Public Private Partnership

Kumar BijoyFinancial consultantkumarcfa@yahoo.com09810452266

BackgroundWhat takes the government 50 years to achieve can be done by the private sector in a tenth of the time- Milton Friedman.

Non-Government is Effective (A Sarkari- Asarkari)- Binoba Bhave

TerminologyPSP: Private Sector Participation

PFI: Private Finance initiatives

PPP: Public Private Partnership

PPPP: People Public Private Partnership

AgendaPFI: a precursor for PPP in 1992 by conservative govt. in UKPFI was for reduction of Public DebtQuest for Value for money got central focus (Tony Blair-1997)PPP was developed in response for the quest i.e. Value for Money.

DefinitionIMF/OECD:Public-private partnerships refer to the private sector financing, designing, building, maintaining and operating infrastructure assets traditionally provided by the public sector.

Government and a private corporation combine to provide a public service through the creation and use of new assets for a set time period

PPPexampleHighway example usual arrangements

Government borrows money or Tax Public, pays to get a Highway built, Public uses the facility for free but pay in form of Increased Tax

PPP

Private firm borrows money, builds Highway, Public pay fee to use the highway, Firm hands over the property to Govt. after say 20 years

PPP global examplesCanadaThe 407 ETR toll road in Toronto, Ontario The Royal Ottawa Hospital in Ottawa, Ontario The William Osler Hospital in Brampton, Ontario The Viva bus rapid transit network in York Region, Ontario Confederation Bridge construction in Prince Edward Island IndiaNISG, Hyderabad..

PPP global examplesUnited KingdomPrivate Finance Initiative The maintenance of London Underground (since 2003) National Air Traffic Services (since 2001) Some National Health Service (NHS) hospitals and other agencies Firrhill High School Williamwood High School

PPP global examplesUnited StatesCalifornia Fuel Cell Partnership (CaFCP) California State Route 125, San Diego, California Central Park, New York City Chicago Skyway Bridge, Chicago, Illinois Indiana East-West Toll Road, (Interstate 80/Interstate 90), Northern Indiana Southern Indiana Toll Road, (Interstate 69, proposed), Martinsville to Evansville, Indiana Las Vegas Monorail, Nevada

PPPwhy?Aging infrastructure

Shrinking Govt. budget

Constituent demands

PPP = AN answer, and Not the answer

PPPchallenges ahead to bring P & P togetherFailure to CommunicateWe Dont Speak the Same Language Business Speak Customer Satisfaction Return on Investment Risk/Reward Evaluation Public Speak Responsibility Accountability Risk Avoidance

But Are These Really Different?

BUSINESS GOVERNMENTCustomer Satisfaction ResponsibilityReturn on Investment AccountabilityRisk/Reward Evaluation Risk Avoidance

Private Sector Strengths

Private Sector Strengths

Management EfficiencyNewer TechnologiesWorkplace EfficienciesCash Flow ManagementPersonnel DevelopmentShared Resources (Money?)

Public Sector Strengths

Legal AuthorityProtection of Procurement PoliciesBroad prospective/balance the competing goals to meet public needsPersonnel dedicated but constrainedCapital resources

Successful Partnerships

The Secret is to Balance the Strengths of Both Sectors

The Experience Of One Sector Helps Another

Advantages of PPPs

Maximizes the use of each sectors strengthReduced development riskReduced public capital investmentMobilizes excess or underutilized assetsImproved efficiencies/quicker completionBetter environmental complianceImproved service to the communityImproved cost effectivenessShared resourcesShared/allocated risksMutual rewards

Risk Factors for PPPLack of political leadership, vision and strategyNot implemented in a context of wider change/ administrative reformPoor costing or lack of resources creeping commitmentsInappropriate definition of project goals and scope

Risk Factors for PPPAutomation without process reengineeringHurried implementationManagement of change-resistance from vested interestUse of untested fancy technologyInadequate attention to monitoring and evaluation

Six Keys to Successful PPPs

Statutory and Political EnvironmentOrganized StructureDetailed Business PlanGuaranteed Revenue StreamStakeholder SupportPick Your Partner Carefully

Managing for Success Six Keys

The EnvironmentStatutory authority and regulationsPolitical leadership must be in place Leading Political Figure Top Administrative Officials The Will to Change the System A Strong Policy Statement

Managing for Success Six Keys

Organizational StructureDedicated group (tied to the purpose of the partnership)Dedicated and Trained personnel to monitor implementationBest Value vs. Lowest Price Difficult to Administer butNeed for Good Governance To assure an open and fair procurement process Consolidate staff = easier to monitor Independent authority (domestic/internal or international)

Managing for Success Six Keys

Detailed Business PlanPerformance goal oriented - Allow for innovative plansBest Value vs. Lowest PricePlan/Contract should include: Specific milestones and goals Reporting of metrics and frequencyRisk Allocation Shift to the private sector can raise costs Identify best prices to retain, which to shiftDispute Resolution MethodologyWorkforce Development? Develop in-country resources/small businesses

Managing for Success Six KeysGuaranteed Revenue StreamFunds to Cover the Long-Term Financing Tolls/Fees (real or shadow) Intelligent transportation systems TIF or other form of a Tax District Long-Term Maintenance Contracts Availability Payments Underutilized Assets Concession Model (limited application) Creative Approaches

Managing for Success Six KeysStakeholder SupportPublic Sector EmployeesPrivate SectorLabor UnionsEnd UsersCompeting Interests Requires: Open and frank discussion between sectors Knowing the FACTS (no myths) Translating each others language

Managing for Success Six KeysPick Your Partner CarefullyThis is a long-term relationship Verify experience (technical capability) Verify financial capability Best Value vs. Lowest PriceRemember each sectors motivation Genuine need (market value to the project) Political / statutory environment Reasonable return on investment and manageablerisks Timely and effective execution vs. development costs

Managing for Success

The Most Critical isComponent One:

Strong LEADERSHIP makes all the other factors come together

PPP models:Public develops Pvt. Operates & maintains Public & Pvt. jointly develops and maintains.Pvt. Develops and Public finances the gapPvt. Develops and Public only facilitatesPublic and Pvt. Work independently but in coherence. Pvt. Develops, Public facilitates and People monitor the development and pay charges for use (PPPP)

Extend of participation of the private sector

PPPs becoming a global business across developed & emerging markets

selected group of OECD and developing countries

Thank you