Presentation Transcript

1. Iraq Finance 2012Public Private PartnershipsAbraham AkkawiSeptember 18, 2012

2. Content PPP Defined PPP Advantages PPP Types Public Sectors Readiness Concluding thoughts
3. PPPDefined PPPs are “legal agreements” between government and private sector entities for the purpose of providing public infrastructure, community facilities, and related services. Typically the partners share risk, reward and responsibility – for a shared investment
4. PPP Advantages Cost savings Speed & Timing Risk Transfer Improved Service Levels Ability to Bundle design, build, finance, operate Life Cycle Investment upfront investment minimizing ongoing cost ongoing requirement to continue investing in the facility Handback and reversion Real Estate & Development Opportunities land for development or redevelopment
5. PPP Advantages (cont.) Access to Financing (on or off balance sheet)/Leveraging Innovation and specialized skills Revenue risk sharing Job Creation Construction Industry faster growth
6. PPP Types Public Risk Transfer Private
7. Why are PPPsTaking Front Stage in MENA ? A need for rapid delivery of large scale and complex projects to respond to urgent requirements. Significant capital needs remain in infrastructure, education, housing and health care, for development and for competitiveness –constraints on public budgets. Availability of private capital also constrained: investors generally more risk-aware than previously and less willing to take risks in emerging markets. Efficient gains from private sector involvement are believed to be considerable.
8. Empirical Evidence *Value-weighted Time Overrun Source : UK Study :NAO Report of 2003 –UK’s national Audit Office Report on PPPs Australia study ; Allen Consulting Group (University of Melbourne)- 2000-2007
9. But Beware of Challenges of PPPs Increased complexity High transaction costs: Large tendering and contracting costs For some projects ,total tendering costs can equal around 3%of total project costs as opposed to around 1%for conventional procurement. Significant legal costs in contract negotiation Skill deficit for administration Appropriate allocation of risks Public perception that “critical "public assets are controlled by private sector (privatization) Good advice to structure sustainable PPPs
10. Public Sector Readiness Government Needs and Pressures Organizational Issues & Governance Change Management & Responsiveness Stakeholders Project Advocate Legal and risk Parameters Service Provider Community Viability and Deliverability of the Project
11. Conclusion – PPPs as Innovations Instruments From the government perspective: PPP creates a space outside government machinery for innovation PPP helps inject broader sets of skills, talent, and work culture PPP assists in binging new financial resources and business capital (social networks) PPP supports in creating new industry clusters
12. Conclusion – PPPs as Innovations Instruments From the private sector perspective: PPP reduces the risk of investment in new innovations for existing services and solutions PPP may also serve as drivers of innovation for the development of new services and solutions that do not exist yet. PPP allows private companies engage in large scale projects
13. Conclusion – How can Iraq take advantage of PPPs Need significant government backing (payment guarantees and maybe funding guarantees). Organize and incentivize local lending institutions to participate Focus on real needs and not wish list of projects Power and Utilities sector seems to be the most mature to involve private sector participation given that governments act as offtakers Transportation sector is very promising, but watch rosy business case that have derailed many PPP projects Social Infrastructure (housing, education and health) present real needs but need to find innovative ideas, mat not be enough to provide free land to make projects viable Start with something small to medium Learn from what is happening around you Be patient
14. AbrahamAkkawi Head of Infrastructure and PPP Advisory – Middle East and North Africa abraham.akkawi@ae.ey.com