Public-Private Partnerships:

Risks & Rewards

S. Brian Samuel, PPP Coordinator, CDB

High-Level PPP Workshop, Caribbean Growth Forum

St. Lucia, 15th June 2015

POSSIBILITIES

REWARDS

RISKS

LESSONS

OPPORTUNITIES

POSSIBILITIES:

PPPs can lead to value for money,

but it’s not guaranteed

Motivations: Challenges:

Lack of fiscal space

Private sector

efficiency and

innovation

Improving project and

service delivery

Fiscal implications are

often overlooked

Public and private

interests are not

automatically aligned

PPPs are complicated

and development /

transaction costs high

PPPs can deliver the goods – if

done properly

In addition to likely

levels of public

procurement, the

infrastructure funding

gap is estimated at

around $10 billion over

the next decade –

innovative solutions are

needed to unlock

private sector

investment

PPPs usually result in

better value for money:

In the UK, the National

Audit Office found that

73% of traditional

projects ran over budget,

versus 22% for PPP

projects

70% of traditional

projects were late, versus

23% for PPPs

REWARDS:

Sangster International Airport1

Long but successful process:

1990s – Aging and overcrowded facility

GoJ fiscally unable to make necessary capital investment

1996-1998 – GoJ attempted sole-source PPP

Negotiations broke down

1998-2003 – Competitive PPP procurement

GoJ enters into 30-year concession with Vancouver Airport

Services Concession (now Vantage Airport Group)

1 Source: PPPs in the Caribbean: Building on Early Experience. CDB 2014

Sangster International Airport

Results & Lessons Learnt:

Over US$200 million in private sector investments

Better results obtained through competitive bidding

Need for staff with PPP training and specialized

advisors

Agency coordination driven by political champion

Establish legal & regulatory framework prior to

transaction

Bahamas Non-Revenue Water (NRW)2

Money down the drain – literally:

58% NRW in New

Providence, led to

widespread use of

desalination (93%)

Solution:

Performance based

PPP to reduce NRW

over 10 years

US$83 million capex,

financing from IDB2 Source: Consolidated Water

Bahamas Non-Revenue Water2

Results:

From 2012 to 2014,

NRW reduced from

58% to 36%

1 billion gallons of

water saved in 2 years

US$6.5 million savings

to date

Less dependence on

desalinated water

Not politically sensitive

2 Source: Consolidated Water

Highway 2000, Jamaica3

Innovative structure for land development:

US $600 million 50-year

concession

GoJ not providing

financing nor traffic

guarantees

Up to 1,200 acres adjacent

land available for

development by toll road

operator

Developer has time limits,

or land reverts to GoJ

Risk Sharing

GoJ Developer

Traffic X

Revenue X

Design &

Construction

X

Access to Land X

Utility Relocations X

Political Risk X

Development

Land

X

3 Source: NROCC Jamaica

RISKS:

Early Dominican Republic Toll Roads4

Skewed risk allocation:

Governments often assume a

portion of traffic risk to make

road projects bankable

DR govt. signed PPP road

contracts totaling US$1.0 billion

• Autopista del Nordeste: Traffic 30-

40% lower than forecast; Govt. pays

US$38M “shadow tolls” annually

• CODACSA: Govt agreed to

compensate for traffic, inflation and

FOREX risks; Arbitration awarded

US$ 42 million

4 Source: Caribbean PPP Road Map, World Bank 2014

Project development:

Overcoming failure to launch

Urgent need for early stage

screening; to weed out concepts

that don’t make sense

Investment in preparation results

in lower risk at operational stage

Preparation & implementation

around $1 million per project; not

proportionate to deal size

Cost - plus lack of capacity - why

only 12 percent of the Caribbean

PPP project pipeline reaches the

tender stage

16

13

Caribbean PPP

Pipeline 20145

Concept

Feasibility

Tender8

5 Source: Caribbean PPP Road Map, World Bank 2014

LESSONS:

Sobering Lessons:

Post-closing

fiscal

surprises

Endless

delays

Failure to

close

Inappropriate risk allocation

Inadequate due diligence and preparation

Insufficient fiscal oversight

Flawed transaction processes

Gaps in due diligence and preparation

Lack of capacity

Insufficient project preparation

Lack of awareness of PPP potential

Lack of Regional support mechanisms

Risks Reasons

Successful implementation of PPPs

requires a good enabling environment

State-of-the art PPP expertise and experience

on all stages in the PPP project life cycle

Robust PPP tools, regulations, policies, and

procedures

Funding for project preparation and PPP

structuring

Clear support from the highest levels of

government and political champions

OPPORTUNITIES:

There are many PPP Opportunities:

Conventional Energy

Renewable Energy / Energy Efficiency

Ports and Cruise Ship Terminals

Airports

Roads and Bridges

Education

Government Facilities

Health

Tourism

Water and Sanitation

Thank you!

S. Brian Samuel

PPP Coordinator, CDB