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Different Models of PPP: Session On Private Sector Participation
Different Models of PPP: Session On Private Sector Participation
The views expressed here are those of the presenter and do not necessarily reflect the views or
policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they
represent.
Main Topics
Cross-Border Infrastructure: A Toolkit
• PPP Definition
• Why government should consider PPP
• Pre-requisites of a successful PPP program
• The basic types of PPP models
• Main features, application, strengths and weaknesses
• Responding to the criticisms of PPP
• Setting up the PPP program - project cycle
Cross-Border Infrastructure: A Toolkit
So many...
PPP Definitions
Cross-Border Infrastructure: A Toolkit
Source:
German PPP Task Force, German Transport,
Construction and Housing Ministry
(Bundesministerium für Verkehr, Bauen and Wohnen)
Cross-Border Infrastructure: A Toolkit
Source:
Standard & Poor’s PPP Credit Survey 2005
Cross-Border Infrastructure: A Toolkit
Source:
John Laing plc
Cross-Border Infrastructure: A Toolkit
Source:
European Commission
Why Should Governments Consider PPP?
Cross-Border Infrastructure: A Toolkit
• Risks sharing
Private company - DBOFOM facilities
NoSWA - gets planning permits and provide land
• Sharing rewards
NoSWA pays Private company for usage (treated waste)
NoSWA shares ‘extra’ revenue (from other users)
NoSWA shares ‘any re-financing gains’
Example - Unique Project (Military)
• The project (RAF aircraft tanker and cargo transport)
Cross-Border Infrastructure: A Toolkit
• Risks sharing
FOM (finance, owned, maintained) – Private company
(approx USD 5 billion)
Availability priority to RAF
RAF has crew-ready responsibilities
• Reward sharing
Value for money - RAF pays availability & usage
Private company hires out aircrafts to public
Example - Government Office
Cross-Border Infrastructure: A Toolkit
• Risks sharing
Occupancy by government
DBFOT by private company (29 years, valuation at end)
Private company also do removal and moving
• Rewards sharing
Fixed revenue minus penalties for non-performance
Government takes lower of valuation and agreed
residual value
Contrasting Public Sector Payment Profiles of Traditional &
PPP Procurement Models (Cost & Time Savings)
Cross-Border Infrastructure: A Toolkit
Profile of a PPP Transaction
(Payments Spread Over Life of Asset)
Cross-Border Infrastructure: A Toolkit
Pre-Requisites of a Successful PPP Program
Cross-Border Infrastructure: A Toolkit
Strengths Weaknesses
• Transfer of design, construction & • Possible conflict between
operating risk planning & environmental
• Potential to accelerate construction considerations
• Risk transfer provides incentive for • Contracts are more complex &
adoption of whole life costing tendering process can take
approach longer
• Promotes private sector innovation • Contract management &
& improved value for money performance monitoring systems
• Improved quality of operation & required
maintenance • Cost of re-entering the business
• Contracts can be holistic if operator proves unsatisfactory
• Government able to focus on core • Does not attract private finance &
public sector responsibilities commits public sector to
providing long term finance
Advantages & Disadvantages of PPP Relationships
PPP Type: DBFO
Cross-Border Infrastructure: A Toolkit
Strengths Weaknesses
• As for BOT plus: • Possible conflict between planning &
• Attracts private sector finance; environmental considerations
• Attracts debt finance • Contracts can be more complex &
discipline; tendering process can take longer
• Delivers more predictable & than for BOT
consistent cost profile
• Contract management & performance
• Greater potential for
monitoring systems required
accelerated construction
programme; & • Cost of re-entering the business if
• Increased risk transfer operator proves unsatisfactory
provides greater incentive for • Funding guarantees may be required
private sector contractor to • Change management system
adopt a whole life costing required
approach to design
Advantages & Disadvantages of PPP Relationships
PPP Type: Concession
Cross-Border Infrastructure: A Toolkit
Application Weaknesses
• Suited to projects that provide • As for DBFO plus:
an opportunity for the • May not be politically acceptable
introduction of user charging • Requires effective management of
• Particularly suited to roads, alternatives / substitutes, e.g.
water (non-domestic) & waste alternative transport routes;
projects alternative waste disposal options
Private Sector Requirements SC MC L BA DC PD FD
Cross-Border Infrastructure: A Toolkit
Fair Profit
Clear Legal/Regulatory
Structure
Growth Potential
Political Support
Political Stability
Leveraging Funding
Accelerating Project
Implementation
Improving Service Levels
Efficiency Gains
Ease of Implementation
Transparency/Open
Competition
Reasonable Control of Grant
Funds
Avoiding Undue Private Profit
Efficiency Gains
Conservative Cost/Revenue
Assumptions
Certainty of Grant & State Funding
Political Stability