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PPP Programmes Why and How with a focus on Tanzania

PPP Programmes Why and How with a focus on Tanzania. Jeff Delmon World Bank. Government Finance. 2. Fiscal Space/ debt capacity. 4. Admin procedure/ decision processes. Lenders. Project. 1. Demand on resources/budget limits.

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PPP Programmes Why and How with a focus on Tanzania

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  1. PPP ProgrammesWhy and How with a focus on Tanzania Jeff Delmon World Bank

  2. Government Finance 2. Fiscal Space/ debt capacity 4. Admin procedure/ decision processes Lenders Project 1. Demand on resources/budget limits 3. Efficiency of procurement, governance/ performance orientation Government

  3. Why PPP? • Efficiency - single point responsibility; output based performance criteria • Preparation – discipline / due diligence / project assessment • Innovation/technology - though maybe not fast moving technology (long-term contract) • Imitation – public services learn from private efficiencies • Finance – governance; new sources/fiscal space – FDI and local financial markets

  4. Sources of Financing • Government (taxpayer) financing • Public sector lending, grants, subsidies or guarantees of indebtedness. • Borrower is Government. • Risk free rate, resource allocation, fiscal space, efficiency • Corporate financing • Financing to the project company or a sponsor company against proven credit risk and ongoing business. • Borrower is Investor. • Cost of money due to lost opportunities • Project financing • Limited recourse off balance sheet financing to a special purpose vehicle project company (SPV) relying primarily on future cash flow of the project for repayment. • Borrower is SPV. • Cost of money, WACC/leverage Private

  5. Why Project Finance Shareholders 4. Lower WACC given high leverage on the back of securitized revenues 1. Limited recourse - No direct liability to Government or Lenders Lenders Project Company (SPV) Government 3. Stable revenue stream securitized 2. Debt on-balance sheet for SPV but off balance sheet for Government and Shareholders Project

  6. Tanzania • Poor history of PPP • City Water • TRL • IPTL • TanescoManagement Contract • TICTS • No central Government drive • PPP Policy 2009, PPP Law 2010, PPP Regulations 2011, PPP Units 2012 • Not a single PPP project under the new regime • Complication of Finance Act 2013 • World and investors/financiers looking on curiously looking for clarity and certainty

  7. 1. Choose carefully • Decide which projects are to be PPP, and stick with it • Decide based on value for money • Don’t compromise, make them compete – no MOUs! – no side deals! • Get buy-in from the highest levels and give clear orders Actions: • Establish clear criteria for public investment management that includes PPP allocation (in process under PER) • Approve the list of projects at highest level and publish it (make sure list is valid and feasible, do not oversell) • Obligation to reject any request for funding or guarantees unless the rules have been followed (tendency to hide behind PPP label)

  8. 1. Choose carefully in practice • Dutch: PPP or bust • Chile: Only 35% of PPPs make the cut • Indonesia: Lists, lists and more lists • India: if public money is not too much (VGF rules) • UK: From Public Sector Borrowing Ratio to PFI credits and InfraUK • Tanzania: • POPC/MoF – PER support • No clear buy-in from the top – senior level Government champion of direct negotiations

  9. 2. Invest in success • Do not “try” PPP; do it • Invest time and money in making PPP work • Project teams need the resources to do their jobs • Access to the best transaction advisers • Make sure projects are well prepared before submission, with assessments of projects reported up • Set performance indicators and milestones • Monitor progress from the highest level Action: • Create, staff and fund the PPP Unit • Report project assessments and pipeline periodically

  10. 2. Invest in success in practice • PPP staffing and resources • Project development funds: • Grants, loans, equity • Filipino PDFThe LGU Private Infrastructure Project Development Facility was launched in early 2000’s and was designed to provide support to private financing of infrastructure projects at the Local Government level. It provides assistance for project preparation, bidding, evaluation, and negotiation. The PDF is a revolving credit facility that loans the required funds to the LGUs, in local currency and at local market interest rates, 5-year term with 1-year grace period on both principal and interest. • India Infrastructure Project Development Fund The Government of India has created an “India Infrastructure Project Development Fund” as a revolving fund which will be replenished by the re-imbursement of investments through success fees earned from successful projects. The project development fund will cover up to a maximum of 75% of the project development expenditures incurred by the contracting agencies in preparing and processing a PPP project. The fund was capitalized by contributions from the Government of India and multilateral institutions. • Project Development Fund (PDF), South Africa The PDF began operations on 21 October 2003. It is a single-function trading entity (public account), created within the National Treasury. Disbursed funds may be recovered from the successful private party bidder when the PPP reaches financial close, as a “success fee‟. It is factored into the feasibility study to avoid undue affordability constraints being imposed on the project. Bidders will price the success fee into their bids and will recover the costs through the payment mechanism used in that particular PPP. The PDF is exposed to the full risk of the project not reaching financial closure. The PDF is capitalized by the South African Government, as well as donors. • UK PFI Credits; India IIFCL, VGF, IDFC; Brazil: BNDES; RSA: DBSA • Tanzania: PPP Facilitation Fund, TIB(?)

  11. 3. Keep it simple • Keep it simple for Government agencies to use PPP and for investors to understand • Clear and complimentary ToRs for different institutions • Not too many institutions – coordination • Limited number of approvals/steps – map them out • Transaction costs limited – time and money

  12. 3. Keep it simple in practice • UK (India, South Africa, etc) standardization • South African approvals process/mapping • The PPP Unit: A one stop shop? • The PPP Committee: Bringing everyone together • Tanzania: • PPP Law: MoF approval; PPPFU, PPPCU • BRN and new direction: National Infra Committee, independent PPP Unit under PMO

  13. Central PPP Functions • Doing: • Planner (macro-micro) • Promoter (doing it well, funding it) • Coordinator (doing, learning, simplifying) • Guardian (doing it right) • Tanzania: • Planner: POPC/MoF National Infra Committee(?) • Promoter: TIC PPP Unit • Coordinator: PMO National Infra Committee • Guardian: MoF National Infra Committee

  14. PPP ProgrammesWhy and How with a focus on Tanzania Jeff Delmon World Bank

  15. Lessons Learned • Do your homework • Independent feasibility study, done well • Be clear in advance on terms and conditions • Leverage the Government support available – number and quality of bidders • Market • Help investors see the potential • Competition • Get the right price and terms • Keep the process clear, transparent and open

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