Public Private Partnerships: The Next Phase for World Bank

1. Public Private Partnerships:The Next Phase for World Bank Bob Prieto Senior Vice President Fluor World Bank Transport Unit Presentation May 15, 2008 Washington DC GV20060229001.ppt

2. Agenda • What is a Successful PPP? • PPP Legislation and Regulation from a “Greenfield” Developer Perspective • PPP “How To” Process • Things to Consider GV20060229001.ppt

3. What is a Successful PPP? GV20060229001.ppt

4. What is a Successful PPP? High-Speed Line JFK Airport Connect Route 895 GV20060229001.ppt

5. What is a Successful PPP? • Provides improved project execution and performance certainty to the public sector. • More efficiently applies available capital or accesses additional sources of capital. • Scope control • Life cycle framework • Real pricing of risks • Sculptable finance structures • Effectively allocates life cycle risks • Provides attractive return with good performance upside to private sector GV20060229001.ppt

6. Public-Private Partnerships (PPP)Top Ten GV20060229001.ppt

7. PPP Legislation and Regulation from a “Greenfield” Developer Perspective GV20060229001.ppt

8. PPP Legislation and Regulation from a “Greenfield” Developer Perspective • Good Legislation • Good Regulation • Design of an Efficient and Effective Bidding Process • Contract Issues to be Addressed by the Regulator GV20060229001.ppt

9. Attributes of Good Legislation • Clear statement of policy • Provision to receive unsolicited proposals – a competition of ideas • Approval authority delegated to DOT • Requirement for clear regulations including evaluation of proposals • Involvement of local governmental units defined • Clear authority to commit public property • Powers of private sector partner delineated • Right to toll or charge other user fees explicitly stated GV20060229001.ppt

10. Attributes of Good Legislation • Exemption from property and ad valorem taxes • Authority and requirements related to pre-development and comprehensive development agreements fully delineated • Termination provisions for cause and convenience provided for, including any remedies • Funding resources identified if federal, state, or local resources to be included • Condemnation authority defined • Enforcement provisions related to tolls and traffic enforcement • Waiver of any procurement regulations inconsistent with PPP delivery model GV20060229001.ppt

11. International PPP Framework • The wealth of experience provides a framework for policy, project, and procurement design • Government financial models are gradually evolving toward models that better allocate risk and measure the financial effects of uncertainty • Regulatory regimes recognize the change that occurs in key financial variables over time and provide for renegotiation • Models are built for either outright sale of government assets or privately financed concessions • Models take a longer term view than a traditional project-specific financial model and explicitly consider available regulatory instruments GV20060229001.ppt

12. Clear Regulatory Objectives • Financial viability of PPP • Toll rate structure efficiency • Fairness of toll rate structure • Efficiency of delivery and operation • Reinvestment efficiency • Recalibration of toll rate structure at periodic refinancing • Development of regulatory regime must be simple, transparent, non-conflictive, justifiable and justified, fair in allocation of risks, and avoid pricing discrimination and excessive price fluctuation GV20060229001.ppt

13. Tools of the Trade • Policy framework • Concession period and its linkage to rate of return • Toll rate level, structure, and adjustment mechanisms • Concession payments • Penalties and fines for non-compliance • Timing of investment and reinvestment • Quality standards, including those related to effective management and operation of the facility over time • Depreciation and amortization rules (tax and accounting policy issues) GV20060229001.ppt

14. Types of Regulation • Price or revenue caps • Rate of return • Hybrid GV20060229001.ppt

15. Design of an Efficient and Effective Bidding Process • Encourage the bidder’s creativity • Judge all proposals received by carefully assessing the capabilities, credibility, and commitment of the proposers and carefully respecting the intellectual property rights • Choose a proposer on the basis of known and qualitative abilities. Financial criteria cannot be sole selection criteria • Recognize that the concessionaire’s capital contribution is determined by financing community requirements and should not be artificially capped • Establish the clear legal framework required • Implement a well-defined and transparent concession process with clearly defined selection criteria • Clearly define the obligations of concessionaire to: • Build • Maintain in good condition • Operate • Hand over the works at end of period GV20060229001.ppt

16. Design of an Efficient and Effective Bidding Process • Identify rights of the concessionaire • Counterparty rights which arise from financial agreements, including subsidies and tariff guarantees included in the contract • Rights to operate the service and the degree of independence of those rights from the granting authority • De facto monopoly rights • Rights with respect to third parties • State rights transferred to concessionaire (eminent domain) • Rights to use the facility and receive fees GV20060229001.ppt

17. Design of an Efficient and Effective Bidding Process • Procurement process itself should be carefully conceived: • Should not be built around competing on toll levels or expected usage (increase risk to government from increased likelihood of concession company default) • Should have adequate preliminary studies complete to define project scope and facilitate advancement of the environmental process • Rely on careful pre-selection of qualified bidders to ensure capability to meet financial commitments • Carefully define government’s role and obligations at outset of process • Provide an opportunity to comment on tender documents and negotiate contract form in advance of proposal submission • Clearly define the evaluation criteria • Establish a realistic timetable for the negotiation process GV20060229001.ppt

18. Contract Issues to be Addressed by Regulator • Concession period • Investment • Toll rates and structure • Quality GV20060229001.ppt

19. PPP “How To” Process GV20060229001.ppt

20. Does Political Will Exist? GV20060229001.ppt

21. Does A Potential Project Exist? GV20060229001.ppt

22. Will Stakeholders Support the Project? GV20060229001.ppt

23. Are There Any Fatal Flaws? GV20060229001.ppt

24. Will It Make Financial Sense? GV20060229001.ppt

25. Are There Any Fatal Flaws? GV20060229001.ppt

26. Will the Project “FLIP”? F inancial egal and risk nnovation/value creation olitical ocial and environmental L I P S GV20060229001.ppt

27. Will the Project “FLIP”? GV20060229001.ppt

28. Sharing the Risks GV20060229001.ppt

29. Risk Allocation – Value of Money GV20060229001.ppt

30. Contract Issues GV20060229001.ppt

31. Contract Issues (continued) GV20060229001.ppt

32. Can We Close It? GV20060229001.ppt

33. Things to Consider GV20060229001.ppt

34. Things to Consider • Policy • Model legislation and regulation including alternative dispute resolution process (by World Bank) • Special category of tax free debt • Pricing as scarce resource allocation mechanism • Managed lanes • Congestion in and around urban areas accounts for significant portion of annual greenhouse gas emission growth • Pocahontas “variant” • Financing tools • TIFIA style sub-debt facility (by World Bank) • Defined rules • Sculptable • National level private activity bonds for use by local governments (tax features) • Monoline type facility GV20060229001.ppt

35. Things to Consider • Technical work • Life-cycle cost tradeoff models (concrete vs asphalt) • O&M cost models and long term performance specs for PPP contracts • Income vs CPI differences for major urban centers • Value of time correlations • Traffic models that consider: • Changing income demographics (economic link) • Peak spreading over long PPP periods • Changing annualization factors over long PPP periods GV20060229001.ppt

36. Questions? GV20060229001.ppt