Public-Private Partnership

Prajwal Mani PradhanTaifa Siddika Moyeenul Islam

Overv

iew

of th

e

pre

senta

tion

• What is PPP?

• Key questions revolving around PPP

• International instruments

• PPP Theories

• Balancing the score board

• Six keys for successful partnership

• PPP making Sense– Bangladesh– Nepal

INTRODUCTION (P3)

Address PPP as

Public : Of or concerning the people as a whole; open to

or shared by all the people of an area or country (oxforddictionaries.com)

Government and all its form, federal, state, UN.

Private: Belonging to or for the use of one particular

person or group of people only. (oxforddictionaries.com)

Corporations, MNC, foundations, NGO

Address PPP as

Partnership: An association of two or more people as

partners: a business or firm owned and run by two or more partners. (oxforddictionaries.com)

Introduction

It is also referred to as PPP or P3 or P .₃ PPP’s are used to provide both economic and

social infrastructure.

The ultimate goal of PPP is to obtain ‘value for money’.

Based on the concept that citizens are considered as client or customer.

History

Long history in many countries but grew popular in 1980.

longest tradition in the USA. In the 1950’s and 1960’s P3’s were used as a tool for stimulating private investment in the inner city infrastructure and regional economic development.

UK, 1979 Conservative government concluded that government is too involved in the economy and needed to step down in favor of private capital. Thatcher administration turned to P3’s as a method of economic regeneration.

History

Spain; early examples 1960’s; Toll roads developed by 1968.

Netherlands introduced the P3 idea in its government policy statement of 1986.

Australia; started back in early 1990’s and developed toll roads, hospitals, water and power plants, schools, courts, sea ports and airports.

Norway initially did not need private capital due to its oil revenues, but is cooperating with the private sector now for infrastructure projects.

Definition

‘… is a contractual agreement formed between public and private sector partners, which allow more private sector participation than in traditional’.(U.S. DOT 2004)

“…a cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.”

(Canadian Council on Public-Private Partnerships)

OBJECTIVES OF PUBLIC-PRIVATE PARTNERSHIPS

1. to ensure government services are delivered in the most economical, effective and efficient manner;

2. to create opportunities for private sector growth and to contribute to the overall economic development through the stimulation of competitiveness and initiative;

3. to ensure the best interests of the public, the business sector and the community are served through an appropriate allocation of risks and returns between partners.

PPPs how does the public sectors role change

Required shift

Hit or miss Uniformity Provisions Inputs Generalization Talk equity Received wisdom Regulations Haphazard development Demarcation Looking up

Sustainable standard Diversity Choice Customer/citizen Outcomes Specificity Deliver equity Data and best practice Incentives Continuous development Flexibility Looking beyond the restricted

area

From To

Reason and Typical uses

To keep pace with infrastructure investment needs and the growing public demands for services.

Increased mobility of capital (availability in the private sector).

Dominance of new ideas and reliance on market incentives.

Contracting with a private company to- Renovate Construct Operate Maintain And/or manage a facility or system.

Benefits

For Govt. and Taxpayers- Improve service delivery. Improve cost effectiveness. Increase investment in public infrastructure. Reduce public sector risks. Deliver capital projects faster. Improve budget certainty. Expedited project completion. Access to new sources of private capital.

Benefits

For private sector- Access to secure, long-term investment

opportunities.

Expansion of capacity and expertise.

Generation of business with the relative certainty and security of a govt. counterpart.

High return with low risks, at the long term expense of taxpayers and the public.

Four Basic Dimensions of P3

Although each is unique, all P3’s include four basic characteristics:

Shared goals Shared resources (time, money,

expertise, people) Shared risks Shared benefits

Risks

Financial risks.

Performance/availability risks.

Demand risks

Construction risks.

Residual value.

Typical Funding Sources

Tolls Tax Increment Finance Fees Grants Loans Bonds Other Revenue Streams

Privatization vs. P3

In privatization, Govt. has no longer a direct role but , whereas with a P3 the govt. retains ultimate responsibility. (Grimsey & Lewis, 2005)

Pure public

Public-

private partnership

Pure Private

The level of public control and oversight

High Low

Popular PPP Models

Service contract Operation and management contract

Leasing-type contracts# Buy-Build-Operate(BBO)

#Lease-Develop-Operate(LDO)#Wrap-Around Addition(WAA).

Build-operate-transfer(BOT)#Build-Own-Operate-Transfer(BOOT)

#Build-Rent-Own-Transfer(BROT)#Build-Lease-Operate-Transfer(BLOT)

#Build-Transfer-Operate(BTO)

Design-Build-Finance-Operate(DBFO)

#Build-Own-Operate(BOO)#Build-Develop-Operate(BDO)#Design-Construct-Manage-

Finance(DCMF)

Source: IMF, Public-Private Partnerships, March 12,2004,p.8.

Public-Private Partnership

Providing policy support by

Public sector

Capital accumulation

and investment of Private sector

Trade liberalizati

on

Promoting FDI

Encourage Private sector

investment

Industrial developmen

t

Employment generation

Poverty alleviation

National wealth

generation

1. Law and order.2. Legal

enforceability.3. Required

infrastructure.

Providing policy support by

Public sectorTrade

liberalization

Promoting FDI

Encourage Private sector

investment

Balancing the scoreboard

The Result of Serving the Public Trust

Legal Authority

Protection of Procurement Policies

Broad prospective/balance the competing goals to meet public needs

Personnel – dedicated but constrained

Capital resources

The Result of Market Competition

Management Efficiency

Newer Technologies

Workplace Efficiencies

Cash Flow Management

Personnel Development

Shared Resources

Strengths of Public sector

Strengths of private sector

http://www.ncppp.org/howpart/PPPfundamentals.html

Successful Partnership The secret is to balance the strengths of both

sectors Maximizes the use of each sector’s strength

Reduces development risk

Reduces public capital investment

Mobilizes excess or underutilized assets

Improves efficiencies/quicker completion

Better environmental compliance

Improves service to the community

Improves cost effectiveness

Shares resources

Shares/allocates risks

Mutual rewards

Six Keys for Successful Partnership • Statutory Authority & Regulations and Political Leadership must be in place- Strong policy

statement - Will to change the

system - Top Administrative

officials engaged in execution

Statutory & Political Environme

nt

Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html

Call for a good governance regime - Best value vs lowest

price - Dedicated & trained

personnel to monitor implementation

- Dedicated group (tied to the purpose of the partnership

Organized Structure.

Six Keys for Successful Partnership

Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html

Six Keys for Successful Partnership

Encompasses goal oriented performances - Specific milestones

and goals - Reporting metrics and

frequency - Risk Allocation - Dispute resolution

methodology - Development of

workforce

Detailed Business

Plan

Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html

Six Keys for Successful Partnership

Long-term financing plan- Availability of

Payments - Underutilized

Assets - Concession Model - Creative

Approaches

Guaranteed Revenue Stream.

Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html

Six Keys for Successful Partnership

Require open discussions, knowing the FACTS, Translating each other’s language - Public & Private

sector officials- Labor unions- End users - Resolution of

Competing interests

Stakeholder

Support.

Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html

Six Keys for Successful Partnership

Long-term relationship calls for each sector’s motivation - Technical capability- Financial capability- Reasonable Return on

Investment - Timely execution vs.

development costs - Political & statutory

environment

Picking Partners

Strong leadership makes all the factors togetherhttp://www.ncppp.org/howpart/PPPfundamentals.html

P3 Project management

Crafting the partnership.

Implementing the partnership.

crafting

• Genesis • Feasibility• • Plan and test

implementing

• Procure• Implement• Operate

INTERNATIONAL INSTRUMENTS

Initial steps

• ICPD (5-13 September, 1994) Cairo, Egypt• Phrases like public and private started to

appear in official documents often involved NGO, never mentioned corporations

Paris Declaration (2 march 2005)

Ownership Partner countries exercise effective

leadership over their development policies and strategies and co-ordinate development actions.

Alignment Donors base their overall support on

partner countries national development strategies, institutions and procedures

Paris Declaration (2 march 2005)

Harmonisation Donors actions are more harmonised,

transparent and collectively effective.

Managing for results Managing resources and improving

decision-making for results.

Paris Declaration (2 march 2005)

Mutual accountability Donors and partners are accountable for

development results

Other int’l instruments

Istanbul 1996

UN agenda 21, (3-14 June 1992)

International Health Partnership (Sept 2007)

Agenda for action, Accra, Ghana (4 Sept 2008)

International Health Partnership signatories

CONTEMPORARY THOUGHTS ON PPP (P3)

The groupJoan Veon

Thoughts

• Uncertainty over a long horizon.

• Changing govt. objectives.

• Lack of commitment for both-– Private sector (Bankruptcy/exit).– Government (Break contract/renegotiation)

Thoughts• Private financing is more costly and risky than

public financing.

• Risk transfer is mostly one-sided or often results heated debate.

• Private sectors profit maximizing tendency.

Thoughts

• Public private partnership is just like marriage, you discover each others strength and weakness as time passes by.

• Partners have different footings, (equal footing partnership needed)

Joan veon

• Re-inventing government,1999

– Citizen/tax payers addressed as CUSTOMERS!!!

• To the point where we won’t even recognize the government.

Joan veon

• How the private control over public asset

• Solution for government that is broke.

• GLOBAL CORPORATE FACISM

• Transfer of wealth

• Uses deceit, deception and distortion

• Fleecing of tax payers

Joan veon

• A lady asked Franklin as they were debating what kind of government structure 13 colonies would have? She asked what kind of government do we have? He replied “Madam, you have a republic IF you can keep it.”

“… the players with the most money control the partnership.”

Joan veon

PPP MAKING SENSEBANGLADESH

History of PPP in Bangladesh

1996- Private Sector Power Policy To promote private sector participation

1997- Infrastructure Development Company Limited (IDCOL)

To promote private sector investment in infrastructure development

IIFC- Infrastructure Investment and Facilitation Centre

To provide Technical Assistance to ministries and divisions

History of PPP in Bangladesh

2004- Public Sector Infrastructure Guideline (PSIG)

Serve as the basis for present PPP policy

2007- Investment Promotion and Financing Facility (IPFF)

A fund of Bangladesh Bank to support govt. PPP (4.18 billion)

2008- Public Private Partnership (PPP)

Policy to encourage participation in public sector

Continues…..

• 1970 and 1980- BIRDEM Hospital Established under ADP by diabetic association.

• One road in Sirajgonj district constructed which is the first toll road in the country.

Resource Gap

Fiscal Year 2009-10 10-11 11-12 12-13 13-14

GDP growth (%) 6.0 6.8 7.5 8.0 8.0

Required Investment (billion USD)

24.59 30.63 37.18 43.82 49.69

Investment (billion USD)

23.55 27.10 31.36 35.54 40.29

Deficit (billion USD) 1.04 3.53 5.82 8.27 9.40

Source: Preliminary Estimates of Finance Division under Mid-term Macroeconomic Framework

Benefits of PPP

Public Sector

Helps to Maintain Economic Stability

Importing Innovation and Expertise from Private Sector

Competitive Costing and Efficient Management

Help to Achieve Desired Growth Rate

High Quality Project Implementation.

Benefit Continues…..

Private Sector Expansion of Business

Get a Ground for Implementing Innovations

Public or User

Accountability Ensured

Make Government more Responsible

Risk Avoidance

PPP Models in Bangladesh

• BOO- Build-Own-Operate

• BOT- Build-Operate-Transfer

• BOOT- Build- Own- Operate - Transfer

• Private sector manages the infrastructure. Example: Independent Power Producer.

• Private sector manages the structure for a specified time.

• Pvt. sector manages for a specified time then transfer to the govt.

Potential Areas of PPP in Bangladesh

• Power and Energy• Transport Infrastructure• Pure Drinking Water and Sewerage• Information and Communication Technology• Air Transport and Tourism• Industry• Education• Health• Housing

Human resources

Project Implemented under PPP

IDCOL 22 projects worth BDT 13 billion

IPFF 5 power sector projects worth BDT 8.67 billion. IPFF- 51%, Private sector-32%, Banks- 17%

IIFC Under contract to design 30, technical support to 8 and consultancy support to 16 projects

Selection of Appropriate Options

Required Technical Skill

Quadrant 3:

RTS-High

RC- Low

Quadrant 4:

RTS- High

RC- High

Quadrant 1:

RTS- Low

RC- Low

Quadrant 2:

RTS-Low

RC- High

Required Capital

GOVERNMENT PLAN FOR PPP

In Energy Sector

Govt. Plan for PPP in Energy Sector

• Initial fund BDT 1500 crore• A professional fund manager from pvt. Sector• 5 member investment committee by FM• Tenure 12- 15 years• 7000 megawatts (mw) electricity by 2013 and

20,000 mw by 2021• Next 5years govt. needs BDT 66,000 crore for

generation, transmission and distribution• Saling of bond to expatriates/ share to stock

market

Govt. Plan Continues…..

• Creation of 3 new expenditure heads-• Technical Assistance- for feasibility study and

preparatory work- BDT 1.0 billion• Viability Gap Funding- BDT 3.0 billion for

subsidy or seed money to attract pvt. Initiative• Infrastructure Investment Fund- BDT 21.0 billion

to provide loan to pvt. Investor.

SUCCESS STORIES

Chittagonj Custom House Automation

Customs House

GoB

Chittagonj Chamber of Commerce

Data Soft

Army backed taskforce- ‘Bravo’

Active Stakeholders

(17)

Policy

Patronization

Facilitation

CommunicationCoordination

Support

Fund Return on Investment

Software

Source: Idea taken from Baniamin, H.M and Monem, M., 2010.

Achievements of the Project• Glowing example of ‘BOOT’• 42 steps cargo assessment process decreased

to 6 steps only• Entry cost reduced from BDT 180 to BDT 50• Doubling of revenue income in 2 years• Saving business cost up to 70%• Saving custom processing time about 80%• Ensuring transparency• Better risk management.

Partnership in EPI

NGOsGovernmentCoordination

Community

LGUHFPO

UPCoordination

ImamsPrivate Sector

Policy, Vaccines, Training, Monitoring, Quality Assurance

Human Resource, Training, Advocacy, Reporting

Reporting

Communication materials and Community mobilization

Community Mobilization

DisseminationCommunity Mobilization

Involvements….

Donors- JICA, WHO, UNICEF, USAID, Rotary International, Swedish International Development Agency, GAVI (Global Alliance for Vaccination and Immunization).

BRAC, CARE, RDRS (Rangpur Dinajpur Rural Services), PROSHIKA and ICDDR,B.

EPI program was launched in Bangladesh in 1979 but got the momentum in 1985-90 with GO-NGO participation.

TEAM PROPOSAL FOR PPP

InBangladesh

Manpower Development

Civil Construction

Driving and Maintenance

Hi-tech and Heavy

Industry

Garments and Textile

Consortium

Manpower

Skilled Labor Force

Labor Market

Government

Embassy andHigh Commission

Training

PolicyFinancial Support

Remittance

LoanRecruiting Agencies

Risks Associated with PPP

Loss of ownership of public properties

Approval of inflated costs

Overlooked public interest when pricing the services

Dysfunctional infrastructure once ownership is handed over to the government.

Challenges in PPP Implementation Absence of unique formula to develop a sound PPP

framework.

Private investors want to privatize the profit i.e. profit will be personal but loss will be social.

Judging the economic viability of the project (since costing and pricing is crucial).

Formation of a comprehensive policy and regulatory framework.

A match between asset, liability and cash flow is vital. Because repatriation of foreign currency may create pressure on reserve.

Our Suggestions

Careful and project specific policy formulation

Public ownership of the property is maintained

Technical assessment to be done meticulously

For pricing and costing people’s welfare must be kept in mind

Quality of the infrastructure ensured even after hand over to the govt.

Suggestions Continues…..

Only potential and high investment project should be considered.

Politically non-biased projects should be taken in PPP project so that continuity maintained even after regime change

PPP MAKING SENSENEPAL

Joint ventures: Salt Trading Corporation, founded in 1963

not quite a PPP: completely devoid of competition and the full rigours of the market mechanism.

http://telegraphnepal.com/news_det.php?news_id=5237

Liberal economy in 1990 resulted in very prominent Nepali innovations towards PPP in the infrastructure sector, as for example,

Hydropower Act 1999;

BOT Policy 1999.

Public private partnership, 2003 etc

http://telegraphnepal.com/news_det.php?news_id=5237

After 2000 the concept got well underway in full steam with the initiative of the UNDP to bring about mass awareness and to formulate and promote projects for implementation at the level of the municipalities.

http://telegraphnepal.com/news_det.php?news_id=5237

first incorporated as a part of the national budget for 2003-04 under the theme ‘people-public-private partnership’ (P4 as it were) by Finance Minister, Dr. P.C. Lohani.

The 4th P, so to speak, was added to imbibe a sense of ‘people’s participation’ in development at the grass roots by mobilizing cooperatives and user groups in the agro-forestry, irrigation and energy sectors --- areas of opportunity not quite yet perceived by the envisioned scope of PPP prevailing in Nepal at the time.

http://telegraphnepal.com/news_det.php?news_id=5237

FNCCI with its call for a One-Village-One-Product (1V1P) based on the tried and tested model of Thailand.

e.g. cold storages; chilling centres, cooperatives in the dairy product areas.

Different ppp models used in the health sector of nepalService Contracts

Blood transfusion NRCCFamily planning services FPANSafe abortion service marie stoppes clinicEye services with nepal netra jyoti sanga

Management Contract Lamjung district hospital and dadeldhura

hospital with NGO human dev and community services

Jiri hospital with local community

Build Own Operate and Transfer (BOOT)Maternity hospital thapathali by Paropakar

national NGOManipal medical college, pokhara 50 years

contractBharatpur medical college, chitwan 50 years

contract

Build and TransferLahan hospital Several eye hospital

Build Operate and TransferTrisuli hospital, nuwakot

Build, Transfer and Operate Western regional hospital, Pokhara with INF

Joint VentureNepal eye hospital

Leasing Pharmacy services in several hospital

Contracting + pay for performancePrevention and surgery of uterine prolapsed cases

(under design)

Contracting via social franchisingPotential model for drug supply management

2005-06 Budget welcomed PPP in social sectors like school education and public health.

They consume around 20% of the national budget and employ most human resources with the government.

Budget of 2008-09 presented by the Finance Minister, Dr Babu Ram Bhattarai, accepts PPP as the basis of the new economic policy for the new Nepal.

Prime Minster Pushpa Kamal Dahal, alias Prachanda, is on record as having said that there no alternative to this model of development.

One perceives that the neo-Maoists ideology believes that this is the only way forward to build a ‘nationalist capitalist society’, which is so vital, for them, to eradicate the remnants of feudalism and thus move forward rapidly towards socialism and ultimately communism.

Its projected 7% GDP growth in 2008-09 and 10 % per year in 3 years later is premised on this model.

2008-09 Budget, unlike 2005-06, totally rejects privatization.

On the contrary, it seeks to revive liquidated public enterprises- albeit mostly founded on Chinese aid to Nepal in the 1960s-70s.

the concept of PPP seems, on the one hand, to have received a national consensus as an appropriate—or even ‘best’ -- model for Nepal’s economic growth and development.

However, on the other hand, it remains to be seen under what macro-economic paradigm it is to proceed henceforth: namely, in ‘mixed enterprise system’ or‘liberal market system’ embodied in the full and free

play of market forces under WTO regulations -- being duly regulated by law to protect consumers, environment and labour from monopolistic, rent-seeking practices.

Will the benefits and costs of PPP be maximized under a regime of ‘market capitalism’ or ‘state capitalism’?

It also remains to be seen if the scope of PPP is to be limited to economic sectors or also extended to social sectors.

We may see many PPPs in such projects as:

Petrol pipeline from Raxaul to Amlekhganj;

Kathmandu- Terai Fast Track Road under BOOT;

Construction of an international airport at Nijgarh, and

Regional airports at Pokhara and Bhairawa

THANK YOU !!!

Address for correspondenceprdhan.pm@gmail.com