ppp contract models and enabling environment3 ppp contract models end-user fees, e.g., toll roads,...
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UNECE
Team of Specialists
for PPPs
PPP Contract Models
and
Enabling Environment
Presented by:
Art Smith
Chairman, UNECE TOS-PPP
July 7, 2014
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The Cloud of PPP Terminology
Buy-Build-Operate
Build-Own-Operate
Design-Build-Operate-Transfer
Build-Lease-Operate-Transfer
Lease-Develop-Operate
Operate-Maintain- Service-License
Design-Build Finance-Maintain
Design-Build
Design-Bid-Build-Operate
Build-Own- Operate-Transfer
Design-Build-Operate-Own- Transfer
Build-Operate-Transfer
PFI
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PPP Contract Models
End-user fees, e.g., toll roads, metered water and power
Government payments, e.g., availability payments, water and
power purchase agreements
Government non-financial contributions
Hybrid combinations of two or all of the above
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Some objectives may be competing or mutually-exclusive.
For example, a government may wish to:
• Provide drinking water from the tap at the lowest possible cost to
consumers
• Extend water availability to remote areas which currently lack service
where the required investment may increase the cost to some or all
consumers
For this reason, PPP objectives should be carefully assessed,
prioritized, and balanced.
Prioritizing and Balancing Objectives
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Provide a new road from point a to point b
Relieve congestion
Improve commuter access and reduce
travel time
Avoid government investment
PPP Toll Road
Project Objectives and PPP Contract Model
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Government
Objectives:
Solution:
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Government
Objectives:
Solution:
Provide a new road from point a to point b
Relieve congestion
Improve commuter access and reduce
travel time
Avoid politically unpopular user fees
PFI-type, availability-based payments
Project Objectives and PPP Contract Model
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The “ideal” contract model for each particular project, needs to
be evaluated in the context of the project-specific business
case:
• Is the project technically feasible?
• Is there private sector interest and capacity?
• Is the project economically viable?
This analysis may lead to reconsideration of the contract
model.
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Consider the Project’s Business Case
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The Government seeks to procure design, finance,
construction, operation, and maintenance of a PPP toll road.
This is the Government’s first attempt at a PPP toll road, and it
appears unlikely that private investment can be obtained for a
contract term of greater than 20 years.
The estimated volume of traffic is 10,000 vehicles a day.
Based upon this volume, attempting to recoup the cost of the
project over a 20-year period, would result in unaffordably high
tolls.
The solution: a hybrid contract, based on a combination of user
fees and government payments.
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Toll Road Example 1
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The Government seeks to procure design, finance,
construction, operation, and maintenance of a PPP toll road.
This is the Government’s first attempt at a PPP toll road.
The projected volume of traffic would provide an adequate
revenue stream for the project, however, the accuracy of the
projection is uncertain, which impacts the project’s ability to
attract private capital.
The solution: incorporating a volume guarantee which limits the
private party’s demand risk.
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Toll Road Example 2
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Mandaluyong Market
Case Study
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Mandaluyong Market, Philippines
The popular public market located in
the heart of Mandaluyong City, was
originally situated on a 7,500 square
meters area along a main transit route
and was destroyed by a major fire in
1991.
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Mandaluyong Market, Philippines
The City wished to rebuild the market, but sought to avoid
using public funds.
The City invited private firms to rebuild the market through a
PPP, however, the private sector responded that this was not
viable.
The City asked the private sector to come up with innovative
approaches to make this feasible.
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The private sector suggested a more robust concept, that
would meet the City’s objectives, but generate sufficient
revenue to pay back the private sector for its investment.
Today, on the same public land, is the seven-story
“Marketplace”, which contains a public market, four stories of
retail and entertainment space, and a public parking lot.
Mandaluyong Market, Philippines
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Source: http://www.mandaluyong.gov.ph Source: http://dti.gov.ph
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Mandaluyong Market, Philippines
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All Photos Source: http://ppp.gov.ph
Mandaluyong Market, Philippines
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This project has created 600 new jobs
City tax revenue has increased by 10 -20 Philippine pesos per
year
City (and surrounding private) land values have increased
Mandaluyong Market, Philippines
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POLICY FRAMEWORK
PPP
FINANCIAL
INSTRUMENTS
The PPP Enabling Environment
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