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The New World of PPP Procurement

The New World of PPP Procurement. Jeff Delmon FEU Financial Solutions World Bank. Why PPP?. Procurement efficiency Lifecycle management Design/construction/operation management Monetizing investment profile Innovation/technology Finance New sources FDI Local financial markets.

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The New World of PPP Procurement

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  1. The New World of PPP Procurement Jeff Delmon FEU Financial Solutions World Bank

  2. Why PPP? • Procurement efficiency • Lifecycle management • Design/construction/operation management • Monetizing investment profile • Innovation/technology • Finance • New sources • FDI • Local financial markets

  3. Risk Assessment Project Specific Risks • Completion Risk (engineering & construction cost / time cost control/performance/defects) • Operational Risk (technology, quality, technical & operational know-how) • Environmental and Social Risk (future liabilities, project delays, costs overruns) • Credit Risk (project leverage) “’non sovereign Risks” Country (Economy wide) Risks • Political Risk (expropriation, political violence, Gov’t breach) • Regulatory Risks (pricing formulas, right of way, currency convertibility & transfer) • Legal Environment (rule of law, judicial system, access to justice and arbitration) “’ sovereign risks” Demand Risk (traffic/usage) Environmental Risk (past liabilities) Pricing Risk (regulated and non-regulated) Financial Risk Inflation, interest rate and exchange rate fluctuations

  4. Infrastructure Finance : Risk Allocation Political and Macroeconomic Risks Residual Risks Refinancing Risks Credit Risk Regulatory Risks Transfer & Convertibility Risks Residual Risks Granting Authority Shareholders Lenders / Bondholders Concession Agreement Shareholder’s Agreement Regulatory, Demand & Pricing Risks Purchase Agreement (e.g., power purchase agreement) End-users Operator Project Company Purchaser Operation & Maintenance Agreement (O&M) Operating Risks Supply Agreement (e.g., gas supply agreement) Construction Contracts Supplier Construction Contractor Regulatory, Market and Performance Risks Completion Risks

  5. The Dynamic of PPP Divestiture Public Water Co. Joint Venture Private Lease contract, Affermage Concession, Output contract, Outsourcing Corporatisation Management contract, Franchizing, O&M, Performance contract Management of Service provider Mixed BOT, BOOT, DBFO, DCMF, IPP, BOO Service contracts Municipalor Provincial Authority Cooperative, Twinning Public Public Mixed Private Control of Assets

  6. Key Stages in the Procurement Cycle 2. Contract Tender and Award 1. The Investment Decision 3. Service Delivery

  7. 1. The Investment Decision • Project Development • Project Feasibility 1. The Investment Decision

  8. 2. Contract Tender and Award 2. Contract Tender and Award Preferred Bidder identifies the preferred partner to deliver the services and the PPP contract • Pre-Qualification • Detailed Tender • Preferred Bidder • Contract Award and Financial Close Contract Award and Financial Close finalizes the PPP contract and any financing required

  9. PPP Procurement • Integration of several contracts under one long-term contract • Focus on outcomes, with performance standards defining the service level and link payment to performance • Optimal risk allocation over the life of the contract • A partnering approach to the contractual relationship • A transparent, competitive process for contract award Other Procurement • Short-term contracts with one contract for each asset or service • Focus on inputs or assets often with no ongoing performance standards • Government accepts the majority of risks over the life of the contract • Contract relationship based on buyer-supplier relationship

  10. 3. Service Delivery • Contract Implementation • Service Delivery • Review 3. Service Delivery Review facilitates the continuous improvement of the PPP procurement cycle and considers the value and benefits generated

  11. Key Challenges for Bank Projects • Short listing • To maximize competition • To keep costs down • Bid evaluation criteria • Key criteria are often technical and legal – • Need for more subjectivity – scoring of • Contract mark-up • Reasonableness of financing plan • Life-cycle/innovation in technical proposal • Negotiations/communications during and after bid process • BAFO and similar structures • Involvement of lenders post bid • Monitoring and Supervision

  12. Special Issues for Guarantees and FILs • Guarantees • Economic and ... • FIL • Portfolio of projects • Need to set rules that entity can follow without Bank approval on a project by project basis

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