institutional framework for ppp projects and project development stages

Institutional Framework for PPP Projects and Project Development Stages

Md. Abu Rashed

Sr. Consultant, IIFC

Md. Abu Rashed, Sr. Consultant (PPP)Infrastructure Investment Facilitation Center

Nature of Various Forms of PPP

PPP Institutions Globally

Institutional Framework in Bangladesh

Agenda

Md. Abu Rashed, Sr. Consultant (PPP)Infrastructure Investment Facilitation Center3

Service Contracts

Management Contracts

Lease Arrangements

Concessions

BOOT

BOT

BOO

BT

BTO

ROT

ROM

SOT


Service Contracts

Public Authority

Private Sector

Service Contract

• Overall responsibility except scope of services that are contracted out

• Bears all commercial risk

• Responsible for contracted services

• Managing own personnel and services efficiently

• Responsible for cost but not revenue• The contract period is short-1 to 2 years

• Offers frequent competition• Encourages efficient performance• Payment to the contractor linked to the work

performed.

Used for: Maintenance, emergency repairs, public information and education


Public Authority

Management Contract

Private sector

• Responsible for entire operation and maintenance of the system

• No direct legal relationship with consumer

Management Contracts

• Financial responsibility to provide funds for working and investment capital

• May charge and collect charges from the users either itself or engage anybody to collect and pay to Government

Used for: Hotels, Ports

• Contract period is generally 3 to 5 years• Private company get freedom to make day to day

management decisions without assuming any commercial risk

• Payment to contractor proportional to physical parameter


Lease Contracts

Used for: Port terminal, railway line, Optic Fiber Cable

• Contract period:medium or long (5 to 20 yrs)• Fixed fee plus incentive related element• Provision for periodic revisions of the contractor rate using price

index formula • Establish good billing and collection practice

Public Authority

Private Sector

Lease

Contract

• Rent the facilities from pubic authority

• Responsible for operation, maintenance management of the system.

• Can charge the users

• Commercial risk

• Owner of the asset

• Responsible for capital expenditures for new projects, replacement of vehicles, debt service, tariff and cost recovery policies.

• Capital investment risk


Concession Contracts: Build- Own-Operate-Transfer (BOOT)

Used for: Power sector, transportation sector

• Its variations are:BOT and BOO (Land Ports, Power Plants)BT (Annuity Payment, Roads)SOT, ROT etc. (Container Terminal)And many other possible variations

Public Authority

Private SectorBOOT

• Finance , build, owns and operates a specific new facility.

• Responsible for operation, maintenance management of the system.

• Substantial risk

• Ownership is transferred to public authority after a predetermined time.

• Responsible for determining the demand and size of the facility


Joint Venture Agreement

• New company has to be formed with equity from both the parties

Objective: Ownership sharing by public and private sector

• Jointly with Governmental authority finance, construct, operate and maintain a project foe a specified period.

• Majority representation on the board of directors of new firm

• More responsible for day to day management

Public Authority

Private Sector

Joint Venture Agreement

• Jointly with investor finance, construct, operate and maintain a project for a specified period

• The project may or may not be transferred to govt authority

• Initially equal share and later may sell off its share

• May keep golden share with special power to be used in specific situation.

• Jointly with Governmental authority finance, construct, operate and maintain a project foe a specified period.

• Majority representation on the board of directors of new firm

• More responsible for day to day management


PPP Institutional Structure Across the Globe


PART B:

PPP Frameworks of Bangladesh

10


PPP Status (Fiji)

Completed:

1. Set legal and regulatory framework – PPP Act 2006;

2. Established the policy framework ;

3. PPP Unit established under the Department of Public Enterprises

4. Analyze the feasibility of the proposed PPP projects – Consultancy funded AusAid & ADB

5. Short listed three projects earmarked to be implemented – early 2008


Indian Structure for PPPs

Constitution of a Committee on Infrastructure (CoI).

Prime Minister is the Chairperson.

Ministers of Infrastructure Ministries; Finance Minister and Deputy Chairman, Planning Commission are members.

Empowered Sub-Committee of CoI chaired by Dy. Chairman, Planning Commission and represented by Ministries.

Secretariat for CoI in the Planning Commission.

Ministries retain their role but work closely with CoI to develop & implement vision for world-class infrastructure.

Greater reliance on inter-ministerial & inter-disciplinary dialogue to enrich outcomes & eliminate conflicts of interest.


Instruments of Governance

PPP Appraisal Committee

Appraises & recommends all PPP projects of the Central Government.

Approves proposals for Viability Gap funding.

Chaired by the Finance Secretary.

Appraisal Unit in the Planning Commission.

India Infrastructure Finance Company (IIFCL)

Raises funds against sovereign guarantees.

Provides upto 20% of capital costs as long-term debt.

PPP Cells

Created in Central Government Ministries/State Governments

Coordinate, develop and implement PPP projects


Financial Support to PPPs

Scheme for Financial Support: Leverage scarce budgetary resources for addressing critical gaps in private sector financing.

Viability Gap Funding upto 20% of capital costs, another 20% by sponsoring Ministries/State.

Roads, ports, airports, railways, tourism infrastructure and urban transport.

Indian Infrastructure Finance Co. Ltd.: SPV to provide long term debt to viable infrastructure projects.

Direct lending to PPP and public sector projects.

Refinance for private projects.


PPP Arrangements in Indonesia

16

Contracting Agency (Sector Ministries, SOE,

Local Govt.)

KKPPICMEA,

Bappenas

MOF

PPP Nodes (PPP Units)Project Identification, Preparation, Monitoring & Quality Control: -- Screening -- Due Diligence -- Bid Documents -- Transaction & Post-transaction Process

Secretariat/P3CUPolicy Analysis, Development and Planning & Coord.Monitoring & Quality CtrlIdentify Projects requiring Government SupportResolving cross-sector issues

Risk Mgt UnitAssess GSIssue &Manage Guarantee

Guaran-tee Fund

ProjectDev.Fac.

Land Fund, etc.

SOEsProject Dev’tProject Impl. & Monitoring

Local Gov’t & ROEs

Project DevelopmentProject Impl. & Monitor

The Committee on the Policy for the Acceleration of Infrastructure Provision (KKPPI) established under Perpres 42/2005;

A Risk Management Unit on Fiscal Support already up and running since 2006 in the Ministry of Finance.

PPP Nodes established in the (MEMR, MPW and MOT)

P3CU will be established soon in Bappenas

16


DEFINITION OF P3 CENTRAL UNIT FUNCTIONS AND AUTHORITIES

17


Government Commitment, Support and Risk Management in Indonesia

18

PDF to fund project preparation and transactions

Government financial support can be made available (PMK 38/2006)

Land acquisition fund for the toll road sector

IIFF (already set-up) and IGF (imminent) to provide catalyst for PPP project financing

National Land Agency (BPN) to produce action plan to accelerate land acquisition

Government Investment Center can invest in PPP projects

18


A PPP Unit was set up in July 2002 (initially known as the PPP Secretariat).

The PPP Unit:

- drafted the PPP legislation

- produced the PPP Guidance Manual

PPP Unit in Mauritius

Kenya has a similar PPP Structure


Responsibilities of PPP Unit

Make an assessment of a project submitted to it and gives its recommendations to the relevant contracting authority

Develop best practice guidelines in relation to all aspects of PPP

Formulate policy in relation to PPP projects

Develop PPP awareness in the country.


General Policy Framework

The Build-Operate-Transfer (BOT) Law

BOT Law’s Implementing Rules and Regulations (IRR)

Charters of Government Owned and Controlled Corporations

Mandates of Implementing Agencies (Republic Acts)

The Local Government Code (RA 7160)

Government Procurement Reform Act (RA 9184)

Legal Framework for Philippine PPPs


Contracting Parties (enters into PPP/BOT)

• Implementing Agencies

• Government Corporations

• Local Government Units (Province, City, Municipality)

Other Concerned Agencies

• Line Agencies (policymaking)

• Regulatory Agencies (Finance, Economic Planning, Environment, Securities and Exchange, Central Bank, etc.)

• Other Sectoral Regulators (e.g. toll regulatory board)

Review and Approving Bodies

• (inter-agency) Investment Coordination Committee

• Local government councils

Coordinating and Monitoring Body

• The BOT Center

PPP Institutional Framework n Philippines


Project Development

• Technical/Advisory assistance

• Financial assistance/ capacity-building through the Project Development Facility (PDF)

• Marketing and Promotion

• Capacity-building/training

Project monitoring and facilitation

Policy Review and Advocacy

Philippines BOT Center Functions


The Project Development Facility in Philippines

A Revolving pool of funds sourced from international funding institutions (USAID and ADB) managed by the BOT Center

Accessed by implementing agencies/local government units in packaging/structuring BOT/PPP projects and tendering

• Consultants are procured to assist the agencies/LGUs in the preparation of project studies

• A success fee (for the consultant) component usually included

Repaid by the winning bidder(s),


Vneshekonombank PPP center (Russia)\

• Vneshekonombank initiated establishment of the Center as an independent structural branch as a result of realization of the Bank’s function as the basic Russian system development institution in the sphere of state policy in PPP

• PPP center was established on June 8, 2008

• The Mission – to support and speed up development of national, regional and municipal infrastructure projects as well as to raise the quality of municipal services in infrastructure development through usage of PPP instruments

• The Objective – skilled service of municipal work in application of PPP instruments for realization of sectoral and regional development strategies and improvement of such instruments

Fields of the PPP Center projects

Buildings and equipment

Networks

Roads

Services and functions of the Center

Investment consulting

Information

Regulatory framework

Education


South Africa’s Regulatory Framework for PPPs

Public Finance Management Act

PFMA Treasury Regulation 16

Public-Private Partnership Manual

Standardised Public Private Partnership Provisions

Public Private Partnership Toolkit for Tourism

Municipal Finance Management Act

Local Government: Municipal Systems Act

Municipal PPP Regulations

Municipal Service Delivery and PPP Guidelines


PPP Unit in South Africa

Established by a Cabinet Memorandum in 2001

A division of the Budget Office Directorate in National Treasury

Reports through the Deputy Director-General: Budget Office to the Director-General and the Minister of Finance

Head of PPP Unit is a Chief Director


The PPP Unit in South AfricaCurrent Staffing

Director General

Deputy Director-General

Head: PPP Unit

Project Evaluation Financial Analysis Business Development Municipal Desk

Performance Monitoring & Evaluation IT

Minister


Bureau of Infrastructure Investment (BII), Srilanka

Set up as a separate unit under the Board of Investment of Sri Lanka in 1996 which came under Ministry of Finance.

The BII was the successor to the Secretariat for Infrastructure Development (SIDI) which was a US AID funded project under Ministry of Plan Implementation

BII had specialists in Finance, Legal, Structuring of projects, Negotiations and worked with line ministries for technical input

Responsible for facilitating private sector investment in BOO, BOT projects


PPP Institutional Framework in Bangladesh


How the PPP Guidelines were Formed (PSIG)

In Aug. 2003, a committee formed to prepare PPP Guidelines

IIFC was engaged as consultant to carry out wide consultation and prepare a draft

Extensive consultations made

with public sector

with private sector

Guidelines approved in Oct 2004

Private Infrastructure Committee (PICOM) established, with the BOI as its Secretariat

IIFC engaged by PICOM through BOI to operationalise the Guidelines


List of the Projects approved under former PSIGProject Executing Agency

1 Gulistan-Jatrabari Flyover Dhaka City Corporation

2 Sonamasjid Land Port BSBK

3 Hili Land Port BSBK

4 Bibirbazar Land Port BSBK

5 Banglabandha Land Port BSBK

6 Birol Land Port BSBK

7 New Mooring Container Terminal CPA

8 Tamabil Land Port BSBK

9 Burimari Land Port BSBK

10 Akhaura Land Port BSBK

11 Haluaghat Land Port BSBK

12 Bhomra Land Port BSBK

13 Teknaf Land Port BSBK

14 Establishment of Underground Metro Rail in Dhaka city Bangladesh Railway

15* 100,000 flats (lower to medium income) in Dhaka RAJUK

16* 2nd Dhaka-Chittagong National Highway Roads and Highways Department

17* 1200T Slipway Project of Marine Workshop CPA

18* Elevated Expressway Bangladesh Bridge Authority

19 Development & Operation of 2Jetties of Mongla Port on ROT basis

Mongla Port Authority


PPP Institutional Framework (Latest as per the PPP Policy and strategy 2010)


New Institutional Framework

The institutional framework for developing strategy, identification, formulation, appraisal, approval, monitoring and evaluation of PPP projects is presented below:

Public-Private Partnership Advisory Council (PPPAC)

Cabinet Committee on Economic Affairs (CCEA)

PPP Office

Line Ministry/Executing Agency


PPP Advisory Council (PPPAC)

•PPAC will advise on the overall PPP policy reforms and give broad guidance to PPP Cell.

•PPPAC may provide instructions for the various bottleneck issues relating to inter-ministerial coordination.

•PPPAC will monitor and advise MOF, Ministry of Planning and other project related ministries


PPP Office

PPP Office

Will act Under the Prime Minister’s Office

will consist of members from line ministries and executing agencies having knowledge and expertise on PPP projects

Supports Executing Agencies for:

Assessing Technical and Financial Viability of PPP Projects

Assessing and Approving Funding request


PPP Office

Organogram

CEO


PPP Triangle Structure

CCEA

PICOM

PPPAC IIFC as

Technical Advisor to

PICOM

PPP Cell

(BOI)

Finance Division

Planning

Comission

LM

EA

SPC

Management Contractor

(IIFC)

PPPTAF

Other EA’s

All roles in existing PSIG Assist in PPP Project

Approval & Award Oversee/request F1 to F5

PPP Triangle

F1 F2 F3 F4 F5

BIIF

National Consultative Committee

Project Pipeline Creation Hold Project Fair annually Include PPP projects in ADP, in

separate coloured section

F1-PPPTAF F2-VGF F3-Annuity F4-Linked Projects F5-BIIF SPC-Special Purpose Company


Finance Division

FD will Manage and Administer the PPP Budget Components

Disburse technical assistance fund to executing agencies

Disburse VGF and annuity fund to the project sponsor

If requested, may authorize executing agencies to use their own fund for the upfront development of PPP projects.

Administer and manage the BIIF with support from other existing government financing facilities like IPFF and IDCOL.


Key Stages in Project Development Stage 0 Stage I Stage II Stage III Stage

IV Stage V Stage VI Stage VII

Name of Stage

Project Identificati

on

Feasibility Commercial Framework

Evaluation

Negotiation

Financing

Construction

Operation

Stage Comple

tion Milesto

ne

CCEA Approval

Feasibility Study

Completed

Issue RFP Issue Letter of

Intent (LOI)

Sign Agreeme

nt

Financial

Closure

Start of Commerci

al Operation

Operation Phase

Processes and Actions

Executing Agency or private sector identifies Project and prepares Project papers

Brainstorming session held on ADP

Project approved by CCEA

Project published in Private Sector Project List

Executing Agency engages consultants

Identify regulatory and policy issues

Identify and agree major technical, commercial and contractual parameters

Complete feasibility study

Prepare commercial framework and Information Memorandum

Issue PQ notice

Conduct invest-ment promotions meeting

PBAC evaluates PQ submission and shortlist

Allocate risk between Govt. & private sector

Prepare model Contract Documents

Issue RFP

Shortlisted bidders prepare bids

Answer bidders queries and hold bidders conference

PBAC prepares evaluation report

Issue LOI t Sponsor

Prepare for negotiations

Form Government negotiating team

Carry out negotiations between Sponsor and Government entities

Signing of Contract Documents between Executing Agency and Sponsor

Sponsor makes loan applications to lenders

Lenders perform due diligence

Government and Sponsor renegotiations for lenders requirements

Loan documents prepared

Financial closure

Executing Agency to carry out Contract Administra-tion functions

Oversee construction by Lenders’ Engineer

Conduct satisfactory completion tests

Commercial Operations Date

Monitoring of facility operations by Executing Agency

Regulation through Contract

Adequacy of revenues

Executing Agency proactive role Monitoring & support role

Investor Controlling Project Investors bidding

41


Equity Investors

Lenders/ Institutional Investors

Borrower / Concessionaire

Executing Agency

Dividends

Equity InvestmentDebt Finance

Debt Service (Principal + Interest)

Concession Agreement

Toll Payments

Revenues/Cash FlowsProject

Construction, Operations and

Maintenance

Toll Rate/ Fare Collection

Revenue

Government of

Bangladesh

Performance Guarantee

Annuity Payments

Technical Considerations in Private Infrastructure Projects

Technical Considerations in Private Infrastructure Projects


Broad Technical Considerations

Why technical considerations are important in a private infrastructure project

Unless broad technical parameters are locked inThe operation and management of the facility can not be envisaged

The technical parameters can not be translated into money terms, and therefore profitability of the project can not be assessed.

However, unlike public sector projectsPrivate infrastructure projects should not be restricted with detail

technical specificationsBecause the private investor needs the flexibility to achieve desired

efficiency


Broad Technical Considerations

Rather, broad functional specifications need to be defined to achieve desired level of services and

performance standardsGovernment has a duty to see that the users get the desired services from the

facility

Government needs to earmark the land/area of the facility Provide the desired layout of the positions and areas of the building and equipment to be provided

Government may also need to specify capacities and number of equipment to be provided, in some cases, to ensure desired services


Flow from Technical Parameters

Broad Technical ParametersLand and Location

Broad specifications of the equipment

Required Commercial Operations Date

Performances standards and service level

Translates toTranslates to• Revenue

• Project cost• Financing cost• O&M cost etc

These fit in a financial model for determining profitability

Technical considerations

fits into profitability!!!


Feasibility Study

Feasibility study is the main documentcontains project parameters and boundaries, scope of work of the investor

determines broad technical parametersThe feasibility study is frequently used to prepare the information memorandum to

the investors

The executing agency should carry out own feasibility study

The difficulty is that government wants information from the investor

But the investor has his own interestThe government loses or over-tightens due to lack

of realistic information


Feasibility Study (contd.)

In preparing the feasibility study

some technical parameters are pre-defined by the executing agency

and some are derived from the study itself

The study should also Contain sufficient details of the inter-relationship between

the private investor and the executing agency The model of private sector participation

Commercial aspects: Tariff, royalty etc

Risk allocation principles

Service Standards, O&M performance standards etc

Roles and responsibilities of each party to maintain desired performance standards


Capacity building Required to Understand Technical Issues

Capacity building means:

increase in skills,

organizational and personal development and

resource building of the persons involved or likely to be involved in releasing infrastructure projects to the private sector.


Issues for Capacity Building

Capacity Building is essential for following areas:

tendering process,

agreements,

negotiations,

financing process

and other legal, technical and commercial issues.


Tasks under Capacity Building Plan

Tasks for Implementing the Capacity Building Plan:

Formulate Strategies agreements,

Identify Target Groups

Assess Training Needs

Prepare Comprehensive Capacity Building Plan

Design training packages

Implement the training programmes

Procure additional funds needed

Take steps to sustain capacity


Tasks under Capacity Building Plan

IdentifyTarget Groups

Assess TrainingNeeds

Design Training Packages

Implement the training program

Sustain the Capacity

Formulate Strategies

Pro

cure

Fun

ds

Prepare Capacity Building Plan

IdentifyTarget Groups

Assess TrainingNeeds

Design Training Packages

Implement the training program

Sustain the Capacity

Formulate Strategies

Pro

cure

Fun

ds

Prepare Capacity Building Plan

institutional framework for ppp projects and project development stages

Documents

abu rashed

investment capital

capital investment riskmd

maintenance management

ppp projects

entire operation

contractor proportional

contractor rate