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The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) Workshop to Consider: Implementing Rules and Regulations for Public-Private Partnerships (IRRPPP) 12 December 2014 (Revised)

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The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)

Workshop to Consider:

Implementing Rules and Regulations for

Public-Private Partnerships (IRRPPP)

12 December 2014 (Revised)

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Workshop Objectives 1. The objectives of this workshop are to consider:

• (a) whether or not Cambodia needs an IRR, separate and apart from

the IRRPP, is needed for “Competitive Tendering of PPP Projects in a Transparent and Fair Manner” and, if so,

• (b) Recommendations the Government may wish to consider, and an

Action Plan for Capacity Building and Institutional Strengthening, and

• (c) draft provisions of a new IRR for PPP Tendering based on International Best Practices (tailored, if needed, to Cambodian law).

2. As time permits,, this presentation will cover “issues” that have been problematic for government of developing countries to effectively engage the private sector in the delivery of physical facilities and systems that directly or indirectly provide services to the general public in the sectors, which, in Cambodia, are defined by the 2009 Law on Concessions, and summarized in the Handout.

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Objective 1 (a) • Does Cambodia need an IRR governing the procurement

of PPP opportunities, or is the newly-adopted IRRPP (Public Procurement) sufficient for PPP?

• As requested the following slides provide subjective summary-level comparisons: • Procedural differences (primarily during the Transaction

Phase) between public procurement and public-private partnerships (PPP).

• Recommendations the Government may wish to consider,

and an Action Plan based on PPP procurement experience in Indonesia, the Philippines, India, and Bangladesh.

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Procedural Differences

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Substantative Differences

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Objective 1 (b) • Recommendations the Government may wish to consider:

• Concerning the issue of whether or not Cambodia requires a separate IRR

to govern the procurement of infrastructure through PPP, the Consultant recommends separate IRRs based on the differences to be discussed regarding public procurement vs. PPP and the following:

• Help to attractive investment, particularly foreign investment

• Example: US$ 3 billion expressway • Harmonized with Development Partners’ Pipeline

• Example: ADB TA in place and Transaction Advisory Services • Cambodia is competing with other developing countries

• Example: Bangladesh has 39 PPP Projects prepared (PM in Malaysia) • US$650 billion “transfer” due to 40% drop in oil prices

• This approach will help to ensure long term, large financial commitments

for the design, development, operation and maintenance of user-pay entities under the Law on Concessions, are supported by judicious government evaluation of competitive bids, and that financial and other support are evaluated and transparently processed.

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This may be also the first in a series of needed legal and regulatory frameworks necessary for PPP functions, such as an IRR to establish a PPP Center, and resultant regulations, supplemented by appropriate institutional arrangements, such as a Risk Management Unit, typically in the financial ministry. Examples:

• IRR PPP Procurement (draft provisions follow) • IRR PPP Center and Line Ministry PPP Cells • IRR Government financial support, cash or

contingent, other government support, land acquisition, etc.

• A series of consensus-building workshops are recommended to review sensitive policy matters.

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Objective 1 (b) continued Action Plan for Capacity Building - Institutional Strengthening • The Government may wish to consider organizing a series of

consensus building workshops (both with government officials and other stakeholders) to discuss the following draft IRR, a straight forward, non-controversial regulation. Typically, depending on urgency, workshops may be organized to discuss and Issues Paper, an Academic Draft, a First Draft and a Final Draft.

• Capacity Building. • Needs Assessment • Standard Curricula for government-wide PPP training • PPP Training Plan • Development Partners Support: ADB TA and Transaction Advisory Services

• Institutional Strengthening following the decisions above

• Consider amending the Law on Concessions

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Objective 1 (c) Consider draft provisions of a new IRR for PPP Tendering based on International Best Practices (tailored, if needed, to Cambodian law). Chart: Four Phases of PPP Project Development Chart: Flow of PPP Procurement Tasks Step-by-Step Draft Provisions

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Four Phases of PPP Project Development

Phase I Phase II Phase III Phase IV

PPP Project Identification and

Prioritization

PPP Project Preparation

PPP Transaction PPP Management

Development Planning, PPP

Identification and Prioritization

Analytical Assessment of PPP

Attractiveness to Private Sector

Competitive Tendering of PPP

Projects in a Transparent and

Fair Manner

Management, Monitoring and

Control

Land Acquisition Process

Support Needs

Analysis

Support Application and Evaluation

Stakeholder Consultations

Support Management

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Phase I Phase II Phase III Phase IV

PPP Project Identification and

Prioritization

PPP Project Preparation

PPP Transaction PPP Management

Development Planning, PPP

Identification and Prioritization

Analytical Assess- ment of PPP Attractiveness to Private Sector

Competitive Tendering of PPP

Projects in a Transparent and

Fair Manner

Management, Monitoring and

Control

Land Acquisition Process

Support Needs

Analysis

Support Application and Evaluation

Stakeholder Consultations

Support Management

OBC PFS

Outline Business Case Placement

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Flow Chart of Step-by-Step PPP Procurement Procedure Page 1 of 3

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Flow Chart of Step-by-Step PPP Procurement Procedure Page 2 of 3

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Flow Chart of Step-by-Step PPP Procurement Procedure Page 3 of 3

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• Step-by-Step Draft Provisions for Phase 3, Competitive Procurement of PPP Opportunities in a Fair and Transparent Manner

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Form a Procurement Committee or, as is often referred to, a Tender Committee, which should include public sector professionals who are “knowledgeable” in PPP procurement procedures, the nature of the project being procured, contract law, technical aspects and financial aspects. The schedule for implementation of the procurement should allow sufficient time for all stages of the procurement process.

Step 1: Appoint a Procurement Committee

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Immediately after completing the necessary organizational and administrative matters, the authorized Cambodian Government Contracting Agency (GCA) should plan and manage the preparation of PPP bid documents including: A. A draft advertisement; B. Prequalification Application; C. Prequalification Evaluation Criteria; D. Request for Proposal (RFP);

i. Outline Business Case; and ii. Draft Concession Agreement.

Step 2: Prepare Bid Documents

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The GCA should use prequalification procedures to evaluate the capabilities of all prospective bidders when carrying out projects using competitive bidding. A. Qualifications of Bidders: General. B. Appropriate documentary evidence or other information for

bidders participating in procurement proceedings. C. Any requirement established by the GCA should be set

forth in the prequalification documents and, subsequently in the bid documents or other documents for solicitation of proposals and should apply equally to all bidders.

D. The GCA should evaluate the qualifications of bidders in accordance with the qualification criteria and procedures set forth in the prequalification documents.

Step 3: Draft Advertisement and Prequalification Questionnaires

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E. The GCA should establish no criterion, requirement or procedure with respect to the qualifications of bidders that discriminates against or among bidders or against categories thereof on the basis of nationality, or that is not objectively justifiable, or that contravenes Cambodian law.

F. Provision for disqualification of bidders. G. The prequalification document should include, at a minimum;

instructions for preparing and submitting prequalification applications, a summary of the principal required terms and conditions, any documentary evidence required by the bidders, the manner and place for submission of applications, and any other requirements established by the GCA.

H. The GCA should respond to any request by a bidder for clarification of the prequalification documents that is received by the GCA within a reasonable time prior to the deadline for the submission of applications to prequalify.

Step 3: Draft Prequalification Questionnaires

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The process of prequalification is to ensure sufficient competition through prequalifying the most suitable bidders and, at the same time, to limit the number of bidders by rejecting those without the necessary technical and/or financial qualifications to successfully carryout the Project. Too many bids impose unnecessary costs on both the private sector because there will be many more failed bids than necessary, as well as on the public sector which has to evaluate the bids.

Step 4: Announcing the Availability of an Invitation to Prequalify

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a. The GCA should use prequalification proceedings to identify contractors or consortia of contractors that are qualified.

b. Documents, notifications, decisions and other communications to be submitted by the GCA or administrative authority to a contractor or by a bidder to the GCA should be in a form that provides a record of the content of the communication.

c. The GCA should maintain a record of the procurement proceedings, including; a brief description of the PPP project, the names and addresses of bidders that submitted prequalification data, and all other information relative to the qualifications of bidders.

d. The GCA should complete its pre-qualification of prospective bidders within thirty (30) days of the closing date for pre-qualification.

Step 5: Prequalification Proceedings

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A. Short listing will result in a list of bidders that will be invited to submit proposals.

B. The appropriate maximum number of bidders to be considered for inclusion in the shortlist depends on the nature of the project.

C. If and when a GCA receives prequalification applications from a large number of qualified applicants, then the GCA should prepare a shortlist of three (3) to five (5) of the most qualified bidders. Consensus seems to be three (3).

D. The GCA should compile the shortlist by: i. Removing from further consideration all bidders who failed the

prequalification procedures. ii. Include all qualified bidders on the shortlist. iii. Evaluate all remaining bidders based upon an equal weighing of

general experience in the sector, past performance, similar geographical/topographical/climatic areas, capabilities, and financial capabilities.

Step 6: Shortlist of Prequalified Bidders

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E. If the number of pre-qualified bidders is less than three (3), then a new invitation for tender is announced for additional participants. But if the number of all participants remains less than three after re-tendering, then the GCA, if authorized, continue with the tendering process.

F. The GCA should simultaneously issue a comprehensive bid document to those bidders included on the shortlist. Only prequalified, shortlisted bidders may compete further for the PPP project.

G. The final shortlist is the one approved by the GCA Head.

Step 6: Shortlist of Prequalified Bidders

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A. The GCA should prepare and timely make available to all prequalified bidders a comprehensive bid document.

B. The GCA should maintain a list of each prequalified bidder, the date the bidder was informed of its inclusion in the shortlist, and the date (i) the bidder retrieves the bid document or (ii) the GCA couriered the bid document to the bidder.

C. The bid document, among other objectives, establishes the rules of bidding, and provides the Government’s OBC.

D. The GCA should notify, in writing, all bidders of any amendments, clarification, correction or change to the bid document.

E. The GCA should afford all bidders an additional 30 days for preparation of bids if the GCA significantly amended, clarified, corrected or changed the bid document disseminated to bidders.

F. The GCA may or may not require each bidder to submit a bid bond to establish the validity of a bid.

G. The draft Concession Agreement is a “Business Plan” to be discussed and agreed upon between two co-equal development “partners,” the essence of a public-private partnership.

Step 7: Disseminate the Bid Document to all Prequalified Bidders

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H. [Controversial provision for discussion] In the event the Bidder is required to acquire land for the provision of infrastructure, then the quantity of Performance Bond may be determined by calculating cost already expended by Business Entity for land acquisition.

I. The Concession Agreement should clearly contain status of assets’ ownership during the period of the agreement.

J. The GCA Head should specify the criteria a concessionaire must follow to transfer shares and, provided further, that the proposed transfer should not delay the commencement date of the Project.

K. The bid document should clearly indicate whether bidders are permitted to make adjustments to the project scope, and clearly indicate the events and/or contingencies for which cost adjustments, terms and conditions, or any other evaluation factors are permitted.

L. Any specifications and requirements by suppliers or contractors in the procurement proceedings should not be included or used in the prequalification documents, bid documents or other documents for solicitation of PPP Proposals.

Step 7: Disseminate the Bid Document to all Prequalified Bidders

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M. There should be no requirement of or reference to a particular trade mark, name, patent, design, type, specific origin or producer.

N. Unless otherwise provided in the bid document, GCA will allow bidders a [minimum] period of ninety (90) days to prepare their bids.

O. [Controversial provision for discussion] Each bidder should be required to provide a performance guarantee in the form a bank guarantee equivalent. The bank guarantee should be from a Cambodian-registered bank or international bank with a branch operation in Cambodia.

P. Bidders may be requested, but are not required, to extend the validity of their bid without modification to their Proposal. Bidders who do not wish to comply with this may have their Proposals returned together with their bid bond, if any.

Q. Each bidder should have sole responsibility to carefully examine and fully acquaint itself with the requirements and terms and conditions of the bid documents and other documents that may be issued by the government or the GCA.

R. The final time, date, and place for delivery of Proposals should be stated in the bid document.

Step 7: Disseminate the Bid Document to all Prequalified Bidders

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All communications from the GCA to any or all bidders should be effective with a return showing the bidders' receipt of the communication. A. The GCA should schedule and hold a pre-bid conference not

less than 14 days and not more than 45 days, after issuing the bid document to all shortlisted bidders.

B. When a pre-bid meeting is to be held, the GCA will provide, either in the "Instructions to Bidders" or a separate facsimile or letter, to all prequalified bidders the precise date, time and location of the pre-bid conference.

C. Bidders are encouraged, but are not required, to attend the Pre-Bid Meeting, and the GCA may not disqualify a bidder who does not attend.

D. The GCA may not, during the pre-bid conference, modify in any material respect any provision or term of the bidding document unless such modification is made as a written amendment thereto prepared by the concerned GCA and disseminated to all bidders.

Step 8: Pre-Bid Meeting for all Shortlisted Bidders

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E. During the Pre-Mid Meeting, the GCA should explain; the method of tender, method of submission of tender, documents which should be attached, agenda of opening of bid document, method of evaluation, deficiencies that may cause the GCA to reject a bidder’s proposal, form of the Concession Agreement, provisions and procedures of evaluation, and the amount, term, and parties who are authorized to issue bid bonds, if any.

F. If necessary (and it usually is), the GCA may organize and conduct a site visit to which all bidders should be invited to attend.

G. Bidders may submit a written request to the GCA seeking clarification of any part of the bid document, or any other data or information relating to the bid.

H. The GCA should send Minutes of Clarification of Pre-Bid Meeting each shortlisted bidder.

I. In the event there are significant changes made to material matters in the bid documents, the GCA should disseminate to all shortlisted bidders an Addendum of the Bid Documents.

J. For complex projects the GCA should schedule and hold two conferences

Step 8: Pre-Bid Meeting for all Shortlisted Bidders

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A. The GCA’s Procurement Committee will separately evaluate all Technical and Financial Proposals; therefore Bidders are required to submit their proposals in two separately sealed “envelopes” marked “TECHNICAL PROPOSAL” and “FINANCIAL PROPOSAL” respectively.

B. When bids are received and the administrative process begins, the GCA can help to create and maintain an environment of transparency and fairness in the PPP process.

i. Bids received by the GCA in response to the advertised PPP project must be processed, maintained and administratively handled in accordance with the bid document.

ii. The GCA should receive and keep secure all bids submitted before the date and time specified in the bid document for bid closing.

Step 9: Administratively Processing Proposals

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A. The GCA should open bids at the time specified in the bid document or at the deadline specified in any extension of the deadline, at the place and in accordance with the procedures specified in the bid document.

B. The GCA should permit all bidders that have submitted bids, or their representatives, to be present at the bid opening.

C. The GCA should request at least two representatives of the bidders present to act as witnesses.

D. The GCA should examine the contents of each envelope marked TECHNICAL PROPOSAL.

E. The GCA should announce, to those persons present at the bid opening the name and address of each bidder whose bid is opened, and whether or not a bid is complete.

F. GCA’s announcement should be recorded immediately in the record of the tendering proceedings, the Minutes of Tender Opening Meeting.

Step 10: Fairly and Impartially Evaluating Proposals

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G. The GCA should privately evaluate all bids in accordance with the evaluation criteria contained in the bid document.

H. The GCA's evaluation first focuses upon the responsibility of the bidders and the responsiveness of their bids.

I. After the responsibility of the bidder and the responsiveness of the bid have been determined, bids are evaluated according to the bid evaluation criteria.

J. Although the rating of bids against the criteria involves subjective judgments on the part of the rater, a degree of objectivity can be obtained by having the individual members of the selection panel independently rate the bids.

K. Bid evaluation will then proceed using the technical aspects required in the bid document.

L. Only those bids that are substantially responsive and have passed the technical examination with a specified minimum technical score will be subject to financial evaluation and comparison.

Step 10: Fairly and Impartially Evaluating Proposals

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M. Clarification of Bids: A comparison of the ratings assigned by each member often brings to light ambiguities in the bid which should be clarified by the bidder.

N. In certain cases, it may be necessary for the GCA to reject all proposals.

O. In certain cases, it may be necessary for the GCA to reject a responsive bid from a responsible bidder.

Step 10: Fairly and Impartially Evaluating Proposals

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A. The GCA should prepare the Minutes of the Tender Results to document the ranking of all responsive bids.

B. If the GCA determines that any bidder's bid is not responsive or that the bidder is not responsible (based upon information validly obtained after prequalification, and verified), the GCA should delete the bidder's bid from further consideration and should include within the written record the reasons for determining the bidder non-responsive or not responsible.

C. The Minutes should detail the evaluation criteria, list of all the bidders who submitted bids and the tender price submitted by each bidder, a narrative of the bid evaluation process, date of the Minutes, and ranking of bids according to the evaluation criteria.

D. The GCA fairly and impartially ranks only those bids determined to be responsible and responsive.

E. The Executing should not accept nor rank a bid if the bidder is not qualified, if the bidder does not accept a correction of an arithmetical error made by the GCA, or if the bid is not responsive

Step 11: Ranking and Responsive Bids

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1. The GCA Procurement Committee prepares the Minutes to recommend the proposed contractor as the one with the highest evaluated bid ascertained on the basis of criteria specified in the bid document.

2. Whether or not it successfully passed prequalification proceedings, the GCA may require the contractor submitting the bid to certify that its prequalification data have not significantly changed since the contractor's original submission.

3. If the bidder submitting the successful bid is requested to demonstrate again its qualifications in accordance with this provision but fails to do so, the GCA should reject that bid and should select a successful bid from among the remaining bids, subject to the right of the GCA to reject all remaining tenders.

4. The GCA Procurement Committee should prepare a report to the GCA head to recommend the winner of the tender [Controversial provision for discussion] or, request approval to negotiate with the Sole Bidder.

Step 12: GCA’s Recommendation of a Proposed Contractor

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5. In the event the GCA Procurement Committee recommends the highest evaluated bidder as the winner of the tender, the Committee should prepare a report to the GCA Head.

6. [Controversial provision for discussion] In the event the GCA Procurement Committee recommends Sole Bidder as the winner of the tender, the Committee should prepare a report to the GCA Head to request approval to negotiate with the candidate Sole Bidder.

7. Within two business days after receipt of the GCA Head’s stipulation of the tender winner, the GCA should notify all bidders and the public of the bidder submitting the highest-ranked bid.

8. In the event any of the bidders who were not selected as the tender winner objects to the announced winner, the bidder should be given an opportunity to file its objection in writing, at the latest on the appropriate time, the bidder’s objection should be submitted to the GCA Head, accompanied with any evidence supporting the allegation of a deviation, or the bidder’s objection may be submitted either by the bidder individually or jointly with the other bidders.

Step 12: GCA’s Recommendation of a Proposed Contractor

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9. Issuance of Stipulation Letter of the Tender Winner. 10. [Controversial provision for discussion] Issuance of Stipulation

Letter of the Sole Bidder. 11. As stipulated in the bid document, the GCA should request the

contractor whose bid has been accepted to sign a written contract conforming to the tender.

12. All awards are subject to concurrence of the Head of the GCA and, according, the Agreement should not enter into force before the approval is given and the GCA countersigns the contract.

13. If the contractor whose bid has been accepted fails to sign a written contract or fails to provide any required security for the performance of the contract, the GCA should recommend, from among the remaining bids that are in force, award to the next highest evaluated bidder, subject to the right of the GCA to reject all remaining bids.

14. [Controversial provision for discussion] The GCA should return all bid bonds not later than thirty (30) days after the GCA countersigns the contract.

Step 12: GCA’s Recommendation of a Proposed Contractor

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Typically, governments of developing countries do not specify the timing of negotiations on the concession contract. However, an important issue at both the Procurement and Negotiation stages is the optimal timing of contract negotiations. Such negotiations can take place pre- or post-bidding.

Step 13: Pre Bidding or Post Bidding Negotiations of Contracts

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After receiving the requisite approvals, the GCA should countersign the Agreement.

Step 14: Executing the Concession Agreement

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Typically, after a concession agreement has been signed, both the Concessionaire and GCA will be required to fulfill specified conditions precedent before the PPP Project will commence. The following page provides examples of negotiated conditions precedent, as well as an estimate of how long these tasks may require to complete. Below is a summary of the major steps in the process leading to financial close. a. Formation of a Special Purpose Vehicle. b. Business Permits. c. Tax Registration. d. Loan Application Approved and Disbursed to the Escrow

Agent. e. GCA Obtains Clear Title and Clears Land. f. GCA Appoints Independent Engineer (if desired).

Step 15: Financial Close

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After fulfillment of all conditions precedent and financial close, the GCA should thereafter issue to the selected contractor a notice to proceed with the project.

Step 16: GCA Issues a Notice-to-Proceed

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Comparison Chart

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Issues that have proven problematic in other Asian Countries and inhibit PPP development include: • Unsolicited proposals submitted by politically influential

individuals and companies, awarded with less than full and open competition;

• Government support, financial and otherwise;

• Government guarantees;

• Land Acquisition;

• Legal systems that fair to adequately support the Rule of Law;

and • Lack of good governance, typically shown by weak public

sector audit institutions and an absence of accountability.

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• Projects need to be sufficiently large to justify transaction costs which can

be as high as 3% of bid costs compared to 1% for traditional procurement; • Need to be able to clearly define the outputs;

• There is a need for a competitive private sector that can bid and credibly

supply the service; • Need to be able to demonstrate that value for money is being achieved;

• Risks need to be allocated, based on the principle that the party who

assumes the risk is in the best position to manage that risk; • Government needs capacity to design the outputs, prepare the project,

evaluate and negotiate bids, have financial capacity to pay for the outputs (in the case of DBFOs), to independently regulate tariffs, and to monitor and enforce contract performance through transparent dispute resolution mechanisms.

PPP not Appropriate for all Projects

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PPP vs. Service Contracts

• Private-sector management of existing public infrastructure without any major new capital investment or upgrading is not considered to be a PPP because it is, essentially, a service or management contract.

• Similarly private-sector provision of “soft” infrastructure, which involves no significant investment in fixed assets (and hence no need for private-sector financing), is not considered a PPP.

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B. Why Not Public Procurement? PPP advantages over public procurements are significant, and consist of time and cost savings, private sector efficiency (the profit motive), and technological innovations. Much of the interest in PPP can be attributed to dissatisfaction with traditional methods of public procurement of infrastructure. Infrastructure policies were developed based on the belief that governments could succeed where markets appeared to fail, however the reality proved to be different.

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Public sector infrastructure projects in many parts of the world were marked by inefficiency, unreliability and poor fiscal control. This performance, indifferent at best, led to the growth of BOT/DBFO-type arrangements in road construction and to the search for more cooperative ‘partnering’ approaches in construction projects. Both may be viewed as forerunners of the PPP concept. Much of the blame for the poor record in the design and construction of capital works by governments worldwide comes from time delays and costs overruns being common-place. Specifically, evidence has come to hand on the extent of cost overruns and revenue shortfalls on infrastructure investments – phenomena that have come to be known under the heading “appraisal optimism.”

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In particular, two recent studies examined 258 large transport infrastructure projects covering 20 countries, the overwhelming majority of which were developed using conventional approaches to public procurement. Incredibly costs were found to be underestimated in 90 per cent of the cases. For rail projects, actual costs were on average 45 per cent higher than estimated, for tunnels and bridges they were on average 34 per cent higher, while for road projects, actual costs averaged 20 per cent higher than estimated. They also found no evidence that this position has changed over the past 70 years.

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In summary, a PPP is an alternative to procurement of infrastructure by the public sector (‘public-sector procurement’ or “government procurement”), using funding from government sources, such as tax revenues or public borrowing. Public sector implementing agencies should consider some of the key factors that have led to PPP being considered for infrastructure projects, including the risks typically found in a public procurement that may be transferred to the private sector party under a PPP.

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Distribution of Risks: Publicly-Financed Project vs. a PPP Project

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• Please refer to the Workshop Handout for an analysis of the development context, other Asian countries experience with PPP, and recommendations to strengthen public sector audit to ensure accountability.

• Questions or Comments?

• Thank you, Hal Sullivan ([email protected]) PPP Legal, Regulatory and Institutional Advisor