determined via negotiations (again requested by govt.) • Evidence suggests that many procuring authorities take items out of design to reduce costs and include them afterwards (suggests ex-post control of spending weaker?)

11. Thank You and Questions