There seems to be an 8 Years cycle for PPP’s in Developing Countries which can be extrapolated with caution to other World Regions. The world investments in PPP peaked in Year 2008, thus, we could in 2012 be at the cycle bottom with the next 4-5 exhibiting a strong drive towards PPP investments. The presentation addresses the Middle East / MENA convergence in PPP’s highlighting the various challenges in regards to infrastructure development, socio-economy development and as well as PPP pipeline projects update in the region.

1. Regional Convergence in PPP
MENA PPP Projects Success
Framework –
Regional PPP Development Strategy
3rd Annual ME PPP – Qatar, February 2012
Loay Ghazaleh – Advisor - B. Sc. Civil Eng. , MBA
1

2. Presentation Index
MENA PPP Scio - Economic Outlook
MENA PPP Initiatives / Early Successes
PPP Global Adaptation / Learning
PPP Options & Projets Structure
PPP Projets Success Framework
PPP Regional Deveopment Strategy
2

3. MENA PPP Socioeconomic Outlook
Balancing Factors or Another Europe in 5 Years !
Cash Flow -
PPP Planning Lifecycle Costs
– must comply – needed for
to repayments to
legislation, poli prevent delays
cies and due to cash
guidelines shortages
Budget /
Affordability -
Project
commitments
framework to be
reflected in the
budget
3

4. MENA Infrastructure Supply Side
• Relatively high infrastructure investment in recent years has succeeded in
ensuring basic infrastructure access to the vast majority of MENA
citizens, yet significant infrastructure investments are needs coupled with
financial pressures on Government debts and budget deficits
• The connection rate to the electricity grid by households is around 90
percent; access to acceptable water and sanitation services is above 70
percent, however, connectivity for the most part utilizes old / inefficient
systems and industrial connectivity is still way below needed capacity.
• The penetration of mobile telephony has reached the level witnessed in
industrialized countries.
• Paved roads represent between 60 to 70 percent of the total road
network.
4

5. MENA Infrastructure Demand Forecast
• There are some considerable challenges that MENA countries need to overcome in
order to move the infrastructure agenda forward .
• Good demand drivers exist like attractive investment alternatives, pension fund and
insurance companies diversification into new asset class and poor historical Public
output performance
• The installed generation capacity of the electricity sector is estimated to be 20
percent below the aggregate demand for electricity across countries in MENA.
• The prevalence of highly subsidized electricity & water tariffs induces wasteful use
of electricity& water therefore increasing pressures for expansion of electricity
generation capacity.
• Energy & Water subsidies cost the region the equivalent of 10 percent of its GDP in
2006, whereas reducing these subsidies could raise the region GDP by 3 - 4 percent.
• Urban congestion is growing and therefore increasing transaction costs for
businesses or commuting times for workers (In Cairo, the average speed of vehicles
is as low as 9 km/h )
• It is estimated that the total economic and social cost of congestion is about 5
percent of GDP. In Teheran, it is estimated that commuters spent around 4.5 million
hours/day in traffic.
• The quality and reliability of Infrastructure services are a real challenge which
constrains competitiveness, regional economic activity and growth prospects
5

6. MENA Infrastructure Investment Forecast
• Private investments in infrastructure in MENA have grown significantly since
1994, but at a lower rate than in other regions.
• MENA countries need to create 40 million new jobs in the next ten years to meet
the fast growing labor force.
• This will require sustaining the economic growth at around 7 percent per year in
the next ten years which cannot be achieved without significant investments in
infrastructure.
• The annual volume of infrastructure projects financed in MENA is estimated to
have grown from US$25 billion in 2007 to US$27 billion in 2008,before sharply
declining by June 2009 to US$6 billion due the global financial crisis (Investments
in PPP in the Middle East and North Africa almost tripled between 2000 and 2007)
• Middle Income Countries in MENA will need to invest the equivalent of 9.2
percent of their yearly GDP, in order to sustain their economic growth prospects.
This represents a total investment effort between US$75 to 100 billion a year, of
which 33 percent is earmarked for the maintenance of the existing stock of
infrastructure.
• The Arab world invests about $60 billion a year in infrastructure, but to sustain
current growth rates, it needs about $100 billion annually.
• To meet this $40 billion gap, a smart mix of public sector engagement in
coordination with financing and expertise from the private sector is essential.
6

7. Opportunities in GCC Power, Utilities and
Infrastructure
• Long-standing problems like high unemployment, limited access to finance
and weak regulatory frameworks are the forefronts in MENA Region.
• There are more live projects in the MENA region than anywhere else
• Qatar are planning projects worth $20 billion over 5 years
• Saudi Arabia is planning to spend $400 billion in the same period
• Oman is budgeting $2.43 billion for capital investments in 2010
• Abu Dhabi is spending $68 billion in public transport schemes alone
• Oman projecting a total government spending of $10 billion for the
construction industry in year 2012, an increase of 23 per cent over 2011.
7

8. Opportunities in GCC
Transport Sector
• The GCC Transport and Railways Conference held in Qatar, October, 2011
(Sponsored by Qatar Railways Company (RAIL) in association with the General
Secretariat of the GCC, the Federation of GCC Chambers, the Qatar Chamber of
Commerce and Industry, and others)
• Investments of more than US$ 200 Billion already allocated to the development of
transport systems, with the rail networks and metro projects reaching US$ 100
Billion.
• The national GCC railway projects, a 2200 km network that will be carry
passengers and goods at speeds of 200 km/h and 80-120 km/h, and will link the six
Gulf countries at a total cost of more than US$ 15.4 billion. Commissioning of the
entire network is expected by 2018 A.D.
• It’s forecasted that GCC GDP to reach around US$ 2 trillion and a total population
of around 53 million in the year 2020 A.D.
8

9. Opportunities in MENA Social Housing
• Affordable housing for the MENA region has an estimated shortfall of 3.5
million units -JLL Consultancy – 2012.
• Saudi Arabia has the largest shortfall in the Gulf of 500,000 plus homes
followed by 40,000 homes in Bahrain, 20,000 in the UAE and 15,000 in Oman .
• KSA Construction Housing Pipeline Projects valued at US$ 29 billion for 2012.
• Sharjah has a shortfall of 5,000 affordable homes. Sharjah ruler unveiled initiate
in 2012 for affordable housing.
• Bahrain government signed early 2012 a record BD208m ($550m) with a local
developer to build more than 4,000 affordable homes.
• Saudi Arabia needs 1.65 million new homes by 2015 (275,000 units a year). Total
commitment is $130bn on social projects with $67bn allocated for 500,000 new
homes and $400 billion for infrastructure projects.
• Bahrain forecasts the need for about 350,000 new residential units to be added
to existing stock by 2030 with $1.1bn to be spent every year up to 2020, and
then $242m annually up to 2030, (EDB report).
9

10. GCC PPP Activity Update (KFH 2010 report)
• With huge government surpluses, securing finance is not the overriding
factor behind the PPP push in the GCC countries, rather, it is the goal to
deliver projects more efficiently, grant the private sector a greater
economic role and assist with the diversification of the local economy.
• Since 2010; over 50 PPP contracts were signed in the GCC region. These
projects require investments of more than USD 60 billion.
• As of September 2010, the UAE had signed off an estimated USD20 billion
worth of PPPs, with some USD7 billion accounted for by Abu Dhabi's utility
sector.
• Kuwait government rolled out in mid-2010 through Partnerships Technical
Bureau (PTB) – a PPP unit - PPP program comprising 32 projects and
requiring investment of USD28 billion in various sectors -
Transportation, real estate, healthcare, utility projects and recycling
factories under B.O.T system with the largest being the estimated USD10
billion Kuwait national rail scheme.
10

11. PPP Pipeline Projects – GCC
Mar-10 KSA Airport Cities PPP
Jul-10 KSA Airport Cities PPP
Aug-10 KSA High Speed Railway PPP
Sep-10 KSA - GCC Railway Network PPP
Apr-10 KSA - Jeddah Airport PPP
Aug-11 KSA - Mecca Mass Rail Transit PPP
Apr-10 KSA - Medina Airport PPP
Jul-10 KSA - Medina Medina International Airport PPP
Aug-10 Kuwait Metro Rail PPP
Sep-11 Kuwait Recycling factories PPP / B.O.T
Sep-10 Oman Railway Network PPP
Jul-11 Qatar - Doha Metro PPP
Oct-10 UAE Railway PPP
Dec-10 UAE Union Railway PPP
Aug-10 UAE - Abu Dhabi Mafraq-Ghweifat Highway PPP
Jul-11 UAE - Abu Dhabi Airport PPP
Oct-10 UAE - Dubai Water PPP 11

12. PPP Pipeline Projects – Rest of MENA
Oct-10 Egypt Rod el-Farag Highway PPP
Sep-11 Egypt Egyptian Refining Company
Sep-11 Egypt Suez 650 MW Steam Thermal Plant
Sep-11 Egypt Taxi Replacement Scheme
Jul-10 Egypt - Alexandria University Hospital PPP
Jul-11 Egypt - Alexandria Hospital PPP
Feb-10 Egypt - Cairo Wastewater treatment plant PPP
Jul-10 Egypt - Cairo-Alexandria Cairo-Alexandria Freeway PPP
Sep-10 Jordan Rail Transit / Way PPP
Jul-10 Jordan - Amman Light Rail PPP
Jul-10 Jordan - Amman Ring Road Highway PPP
Sep-11 Morocco Railway Line
Sep-11 Morocco - Casablanca Drinking Water Supply -Rabat
Hasdrubal Oil and Gas Field
Sep-11 Tunisia Development
Sep-11 Tunisia Road Project VI 12

13. MENA PPP Initiatives / Successes
13

14. MENA PPP Environment
• There are some considerable challenges for MENA region in moving the
infrastructure agenda forward.
• PPP investments in MENA region Countries have essentially been contractual
rather than being based on a larger legislative framework.
• Some ministries in some countries have developed expertise in structuring a
very specific PPP category like telecommunications, roads or sanitary / water.
• The procurement process, dispute resolution and regulation / tariff setting
arrangements have generally been subject to a contractual arrangement rather
than independent laws, regulations and regulators.
14

15. GCC PPP Activity in the Last 10 Years
(Kuwait Finance House – KFH- 2010 report)
• GCC PPP contracts during the last ten years amounted to USD 628 billion with over
100 PPP-type agreements, of which half can be classified as management contracts.
• In terms of PPP deals concluded, Saudi Arabia has the highest number at 45 with
power and desalination's share of the PPP market was near 90 percent of the total
spent.
• Management contracts (Often seen as the first step towards privatizations) have
been used extensively in used in regional seaport and airports projects.
• The UAE and Saudi Arabia represent the largest markets for PPP especially IWPP
(energy and water projects).
• The first IPP in GCC (Al-Manah independent power project ) was signed in 1994 in
Oman.
• In 1998 Abu Dhabi successfully launched the restructuring of the Abu Dhabi utility
sector and formed Abu Dhabi Water Electricity Authority (ADWEA) on BOO basis.
• Oman re-launched its own utility privatization program in 1999 and was followed in
2000 by Qatar and in 2003 by both Bahrain and Saudi Arabia.
• In 2002, the region's first sewage treatment plant (STP) PPP was awarded at
Sulaibiya in Kuwait (USD 400 million)
15

16. Regional Infrastructure Regulatory Forum -
December 2009
• Jordan’s Ministry of Planning and International Cooperation
(MOPIC), and in collaboration with the Public-Private Partnerships
Infrastructure Facility (PPIAF) and the International Finance Corporation
(IFC) launched in Amman on December 7, 2009, the first Regional
Conference on Infrastructure Reform and Regulation in the MENA region.
• The Conference adopted a final resolution to launch a process towards the
establishment of the “Middle East and North Africa Infrastructure
Regulatory Forum” of which the objectives will be to promote the
cooperation among infrastructure regulators within and across countries
in MENA.
• A working group was formed to work jointly with World Bank in bringing
the process forward. The Membership of the Forum will be open to all
relevant organizations responsible for regulation and that are based in the
MENA states.
16

17. Middle East and North Africa
Infrastructure Regulatory Forum
• Cooperation among stakeholders , regulators dialogue and knowledge-
sharing can serve to;
- Accelerate reform progress,
- Promote best practice and
- Enhance the harmonization of infrastructure networks.
- promote the adoption of common rules, norms and standards,
• A multi-sector regional Forum of infrastructure Regulation can serve as a
valuable platform for
- Experience and information sharing across borders and sectors,
- Problem-solving, and the dissemination of best practices.
- Knowledge sharing center providing capacity building services
17

18. Arab Financing Facility for Infrastructure (AFFI)
World Bank Group & Islamic Development Bank Infrastructure Facility
• The World Bank Group (IFC), in cooperation with the Islamic Development Bank,
set up a $1 billion facility (the public side of investments will be financed via an
initial $200 million from the World Bank) to close the infrastructure gap in the
Middle East and North Africa.
• This regional investment vehicle supports both conventional and Shariah-
compliant investment in infrastructure which will attract untapped, alternative
sources of financing.”
• The Facility focus is cross-border PPP infrastructure projects like electricity
networks and rail, road and maritime networks and projects with regional impact
like the plans for large-scale concentrated solar power production in Morocco to
increase the regional integration and competitiveness.
• IFC supports cross-border projects that commercial banks would consider too risky
without IFC’s involvement.
• World Bank lending to the MENA region for infrastructure, including electricity,
transport and water, has exceeded $1 billion a year.
18

19. ADB (African Development Bank) Investment Update
North African Countries : Algeria, Egypt, Libya, Mauritania, Morocco, and Tunisia.
• The Bank Group started operations in the North Africa sub region in 1968 – one
year after the other sub regions.
• Loan and grant approvals for the sub region totaled UA 1.47 billion in 2010, which
is a rise of 40.0 % above the 2009 level of UA 1.05 billion. ( ADB uses UA units of
accounts which is SDR and is nearly equivalent to 1.5 USD)
• North Africa’s approvals represented 40 % of total Bank Group approvals, which
makes it the main beneficiary sub region during the year.
The key projects approved for North Africa were:
• Suez 650 MW Steam Cycle Thermal Power Plant in Egypt;
• Increasing capacity on Tangiers–Marrakech Railway Line in Morocco;
• Road Project VI in Tunisia;
• Drinking Water Supply in the Rabat Casablanca in Morocco;
• Egyptian Refining Company Project in Egypt;
• National Program for Taxi Replacement Scheme in Egypt;
• Oil and Gas Field Development Project in Tunisia;
• Public Administration Reform Support Program, Phase IV in Morocco.
19

20. IFC-World Bank
 IFC is currently active in both projects financing and advisory services in the
MENA region ( GCC countries are excluded from the financing)
 IFC mission is to foster sustainable economic growth in developing countries by
financing private sector investment, mobilizing capital in the international financial
markets, and providing advisory services to businesses and governments.
 IFC has expanded its advisory services to improve the business enabling
environment and encourage public-private partnerships for the development of
infrastructure.
 Reducing infrastructure bottlenecks—especially in transportation& power sector is
a strategic priority for IFC to support the region’s sustained long term growth.
20

21. IFC-World Bank Advisory - 2010
EGYPT SAUDI ARABIA
• Cairo-Alexandria Freeway • Airport cities
• Alexandria University • Madinah International
Hospitals Airport
JORDAN SYRIA
• Amman Ring-Road • First Independent Power
• Amman Light Rail Project
PAKISTAN YEMEN
• FAISALABAD ELECTRIC • First Independent Power
SUPPLY COMPANY (FESCO) Project
21

22. MENA PPP Laws
• PPP draft law to be approved in Lebanon. - October 23, 2010
• Dubai´s PPP law will be approved in the first quarter of 2011- drafted by
Roads and Transport Authority (TRA) but it is not specific to transport-
January 13, 2011
• PPP law draft ready for private comments in Jordan (Privatization law was
passed in Jordan in year 2000)- July 12, 2010
• PPP law for Egypt ( under process) - drafted by Finance Ministry's Public-
Private Partnership (PPP) Central Unit - August 23, 2010
• In 2009 Kuwait announced its intention to pursue the private power
route.
22

23. MENA PPP Government Initiatives
Country Sectors Law PPP Unit
Jordan water, airport, ring road, , airport Privatization & PPP Yes
Lebanon Energy (IPP 435 MW) Privatization & PPP Yes
Egypt Rail, roads, water, STP, health, education Privatization & PPP Yes
Algeria Rail, roads Project wise Laws ?
Tunisia Solar, roads, oil & gas (production sharing) Project wise Laws Yes
Morocco Solar, railway, water transmission. Project wise Laws Yes
Bahrain Energy (IPP),STP, waste treat. , housing Mortgage - Housing Yes
Qatar Metro Sector Laws MoBaT
Kuwait STP, metro, railway, recycling factories. PPP PTB
UAE Energy (IWPP), water taxi, airport PPP RTA
Oman Energy (IPP) STP, railway, housing Mortgage - Housing ?
Saudi Arabia IWPP, STP, housing, airport Cities, GCC rail Mortgage - Housing ?
Yemen IPP (400 MW) Sector Law ?
23

24. Jordan - Water Sector
• Since 1997, the Government continually issued strategy, policies and investment
program:
• 2002 – 2011 Sector Plan and Investment Program
• Action Plan 2002 – 2006.
• Water Utility Policy
• Ground Water, Wastewater and Irrigation Policies
• New Water Strategy for Jordan for Water Demand Management (WDM) and
Public Private Partnership (PPP)
• Institutional responsibilities lies with Ministry of Water and Irrigation (MWI)
• Management Contract selected due to
• Improvement of Services with Reduced Risks to Government
• Results in Significant Improvement, in System Operation
• Improvement of Organizational Reform of Operations
• Good First Step Towards Significant PPP
24

25. Egypt – Full PPP Program
Egypt has led MENA Countries with 22 PPP Deals valued at $15.4bn achieving financial
closure between 1990 and 2007
Performance-based contracts under concession (affordability or a hybrid of both).
• Output is specified by Line Ministries while input is by the private sector
• Under the PPP contract the Government retains total strategic control
• Adoption and localisation of international successful PPP models (UK based)
• Supportive legislative environment , new legal framework for PPP projects
(Draft under finalization for Submission to Cabinet and Parliament)
Standard PPP Contracts
• Standardization of procurement documentation and procedures
• Creation of regulatory bodies for post contract implementation
• Establishing a PPP Central Unit at Ministry of Finance as well as Satellite Units.
• PPP Pipeline Projects in Social Infrastructure (Education &Health
Sectors), Wastewater Treatment Plants and Transportation Sector
25

26. PPP Global Adaptation / Learning
26

27. Countries PPP Knowledge Sources
27

28. HM Treasury References
28

29. WB PPP Knowledge Reference
29

30. International PPP Center of Excellence Initiative
30

31. Neighboring Countries PPP Actions
31

32. PPPs Evolutionary Phases
START (Infancy) Stage Two (Establishment) Stage Three (Maturity)
•Introduce PPP concepts •Introduce legislative •Fully defined, comprehensive
for Public discussions reform “system”
•Explore PPP models •Publish policy and practice •Legal impediments removed
guidelines
•PPP models refined and
Stage One (Emerging)
•Establish dedicated PPP replicated
•Define policy framework unit/s
•Sophisticated risk allocation
•Test legal drafts • Refine PPP delivery
•Committed, long-term deal flow
models
•Identify project pipeline
•Long-term political consensus
•Continue to foster local /
•Develop PPP concepts
int’l marketplace •Use of full-range funding sources
•Apply lessons from including pension funds and
•Expand project pipeline
earlier deals to other private-equity
sectors •Extend to new sectors
•Well-trained civil service
•Start to build the local •Leverage new sources of applying lessons from PPP
marketplace funds experience
32

33. PPP Market Maturity Curve – UN Publications
33

34. Governments & Institutions objectives in PPPs
• Fiscal objectives (defers the cost of capital investments, reduce apparent
borrowing by government )
• Economic objectives:
– expected efficiency gains
– more reliable completion of projects on time and on budget
– expected greater management skills / know how of private sector
• Political objectives
– reduce role of the State / the Government
– weaken influence of public sector trade unions
Fiscal Objectives Economic Objectives Political Objectives
Limits on government
IMF spending/borrowing
Efficiency Develop global market
Limits on government
EU borrowing, debt (stability Efficiency Develop internal market
pact)
Reduce role of state, extend
National Limits on government Efficiency, reduced public
role of private sector,
governments borrowing spending
weaken unions
Local Efficiency, reduced public
Reduce local taxes ?
governments spending
34

35. 35

36. PPP Program - Integrated Approach – Key Notes
 No perfect design for regulation and
institutions
 Changing market condition needs to Vision – Strong Political Institutional
be reflected in PPP framework by Will Accepted By The
modifying and updating regulatory Framework – Building
and institutional design Public / Users Capacity, National
(Empowered Public) Policy
 Competition & transparency
principles need to be kept
 Government’s proactive use of Viable / VFM PPP
vision, policy & sustainability in market Projects Pipeline
creation is important.
 Taxpayers / users engagement in PPP Funding – Priority Legal & Regulatory
dialogue Funding Framework – Clear &
Friendly Business
 Supporting local financing institutions / Strategies, Building
Environment To PPP’S .
local development funds is key. Local Financial Supply Oversight Procedures -
Side – Infrastructure Transparency, Competiti
 In house skill within the government is
of crucial importance to build Funds on, Monitoring
capacity , to monitor and create PPP
pipeline projects
36

37. POLICY AND LEGAL FRAMEWORKS & SUPPORT FUNCTIONS
 Comprehensive PPP Law – Investment , Funding & Technical (PPP Contract Type/s) and Legal Powers to
contract out the services
 Dispute Resolution Mechanisms – Independent Chamber
 Open & Transparent Public Procurement / Tender Law
 Clearly Defined Gov. / PPP Unit Role in – Budgeting Allocation / Oversight , Progress Monitoring & PPP
Projects Approvals and Contract Management – performance-linked payments/penalties.
 Sector & Scope of Sector Law – Ex. How to own a pipeline in a public road?
 Private / Public Land Acquisition Law
 Easements / Way leaves / Permits , etc
 PPP Implementation Structures – Technical Public / Private Interface Offices.
 Integration of PPP into Public Procurement w/ Multi Stage Financial & Scio-economic Appraisal
Procedures (Rationale for use of PPP’s (Business Case) , Suitability & VFM Assessment) , Guidelines for
PPP’s Pre-qualification , Tender And Bidder Selection.
 Standardized PPP Bidding Documents
 Unsolicited Bids Procedures.
 Standardized PPP Contracts / Asset (Facility) Type or PPP Model / Structure
 Information dissemination – data, networking, training
 Guidance – model contracts, tools, case studies
 Facilitating functions – political/advisory support, funding
37

38. Criteria's & Performance for PPPs
Criteria for PPPs (PPP Project Test)
 Affordability for the Public Sector & Desired Gains
 Financially viable for the Private Sector
 Appropriate Risk and Reward Balance for Public and Private Sector
 Public Sector - value for money (VFM – True Cost) Verses traditional PSC
PPP Performance & Monitoring : World lessons
 National audit authorities need to be involved in assessing PPP VFM (UK NAO)
 Periodic reports for progress , learning and benchmarking are needed.
 Public and private sector may need to acquire new skills to commence a PPP
program.
 Sufficient ‘deal flow’ is critical to justify the high transaction costs and to
promote effective competition.
 Procurement programs need to be managed to minimize costs (e.g.
standardized documentation) and maximize competition (e.g. timing of contract
notices).
 National PPP Task Forces / PPP units can play key role in securing VFM in
programs.
 Globally , cost and time performance in major infrastructure generally good,
performance in IT & Social PPP sectors generally weak.
38

39. PPP Projects Value Drivers
Less PPP Value Added Driver More
PERFORMANCE-BASED PAYMENT MECHANISM:
Above-par performance should give higher
Unitary Fixed Payments profitability, low performance should trigger Performance Payments
penalties.
OUTPUT SPECIFICATIONS: Relates to the private
sector's ability to deliver the services at lower
Limited Incentive Contracts costs, or to provide better quality at the same Output Based Contracts
cost to the user.
INTELLIGENT RISK ALLOCATION: Risk to be
allocated to the party that is best to manage ,
Wrong Risks Allocation mitigate or absorb it. Wrong risks allocation Optimal Risk Allocation
reduces PPP value.
LIFECYCLE OPTIMIZATION: Integrating different
components and phases increases the More project phases in
Multiple Project Phases performance over the PPP lifecycle and reduces
interface problems.
one hand
FORMAL CONTRACTING: Clear legal recourse in
Simple Contracts case of disputes increases clarity and reduces Complex Contracts
risk.
COMPETITION / FUNCTIONING MARKET:
Competition from adequate number of
Limited Competition companies increases value-for-money. PPPs More competition
without competition are inefficient.
PRIVATE FINANCING: Private financing results in
Public Financing strong oversight from debt and equity providers Private Financing
which increases project performance.
39

40. UNECE Guidelines On Governance In PPPs
 
Coherent PPP No! , You need a policy framework with
PPP pilot project will start the process
Policy direction, responsibilities and goals.
No! , capacity building within
Strong Enabling PPP’s projects should focus on ring
Government & setting up institutions
Institutions fencing
are needed.
PPP’s have prescriptive rules and tight No! , Overall framework should be
Legal Framework
control flexible.
Cooperative risk PPP’s provide assets to governments at No! , Governments must assume some
sharing no risk and no cost risks and offer some subsidy.
Transparency in No! , Competition allows selecting the
In PPP’s no tender required…
Partner selection best fit (partner /project)
Putting people In PPP’s its best to Keep people out:
No! , People need to be put first.
First they do not understand the complexity
Sustainable In PPP’s one have to choose between No! , Project can make profit and still
Development profit and social & environment … achieve social and environmental goals.
40

41. Key to Successful PPP’s
 Alignment of proposed projects to strategic plans and mandates.
 Vertical alignment in terms of national and also provincial priorities to enhance “buy in”.
 Proper groundwork at inception with regards to option analysis: clear VFM
 Attracting private investors .
 Appointing good transaction advisors: well rounded experience, no conflict of interest.
 Clear contract terms and conditions to avoid contract re-negotiation.
PPP PRO’s PPP CON’s
Competitive Process Complex Structures & Documents
Increased Transparency Time-Consuming to Arrange / Tender
Off Balance Sheet Consideration Higher Borrowing Costs Than Public Financing
Private Sector Efficiencies and Innovation No different than EPC Contracts
Commercial Risk Sharing Difficult to Resolve When In Default
Acceleration of Infrastructure Provision Project Choice Important
Faster Implementation Skill Deficit for Administration
Reduced Whole Life Costs High Transaction Costs
Better Risk Allocation Structured Risks
Better Incentives to Perform Needs Legal Framework
Improved Quality Of Service Can be achieved at High Price
Generation of Additional Revenues Collection Issues & Costs
Enhanced Public Management Public Perception and Political Reactions 41

42. PPP Units – A World Trend !
• There are no single design of PPP unit, design to fit local the context
• PPP unit is not a prerequisite nor a guarantee for successful PPP
• PPP unit need to demonstrate leaderships and specialties
• Most countries commence PPP programs in Transport, Energy, Water, Wastewater
and later migrate to other sectors like – Health, Education, Energy, Water, Waste
Treatment.
• Rate of ‘migration’ to other sectors reflects both national priorities and existing
legal frameworks.
• Tendency for project to cascade from central to local government / municipalities.
• Line ministries which have a long experience in traditional procurement may not
want to cooperate with new agency
MoF – Policy Formulation & Line ministries/ local Gov’t
Fiscal / Budgetary Control Project Implementation
42

43. PPP Units Design Notes – Function Wise
• Design factors for PPP units include size and type of government (
Federal / non Federal) , decentralizing from central government to local /
state governments, where within government infrastructure delivery
"sits" and the size and growth of the PPP program (measured as the ratio
of PFI/PPP investment to the total investment in public services).
• It is highly desirable that the roles of PPP Policy Development
(Institutional Fr amewor k and development of top line guidance like
value for money) and PPP Pr ojects Appr ovals are not within the scope
of the same PPP unit that serves as centre of best practice and expertise
(Project Development) or coordination unit.
• To be effective, a PPP unit needs to be able to build up experience and
retain institutional memory project and lessons leant wise. This can be a
challenge of sitting within the public sector. In all cases the public sector
needs to have experience of managing financial, legal and technical
advisory roles if these functions are sourced out .
43

44. PPP Units Design Notes – Government System Wise
• In a Federal system (like India, Australia, UAE and USA), the
relationship between Federal and State Units depends on the
responsibilities of the different levels of government with the federal
government role as Project Developer is less significant, however, the
financing / guarantees role of the Federal still exists.
• In non federal, centralized system the role of the PPP unit needs to fit
with the existing structures of government considering the extent to
which levels of government / Line ministries have control over their own
budgetary resources or have private finance units or are permitted to
generate own revenues . At the early stage of PPP development, it is
usual to start with a central PPP unit, however, as the program grows; the
need to avoid excessive deficiencies stemming from centralization needs
to be addressed.
• In Constitutional democracies with strong parliamentary processes, PPP
units are preferably located in the Ministry of Finance to exercise fiscal
and budgetary control with Ministry of Planning or Mega Projects being
also other preferred locations.
44

45. PPP Units Should Also Resolve Government Failures!
Government Failures PPP Units Functions
Policy & Strategy
undefined , not clear Marketing & Promotion
Poor Procurement PPP Units functions Policy Formulation &
Incentives need to
Coordination
accommodate
Poor information Information and Guidance
Governments failures
dissemination - Standardization
Poor Contract Project Advise – Technical
Management Assistance
Lack of Coordination
among stakeholders PPP Units associated with Project Development
Successful PPP Programs;
Lack of complex projects
skills & analysis Funding Preparation
Partnership UK (PUK)
Poor Transaction Contract Monitoring &
Partnership Victoria
Management & High Costs South Africa PPP Unit Control
Lack of Information Approval Power
45

46. Examples of Location & Roles of PPP Units
Policy Setting / Monitoring / Collaboration / Investment
Fiscal Control Budget Control Coordination Promotion
Ministry of Ministry of Ministry Ministry of
Finance / Finance / (Authority) of Business &
Treasury or Treasury or Planning / Trade
Economic Unit Economic Unit Ministry of , Ministry of
Mega Projects Industry
PPP PPP PPP PPP
Unit Unit Unit Unit
46

47. Examples of Roles , Location & Funding of PPP Units
Victoria, Nether-
BC, CA Ireland Italy Philip. SA UK
Aus. lands
Guidance       
Project Advise        
PPP Development   
Funding Preparation   
Monitoring     
Approval Power   
PV, Australia
Inside the Government
PBC, Canada
(All are funded by the Government)
UK Treasury Task Force
Outside the government (Private) PIMAC, Korea
Public / Private (Generates Revenue - Advisory Services) PUK, UK
Multitier PPP units exist in countries where project development , financing and
approvals are bundled together. Example in UK , the Treasury Task force ( located in
MoF is the approval authority) while PUK ( Partnership UK , a semi private unit) does
the Project Development in line with satellite units from line Ministries. 47

48. PPP Other Sources - International Law
 UNCITRAL – UN Commission for International Trade
Law, website – http://www.uncitral.org.
• Significant work toward the harmonization of private
international law.
• Numerous translations of documents
(French, Spanish, Arabic, Chinese, and Russian).
 UNIDROIT – Int’l Institute for the Unification of Private
Law , website – http://www.unidroit.org.
• Best-known accomplishment = UNIDROIT Principles of
International Commercial Contracts.
48

49. PPP Other Sources - Arbitral Institutions
Permanent Court of Arbitration –
http://www.pca-cpa.org.
Int’l Center for the Settlement of Investment Disputes –
http://www.worldbank.org/icsid/.
International Chamber of Commerce (ICC) –
http://www.iccwbo.org/index_court.asp.
London Court of International Arbitration (LCIA) –
http://www.lcia-arbitration.com/lcia/lcia/index.htm.
American Arbitration Association (AAA) –
http://www.adr.org/index2.1.jsp.
WWW Virtual Library Arbitration –
http://www.interarb.com/vl/pages/.
49

50. PPP Options & Projets Structures
 Toll Roads
 Airports
 Seaports, Water Transport
 Rail ( Railway, monorails, etc)
Transportation  Underground Transport
 Electricity
 Gas
 Water
Regulated Utilities
 Hospitals
 Schools
 Prisons
 Social Housing
Social Infrastructure
 Broadcast Networks
 Mobile Telephony
 Satellites Cables
 Terrestrial / Submarine Cable
Communications
50

51. Generic - Risk Scales & Durations for PPP’s
• Privatization & Divestiture (Highest Private risk)
• DBFO & BO Concession contract - Revenue or off- take - (25 -30 yrs)
• DBOT, BOT (25 yrs)
• Lease / Afterimage contracts (5 – 10 yrs)
• JV, Partnerships ( varies but has a life time with dissolving mechanisms)
• Sale & lease back (8 – 15 yrs)
• Operation & Management ( O&M) Contracts (3-5 yrs)
• Service Contracts (1- 3 yrs w/ renewals)
• Technical assistance – discrete tasks - (Lowest Private risk)
51

52. Comparisons ! – More Common PPP’s
Aggregat Approx. Construction, Operational
PPP PPP Operators Demand
Scheme e Risk Duration Rehabilitation Env. Risk & Technical
Type Examples Revenue Risk
% ( + / -) Years Risk Risk
Nearly Service Sale (
Privatization Non 100% regulated) , Private, if
Telecomm. Lifetime Private Private Private
& Divestiture PPP Private Facility / License needed
Risk re-sale
Full User's charges (
Volume
Concessions Direct or shadow
90% Caps and
(BOO) / Highways, payments) /
Private / / or Off Private /
Design PPP IPP, IWPP, 25 - 30 Based on Private Private
10% take by Public
Finance Build Hospitals Performance
Public the
Operate (Availability/
Public
(DFBO) Delivery)
STP's , Water
Production,
70%
DBOT,BOOT, Social User's charges / Joint
Private / Private /
BOT (turkey PPP Housing, 20 - 25 Off take Private Public / Private
30% Public
delivery) Education Agreement Private
Public
facilities,
Prisons,
Lease / Sewer,
60%
Afterimage Transmission 5 - 10, w/ Fee based on Public ( for the
Private / More on
(not the PPP lines. Renewal collected needed Private Public
40% Private side
same!) Electricity Provisions revenues facilities)
Public 52
Contracts Distribution

53. Comparisons ! – Less Common PPP’s
Aggregate Approx. Construction, Operational
PPP PPP Operators Demand
Scheme Risk Duration Rehabilitation Env. Risk & Technical
Type Examples Revenue Risk
% ( + / -) Years Risk Risk
JV , Partnerships Lifetime
Solar
( usually high tech Nearly w/ User's charges /
Generation,
with environmental PPP balanced dissolving Off take Joint Joint Joint Joint
Waste to
impact or Production (50% / 50%) mechanis Agreement
Energy,
sharing -oil & gas) ms
Common in
Airlines,
Sale / Lease back
Government 20% Private Direct - Capital /
Contracts ( Asset is Public ( for the
PPP Building , / 80% 8 - 15 Operational Public Public Negotiated
leased back to the needed facilities)
Sports Public Lease agreement
Public)
venues
Public,
Operation & Airports & 10% Private Minimum
Contractual Private / Private /
Management (O & M) PPP Seaports, / 90% 3-5 N/A volume
(lump sum) Public Public
Contracts land fills Public guarantees
by Public
Service / Maintenance
Contracts, Technical
The usual Nearly Contractual / On
Assistance Non
outsourcing 100% Public 1-3 call / job card fee N/A Public Public Public
(Government PPP
PSC. Risk ( Discrete Tasks)
Procurement - Design
- Build or EPC)
53

54. Comparisons ! - PPP Versus Privatizations
Public-Private Partnerships Privatizations / JV’s
Water, Wastewater Treatment, Electricity Generation Telecommunications , Some Water Services
Hospitals , Hotels, Sports Venues Electricity generating , Transmission / Delivery Networks
Roads, Bridges, Rails Production of Oil and Natural Resources (sharing)
Social Housing, Schools, Prisons ( Social infrastructure) Poorly Managed Large Assets.
A new special purpose vehicle (SPV) is formed - Project Existing state-owned assets are sold directly to a private sector
Company , owned by the private sector entity, often after an international / local tender
The SPV develops, finances and completes the
Title to the assets is transferred to the private sector entity
infrastructure necessary to deliver the project
Full operational control is transferred to the public sector
Private sector entity owns the assets and can dispose of them
at the end of the agreed “concessionary” period , while the
after contractually imposed deadlines and benchmarks (lock in
title to the asset remains with the public sector in BOT
period)
and most utilities
The SPV delivers the service and receives agreed-upon Because the asset has been permanently transferred to the
compensation . Compensation to the private sector can be private sector, the public sector benefits are gained through
in the form of tariffs paid by service users or directly by the receiving the acquisition price, improved efficiency , tax and
government, or a combination royalty payments
54

55. Comparisons ! - Risk Areas of Private ,PPP & EPC
Public Projects
Private Project Public Private Traditional EPC
Development Partnership (PPP) Procurement
No Public Public side has Public Side has
Urban Planning Influence good influence total Control
No Public Public Side has Public Side has
Execution Speed Influence good Influence total Control
No Public Guarantees of Contractor
Guarantees Influence Private Investor Guarantees
Project Financing Private Investor Private Investor Public Side
Market Risks Private Investor Fair Risk Sharing Public Side
Economical Benefits Benefit From Sustainable Sustainable
- Public Side Property Sale Benefits Benefits
55

56. Comparisons ! - Tax-Exempt Financing Versus
PPP – Government Perspective
Tax-Exempt Financing Public-Private Partnerships
• Strengths Strengths
– Tax-exempt interest (deductable)  Strength of private equity credits
– Tax credit  Addition of equity cushion
– Existing relationships with insurers  Market demand for infrastructure projects
– Retains operational control of assets  Transfer of operating risk
 Ability to continue oversight
• Challenges
– Market access issues Challenges
– Future financial viability of bond insurers  Shift to executive oversight
– Full retention of operating risk  Equity partners belief in future growth
– Revenue shortfalls, unprotected.  Public policy implications/transfer of
revenue stream
56

57. PPP Risks - The More Familiar
Risk Type Risk Mitigation
Environmental and safety
Environment and EIA before and after, Both parties to agree on the
constraints defined in the
Safety Risks Environmental impact.
Concession Agreement
Risk to be borne by Concessionaire. Acquisition of land
risk by Government before construction start. Tools;
Time delays & cost overrun risks, - Fixed price turnkey contracts
Construction Risks
geotechnical risks -Warranties (bonds),
- Liquidated damages clauses.
-Clear input or output or performance specifications.
Tools include;
- Equipment Suppliers guarantees
Performance based risks,
Technical - Proven technologies
operating costs, management
Operation Risks - Performance guarantees.
failure.
- Raw materials / feedstock agreements
- Public Authority involvement
Revenue Risk in Minor risk in existing facilities Often acceptable risk level is borne by Concessionaire
existing facilities / unless forecasts after (adequate provision on tariff in Concession
infrastructure improvements are exaggerated. Agreement).
Often not possible for Concessionaire to bear all the
Revenue Risk in
risk. Tools include;
newly-built Major risk in newly-built facilities
- Off take agreement
facilities / like traffic volume, tariff setting.
- Caps ( floors / ceiling)
infrastructure 57
- Revenue build up period

58. PPP Risks - The Less Familiar
Risk Type Risk Mitigation
- Structure ( Debt / Equity) - Optimal Equity 30 – 10%
- IRR / NPV - IRR (15 % -25%)
-Debt Service Cover Ratio - 1.5 ( can be as low as 1.1 with string off
Financing Risks - Tax Status / Benefits take agreements)
- Others - Exchange Risks, Sovereign - Translates into tax account treatment
Credit Ratings, etc. - Financial derivatives hedging.
- Refinancing - Syndication
Legal Risks Regulatory framework, concession / Experienced (high priced) Lawyers. Clear
sector laws. documents. International Arbitration set.
Compliance to contractual terms in a Mitigation through Risk Guarantee (IBRD and
Political Risks / Concession Agreement. [Currency MIGA). Transferred Risk can be insured –
Government Inconvertibility, Confiscation, Political risk insurance. World Bank provides
Performance Risks Expropriation, Nationalization, Civil Partial Risk Guarantees. Remaining risks can
Strife, War, etc.]. Force majeure can be be borne by Lenders.
included
58

59. Risks Perspectives
Access to PPP
Development Best Value for Acceptable
Contracts
Speed Money Financial Return
Pipeline
Government Concessionaire
Incentives to Risk Mitigation
Transfer Risk & Control
Access To Minimize / Access To
Payment Source
Private Capital Re-use Capital Revenue Stream
Risk Risk Risk Risk
Identification Analysis Allocation Monitoring
59

60. Understanding Political Economic Connection
60

61. Political Risk Agencies - (Social-Political-Economic) Financial Risk Agencies / Ratings
BERI , PRS , Prince, ICRG S & P , Moody’s, Milken Index , Fitch IBCA
Hybrid Risk Models / Rating Agencies - (Financial Focus and Political Causes)
Economist (Magazine) Chase Manhattan Bank Euro money Institutional Investor
POLITICAL RISK FACTORS ECONOMIC & FINANCIAL RISKs
Ethnic Social Tensions Domestic Economic Problems
Strife, Armed Insurrection International Economic Problems
Urbanization Low Wages / Labor Cost / High Productivity
Decentralization Good Infrastructure / Telecommunication
Bad Neighbors Restricted Import / Export
Commodity Dependence High Commodity Prices
International Trade Agreements Expedient FDI Screening / Approvals
Regional Trade Agreements Favorable Taxation / Tax Holiday
Corruption Third Party Cost / Biding Cost
Staleness / Illegitimacy Debt in Default / Rescheduled / Non Payment
Democracy /Opposition Tolerance Reasonable Gov. Bonds Risk Premium
Liberties / Unrestricted Internet Service Oriented / Competitive Market
Powerful Private Interests Limited Creditworthiness
State Owned Enterprises Restrictions on Privatization
Competent Local Management Partners Access to Bank Finance
Foreign Control / Foreign Equity Ownership allowed Liberal Labor Laws / Modest Termination Benefits
Non-Repatriation/Non-Payments Fiscal Monetary Expansion / Capital Flight
Creeping Appropriation Exchange Controls/Convertibility
MIGA Membership / OPIC Insurance Available Liquid / Transparent Stock Market
61
Stable Regulation & Law Enforceability Access to Capital Markets

62. PPP Projets Success Framework
62

63. PPP Projects Success Framework – EPEC Adopted
1. Choice of Project - Only sustainable projects should be launched
2. Choice of Funding & Risk Sharing - Fit with Project structure
3. Choice of Procurement Procedure – In line with Project complexity
4. Choice of Financial Structure - Balancing spreads and risks
5. Whole Contract Life Management - Renegotiations to the benefit of all parties.
 The main driver of the PPP contract duration should remain technical (life-cycle
and obsolescence considerations), rather than financial!
 The legal framework of PPP’s should remain flexible enough to meet the
conditions of success.
 Guarantees should be given more systematically to private operators, in order to
have the best possible use of public funds.
 Resorting to guarantees to secure private financing can expose the government to
hidden and often higher costs than traditional public financing
63

64. 1. Project Choice - Sustainable Projects
 Decision makers must choose the projects that are desirable from the socio-
economic point of view and respond to real demand and needs. e.g.:
 Which will enable the economic development of a market or a region;
 Which will save time and increase safety, in the case of a road;
 Which will save lives, in the case of a hospital, etc.
 A desirable project means a high socio-economic IRR (Internal Rate of Return)
 A high socio-economic utility makes the payment of a tax or a toll politically more
acceptable.
 Experience shows , if contracts do not meet the condition of a high socio-economic
IRR, problems necessarily arise:
 Bankruptcy of operator (in case of traffic risk)
 Skyrocketing public debt (if large grants are needed)
 Political legitimacy problems with regards to final users and tax payers
 And in the end: reputation problems for all partners
64

65. PPP Projects According to Revenue
Users Pay (Termed as Concessions when users pay)
• Traditional BOT model
• Revenues collected from users usually by the private partner (e.g. tolls paid on a highway or
bridge)
• Project is “off the Government budget” as revenues flow directly to private sector
• Used only where there are substantial revenues that can be directly charged to users
• It is estimated that about 10% of receipts relate to toll collecting (without automated systems).
Everybody Pay (Termed as PFI when the Public makes regular payments)
• Annuity scheme or availability model
• Revenue collected can be either from users directly to private partner or may stay with
government and Government opts to make regular payments for making the service available
(availability / shadow payments)
• Project is often “on the Government budget” as revenues flow through Government
• Can be used widely for services paid by known users, or for those paid through taxes or in
countries where tolling is not socially acceptable.
• There is no expenditure for toll collecting
General tendency to move from toll to availability based payments in road projects. Also
Innovative use of payment mechanisms to focus on public sector objectives are becoming
trend. Examples from the road sector ; User tolls – to pass costs to users; Availability
payments – to reduce congestion; Accident rate premium – to improve safety.
65

66. PPP Transactions – Economic Partnering
Highways (Concessions – BOO, BOT, BTO) & Rails (BTO)
• Direct tolled – i.e. users pay full cost or partial cost (Government Subsidy)
– compete on costs – e.g. Malaysia, Australia.
• Shadow tolled – users don’t pay directly but all pay indirectly via tax & fuel
surcharge etc – compete on subsidy amount – e.g. India
Airports /Sea Ports (usually Management Contracts)
• Long term management contracts that may include capital works – e.g.
Australia, Srilanka, Cambodia, KSA, Jordan
• Government may agree to minimum thru-put and provides core custom &
immigration functions
Water & Power -IPP, IWPP- (Concessions – BOO, BOOT)
• Government agree on minimum uptake (usually 80 -90% the rest sold in
open market – e.g. Indonesia, Malaysia, GCC (IWPP)
, Egypt, Jordan, Lebanon, Yemen.
• Government may agree to pass-thru cost on fuel.
Power -Solar (Concessions)
• Similar to power – e.g. Morocco, Tunisia 66

67. PPP Transactions – Environmental Partnering
Landfills (usually outsourcing – O & M Contracts)
• Private Partner to takeover waste treatment and landfill management , may
include methane extraction – e.g. Malaysia , Indonesia
• Governments agrees to management fees and
• Governments usually approves combustion power plant on site for internal use as
well as sale to power grid
Waste to Energy (recycling of solid waste / used tires) (usually JV’s)
• Reduces excessive gas emissions while stimulating private sector demand.
• Private Partner to takeover waste conversion to energy – e.g. Bahrain.
• Governments agrees on energy sale to power grid
Sewerage Treatment Plants (STP) – ( usually BOO / BOT, transmissions usually BOOT)
• Population and business levels increase leading to increased waste generation
• Private Partner to takeover sewerage treatment
• Government agree on off take (usually distribution to farms is by the
Government) – e.g. GCC ( Bahrain)
67

68. PPP Transactions – Social Partnering
Hospitals (usually DBOF) / Prisons (usually BOT)
• Private Partner to build the facility , manage it for a set time and operate
noncore service like catering, parking etc
• Government provides the doctors, nurse ,wardens etc and operates the
core services – e.g. Lesotho, Australia
Schools/ Sports Venue / Shopping Malls (usually DBOF)
• Private Partner bids on cost, design and facility management for a set time
& run noncore services – e.g. Australia, Egypt.
• Government runs core services of teaching / tutoring or agrees to use the
facility for an agreed period
Public / Government / Affordable housing (usually BOOT)
• Private Partner to build, lease and maintain for a set period – e.g.
Malaysia, GCC ( KSA, Oman, Bahrain)
• Government agrees to minimum lease for a set period / off take and / or
allows co-developments on site
68

69. PPPs and Value for Money (VFM)
 Achieving optimal allocation of risk is the most important factor in
structuring a PPP
- Does the private sector’s price for taking project risks represent good value for money?
- Is the private sector’s return on capital appropriate to the level of risk being taken?
 Facilitating and making incentives on time and on project budget
implementation:
– No service / no pay.
– Incentives to cost control.
 Optimization of capital & maintenance expenditure over project life.
 Innovation in design and financing structures.
 Improving management of operational risks.
Optimal risk allocation  reduced cost of risk
Reduced cost of risk  better Value for Money
No presumption that PPP’s will always prove better Value for Money than
conventional Public Sector Contracts (PSC / EPC)
69

70. (VFM) Higher Than Forecasts Costs in EPC /PPPs
Evidence on construction projects from the UK’s National Audit Office
Conventional procurement (PSC) PPP procurement
Cost overruns for the public sector 73% 22%
Delay in project delivery 70% 24%
70

71. 71

72. 2. Funding & Risk Sharing - Fit with Project
Funding translates into;
Who should bear the demand risk?
Who will pay for the infrastructure/service?
 Payment by users - when the principal source of revenue for the private
operator is by users , the operator bears the demand risk.
 Payment by taxpayers (i.e. public budget) means that the demand risk is
not transferred to the operator.
The choice of funding must be based on a trade-off between:
 The marginal cost of public funds collection.
 The willingness not to exclude users from the infrastructure
(problem associated with the payment by users).
72

73. PPP Major Funding Sources
Credit Political
Loan
Equity Loans Guarantees Risk
Guarantees
/Insurance Insurance
Sponsor 
Private
 Commercial Banks 
 Capital Markets  
 Insurance Cos.   
 Private Equity Funds  
Public
Multilateral
 IBRD 
 IFC   
 MIGA 
OPIC    
Development Banks
 (IADB, EIB, EBRD, CAF,
 
BNDES, ASD, AFDB)
Export Credit Agencies
 (Ex-Im Bank-US,ECGD -
UK,EDC - Canada, HERMES -    
Germany, COFACE - France)
73

74. Managing Fiscal Risks in PPP’s
• PPP’s create fiscal obligations that are long term and binding future generations
and tax payers.
• Accurate design of PPP’s requires that the fiscal cost and risk of the major
contractual obligations be identified, quantified and mitigated.
Direct, debt-like obligations
• Availability payment for the use of facilities
• For PPP hospitals, schools, prisons and a like, PPP deal also requires government to
allocate funds for government doctors, nurses, and teachers, guards who will run
the facilities built, maintained & operated by the private sector.
Explicit contingent obligations
• Government guarantees to repay investors cost and agreed returns
• Revenues and exchange rate guarantees.
• Shadow payments for assets provided by private sector.
Implicit contingent obligations
• Taking over private debt if developer becomes financially distressed
• Implicit use guarantees in PPA – Power Purchase Agreements, off take agreements.
74

75. 3. Procurement Choice – In line with Complexity
 Classical competitive bidding aiming at minimizing financial costs fits well with
simple contracts, whereas negotiated procedures (e.g. through competitive
dialogue / with a set of criteria’s) fit better with complex contracts
 In terms of incentives, complex contracts fit better with Cost Plus schemes and
simple contracts fit better with fixed price regulation schemes.
 Procurement procedures should be adapted to the project type, in order to
prevent opportunistic behavior, and should also favor strict prequalification and
additional award criteria. Unsustainable offers should be legally excluded.
 Classical procurement procedures are not a guarantee for fair competition:
bid rigging, first mover advantage (incumbent's renewal), etc.
 Renegotiation & opportunism costs need to be guarded against! ( for
example, lengthy post negotiation can jeopardize the project)
75

76. PPP Procurement Process
 Planning process
- Planning requires time and money - worth the investment
- Fund supporting project development – needed.
- Cross sector dialogue including Treasury - required
- Check and balance – are key
 Market testing
- Testing the interest of market is crucial
- The market condition can impact risk sharing
- Transparency should be kept
 Procurement method - Prioritization
- Solicited or unsolicited proposal
- Prequalification, 2 envelope bidding
- Award criteria (VFM , PPP Versus PSC )
- Time management
76

77. Unsolicited Proposals in PPP
• Can be useful in early stage of PPP program especially at local governments
level , however, often the Public Sector then lacks the fiscal and knowledge
capacity to analyze projects
• Attract private sector investors ( Proponents) by giving initiatives and
incentives
• Priority set for proposals without asking government support
• Genuine unsolicited proposals can wash out network effect of entrenched
infrastructure development
• More scrutiny is required , additional requirement for value for money tests
are needed.
• Competition is key , opportunity for counter proposals should be given thus
providing level playing field
• Common is some countries like Chile, Argentina, South Korea, South
Africa< India, Italy and Malaysia
77

78. Steps in PPPs Procurement - PPP Project Life Cycle
What are the steps?
Project Preparation – Service Provider Selection Contract Management -
Funding Approval – Technical RFP & Bid Financial
1. Prioritise Key Project 4. Project Dev. 7. Final Negotiation
Objectives
2. Agree Project Concept Team, Gov ernance, Signing contract, financial
3. Obtain Stakeholder Approval close
Timeline, execution plan
1. Service Need 5. Bid Preparation 8. Contract Mgmt.
Output specifications EOI/ Short listing, RFP Construction, monitoring,
Dispute settlement,
2. Option Appraisal Bid Doc communications and
Report on EPC / PPP Approval finally commissioning
options, VFM
6. Bid Evaluation 9. Renegotiations
3. Business Case
Preferred bidder selection Due to changing
Affordably/public interest conditions
Project/ Project 10. Turn Over
Funding Finalization
Upon expiry of the
Approval Review
concession agreement
78

79. 4. Financial Structure Choice - Balancing
 The financial structure of a project is usually composed of loans (banks or
bonds), shareholder loans, equity and grants.
 The continuing financial crisis has shown that there should be a systematic follow-up
of the main events occurring during the life of a contract, in order to balance spreads
and risks:
 During the crisis: spreads have skyrocketed - projects became unfeasible.
 In the crisis: spreads have gone back but not to normal levels. If spreads are too
low, banks cannot pay for their risk.
 One should also take into account the asymmetry regarding the way public entities
and private operators absorb risks. The allocation of risks must take into account this
asymmetry. Grants and/or guarantees should be adjusted accordingly.
 Due to the financial crisis, loan maturity has been shortened. State support may be
needed.
79

80. Risk Transfer PPP Stakeholders & Risk Transfer
Host Government / Public Authority
Legal /regulatory framework & support functions
Advisors – Legal Contracting PPP
, Technical & Authority (is)
Financial
Equity Investors
SPV / Project Company
Arranging Bank (Borrower) .Made up of
Banks Syndicate Project Sponsors -
Equity Investors.
Hedge Providers Input Contracts
Currency & Interest Guaranteed long
Rate, Multilaterals, P term supply
olitical Risk Insurers of inputs / feedstock Off Taker
Guaranteed revenue stream to project. Can
be the Public Contracting Authority or MoF
Equipment Supplier Contractor(s) ,EPC O&M Contractor(s)
Warranties & Supply - Risk transfer – Interface Pass down of penalties for
Agents Agreements. Can Turnkey Contract , Contract availability payments
be bundled in EPC penalties , bonds. , performance, etc.
Risk Duration 3 – 5 Years 25 - 30 Years ( Risk by Project Company)
80

81. Corporate & Project Finance
Debt 100
Project Financing provided
Mezzanine Funds Equity provided by
by banks / IFIs sponsors 81

82. Structuring Project Finance
82

83. Project Long Term Financing
Project cash flows must be sufficient to service (interest and principal)
All risks to lenders must be eliminated
• Construction ,Market ,Consumption ,Operating ,Inflation & Credit risk
• Other risks as applicable –Refinancing, Interest rate, Exchange rate
Advantages
• Enables high debt to equity ratio , Releases Investors equity
• Enables equity risk sharing in projects
• Funds can invest into SPV
• Avoids refinancing risk
Disadvantages
• More restrictions in use of funds
• Restrictive covenants (debt service cover ratios etc)
• More complex documentation (risk mitigation)
• Less flexible administration (most changes require lenders' consent)
83

84. 5. Management – Allow Renegotiations
 All contingencies cannot be anticipated (changes in the legal environment, force
majeure, innovation, changes in demand, environmental and technical constraints.
 Contract will necessarily evolve over time/be renegotiated. Renegotiation clauses
, conditions of execution , adjustment should be specified in the contract.
 Renegotiation should be viewed to the advantages of 3 parties (Public
entity, Users, Private operator). Fair and transparent renegotiation is the essence of
the contract.
 Necessary conditions for a good management of the life of the contract:
 Fair behavior of both parties
 Technical skills
 Experience and capacity building
 Flexibility and adaptation to local customs
 The threat of sanction (must be credible) to enable self enforced good practices.
 Non written aspects of the contractual relationship (trust, reputation, etc.) are key
elements for success. 84

85. Typical PPP Project Administration & Risks
Political and
Macroeconomic
Risks
Regulatory
Shareholders – Risks
Equity Investors
FX Risks and
Regulatory
Refinancing Risks Shareholder’s Authority
Agreement
Lead / Syndicate Banks Guarantees
& Bond Holders Concession Granting PS
SPV - Agreement Authority
Operator - Project
Production Operation &
Maintenance
Company Purchase / Off Services
Operator - Agreement(s) (O&M) Take Agreement Purchaser /
Delivery Off Taker
Performance
Interface Construction Regulatory and
Agreement Contracts Supply / Feedstock Performance
Risks Agreement Risks
Construction
Contractor(s) Raw Material /
Feedstock
Supplier
Completion
Risks 85

86. PPP Example Structures
86

87. PPP Regional Strategy & Readiness
Actions?
Diagnosis?
87

88. MENA PPP Investments Comparisons
PPI Data Base – Data Source
• The PPI (Private Participation in Infrastructure) database is a multi-donor-
funded facility and is maintained by PPIAF (Public Private Partnership
Advisory Facility).
• The database is the most sophisticated attempt so far to create a global
database of PPI / PPP projects which helps to understand the pattern and
scale of PPP deals in world regions.
• The PPI database does not cover social infrastructure / PFI-model PPPs. It
does cover Energy (electricity and natural
gas), Telecommunications, Transport
• (airports, seaports, railways, toll roads), and Water and Sewerage
(treatment plants and utilities).
• The PPIAF PPI database identifies four types of project: Management and
Lease contracts; Concessions, Greenfield projects, and Divestitures /
Privatization. Divestitures (either full or partial) are not considered PPPs.
88

89. World Regions by Sector
(1990 – 2010 , Total Count & Investment – million USD)
Sector Project Count Total Investment (US$ million)
Telecom 798 761,394
Energy (Example Next) 1,952 548,279
Transport 1,291 275,597
Water and sewerage 731 62,543
Grand Total 4772 1,647,813
1,800,000 6,000
1,600,000 5,000
1,400,000
Number
1,200,000 4,000
Million USD
1,000,000 3,000
800,000
600,000 2,000
400,000 1,000
200,000
0 0
Latin America …
Latin America …
Europe and…
Europe and…
East Asia and…
East Asia and…
Middle East…
Middle East…
Sub-Saharan…
Sub-Saharan…
South Asia
South Asia
Grand Total
Grand Total
89