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INVESTMENT SECURITY IN THE MEDITERRANEAN (ISMED) ANNUAL CONFERENCE

INVESTMENT SECURITY IN THE MEDITERRANEAN (ISMED) ANNUAL CONFERENCE SESSION 3 : MAKING PPP HAPPEN IN THE MENA REGION Roger Fiszelson , Directeur Général CICA Marc Frilet , Chief Specialist, UNECE Center of Excellence on PPP, Vice Président IFEJI 4 th December 2014-Paris, France.

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INVESTMENT SECURITY IN THE MEDITERRANEAN (ISMED) ANNUAL CONFERENCE

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  1. INVESTMENT SECURITY IN THE MEDITERRANEAN (ISMED) ANNUAL CONFERENCE SESSION 3 : MAKING PPP HAPPEN IN THE MENA REGION Roger Fiszelson, DirecteurGénéral CICA Marc Frilet, Chief Specialist, UNECE Center of Excellence on PPP, Vice Président IFEJI 4th December 2014-Paris, France

  2. PPP in the MENA Region : A real practice but few positive lessonslearnt. The CICA and IFEJI PPP working groups together with UNECE experts having analyzed the ISMED Guide for policy maker are in full agreements with the analysis of the guide on some key obstacles on Concessions and PPP in the MENA region . Our group has participated to many projects in the region as well as various conferences and other exchanges on the conditions of success of concessions and PPP in Morocco , Algeria, Tunisia, Egypt and Jordan. There is no doubt that there is a substantial practical experience of Concessions and PPP in some countries. However, those experiences are contrasted between countries. Ex : Morocco having the largest experience in local infrastructure public service (Concession) and hardly no experience with PPP at a State level. Algeria has a long history Concession, but hardly no projects in the last 20 years, linked to an important potential in public payment PPP. Tunisia and Jordan, with substantial experience in infrastructure of public service concessions and hardly no project developed for public payment PPP in spite of new sets of regulations. Egypt, which was one of the leading country for the public service infrastructure for the Suez Canal is now struggling with difficulties for new projects. From there, it is not easy to identify the route for making PPP happen in the MENA region.

  3. The need to clarify the meaning and potential of PPP in the MENA region The possibility of developping a PPP beneficial to both parties remains to bemuchbetterunderstood by the stakeholders. NegativeFactors The decline of Public Payment PPP in UK and in France, and mountingcritics for someprojects. The rate of PPP in distress for new projects in developping countries as quoted by world bank. The littlepractical impact of the PPP Lawsin the last decade in mostdevelopping countries 2. Positive Factors The amazing rate of successwhen a series of conditions of success are altogetherfulfilled. Statistics in the matter are currentlymisleading and need to bebased on an agreeddefinition of PPP ( we have identified more than 25 000 real PPP in operationaround the world)

  4. More Clarityneeded in PPP definition (1) 1. Whatis not PPP ? PPP is not a public infrastructure paid by the Public Authoritiesupondelivery. PPP is not a facilitydesigned and built by the privateoperatorwith output requirementsif fullypaid by the public authority, after test and commissioning . 2.Whatis PPP ? The consensus view on the underlying condition to all of PPP is the participation of the privatesector to the operation of a service of public interest . PPP alwaysinvolvefinancing and developement of a Project by the privatesector, togetherwith the participation to the operation of the service, in part or in full withrecovery over a long time period in consideration for the operation of the service.

  5. More Clarityneededin PPP definition (2) 3. The twofamilies of PPP Takingintoaccount the importance of risks and opportunitiestransfered to the privatecompany, the growing consensus isthatitisessential to distinguishtwofamilieswithin the PPP definition • A first familyhaving a very long historyaround the world and a long track record in manyjurisdictions,( including MENA) : the Concession familywhere the private party isdelegated the full operation of a public service and recoversentirely or mostlyfromusersfees. • A second familywhichemerged in the early 1980’s : the PFI PPP Family where the private party is not entrustedwith the full operation of the public service and recoversentirelyfrompublic budget.

  6. How to make either Concession PPP and/or PFI PPP happen in the MENA region : When to use PFI PPP ? PFI / PPP : less risky than Concession but limited by public budget constraints. The risks incurred by the private party are easier to accept than in Concession since no obligation to deliver a full public service which must be adapted to the needs and affordable over a long period. Obligations for payment coming from public authority or States are easier to enforce and / or to lead to satisfactory guarantee than in Concession PPP. The State or Public Authority has all chances to have the public infrastructure built on time and meeting the output specifications. However, PFI-PPP impact on the tax or public budget for all payments to be made to the private party for the duration of the contract (often decades). PFI-PPP are possible in practice only if public budgets permit this long term liability .

  7. How to make either Concession PPP and/or PFI PPP happen in the MENA region : When to use Concession PPP ? Concessions /PPP : more risky prima facie than PFI PPP but much lower impact on tax budget. When the evaluation of public needs indicates that there is a real public interest for an improvement of existing public services or creation of new public services linked to a willingness to pay for such a service, the concession PPP family has a real potential. However, it is often heard that it is only a potential and that there are few chances to develop pipelines of concession PPP in the MENA region due to the level of the additional risk triggered by this delivery form over PFI PPP. If this is true, the future of private investments for essential public infrastructure services in the MENA region would be very limited in practice, due to budgetary constraints in most States (With some notable exceptions such as Algeria). Conclusion :the need to identify andpromote underlying conditions for success for Concession PPP is a top priority : otherwise, the UN Sustainable Development Goals have hardly any chance to be met.

  8. How to makeprojects of the Concession PPP familyhappen in the MENA region (1) : aggregatingusefullessonslearnt and draftingpolicies With Latin America, the MENA region has a priviledge of havingexperiencedmanyprojects of the Concession PPP family (essentialy « affermage » and infrastructure public service concession). If manyprojects are in difficulty, someprojects have good track records. Manylessonscanbelearnt on the removal of some obstacles.Some of thoselessons are of universal nature : - Condition of good planning then good preparation - Efficient procurement - Contract conditions with clauses unknown in traditionnalcontracts -Institutionalframework etc. In addition, the tradition of writtenlaws and of equitable public contractlawprinciplesin most of the countries is a real asset to promotefurtherlegal and regulatorycertainty. Fromthere, itisalready possible to draft a freshset of policiestakingintoaccount the particularexperience of the region and supplemented by lessonslearnt in countries and regionshavingexperiencedsimilar issues in a similarlegaleconomic and politicalenvironment.

  9. How to makeprojects of the Concession PPP familyhappen in the MENA region (2) : Developing and promotingadditional sets of policiesaddressingpractical obstacles . Various obstacles whichbecome a red flag in most Concession PPP’s due to the nature of the investement ,the long termrecovery, the adaptation of the service to public needsremain to beremoved in a majority of situations. It is important to listen to potentialinvestorsdeclining to bid for a project: Someexamplesfrom a recentsurveywithinvestors /operatorshaving a good PPP track record in developed and developing countries. No confidence in the evaluation of the needs and socio-economicfeasibilitystudies No confidence in the prima facieevaluation of design engineering and construction costs No confidence in the possibility to have the land put at the disposal on time and free of uncombrances. No confidence in the effective customs and tax budget over the period. No confidence in the evaluation of incomestream and effective paymentsfromusers of the service No confidence in permittingprocess No confidence in dispute avoidance and setlementmechanisms No confidence in the effective indemnification in case of dispute No confidence in a fully transparent and efficient procurementprocess. No possibility to introducecontractual clauses essential for equilibrium of the venture over the years. More broadlyafraid of a weakinvestmentclimate and politicalrisks The lessonslearntinternationnalyindicate none of those obstacles are unsurmontable, even in the most fragile States . A top priorityis to draft new sets of policiesaddressingthose issues and related solutions.

  10. How to make projects of the Concession PPP family happen in the MENA region (3) : Policies are not sufficient, Development and promotion of comprehensive framework law and regulations is essential As well put by the G20 « Private parties will not invest in the dark » This meansthatmostpolicies must become part of a clear, simple and enfoceablelaws and regulations. This is an enormous challenge for all stakeholders and lawmakers, sincemanypolicies are sector or projectspecific. The need of a « clear and transparent legalframeworkthatboth the public and private parties trust », as well put in the OECD guide , is a prerequisite for developing pipelines of projects in the MENA region. The experience shows that the content of the legalframeworkshouldideallybe made of : A frameworklawdealingwith the key obstacles for PPP developmentas percieved by a privateinvestor or operatorand including provisions protectingalwayslegitimate public interest. Implementingregulationsand set of standards procedure and documents.

  11. How to makeprojects of the Concession PPP familyhappen in the MENA region(4) : Framework Law, lessonslearnt The law must address a list of issues much more comprehensive than existing laws in the MENA region. Some provisions will appear prima facie unacceptable either by the private sector or the public sector. Consequently, it may only be developed after an indepth analysis of all real issues and related solutions. It must take into account regional and international experience and best practices. This is only possible through a well tested methodology for an efficient law making process. Due to the numerous issues at stake which are under the authority of different ministries, an extensive consultation process much more comprehensive than for any other law is necessary.

  12. Lessons learnt Example of content; Illustrative provisions of the CIS Model Law (1) This law has just been enacted after more than two years of extensive consultation with all the CIS countries and with the international community : some illustrative provisions • Principles - Mutual beneficial cooperation for a specified period of time. - Transparency and accessibility of rules and procedures - Good faith implementation - Planning and economic and financial feasibility studies leading to robust economic and financial scenario before considering any tender. - Competitive bidding, with very few exceptions competitive bidding taking into account the particular nature of PPP where functional specifications are more important than technical specifications and as a result : - pre-qualification - two-stage tender - competitive dialogue

  13. Lessons learnt Example of content : the CIS Model Law (2) 2. Provisions securing public interest. - adaptation of the service rendered in the public interest. - ensuring continuity for rendering public service. - insuring non discriminatory access to the service. - Right to terminate.for public interestreasons, -Right to use equipement and workforce of the private party in default 3. Provisions securing private interest : • Right to be compensated for any losses deriving from illegal action or failure to act from the State and /or Public Bodies. • Right to reinstatement of the economic equilibrium of the contract in case of hardship grossly detrimental to the private party. • Right to stability of the legal framework at the date of entering into the contract. • Right of full indemnification ( includingloss of profit) in case of termination for public interest . • Right to efficient and fair dispute resolution mechanisms.

  14. Lessons learnt for the substance : the need of implementing regulation, standard documents and capacity building Implementation issues for any framework law should not be underestimated. In our experience, it is necessary, in addition: - To develop and publish authoritative comments in line with international best practices - To promulgate enabling regulation in several areas: they must be clear and legally enforceable: policies are not sufficient. - To provide for set of standards documents such as bidding documents and template contracts - To insure that in the meantime, the institutional framework in charge of implementing PPP is operational with a well trained staff.

  15. Conclusion : making PPP happen in the MENA region is a process based on a methodological approach where carts should not be placed before the horses. Contrary to many situations learning by doingis not an option. Concentratingresources for developing a particularprojectwithout a minimum level of long termlegalcertainty for key practical issues isfrustrating and generally a waste of time and money. Pipeline of resilientprojectswill not emergeunlessmostpractical issues are well takenintoaccount, with secure solutions in line with the reality of the region and international best practices. Wemayonly vote for quick implementation as a priority of two important steps in that direction in line with the ISMED proposal 9 and 11, ie : • 9: drafting a Vademecum aggregating and summarising all best practices to be implemented together for successful projects. (this document shouldbe longer than 15 pages ) • 11 : proposing series of template contractual clausesunusual in traditionnal contracts and essential for the satisfactory and long termequilibrium of the PPP venture. Those steps are themselves a prerequisite for the subsequent drafting of comprehensiveregulatoryframework acceptable by all stakeholders and easy to implement in practice

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