Training on PPP

Structuring and Selection of Relevant PPP Options

Session No.: 3

Presented by:
Muhammad Shamsur Rahman
Group Manager
Infrastructure Investment Facilitation Company
18 March 20141

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Overview
Forms of Procurement by the
Government
Options for PPP
PPP Contracts

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Forms of Procurement by the Government

Conventional Public Private Full Privatization

Procurement Partnership

Government Outright sale of

responsible for government asset.
investment,
operation and risk Management
contracts:
Contracts: Service Public
Public contracts: investment Concession
Investment Public Private contracts:
and design Investment Operation & Government broad
Private Build, Private Maintenance design
and transfer Operation of of system Private detail
discrete tasks Design, finance,
construct, operate

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 Varying Degrees of Involvement
100 % Private Divestures Enabler/ Regulator
ownership

BOO

BOT Governments’
Role

Leases

Management
contracts
Service contracts

100 % Public
ownership Provider

Duration
Increasing level of delegation, risk &
irreversibility

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 Service Contracts
Objective: Increase efficiency, reduce cost
Used for: Maintenance, emergency repairs, public information
and education

Public Service Contract Private

Authority Sector
• Overall responsibility except • Responsible for contracted
scope of services that are services
contracted out
• Managing own personnel and
• Bears all commercial risk services efficiently
• Responsible for cost but not
revenue
• The contract period is short-1 to 2 years
• Offers frequent competition
• Encourages efficient performance
• Payment to the contractor linked to the work performed.
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 Management Contracts
Objective: Increase efficiency
Used for: Hotels, Ports

Public Management Private sector

Authority
• Financial responsibility to
provide funds for working
and investment capital
• May charge and collect
charges from the users
either itself or engage
anybody to collect and pay
to Government
Contract
• Responsible for entire
operation and maintenance of
the system
• No direct legal relationship
with consumer

• Contract period is generally 3 to 5 years

• Private company get freedom to make day to day management decisions
without assuming any commercial risk
• Payment to contractor proportional to physical parameter
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 Lease Contracts
Objective: Increase efficiency, reduce cost
Used for: Port terminal, railway line, Optic Fiber Cable
Public Lease Contract Private
Authority Sector
• Owner of the asset • Rent the facilities from
pubic authority
• Responsible for capital
expenditures for new projects, • Responsible for operation,
replacement of vehicles, debt maintenance management
service, tariff and cost recovery of the system.
policies.
• Can charge the users
• Capital investment risk
• Commercial risk

• Contract period: medium or long (5 to 20 yrs)

• Fixed fee plus incentive related element
• Provision for periodic revisions of the contractor rate using price
index formula
• Establish good billing and collection practice 7
 Build- Own-Operate-Transfer (BOOT)
Objective: Private sector finance
Used for: Power sector, transportation sector

Public BOOT Private

Authority
• Ownership is transferred to
public authority after a
predetermined time.
• Responsible for determining
the demand and size of the
facility
Sector
• Finance , build, owns and
operates a specific new facility.
• Responsible for operation,
maintenance management of the
system.
• Substantial risk

• Where ownership of the facility is needed by the private investor for

debt finanacing
• Contract period is almost the time needed to retire the debt incurred
and to provide return to equity investors
• Its variations are BOT and BOO 8
Build-Operate-Transfer (BOT)
Objective: Private sector finance
Used for: Land Port, Toll Road

Public BOT Private

Authority
• Ownership of the project is
transferred to Government
authority after the expiry of
the period of operation
Contract Sector
• Finance , construct,
maintain and operate a
project for a specific
period
• Permitted to charge user
charges as specified in
the contract

• Private sector has exclusive right to build the project

• Complex contractual arrangement

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Build-Own-Operate (BOO)

Objective: Private sector finance

Used for: Power Plant

Public BOO Private

Authority Contract Sector
• Finance , construct,
maintain and operate a
• Ownership of the project
project for a specific
is not transferred to
period
Government authority.
• Permitted to charge user
charges as specified in
the contract

• Private sector has exclusive right to build the project

• Complex contractual arrangement

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Build-and Transfer (BT)

Objective: Private sector finance

Used for: Roads on annuity payment

Public BT Private
Authority Contract Sector

• Finance and
• After completion the construct a project
project is transferred
to Government
authority.

• Investor is Paid as fixed in amortization schedule specified in the

contract

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Build Transfer and Operate (BTO)
Objective: Private sector finance

Public BTO Private

Authority Contract Sector
• Finance and
construct a project
• On completion, the
• Can operate the
project is transferred
project on behalf of
to Government
Govt authority for a
authority.
specific period.

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Rehabilitate-Operate-Transfer (ROT)

Objective: Private sector finance to renovate

Used for: Existing facilities

Public ROT Private

Authority Contract Sector
• Existing project is
• After the expiry of vested to renovate,
the contract period operate and maintain for
the project is a specific period
transferred to
Government • Permitted to receive user
authority. charges during operation
period.

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Supply-Operate-Transfer (SOT)

Public SOT Private

Authority Contract Sector

• the project along with • Supply equipment and

the equipment is
transferred to
Government authority
after the expiry of the
period of operation.
machinery and operate
the project for a period
specified in the contract.
• Permitted to receive
user charges specified
in contract during
operation period.

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 Joint Venture Agreement
Objective: Ownership sharing by public and private sector

Public Joint Venture Private

Authority Agreement • Sector
Jointly with Governmental
• authority
Jointly with Governmental
finance, construct,
• Jointly with investor finance, authority finance, construct,
construct, operate and maintain a operate and maintain a
project foe a specified period project foe a specifieda
operate and maintain
project foe a specified
period.
• The project may or may not be period.
transferred to govt authority • Majority representation on
• Initially equal share and later may the board of directors of new
sell off its share firm
• May keep golden share with
special power to be used in •• More
More responsible
responsible for
for day
day to
to
day management
day management
specific situation.

• New company has to be formed with equity

from both the parties
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Capitalization

Public Capitalization Private

Authority Sector

• Sell the earning potential of • Operate and maintain

an existing asset rather than the facility
the asset itself to Investors
on lump sum basis for a • Allowed to charge user
definite period of time fees.

• This can initiate a chain of infrastructure financing

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 Main Features of PPP
Aspect of Service Manageme Lease BOT BOOT Joint Outright
PPP Contract nt Contract Venture sale

Financing of Public Public Public Private Private Joint Private

investments sector sector sector sector sector according sector
to shares

Financing of Public Public Private Private Private Joint Private

working sector sector sector sector sector according sector
capital to shares

Contractual Public Private Private Private Private Established Private

relation with sector sector on sector sector sector corporation sector
consumers behalf of
public sector

Private sector Low High High High Medium High

responsibility Medium
and
autonomy
Need for Low Low Low High High Medium/ High
private capital High

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 Main Features of PPP
Aspect of Service Management Lease BOT BOOT Joint Outright
PPP Contract Contract Contract Venture sale

Financial risk Low ………. …….. High High Medium High

Duration 1-2 3-5 5-10 20-30 20-30 20-30 Indefinite

(year)
Responsibility Public Public sector Contract Contract Contract Contract Contract
for setting sector
rates
Method of Periodic, Periodic, Fixed Upfront Upfront Dividend Price of
payment Monthly Monthly rentals, payment payment proportional the
Fixed and Fixed and to
or or quarterly Monthly or facility in
variable variable shareholding
quarterly quarterly lump
royalty royalty
Method of Rates Rates Lease Not Not Consumer Not
recovering Rentals applicable charges, applicabl
applicable general
public e
expenditure revenues

Main Improve Improve Improve Mobilise Mobilise Mobilise Mobilise

objective of operating operating operating private private private private
PPP efficiency efficiency efficiency capital capital capital capital

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Example of Some Contracts BOT

Land Ports
 Government earmarks and acquires the land
and provides concession to private party
 For development and operation
 Broad design and layout by the public sector
 Contract Term 25 years
 Payments to BLPA by private sector
 Fixed royalty
 Variable royalty

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Example of Some Contracts BOO

Development of 10 MW Power Plant at CEPZ

 Private sector will build the plant and supply
electricity to CEPZ
 Contract Term 15 years
 BEPZA will buy electricity from the power plant
operator
 Payments to BEPZA-Operator provides rent for the
land till PPA terminates
 Payments to the Operator-Payment is made under
the Power Purchase Agreement (PPA)
 After end of the term no transfer

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Example of Some Contracts - Lease

Leasing Optic Fiber of PGCB (between Dhaka

and Chittagong)
 The Lessee shall use the Optic Fiber for
 transmitting telecom traffic of own and
 providing telecom transmission connectivity by sub-leasing
the bandwidth
 Lease Term 15 years
 Payments to PGCB
 Lump sum upfront payment on the agreement date
 Guaranteed Annual Rental (GAR)-four equal installments at
the end of each quarter
 Variable Lease Rental (VLR)-depends on
 Level of business by the lessee

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Example of Some Contracts - SOT

New Mooring Container Terminal (NCT)

 Necessary structures and physical facilities will be
built under CPA’s authority. Private investors will be
responsible for the Management and Operation of
NCT on Supply-Operate-Transfer (SOT) basis
 Contract Term 20 years
 Payments to CPA
 Lump sum upfront payment on the agreement date
 Fixed Royalty-paid in every quarter with a 10% increase
after each five year period
 Variable Royalty-Depends on the actual TEUs handled
 Staggered pattern

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