Building Blocks for a Successful Public-Private Partnerships Presented by

Igor AbramovCounsel & Co-chair, Eurasia and Russia Practice Group, Heenan Blaikie LLP

Astana Economic Forum– AstanaMay 22, 2012

Panel on Practical Applications of PPP in Kazakhstan’s Economy

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BUILDING EFFECTIVE PUBLIC-PRIVATE PARTNERSHIPS

All public-private partnerships are based the following 8 building blocks:

1. PPP-Enabling environment – Policy Framework– Legal Basis

– Administrative mechanisms and capacity building

2. PPP models policy and practice guidelines

3. Financing considerations/optimization

4. Monitoring and regulating the PPP

5. Risk allocation

6. Procurement process

7. Contractual arrangements and contract management

8. Principles of good governance – Best practices - Trust and cooperation – Putting people first -The Environment– Accountability and transparency

BUILDING EFFECTIVE PUBLIC-PRIVATE PARTNERSHIPS (cont.)

BUILDING EFFECTIVE PUBLIC-PRIVATE PARTNERSHIPS (cont.)

Challenges and the success of PPP depends on how well the government

– Sets up clear and coherent policies, objectives and guiding principles

– Identifies priorities (sectors and projects)– Sets up realistic goals and targets and the means

to achieve them– Clear and open communication with stakeholders– Application of good governance principles

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PPP DEVELOPMENT PHASES

• Three phases of PPP development

1.Development, learning, testing phase

2. Implementation and refinement phase

3. Fully developed and thriving infrastructure investment market

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PHASE ONE: DEVELOPMENT, LEARNING, TESTING• Create an enabling environment for PPPs –

stability, security, and predictability

– Establish policy framework

– Establish public administration mechanism• Responsible for coordinating and implementing

the policy framework

– Removal of political, legal or policy constraints • Introduce legislative reform (if required)• Thorough review of legal and regulatory

environment

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DEVELOPMENT, LEARNING, TESTING (cont.)

– Capacity building• What technical, financial, legal, and other

challenges exist for the delivery of infrastructure and the involvement of private finance?

– Identify project pipeline– Develop PPP delivery models and foundation

concepts– Start to build marketplace

• People • Institutions • Instruments

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PHASE TWO: IMPLEMENTATION AND REFINEMENT

• Publish policy and practice guidelines• Financing considerations/optimization

– Source of funding - Cost of capital (PSC/VFM)

– Financial indicators - Financial Structure

• Monitor and Regulate– Does PPP model improve efficiency and achieve

social, economic, and environmental objectives?– Does the PPP project meets the desired needs and

objectives and desired standard or quality?

IMPLEMENTATION AND REFINEMENT (cont.)

• Quality of the project depends on– Quality of the sponsor / developer– Quality of suppliers– Quality of project technology– Appropriateness of risk allocation– Quality of the project agreement

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IMPLEMENTATION AND REFINEMENT - RISK ALLOCATION

• PPP project risks are generally allocated through– Legal framework (legislation & regulation)– Legal documentation (warranties,

limitations, conditions & exceptions)

• Typical types of risks in a PPP project:– Design and development risks– Construction risks– Financial risks

RISK ALLOCATION (Cont.)

– Operation/performance risks– Revenue risks– Environmental risks– Commercial risks– Political risk– Legal risks– Regulatory risks– Unexpected risks

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RISK ALLOCATION (Cont.)

• How are these risks managed?– Public sector is expected to bear the responsibility for the

risks within control of the government as well as risks which the private partner can not efficiently bear (e.g., force majeure)

– Private sector is expected to bear the responsibility for those matters with its control (i.e., those aspects for which public sector relies on private sector expertise)

– Public Sector Comparator (PSC)/Value for Money (VFM) analysis

• Risk allocation must be negotiated

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IMPLEMENTATION AND REFINEMENT - Procurement

• Legal instruments for procurement process• Typical steps in a PPP procurement process

– Pre-procurement review– Procurement process

• Assessing interest of the private sector• Prequalification of bidders• Feedback from bidders• Issuance of final tender and project agreement to

prequalified bidders• Evaluation and selection of best qualified bidder• Contract negotiation, commercial, and financial closing

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PHASE THREE: EFFECTIVE PPPs

An effective PPP involves:•Comprehensive PPP system established

– Investment in infrastructure and institutions•Legal constraints/impediments removed

– Trust and cooperation– Stability, security and predictability of

regulatory regime•PPP models tested and refined•Accountability and risk management

EFFECTIVE PPPs (cont.)

• A full range of funding sources• Skilled infrastructure development public and

private experts with experience in delivering PPP projects

• Fair, transparent and efficient dispute resolution mechanisms, and enforcement of domestic and international court judgments

• Stakeholder engagement and communication

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IGOR ABRAMOV

• Counsel, Heenan Blaikie LLP – international law firm with offices in Canada, Paris and Singapore

• Co-chair, Eurasia and Russia practice group• PPP Projects in Canada, USA, Mexico, Egypt, Jordan,

Djibouti, Cameroon, DRC, Zimbabwe, Ghana, Angola, Grenada

• Tel: (+1 ) 416-6874• Email: ibramov@heenan.ca

THANK YOU!