regional roundtable on public sector management and public ... · roundtable, public sector...

Asia-Pacific Community of Practice on Managing for Development Results (APCoP), and Asian Development Bank Institute

Regional Roundtable on Public Sector Management and Public–Private Partnerships for Development ResultsRoundtable Report

22–24 April 2013ADBI, Tokyo, Japan

iii

Contents

Message from the Secretariat iv

Welcome Remarks v

Opening Address vii

Abbreviations ix

Overview of the Roundtable 1

I. Results-Based Public Sector Management 2

II. Public–Private Partnerships: Myths and Realities 4

III. Planning and the Public–Private Partnership Option: An Integrated Approach 7

IV. Accountability and Risk-Sharing: Risks and Incentives 12

V. Budgeting and Public–Private Partnerships 17 The Central Budget Authority and Public–Private Partnerships 17 Financing Solutions for Fiscal Space and Investment Projects: The Role

of Public–Private Partnerships 20

VI. Institutional Arrangements for Results-Based Public–Private Partnerships 23

VII. Public–Private Partnership Experiences in Southeast Asia 27 India and Bangladesh—A Tale of Two Countries 27 Building Institutions: Public–Private Partnership in Bangladesh 29

VIII. Public–Private Partnership Experiences in Southeast Asia 31 Public Sector Management and Public–Private Partnerships in Southeast Asia:

A Country Comparison 31 Project Development and the Role of the Public–Private Partnership Center 34 The Role of the Indonesia Infrastructure Guarantee Fund in Supporting

Public–Private Partnership Projects 35 Public–Private Partnership in Malaysia and the Role of 3PU 37

IX. Monitoring and Evaluating Public–Private Partnerships 39 Korea’s Public–Private Partnership Program and the Role of Public and Private

Infrastructure Investment Management Center 44 Monitoring and Regulating Public–Private Partnerships in the Philippine

Water Sector 45

X. Future Directions for Strengthening Public Sector Management in Public–Private Partnerships 47

Appendixes 1 The Role of Japan in Supporting Public–Private Partnerships for Development 48 2 Program at a Glance 51 3 Profile of Experts 54 4 List of Participants 63

iv

Message from the Secretariat

This report is presented by the Secretariat of the Asia-Pacific Community of Practice on Managing for Development Results (APCoP), which also acted as the Secretariat for this roundtable. Established in

2006 by the Asian Development Bank (ADB), APCoP comprises over 700 senior government officials from ADB member countries with the common objective of institutionalizing results-based approaches in public sector management. The APCoP Secretariat sits in the Results Management Unit of ADB’s Strategy and Policy Department (SPRU).

APCoP’s mandate is to promote learning and knowledge exchange in Managing for Development Results (MfDR) through interregional, intraregional and country level workshops, training of public sector officials on results-based PSM, and dissemination of good MfDR practices and knowledge products. This Roundtable provided a unique opportunity for PPP experts, development practitioners, and country PPP and public sector managers to share their experiences in promoting results and delivering services through public–private partnerships (PPPs). The Roundtable focused on the important role of public sector management in ensuring that PPPs deliver development outcomes. As the primary actor accountable for the delivery of public goods and services, the public sector must develop the capacity to effectively mobilize public and private resources, create the enabling environment, minimize risks, manage the implementation, and maximize the benefits of PPPs. The presentations and discussions aimed to ensure a common understanding of PPP concepts and the emerging challenges and opportunities that PPPs bring to public sector results delivery.

This Roundtable complemented ADB’s PPP Operational Plan that supports developing member countries to use PPPs as a means to achieve their intended development objectives. The topics and the supporting materi-als from the workshop will form the basis of a core PPP training curriculum to support Pillar 1 of the Opera-tional plan that deals with the capacity development of countries to effectively engage in PPPs.

The Secretariat acknowledges the contributions of the participants, PPP experts, the staff of the Asian Development Bank Institute, ADB, the Organisation for Economic Co-operation and Development, the Inter-American Development Bank, Japan Bank for International Cooperation, Japan International Cooperation Agency, and the Korean Development Institute, whose presentations and comments provided the basis of this report. Cristina Regina Bonoan coordinated the compilation of this report with valuable support from the APCoP Secretariat, ADB’s PPP Community of Practice and ADB’s PPP experts, Trevor Lewis, Grant Hauber, and Bob Finlayson.

Farzana AhmedPrincipal Coordinator, APCoP SecretariatLead Specialist (Public Sector Management)Strategy and Policy DepartmentAsian Development Bank

v

Welcome Remarks

Dean Masahiro Kawai, distinguished guests, resource speakers, ladies and gentlemen: Good morning.

Asia’s landscape is rapidly transforming. At a time of global slowdown, the region continues to exhibit impressive economic growth. In the Asian Development Outlook that was released earlier this month, the Asian Development Bank (ADB) projects the pace of economic growth in developing Asia to accelerate to 6.6% and 6.7% this year and the next, respectively. The region is also rapidly rebalancing the sources of economic growth from external to domestic spending. With rapid economic growth come significant shifts in the region, including a growing urban population and massive increase in resource use. The process of urbanization is integral to structural transformation and economic development of countries. According to ADB estimates, by 2050, some 3 billion Asians, roughly twice the current number, will live in towns and cities. Asia is projected to account for more than 50% of the world’s energy use in the next 20 years or so. With increased energy consumption, Asia’s carbon emissions will double by 2035. Asia must therefore pay greater attention to addressing climate change. While poverty has rapidly declined in response to economic growth, income and non-income inequalities within and across countries remain high and may worsen if not addressed.

These changes require significant investments to ensure that developing Asia continues to enjoy robust eco-nomic growth that is sustainable and inclusive. Transport is a major source of carbon dioxide emissions and it is one of the fastest growing sources of emissions. Designing sustainable and efficient urban transport is an important element of Asia’s green growth strategy. To meet its growing energy demand, Asia will have to undertake massive investments in the power sector including critically in renewable energy and promoting energy efficiency. Investments in social infrastructure and in rural areas are needed to enable inclusion of people who are currently unable to fully participate in the region’s economic successes.

ADB recognizes that to sustain economic growth and continue the progress in achieving development goals requires significant investments in infrastructure. Infrastructure bottlenecks remain to be one of the major obstacles for sustainable and inclusive growth in the region. ADB estimates Asia’s infrastructure investments needs at about $750 billion annually.

Many developing Asian countries have been chronically underspending in infrastructure. Infrastructure projects have also become more sophisticated, requiring innovative technological solutions, specialist skills for operations and maintenance, and above all, massive investments. Required investments are simply beyond the fiscal and institutional capacities of most developing countries. In a number of infrastructure sectors, there is also growing rationale to bring in private investment alongside public investment. Complementing these, the private sector has been acquiring greater financial, technological, and managerial capacities. The development of specialized financial products has also created opportunities for private investment in infrastructure.

Across Asia, there is growing focus on mobilizing private investment and public–private partnerships (PPP). Countries are testing new and innovative approaches to utilize partnership between the public and private

Neeraj JainCountry Director, Philippines, Asian Development Bank

vi Welcome Remarks

sectors for mobilizing much needed infrastructure finance. It has not been a simple journey. As we have learned from experiences regionally and globally, a successful PPP program requires strong and credible public institutions, transparent and efficient regulation, and trustworthy legal systems and dispute resolu-tion mechanisms. It requires processes and capacities in the public sector to develop bankable projects and manage contingent risks. ADB’s PPP Operational Plan encapsulates these prerequisites under four pillars: (i) advocacy and capacity development, (ii) enabling environment, (iii) project development, and (iv) project financing. It recognizes that for the public sector to maximize the potential benefits of PPPs, it must create an enabling environment to attract and encourage private sector engagement as well as develop its own capacity to effectively manage PPPs.

One of the key messages of this roundtable is that an efficient and effective public sector is a necessary condition for successful partnership with the private sector. For the public sector to be effective in delivering results, the key management functions of planning, budgeting, implementation, monitoring, and evaluation must be in place and coordinated toward common results. These same principles apply equally in the public sector’s management of its public projects and its partnership with the private sector.

When efficiently and transparently procured, PPPs can deliver the additional benefits of (i) improved ef-ficiency in the use of resources, (ii) better asset and service quality, and (iii) overall improvement in public sector procurement. In addition, PPPs can drive the public sector to be more transparent and results-oriented through increased competition and improved public sector capacities.

However, innovations such as PPPs also bring with them new challenges to the traditional public sector func-tions. In entering into partnerships with the private sector, the public sector must ensure that it remains ac-countable for the provision of public goods and must maximize the public value of PPP projects. The public sector needs to balance this accountability to the public with creating incentives for private sector engage-ment. It must weigh the risks and rewards for all stakeholders and draw clear lines of responsibility for the delivery of results.

With support from ADB and other development partners, capacity development initiatives are underway in a number of countries with a particular focus on bidding processes and procurement. Sweeping reforms in the region include efforts to improve institutional frameworks, boost public sector project expertise, and defining the roles and responsibilities for public sector entities in PPP oversight and planning.

This unique roundtable brings together government officials with eminent resource persons in public sector management and PPPs and members of the development community to discuss the progress of the region in reforming the public sector to better manage PPPs and identify how to address emerging challenges. It is the result of a partnership between the ADBI, ADB PPP Community of Practice, and the Asia-Pacific Community of Practice on Managing for Development Results, with the support of the Government of Japan through the Japan Fund for Poverty Reduction and the Government of the Republic of Korea through the E-Asia Knowl-edge Partnership Fund.

Ladies and gentlemen, this region’s dynamic economic growth provides it with unprecedented potential for progress and achievement of development results. To do this, we need the engagement of multiple partners from the public sector, the private sector and the development community.

In closing, I would like to congratulate the ADBI, the Asia-Pacific Community of Practice on Managing for Development Results and ADB’s PPP Community of Practice for bringing together agents of change and in-novation to maximize this region’s vast potential to deliver results. I wish you a productive three days.

Thank you.

vii

Opening Address

Distinguished speakers, participants, colleagues, ladies and gentlemen: Good morning.

It is my pleasure to welcome you to the Asian Development Bank Institute (ADBI) and to this regional roundtable, Public Sector Management and Public–Private Partnerships for Development Results, which is jointly hosted by the Asia-Pacific Community of Practice on Managing for Development Results.

In the last five decades, Asia and the Pacific witnessed dynamic growth and development. The latest Millennium Development Goals report for the region confirms that significant progress has been made, especially in areas of alleviating extreme poverty and hunger, reducing gender inequality in education, and improving access to safe drinking water.

Yet challenges abound. Progress could stall without strong global economic growth and expanded access to international and domestic markets. There is increased recognition that governments, acting alone, cannot address the challenges of achieving sustainable, inclusive, and knowledge-led growth in the region.

Investment in infrastructure is critical to spur and sustain productivity and competitiveness. According to the ADB–ADBI study, Infrastructure for a Seamless Asia, Asia and the Pacific require infrastructure investment of at least $750 billion per year until 2020. Equally important is investment in human capital, which attempts to provide adequate opportunities through education, heath, and other social services, and ensures that economic growth benefits the whole population.

However, mounting demand for public funds and tightening fiscal constraints require governments to find innovative ways to efficiently and effectively invest in much-needed public goods. Public–private partnerships (PPPs) allow the public sector to harness the strengths of the private sector to help achieve desirable development goals.

These partnerships not only provide additional sources of financing, but also create opportunities to benefit from the efficiency, innovation, and technical expertise of the private sector. In addition, PPPs can encourage a more transparent and results-oriented delivery of public services and lead to broader governance reforms through improved procurement processes, increased competition, and enhanced public sector capacities.

While the progress and success of PPPs in Asia and the Pacific have been mixed, the story is one of optimism and openness to its potential. Countries such as Japan, the Republic of Korea, and India have shown significant “PPP-readiness.” Meanwhile “emerging” PPP countries such as Thailand, Indonesia, and the Philippines have had mixed successes in project development and execution. A number of countries are in the process of refining their policies, their legal, regulatory, institutional frameworks and capacities with the support of development partners, including ADB. In recent years, a majority of the developing countries in the region have updated existing policy and legal frameworks. These have been accompanied by institutional reforms to strengthen the role of the public sector.

Masahiro KawaiDean and CEOAsian Development Bank Institute

viii Opening Address

ADBI’s capacity building and training programs on PPPs support officials in building institutional frameworks and effective mechanisms to implement PPP. Last year, we organized two events to strengthen the competencies of both the public and the private sector to identify, design, and execute PPP projects.

This roundtable brings together government officials from the region and eminent experts in public sector management and PPP, to share experiences, discuss challenges, and identify good practices. In the next three days, we will hear about the diverse experiences around the region—about public sector management practices that have contributed to these success stories and the challenges that remain.

This roundtable is a result of a collaborative effort with the Asia-Pacific Community of Practice on Managing for Development Results and ADB’s PPP Community of Practice. As a learning organization and regional knowledge bank, ADB has promoted communities of practice (CoPs) to improve the quality of its operations and promote knowledge sharing within the region. Currently, ADB has 10 CoPs, including the PPP CoP. Through this roundtable, ADBI and ADB’s CoPs hope to contribute to the practical knowledge on how PPPs can further support development in Asia and the Pacific.

The roundtable is intended to enable you to engage with experts and fellow country participants in constructive dialogue. I encourage every one of you to share your experiences and lessons learned in the process of managing PPPs. With your active engagement, I look forward to a fruitful three days to promote PPPs that contribute to sound development in the region.

Once again, welcome to ADBI and I wish you all an enjoyable stay in Tokyo.

ix

Abbreviations

CBA – Central Budget AuthorityIDB – Inter-American Development BankJBIC – Japan Bank for International CooperationJICA – Japan International Cooperation AgencyKDI – Korean Development InstituteKPI – key performance indicatorOECD – Organisation for Economic Co-operation and DevelopmentPDF – project development facility PIMAC – Public and Private Infrastructure Investment Management Center PRC – project review committeePPP – public–private partnershipPSIF – private sector investment financePSM – public sector managementRFP – request for proposalRMU – risk management unitTIP – traditional infrastructure procurementVfM – value for moneyVGF – viability gap financing

1

Overview of the Roundtable

From the presentation of Venkatachalam Anbumozhi, Capacity Building and Training Specialist, ADBI

Roundtable Objectives

This roundtable was organized with the following objectives:

➢ To discuss the role of the public sector in managing public–private partnerships (PPPs) to deliver development results

➢ To understand the results-based public sector management (PSM) and the rationale for PPP

➢ To identify success factors in PPPs and the main difficulties in risk-sharing arrangements at different levels

➢ To exchange information on innovative policy experiences, budget process, and monitoring frameworks that make PPPs efficient and affordable

Public Sector Manangement and Public–Private Partnership Assumptions

The public sector is the actor primarily accountable for delivering public goods and services through

planning, budgeting, implementation, monitoring and evaluating. PPPs can achieve positive development results. Such partnerships allow considerable leveraging of each partner’s resources and unique strengths and results are often attained in less time, at lowest cost, and with greater sustainability than efforts by a single partner (Figure 1). Thus, there is a need to develop government capacity to effectively mobilize public and private resources.

Expected Outcomes

The sessions of the Roundtable that are summarized in this report were designed for participants to:

➢ Increase their understanding of the ways in which PSM can be enhanced by PPP in achieving development results

➢ Increase awareness of applicable policy practices and budgetary frameworks

➢ Have a clear framework on risks and rewards available

➢ Be in a position to accelerate change.

Figure 1

Ownership

Long-term

Short-term

Partial

Asset usage

Service

Priv

atiz

atio

n

Conc

essi

on

Join

t ven

ture

Leas

ing

Alte

rnat

ive

cont

ract

Development Results

Publ

ic S

ecto

r Man

agem

ent

(Pla

nnin

g, B

udge

ting,

Impl

emen

tatio

n)

Public−Private Partnership Models

2

I. Results-Based Public Sector Management

From the presentation of Farzana Ahmed, Lead Results Management Specialist, ADB

This session presented the results-based public sector management framework. It describes the features of what makes public sector management oriented to achieve results. Applying the framework to PPPs, its key features can help guide public sector capacity development in planning, budgeting, implementation, monitoring, and evaluation for PPPs that are discussed in subsequent sessions.

Many actors work together in the delivery of results. As the largest and most influential

sector in most developing countries, the public sector is critical in creating the enabling environment for the effective participation of other actors, including the private sector and development partners.

Public Sector Management and Results

Public sector management (PSM) refers to how governments manage the traditional components of the public sector to deliver national results. Planning, budgeting, implementation, monitoring, and evaluation embody the core components of management. In the public sector, these components are carried out simultaneously at various agencies and levels of government—central ministries, line agencies, and subnational governments.

The results-oriented PSM approach identifies four key features:

(i) Core results attributes—This feature relates to the strength of the systems, institutions, and processes involved in planning, budgeting, implementation, monitoring, and evaluation to enable the delivery of results.

(ii) Focus on common results—Each PSM component should be aligned to the same set of national priorities and results (impact, outcomes, and outputs). The focus on common results should link all components through the PSM cycle.

(iii) Interdependence—Collectively, PSM compo-nents must work in a coordinated manner to deliver and measure the achievement of national and sector objectives.

(iv) Horizontal and vertical integration—PSM efforts should be pulled together horizontally across sector ministries and vertically along all levels of government.

Public Sector Management and Public–Private Partnerships

As in the delivery goods and services by the public sector alone, a capable government is equally critical to effectively manage public–private partnerships (PPPs). Discussing PSM in the context of PPPs adds other dimensions and issues related to private sector engagement. In planning for PPP projects, for example, the public sector must consider the level of results the private sector would be responsible for while remaining primarily

Figure 2

Plan

Evaluate

ImplementMonitor

Budget

Results

Results-Based Public Sector Management 3

accountable to its citizens. In budgeting, the results-based PSM approach should consider its long-term funding options apart from its consideration of PPP engagement as a financing alternative. The public sector must be capable of balancing and managing the risks and rewards of PPP engagement and identifying the roles and responsibilities of agencies involved in its management and coordination. Finally, in monitoring and evaluation, the public sector must consider the challenges of

determining the indicators and targets to show how PPPs contribute to government policies and development outcomes.

The diverse experiences of countries in the Asia and Pacific region illustrate successes and challenges in PPP engagement. Nevertheless, a common thread that has emerged is the need for improved public sector capacities to effectively and efficiently manages PPPs.

Box 1 Roundtable Discussion: the First “P” in Public–Private Partnerships

Public sector remains the biggest player in delivering development results. While recognizing the critical role of the private sector in public–private partnerships (PPPs), the roundtable focused on public sector management as the public sector remains accountable to the people in delivering development results. It is the public sector that sets the agenda on what to deliver and should be competent to manage the partnership process.

Horizontal and vertical linkages among central ministries and levels of government is critical. Planning and budgeting are distinct functions that must co-exist: planning without a resource envelope is unrealistic. However, budgeting is too short term and incremental. Planning is particularly important for developing countries in order to achieve significant changes. Despite the fundamental differences, planning and budgeting need to be linked to achieve results. One of the ways to try to achieve this, for example, is the medium-term expenditure framework.

Monitoring should be transparent and evaluation independent. Implementing agencies may be in the best position to monitor results given their access to data. However, it is important to ensure proper information flow so that data can be sufficiently and independently evaluated. Public access to information and allowing monitoring by civil society groups and requiring ex post audit of all branches of government also help ensure transparency and independence.

Monitoring and evaluation is a long-term exercise. In evaluating results, attribution may take time to be determined. Monitoring and evaluation is a continuing exercise to be able to build data for proper analysis. For evaluation to be credible and be of value, it should continuously inform the decision-making process.

The added benefits of PPPs also bring challenges to traditional PSM. PPPs may address financing gaps but they also introduce an outside element to the traditional budgetary process, such as the treatment of contingent liability in the budget. Regardless of whether there is private participation, however, it is always important to ensure transparency, accountability, and competitiveness in the management of public sector programs and projects.

4

II. Public–Private Partnerships: Myths and Realities

From the presentation of Trevor Lewis, Infrastructure Specialist (Public–Private Partnerships), ADB

This session discussed the nature of partnerships that help define a public–private partnership (PPP). It discussed the benefits of PPPs. Finally, the presentation debunked the myths about PPPs to help participants better understand and manage their expectations of what PPPs can deliver.

What is a Public–Private Partnership?

A public–private partnership refers to “a contractual arrangement between public (national, state, provincial, or local) and private entities through which the skills, assets, and/or financial resources of each of the public and private sectors are allocated in a complementary manner, thereby sharing the risks and rewards, to seek to provide optimal service delivery and good value to citizens.”1 Figure 3 illustrates the major types of PPP as a subset of broader private sector participation.

The Concept of Partnerships

PPPs transform the government from a direct provider of goods and services to a coordinator of action by others. It is difficult to identify an inclusive and basic set of principles related to PPPs, primarily because partnerships take many shapes and sizes. However, there are common characteristics that may be found in PPPs.

Engagement of two or more parties. The partnership should include at least one public sector and one or more private sector entities.

Continuing contractual relationship. Mere patterns of behavior do not constitute a partnership. A continuing relationship requires a contract that sets the rules of the game and provides some certainty. The contract defines the benefits and consequences in the exercise of rights provided in the agreement.

1 ADB. 2012. Public–Private Partnership Operational Plan 2012–2020. Manila.

While the contract specifies the architecture of the arrangement, this cannot provide for all outcomes. Thus, the relationship must be based on shared values, policy objectives, and trust.

Resourcing arrangement. Each party must bring something of value to the partnership. This may be in the form of capital, reputation, expertise, or other resources that both parties continuously provide during the entire life of the partnership.

Shared responsibility and risk. The partnership is entered into for parties to share responsibilities and risks for the project. The risks can be financial, environmental, social, or others that are related to their mutual interest and unified commitment. Risk allocation allows substantial and unvalued costs to be transferred to the private sector, which can substantially lower costs on the part of the government

Focus on services. The emphasis of the partnership is on the services received by the government, and the government pays based on the service package provided.

Whole-of-life costing. The agreement is structured to ultimately allow the benefits to be realized within the life of the partnership

What a PPP is not, however, is a straight financing by the private sector. The public sector does not buy an asset but remains continuously engaged in the partnership and the process by providing the right economic incentives.

Public–Private Partnerships: Myths and Realities 5

With these common characteristics, there are a variety of PPP models. Some PPPs are created for policy formulation and policy setting. PPPs entail significant initial capital costs and, thus need to be managed on a long-term basis. While PPPs strengthen the procurement process, there are many gray areas. Thus, rather than conforming to a model, PPPs should be viewed as a systemic way to define outputs, evaluate impacts and inherent risks, and identify appropriate models relative to those risks. This requires a different approach to every project.

Benefits of PPPsIn PPPs, parties commit themselves to a cooperative relationship with each expected to contribute something of value to the partnership. On the part of the public sector, this may be in the form of its authority. On the part of the private sector, this may be in the form of capital, efficiency, or technical

capacity. There are benefits to PPP engagement, some of which may be aspirational and not always reflected in each PPP arrangement. An ideal partnership plays on the inherent strengths of each sector and may provide the following benefits:

Predictability and the realistic assessment of risks. By ensuring that the whole-of-life costing of the project is considered, PPPs provide budget pre-dictability during the life of the project, which can impact on the residual value risk of the asset.

Value for money (VfM). A government’s objective is to attain the most cost efficient way to deliver ser-vices to its citizens. In PPPs, VfM assessments ensure that services are provided at least equivalent to that delivered by the public sector at a lower cost and taking into account related risks. If sufficient risk cannot be transferred to the private sector, it is un-likely that the PPP can deliver VfM.

Figure 3 Public–Private Partnership Spectrum

Source: Asian Development Bank.

RELA

TIVE

RIS

K

CONCESSION CONTRACTSInvestment into new or existing infrstructure by private

sector; full system operation by private sectorOwnership with private sector for duration of contractRisk profile: Budget-based revenue with the governmentRevenue-based revenue risk with private sector; technical;

financial, operational risks with private sectorDuration: 15−50 years approx.

LEASE CONTRACTPrivate sector fully responsible for providing services and

operational investmentsOwnership remains with public sectorRisk profile: revenue risk with private sector; major

investments by public sector, some by private sectorDuration: 10−30 years approx.

MANAGEMENT CONTRACTFacility and/or operational managementOwnership remains with public sectorRisk profile: Private sector receives fee, linked to

performance; limited capital investment by private sectorDuration: 5−15 years approx.

SERVICE CONTRACTMaintenance of assets and/or equipmentOwnership remains with public sectorRisk profile: Private sector receives fee for servicesDuration: 1−15 years approx.

PRIVATE

PUBLIC PRIVATEOWNERSHIP/CAPITAL INVESTMENT

PUBLIC-PRIVATE PARTNERSHIP

6 Regional Roundtable on Public Sector Management and PPPs for Development Results

Bundling. PPPs allow for capital and infrastructure delivery without heavy reliance on public debt. PPPs allow private sector skills to be utilized to maximum efficiency despite public sector financial constraints.

Social gains. PPPs encourage competition and market-based conduct and innovation. The acquisition of new commercial and technological skills through engagement with the private sector could drive public sector reforms.

Environmental gains. Recent innovations in PPPs take into account environmental considerations, including energy conservation, waste and pollution minimization, and enhancement of biodiversity. These considerations are particularly important in emerging markets that face resource constraints. Contractors may be provided with direct incentives to build these elements at the early stages of design.

PPPs inject market discipline to investment policies. PPPs provide a framework for competition among potential operators. Moreover, the built-in incentive systems in PPPs enable the public sector to reward contractors that perform well while punishing those that perform badly.

Debunking Public–Private Partnership Myths

PPP differs from privatization. In privatization, the ownership, management, and operations of the asset are handed over to the private sector. In PPPs, ownership returns to the government and public sector engagement remains throughout the life cycle of the agreement. The contractor does not own the asset but is merely allowed its use and paid a price for its services. Meanwhile, the public sector must monitor the private sector’s delivery of the service package.

PPPs do not dilute accountability. Rather than reducing public sector accountability to deliver results, PPPs should ideally provide better accountability streams. Traditional public service delivery is generally political and nontransparent. PPPs can encourage transparent service delivery while opening many points along the process to allow for the consideration of public interest concerns.

PPPs will not replace traditional public sector financing. PPPs are large and expensive. The expense involved in PPPs means that this is not going to be the main mode of funding projects.

Box 2 Roundtable Discussion: Building Partnerships

Start small and build trust with each engagement. Before a government decides to enter into engagements that require full-blown shared financial responsibility, it should begin in smaller risk-sharing schemes, such as lease or service contracts. These earlier forms of engagement develop both capacities and trust. Less deep or broad private sector participation is beneficial and can deepen in time. In every engagement, there is a need for communication, regular consultation with the private sector, and it is critical for the government to keep its word. Every time a government sticks to its obligations, the building blocks of trust are developed.

Consistency and predictability are critical for the enabling environment. Rules of investment, government commitment, and private sector commitment help build a predictable environment. Each successful transaction builds on previous experience that develops capacity as well as patterns of behavior that parties can rely on. A public–private partnership (PPP) engagement is a two-way street and each party would need bases to rely on to judge and compare the different opportunities available. In cases of disputes, international participants generally want international arbitration. This issue can be potentially contentious, especially when there are cross-border participants.

Each risk should be understood, valued, assessed, and managed. A rule of thumb is that risks should be borne or retained by the party that can best manage the risk because of inherent characteristics of that party. For example, currency risks and land acquisition risks would be best managed by the government. It is important to consider which risks the government should retain to actually attract investments.

In a PPP, asset returns to the government. A PPP concession contract specifies when the agreement will end. A needs assessments can be redone periodically to assess the constant partnership. In privatization, the asset will never be returned to the government, thus new and future needs are not re-assessed. Upon turnover to the government, ultimately what matters is not the quality of the asset but the quality of the service. If the quality of service that was the objective of the project is still being achieved, then the physical asset is not that important to consider.

7

III. Planning and the Public–Private Partnership Option: An Integrated Approach

From the presentation of Richard Foster, Public–Private Partnership Expert, Former Executive Manager

of Partnerships Victoria

The objective of this session was to understand how different commercial arrangements function to drive public–private partnership (PPP) outcomes that are consistent with the bigger planning agenda. This session discussed PPP Planning as part of an integrated approach. It begins with ensuring that national development goals are linked to individual projects. It is followed by a discussion on how to determine whether a PPP is a viable option to deliver the project to achieve those national development goals. It moved down to ground level to set specific, measurable, achievable, relevant, and time-bound (SMART) performance indicators for the private sector consonant with the public sector targeted results.

Linking National Development Goals to Individual Projects

The planning system enables an assessment of gaps and constraints that affect the achievement of national development goals. Plans to fill these gaps and overcome constraints may require infrastructure investment. The “problem” should be carefully analyzed to identify:

(i) The benefits of resolving the problem, which enable us to develop SMART key performance indicators so that (once the investment is made), it is possible to determine whether the problem has been solved.

(ii) The complete set of strategic interventions, changes, and assets that government must deliver to resolve the problem.

In some countries, investment logic maps are used as a tool to analyze the problem. Investment logic maps help in going through the important thinking process of:

(i) defining the problem that we want to solve,(ii) identifying the benefits,(iii) determining the strategic response to solve the

problem and deliver the benefits, and (iv) defining the solutions by identifying the

necessary changes and assets.

Among the benefits of this process is that it stops decision makers from just building the infrastructure. It identifies other projects or changes that are needed both before and after building commences. It defines a comprehensive plan to ensure that the problem will be solved and the results delivered. (See example of a hypothetical logic map to improve transport between the Melbourne city center and airport in Figure 4).

There is a need to align broader government priorities to the infrastructure project. It is important to examine what the government ministry or department is ultimately responsible for. This requires looking at the departmental objectives and setting outputs to measure the achievement of these objectives. At a lower level of the outputs, the quantity and quality of the outputs are defined. These should determine how the departments are measured in terms of outcome.

Determining Whether Public–Private Partnership Delivery Is a Viable Option

Funding versus financing. Financing refers to a short-term decision of whether the project will be paid for upfront by the government or through private sector resources. On the other hand, funding refers to how the project is going to be paid for in the long-term. This may be funded through various


➢ The capacity and capability of government to manage the project under each delivery model,

➢ The capacity and capability of the private sector to do what is required of it under each delivery model,

➢ The private sector’s perception of counterparty risk under each delivery model, and

➢ What is possible under government’s current institutional and regulatory frameworks.

Setting SMART performance indicators for the private sector

In PPPs, the focus is on the outputs. These can be at a high level or specific and detailed. First, set out with the outcome in mind. Then identify outputs that the private sector would need to deliver. The private sector then identifies the inputs they would need to deliver the outputs required of them (Figure 7).

Focus on outputs. The rationale for focusing on outputs is attribution. In PPP projects, it may not be possible to attribute the outcome to the private sector but they can deliver outputs. To create incentives for the private sector to deliver outputs, determine payment schemes that will drive them to provide what is required of them. Moreover, consider

ways, including the imposition of tolls, government taxation, or aid. Toll roads, for example, need not be delivered through a PPP as the government can build a road and charge the toll. Thus, financing and funding can be decided independently of each other. (Figure 5)

In approving an infrastructure project, the govern-ment needs to make the following decisions by con-sidering the corresponding questions:

(i) The Investment Decision: Should the project be funded?;

(ii) The Procurement Decision: How should the project be delivered?

(iii) The Governance Decision: What governance arrangements should be put in place?

In selecting the mode of delivery of the project, decision makers should consider the 5 steps detailed in Figure 6.

Procurement decision in developing countries. In developing countries, in addition to matters such as risk management and budget certainty, the issues relevant to the choice of delivery models may include:

Figure 4 A Hypothetical Investment Logic Map

Melbourne Airport Rail Link

BENEFIT

ASSETS

PROBLEM

CHANGES

STRATEGICRESPONSE

SOLUTION

Greater roadtransportefficiency

50%

KPI 1: Improvement inroad travel timesKPI 2: Fewer accidents

Congested roadsassociated with

MelbourneAirport constrainairport accessand broader

economic activity60%

Improve roadnetwork for

greater efficiency30%

Revise trafficmanagement to

reflect new travelpatterns

Upgradeintersections

More efficientairport access

KPI 1: Reduced publictransport travel timesto airportKPI 2: Above trendgrowth in passengernumbers

Limited publictransport to theAirport results ininefficient travel

40%

Improve publictransport access

to MelbourneAirport70%

Connect theairport to the rail

system

New Rail Line fromAlbion West to

Airport

Additional RollingStock

Melbourne MetroProject

Integrate airportservices withwider network

Revisemetropolitan rail

timetable

KPI = Key Performance Indicator.Source: Richard Foster, Foster Infrastructure.

Planning and the Public–Private Partnership Option: An Integrated Approach 9

Figure 5 Combining Funding and Financing Alternatives to Deliver Infrastructure

PPP = Public–Private Partnership.Source: Richard Foster, Foster Infrastructure.

Government Finance(for example, through

governmentborrowings)

Private SectorFinance

Project deliveredby a Government

BusinessEnterprise (e.g.

Governmentowned Toll Road)

PPP with UserCharges (e.g. PPP

Toll Road)

TraditionalGovernmentInfrastructure

Delivery (BudgetSector)

PPP withGovernmentPayments

Funded throughUser Charges

Funded throughTaxes

Figure 6 Selecting a Delivery Model

Source: National PPP Guidance (Australia).

•Objectives•Risks•Unique projectcharacteristics•Agency andmarketcapability

Considersuitability of -•PV•Alliance•Managingcontractor•Other

•Whatprecedentexists for theproject•What does themarket think

•Which modelbest achievesrequirementsand objectivesand reducesrisks

•Structurepreferedmodel•Consider risk•Approvals•Gatewayreview

Step 4:Delivery modeloptionsanalysis

Step 1:Data gathering

Step 2:Shortlistdeliverymodels

Step 3:Validation

Step 5:Prefereddelivery model


KEY MESSAGES

Linking national development goals to individual projects

➢ Decision makers should focus on the problem that the project is trying to solve rather than the solution. ➢ To solve the problem, government may need to invest in a range of strategic interventions, changes, and assets. ➢ Government’s high-level objectives should be linked to individual projects through a cascading series of both

aspirational targets and specific, measurable, achievable, relevant, and time-bound (SMART) measures.

Determining whether public–private partnership is a viable option

➢ How a project should be financed in the short term (PPP or non-PPP) is a separate question to whether, and if so how, the project will be funded in the long term.

➢ The issues considered in choosing between PPP delivery and other forms of delivery should interrogate how the delivery model will affect the achievement of the project objectives and investment key performance indicators.

Setting SMART performance indicators for the private sector

➢ Performance indicators have different roles at different stages of a PPP project. ➢ SMART performance indicators ensure that the payment mechanism, and hence the private sector’s commercial

incentives, are appropriately linked to government’s output specification. ➢ Performance indicators should focus on key outputs. Breadth (covering all key outputs) is important, while

depth (having indicators that measure inputs, processes, or intermediate outputs) is generally unnecessary.

Figure 7 The Specification in a Typical PPP

Inputs

• Determined anddelivered by thePPP Contractor

Processes

• Determined anddelivered by thePPP Contractor

Outputs

• Monitored byGovernmentunder the PPPContract

Outcomes

• Government’sProjectObjectives

Once the PPP contract is signed, the PPP Contractor delivers theinputs and processes to meet the outputs:

Outcomes

• Government’sProject Objectives

• Investment KPIs• Departmental

performancemeasures

Outputs

• Government’sSMART specificationof what the privatesector must deliver

Processes

• The processes thatthe PPP Contractorwill use to deliverthe outputs

Inputs

• The materials andlabour that the PPPContractor will useto deliver theoutputs

During the project development and tender process, Government’sproject objectives and higher level performance measures andoutcomes inform the specification and the private sector bids:

Source: Richard Foster, Foster Infrastructure.

specifications and monitor indicators at each phase of the PPP process (prequalification, tender, construction, and operations). Good output-focused key performance indicators (KPIs) show not what the output specification is, but what it can deliver. This leads to good private sector design innovations

at the tender and construction phases but may be hard to measure at the operational phase.

Rectification. The private sector cannot be expected to perfect the delivery of expected outputs in one go. Rectification periods allow the contractor a period

of time to remedy a failure before a financial penalty will be imposed. This encourages response within an appropriately calibrated period of time. Otherwise, the contractor may “gold plate” that aspect of the project to avoid being penalized.

Monitoring. The private sector contractor is often the party best placed to assess its performance against the KPIs, and report this to government on a regular basis. In these instances, government must ensure that reporting is robust and can be audited. The government can also directly review performance, or may do so indirectly through techniques such as user surveys. In all cases, it

is important to think about how to structure indicators to align the private sector delivery to the outcomes of the public sector. It is also important to look at project performance over time, which may reveal patterns that can strengthen the alignment of existing indicators to government objectives.

When building infrastructure, ultimately, it is crucial not just to build, but also to attain broader development goals. In thinking about this, determine whether PPP is viable option. There is a need to identify SMART performance indicators for private sector to deliver what is required. Finally, tie incentives to these performance indicators.

Planning and the Public–Private Partnership Option: An Integrated Approach 11

Box 3 Roundtable Discussion: Planning for the Public–Private Partnership

Set standards for every project with focused indicators. The project scope should remain the same whether the project is decided to be delivered through a public–private partnership (PPP) or not. In the tender process for PPPs, the tender might be designed in a way to encourage further innovation. Too many key performance indicators (KPIs) might make the private sector lose focus. It is not optimal to dive down to unnecessary details but it would depend on the project. On aggregate indicators, for example, it may not be necessary for the public sector to find out why outputs of the private sector did not deliver since this is the private sector’s concern. This may help in the relationship but the public sector need not measure every indicator. Some agreements may require the private sector to inform the government of what has gone wrong and what they plan to do about it.

Budget for PPPs as if they are not PPPs. Guaranteeing payment by the government is a real issue, particularly for annual budget cycles with no mechanisms to lock in long-term funding. In Australia, there is a mechanism to lock-in funds and the project is budgeted as if it were not a PPP. Money is set aside to make PPP payments under the contract. However, this is a particular way of budgeting and accounting in Australia, which utilizes the accrual accounting system and operates on a 4-year budget cycle. Government should also budget for the cost of all project studies, whether PPP or not. Studies are needed for all projects prior to deciding whether PPPs are an option. These studies should be funded separately and all work should be done upfront before the projects are included in the budget cycle.

Framework and institutions ensure planning, budgeting, and implementation are coordinated. There are a number of ways in which to set institutional arrangements and assign the management of processes to each agency. In Australia, for example, there is no planning agency of the type commonly seen in developing countries and each line agency does its own planning and coordinates with the finance department or treasury and cabinet depart-ment. Ultimately, the process requires planning, budgeting, implementation, and monitoring and there ought to be a framework that brings them together. Cross fertilization of functions helps so a central coordinating unit may be necessary. However, while time is spent on developing institutions and frameworks, it is critical for the public sector to go ahead and begin some level of engagement to achieve something. It is important to develop internal capability in a step-wise process or progression in PPP projects. Nevertheless, it is ideal to have a political champion, while a framework provides a sense of certainty.

Public interest should be considered. The public interest should be factored into the framework in assessing PPPs. In Australia, a PPP is only considered if it can pass the public interest test, which considers factors such as: transpar-ency, accountability, safety, security, and equity. This includes equity among citizens and provides equitable out-comes for members of the community. This includes questioning whether a toll road is an equitable option.

12

IV. Accountability and Risk-Sharing: Risks and Incentives

From the presentation of Richard Foster, PPP Expert, Former Executive Manager of Partnerships Victoria

The objective of this session was to understand the concept of risk and how different public–private partnership (PPP) commercial arrangements function to allocate those risks and tie incentives to drive PPP outcomes. It begins with the concept of risk allocation among members of the PPP Consortium and the commercial incentives available to drive private sector performance. It is followed by a discussion on linking the payment mechanism that would ensure both availability and the quality of service delivery. In the allocation of risks, accountability mechanisms should ensure the alignment of the public and private sectors.

Risk Allocation and Commercial Incentives within the Public–Private Partnership Consortium

A risk is an event that has a probability of occurrence and would have an impact on the project if it does. In PPP infrastructure procurement, the government

transfers certain risks to the private party. The private party is often a newly created company and does not have much experience on its own. This private party then transfers certain risks to a building contractor while some risks are also transferred to the operations contractor and some to the financier. Thus, we are actually transferring a whole set of risks to a host of private parties—the PPP Consortium (Figure 8).


Figure 8 PPP Risk Transfer

Risk Transfer:

Government

$$$$

$$

$$$$ $$$$$

$$$$$$$

Cashflows:

Construction

Operational

PrivateParty

Accountability and Risk-Sharing: Risks and Incentives 13

Commercial Incentives. Three possible types of PPP incentives are:

(i) the feather—refers to an incentive/disincentive that is too light that it bears no impact on the consortium (including the financiers). It may instead encourage cost cutting and underperformance may be a viable strategy for the private sector. This creates an insufficient commercial incentive to be a strong driver of performance. Thus, the government is seen to be in a weak position.

(ii) the bomb—refers to an incentive/disincentive that is so strong that it may be disproportionate to the performance issues. Private sector might adopt a strategy to avoid termination and lose focus on service/development outcomes. Termination does not necessarily solve the performance problems, and may further degrade outcomes and is often politically unpalatable.

(iii) the stick—refers to a series of graduated responses available to respond to private sector underperformance. Sticks reduce the payments that the private contractor receives as a commercial signal that they need to improve their performance. Examples include the use of payment reductions that are sufficient to create disincentives to cut cost, and the requirement for the private sector to produce “cure plans.”

The feather and bomb were two early types of incentives that did not provide government sufficient levers to drive private sector performance. The addition of the use of sticks in more modern PPPs allowed for a more calibrated response. Continuing underperformance gives the public sector the right to use larger levers. Sticks can be used together with the feather and the bomb to calibrate the public sector response or penalty that corresponds with private sector performance or underperformance.

Payment Waterfall. The payment scheme in a PPP consortium often follows a payment waterfall, where private party revenue generally is used for payment of obligations in the following order:

(i) debts get paid first,(ii) followed by operating and maintenance costs,

and(iii) equity gets what is left.

Payment reduction risks cascades as different pri-vate parties bear different risks. Thus, different pri-vate parties are affected by nonpayment in different ways. The public sector should be aware of how each party will be affected by the incentives and penalties. Risk allocation by the government affects the behavior of different parties and will affect how project plays out (Figure 9).

Figure 9 Risk Allocation and the Behavior of Different Parties

PPP = Public–Private Partnership.Source: Richard Foster, Foster Infrastructure.

PrivateParty FinanciersSubcontractor Subcontract Finance Docs

Liquidateddamages /Security

PaymentReductions

PublicSector

PPP

➢ The financiers, who have capital at risk, require subcontractors to commit to higher levels of service than those required by government in the PPP contract

➢ Payment reductions generally flow through to the subcontractors, who are also required to pay liquidated damages or provide performance security


Risk sharing. There are risks that are not given solely to private parties because these are better shared, such as when neither party can control the risk or foresee the outcome. If neither party is in a position to control the cost outcome, it may be preferable to have the private sector bear the impact up to a cer-tain threshold, with the public sector meeting any costs above that threshold.

Setting SMART Performance Indicators for Public–Private Partnerships with Government Payments

It is important to adjust payments to reflect both availability requirements as well as quality-based key performance indicators (KPIs). Paying based on availability alone is insufficient to align the private sector with government objectives. To provide appropriate commercial incentives, quality-based adjustments should be included in the PPP payments.

Calibrating the payment mechanism. Calibrating refers to the idea that payments change to provide an appropriate penalty for not performing. If the penalty is too soft, the contractor might want to save money and increase profits by not complying with the contract. If too harsh, the contractor may focus on protecting their revenue from adversarial perspective rather than trying to improve performance or try to perform at such a high level at much higher costs. Calibrating provides the right penalty for the level of underperformance and considers the proportionality of incentive/penalty for underperformance on the impact on the public sector.

There are several issues to bear in mind in calibrat-ing the payment mechanisms. First, private sector behavior is affected by the relationship between the payment reductions and the private sector’s cost structure. On the other hand, the proportionality between the payment reduction and loss of service is also important to government. Regardless of how the mechanism is calibrated, however, much of the risk may be passed down to subcontractors.

Challenges in developing the payment mechanism. The financial structure of the project on the private sector side is important in providing the right incentives. Thus, this would require a different thinking in social infrastructure compared to capital-intensive PPPs. Social infrastructure has high operating and maintenance costs. If the payment mechanism is calibrated to provide strong incentives for the operations and maintenance subcontractor to respond to minor performance failures, more serious performance failures may result in disproportionately high losses for financiers. The financiers will seek to push this risk back onto the subcontractor, which may result in the subcontractor charging an excessive risk premium, responding in an adversarial manner to performance issues, or ceasing to be a sustainable service provider.

When undertaken as a PPP, capital-intensive infrastructure (such as roads) often has low operating and maintenance costs compared to the payments that flow to debt and equity financiers. If the payment mechanism is calibrated so that it is not unduly harsh on the operations and maintenance subcontractor in respect of minor performance failures, even very serious performance failures may only result in small losses to the financiers. As a result, there may not be sufficient incentives to drive the financiers to conduct robust due diligence on the project and ensure good subcontractor performance.

Incentivizing Results with User Charges

User charges provide a degree of natural alignment in between government and the private sector in respect of availability and, to some extent, quality. KPI regimes in user charging projects can further en-hance alignment. Different mechanisms for mitigat-ing demand risk drive different alignment between government and the private sector.

In the case of a certain infrastructure, such as a toll road or water supply, there is a demand risk in the

Figure 10 Linking the Specification to the Public–Private Partnership Payment Mechanism


OutputSpecification

AvailabilityRequirements

PaymentMechanism

KEY MESSAGES

➢ Risks are allocated by the private sector to specific members of the private sector consortium—there is no single alignment between the public and private sectors. Various consortium members are aligned with the public sector to differing extents in differing circumstances.

➢ Some risks should be shared, rather than allocated to an individual party, in order to drive alignment.

➢ PPP contracts should contain a graduated set of “sticks” or “levers” to provide commercial incentives for private sector performance.

➢ The PPP payment mechanism should be linked to both availability and the quality of service delivery.

➢ The payment mechanism should be calibrated with reference to both (i) the private sector’s cost structure, and (ii) the impact of underperformance on the public sector.

➢ Contractual arrangements should clearly place accountability on the private party, its subcontractors and financiers for the delivery of the project.

early years associated with the volume of demand for road or water usage. While usage will eventually reach capacity, in the early years, it is difficult to predict how many people will be using the road or water supply. Thus, there may be a need to share the initial risk during the ramp up period.

Accountability Mechanisms to Underpin the Alignment of the Public and Private Sectors

While the private party transfers risks down to other private parties in the PPP consortium, the government contract is with one private party. Thus, the contractual arrangements should clearly place accountability on the private party for the delivery of the project, including the performance of its subcontractors and financiers. Government should require active management of the private party—it is not a post box for the subcontractors and financiers. Any negotiations concerning issues arising under the PPP contract should be conducted between government and the private party, with the private party managing its relationship with the subcontractors and financiers.

PPP contracts are not “set and forget” arrangements. Within government, there must be appropriate governance and accountability mechanisms throughout the life of PPP. Government must consciously manage the contract to ensure the

private sector performs. They must monitor and use right incentive tools. There is also a need to ensure that there is proper succession planning within the life cycle of the contract to maintain arrangement and alignment in the long term.

Accountability and Risk-Sharing: Risks and Incentives 15


Box 4 Roundtable Discussion: Weighing Risks and Rewards

Think of the outcomes and what mechanisms will drive those outcomes. In every project, consider the objec-tives of the government: is it to keep tolls down or to fulfill a need for viability gap funding? Based on the outcomes desired from a project, decide what kind of mechanisms will drive those outcomes.

Government should be aware of risks and manage it with or without public–private partnership. Who bears the accountability and risks will differ based on the nature of the government and for every project. It is important to have a steering committee that has representatives from government and key stakeholders to steer the project on a regular basis. If the private sector refuses to take risks, perhaps it might be better for the government to take the project on not as a public–private partnership (PPP) because it is still bearing the risk in any case and at least it would have more control. The private sector’s risk appetite should be understood by government before commenc-ing a tender process. If the private sector will not accept key project risks, government should re-think the wisdom of a PPP.

Consider risks that cannot be foreseen. It is impossible to foresee all the risks that might arise in the life of a PPP. Thus, it is important to have mechanisms to consider risks that cannot be foreseen. The questions to consider are: what does the government need to do to prepare risks it cannot foresee in managing the contract? Do they have the right tools to work through the process of how to deal with the risks (understanding the legal regime or checklists)? Exercising judgment and thinking about what are needed to make an immediate decision are important principles of risk management.

Delivering as many public–private partnerships as possible is not the goal. A PPP Unit’s mandate should not be to deliver as many PPPs as possible. This kind of thinking would encourage the delivery of PPP project over the delivery of the right kind of PPP projects. The institutional arrangements for PPPs should include appropriate checks and balances to ensure that only suitable projects proceed as PPPs.

Value for Money is not about the cheapest price. Value for money (VfM) is about government getting what it wants for the most cost-efficient price. Thus, it must evaluate deliverability of the bid and not just look at the price. This should be reflected in the procurement rules. In some cases, for example, government might want to protect itself and require the financing to be committed at the bid. This may add to the cost and complexity of the projects on an unproven contract but may still deliver VfM.

17

V. Budgeting and Public–Private Partnerships

This session aimed to increase participants’ understanding of the budgetary challenges related to public–private partnerships (PPPs), including issues of budget transparency, fiscal discipline, and how to deal with guarantees and contingent liabilities. The first presentation discussed the awkward fit of PPPs in the budget process and the increasing role of central budget authorities in ensuring that PPPs are affordable, represent value for money, sustainable, and are reported transparently in the public budget. This was followed by a presentation on efforts in Latin America to effectively manage fiscal risks and excessive guarantees to ensure budget transparency and sustainability.

The Central Budget Authority and Public–Private Partnerships

From the presentation of Ian Hawkesworth, Organisation for Economic Co-operation and Development (OECD) Secretariat

The experience of OECD countries on PPPs and the role of central budget authorities (CBAs) contain key lessons for public sector management. While ministries of planning are not key players in OECD countries, these perspectives may apply to ministries of planning, finance, and other agencies involved in central budget functions.

Definition, Volume, and Performance

Based on a survey of OECD countries, PPPs constitute less than 10% of the volume of public sector infrastructure investments. It is important to look at the relative volume of PPP projects, as focusing only on PPPs would miss out on monitoring other significant infrastructure investment. Much of the scrutiny applied to PPPs should also apply to other public investments, including traditional infrastructure procurement (TIP) by the public sector.

PPPs outperform TIPs in terms of timeliness, construction costs, and quality. However, transaction costs are higher for PPPs than TIPs. This suggests that PPPs should be a certain size to warrant the significant expense. In terms of construction costs, OECD experience shows that realized construction costs of PPP projects tend to deviate less from projected costs compared to TIPs. In terms of operating costs, however, the difference in the

extent to which realized operating costs deviate from projected costs remains unknown, with data largely uncollected and unmonitored.

Public–Private Partnerships and the Awkward Fit with the Annual Budget Process

In its traditional role, the CBA is the custodian of the annual budget process. As the single most im-portant policy document of government, the budget reconciles policy objectives annually and provides the mandate for implementation. The CBA acts as a gatekeeper to reconcile competing interests and ensure a sustainable budget.

The general premise of public budgeting is that everything can be done in a one-year appropriation basis. This remains the assumption and baseline, which poses particular challenges with regard to capital expenditure that cannot be captured in a period of one year. The trend is a move from an input-based budget towards a more performance and output-based budget. Regardless of how the budget is structured, however, the budget should be:

(i) Specified in time and place—how much, for which purpose, under what rules;


(ii) Comprehensive—covering main public sector activities; and

(iii) Transparent—full disclosure of all relevant fiscal information in a timely and systematic manner.

PPPs, however, do not fit well within the public budget framework. PPPs are long-term contractual arrangements funded on a performance basis. A typical government agency, on the other hand, is not allocated budgets based on performance. PPPs are contracts with concessions that run long term and demands considerable fiscal space over that longer period. The PPP budget cannot be cut in the middle of the project.

Entering into PPPs may also be driven by mixed motives. If entered into for the wrong reasons, value for money (VfM) might not be achieved. PPPs can be a way to borrow off the balance sheet, which can be used to circumvent rules on fiscal discipline. CBAs play a critical role in managing the liability related to PPPs and ensure that contingent liabilities are transparently treated.

OECD Principles for Public Governance of Public–Private Partnerships: Managing Fiscal and Integrity Risks

In response to the awkward fit of PPPs to the traditional budget process, the OECD has developed the Principles for Public Governance of Public–Private Partnerships.2 Principles 10–12 related to the budgetary process provide:

10. In line with the government’s fiscal policy, the Central Budget Authority should ensure that the project is affordable and the overall investment envelope is sustainable.

11. The project should be treated transparently in the budget process. The budget documentation should disclose all costs and contingent liabilities. Special care should be taken to ensure that budget transparency of Public–Private Partnerships covers the whole public sector.

12. Government should guard against waste and corruption by ensuring the integrity of the procurement process. The necessary procurement skills and powers should be made available to the relevant authorities.

2 OECD (May 2012). http://www.oecd.org/gov/budgeting/PPPnoSG.pdf

Budget preparation requires an overall investment plan with political backing. It integrates PPP procurement and traditional infrastructure procurement. Line ministries need to involve the ministries of finance and budget. The budget execution phase would require the following assessments to be conducted: (i) absolute value for money test (cost/benefit analysis); (ii) relative value for money test (public sector comparator); and (iii) affordability test in the short, medium, and long terms. Capital budgeting should be included as part of the regular budget process. Finally, the flow and stock for PPPs should be limited.

Budget approval is the point at which the nature of the PPPs is explained to parliament. To the extent possible, the terms of the contract should be made public. The budget approval stage would require reports to be presented related to (i) the long-term fiscal strategy; and (ii) annual PPP projects and other concessions and quantify and explain related contingent liabilities. The approved budget should cover the entire public sector. In OECD countries, most budgets distinguish between capital and current expenditures while using a unified budget. In addition, funding is generally allocated annually.

Budget execution is mainly the responsibility of the procuring ministry or agency. However, the CBA should assess potential risks and monitor problematic projects. Thus, there is a need to ensure the necessary capacities in the procuring ministry and the CBA, as well as any designated PPP Unit. It is important to ensure that data is collected for use in subsequent procurement processes and that performance information is made available to the political level and the public. Budget execution reports should also cover PPPs and concessions. Finally, any substantial changes in contract terms should be made public.

Accounting and audit are important to determine the attainment of what was budgeted for as well as whether VfM was attained. The budgeting and accounting system should not in itself provide incentives to prefer one form of procurement to another. However, it should make publicly transparent the impact of funding decisions and contingent liabilities. All debts of entities such as PPPs and state-owned enterprises that might impact on government debt should be recognized explicitly and included in fiscal sustainability assessments. Supreme audit institutions should be capacitated to assess PPPs.

KEY MESSAGES: The Central Budget Authority and Public–Private Partnerships

➢ Central budget authorities (CBAs) need to ensure that projects (public–private partnerships [PPP] or traditional infrastructure procurement) are aligned with government priorities, are affordable, and represent value for money.

➢ CBAs should investigate the following issues:• Is the procurement framework well designed?• Has the project been subjected to the right tests?• Is the project being executed according to what is agreed?• Are the consequences transparent to stakeholders?

➢ The CBA should play a role at key gateways and should have veto power. ➢ CBAs should have the ability to challenge all assumptions, to have a second opinion, and to mobilize political

capital. ➢ The CBA needs to develop technical and political capacities. ➢ For PPP project transparency and sustainability, the following systems and standards should be in place:• a sound ordinary budget process that is used• appropriate budgeting and accounting systems.

Budgeting and Public–Private Partnerships 19


Financing Solutions for Fiscal Space and Investment Projects: The Role of Public–Private Partnerships

From the presentation of Gerardo Reyes-Tagle, Inter-American Development Bank

Investment Trend and Public–Private Partnerships in Latin America

In Latin America, infrastructure investment is relatively low, with poor coverage and quality. Investment of 7.9% of gross domestic product (GDP) annually would be needed to reach levels comparable to East Asian countries (Perotti and Sanchez 2011). Fiscal constraints experienced in the 1980s–1990s required privatization and fiscal adjustments. Fiscal adjustments came with decreased infrastructure spending while privatization failed to deliver needed infrastructure investments and became highly unpopular. Infrastructure projects were plagued by issues of institutional capacity (procurement, concessions, contracts, regulations), financing costs, and fiscal sustainability.

While fairly new in the region, countries such as Brazil, Chile, and Mexico began their interest in public–private partnerships (PPPs) in the 1990s. A recent study commissioned by the Inter-American Development Bank (IDB) showed the diversity and mix of level of maturity and development in PPPs among Latin American countries (LAC).3 While countries including Brazil, Chile, Mexico, and Peru are ahead of others, common to all Latin American countries is the lack of technical capacity of PPP Units and governments to handle PPPs (Figure 11).

Risks and Challenges Under Public–Private Partnership Schemes

Risks under PPP schemes vary. Risks related to projects include

(i) construction (design, cost, overruns);(ii) financial (short cash flow, or volatility); (iii) demand (low demand for services);(iv) availability (lack of continuity, low quality);

3 The Economist Intelligence Unit. February 2013. Evaluating the Environment for Public–Private Partnerships in Latin America and the Caribbean.

(v) political (government actions); (vi) force majeure (e.g., natural disasters);(vii) residual value (market price uncertainty of

asset); (viii) institutional capacity (to design, implement,

and procure); and(ix) forecast (compensations, contract

modifications, value for money).

Specific risks related to the treatment of PPPs in the government budget include:

(i) Lack of transparency. When the PPPs are used to bypass expenditure controls (move investment off budget or debt off government balance sheet),

(ii) Debt-deficits mismatch. When PPPs are ignored in public books until a crisis occurs;

(iii) Lack of monitoring and evaluation, effective risk allocation and mitigation measures; and

(iv) Unclear tax treatment (fiscal incentives, tax cuts on acquisition of capital equipment and materials, etc.).

Given the above, it is important not to approach PPPs naïvely by recognizing that all parties in the design, procurement, and management of PPPs have their own goals. This includes ministries, which will look for contracts that maximize net benefits, assessed from their own perspective. The long-term contractual relationship between the parties creates opportunities to engage in strategic behavior in order to extract rents from the public partner. PPPs by nature are incomplete contracts. Finally, any threat of disruption will affect the contractual relationship increasing bargaining power among the parties.

Guarantees are part of a broader set of obligations on a government that give rise to contingent liabilities. PPPs often involve the use of government guarantees, which are a form of intervention intended to reduce the financial costs on the private party. A guarantee legally binds a government to take on an obligation if a clearly specified uncertain event (a risk) occurs.

Budgeting and Public–Private Partnerships 21

This uncertainty is the main source of the problems that guarantees and other contingent liabilities pose for fiscal management (Figure 12).

While some guarantees may be necessary, it is important to bear in mind that excessive use of guarantees can bypass external or self-imposed fiscal constraints. There is also the moral hazard of creating a “guarantee culture” wherein the private sector might rely on the guarantee as an alternative to properly manage the risks. Guarantees also allow the government to shift costs to future generations. Guarantees may also undermine good governance.

Thus, these issues should be considered when providing guarantees.

Addressing Risks and Challenges

Effective management of fiscal risks requires the public sector to:

(i) strengthen public investment and planning framework (national public investment systems);

(ii) develop the legal and institutional framework to consolidate various laws and principles applicable to PPPs;

(iii) integrate PPPs with investment strategy, the medium-term fiscal framework and budget cycle;

(iv) implement transparent fiscal accounting and reporting;

(v) cap the total value of exposure or projected amount in annual budget expenditures;

(vi) build institutional capacity to structure PPP projects appropriately, evaluate bids, and monitor its execution;

(vii) empower the central “gatekeeper” unit (in the ministry of finance or similar ministries) to review and approve all proposed PPP projects;

(viii) base the choice between PPP and direct public procurement on value for money assessments,

Figure 11 Public–Private Partnership Capacities in Latin America

Figure 12 Government Liabilities

CountryLegal

Framework Operational

Maturity Investment Climate Financial Facilities Subnational

Brazil Federal and State(‘04)

Need toimprove technicalcapacity

Improved but stillprotected.

BNDES major role inPPP funding; localcurrency options.

11 states haveenacted PPP laws

Chile Federal (‘91updated ‘10)

Strong capacity Since 2008 scale projectson hold

PPPs fund domesticallyand in local currency

N/A

Mexico Federal (‘04 / newlaw ‘11) and State

Lack of strongsupervision

Improved, but not energysector. New LT contracts ininfrastructure

Diversity of financialsources

24 of 32 states havelaws allowing PPPs

Colombia Federal (‘93updated in ‘12)

Need improvedtechnical capacity

High renegotiation rates Public funding of PPPs ≤20% of budget estimate

Law allows PPPs atsubnational level

Peru Federal (‘96updated 07/08)

Weaksupervision

Some resistance in socialand environment projects

Some PPPs with lack federal guarantee.

Law allows PPPs atsubnational level

Argentina Federal (‘89) Lack of technicalcapacity

Reduced or eliminatedPPPs in infrastructure

Faces over 20 casespending before ICSID.Price controls limit PPPs

Some PPPs at thesub-national level.

Honduras Federal (‘10) New PPPimplement/oversight agency

Law is unclear and lacksdetails for PPPs. Threats ofexpropriation

Not many options forPPPs financing

N/A

Jamaica Federal (‘12) Lack of technicalcapacity

Threats of expropriationand fiscal instability

Not many options forPPPs financing

N/A

Type of Liabilities

Direct (in any event)

Contingent (if a particular event occurs)

Explicit created by law or contract

Foreign or domestic sovereign borrowing (loans and securities by central government)

State guarantees (non-sovereign borrowing or other loans); obligations by public/private sector entities; guarantees on private investments

Implicit public interest group pressures

Social security/health schemes, if not required by law

Defaults of subnational government or public or private entities on nonguaranteed debt and other obligations

Future recurrent costs of public investments

Bailouts to private partners under PPPs that is too big or politically sensitive to fail


which should not be included in the up-front budgetary costs;

(ix) make provisions for the annual expected value of guarantees and other contingent liabilities in the budget; and

(x) incorporate expected service payments for PPPs and calls on guarantees in the medium-term development strategy.

To enable effective management of PPP risks, the IDB provides not only financing to individual PPP projects,

but also technical assistance to governments to improve capacity on PPPs at the national and subnational levels. It provides support to reduce institutional, legal, and regulatory impediments for PPPs. IDB also helps develop the skill base to attract private partners. It aids the public sector in the design of bankable projects and negotiating the best value for money for their citizens. Through its partnerships within and outside the region, it aims to strengthen the capacity of the agencies responsible for PPPs in Latin America and the Caribbean.

Box 5 Roundtable Discussion: Planning for the Public–Private Partnership

Public–private partnerships require many skills and investing in building capacity is critical. PPPs require a multiplicity of roles and these capacities are not found naturally in ministries. The budget process may also be often rigid and controlled by the central ministry. PPPs are fairly new in some countries. However, times of crises can help build knowledge, experience, and systems to deal with various issues.

Public–private partnerships versus traditional infrastructure procurements. PPPs are good for some things and fine for other things, but there is also value in traditional infrastructure procurement (TIPs). Although it would depend on each project, the rule of thumb is that the more technological change is needed, the less ideal would be the use of PPPs, which require being locked into a long-term structure. If a high degree of flexibility is needed, such as for military procurement, or for other ideological sectors or soft sectors, PPPs may not be the ideal mode of delivery. The fact that PPPs are used for a limited number of projects does not mean that they fail to deliver but may illustrate that they are being used for very precise projects.

Guarantee should be made in a deliberate manner that will ensure that the private party remains responsible. It is important to look at what the government is guaranteeing. It is ideal to utilize a medium-term budgeting system with a longer-term projection. The risk of excessive guarantees is particular to countries that are at the early stages of PPP and thus feel compelled to provide guarantees for everything. However, these early missteps tend to be later corrected as a country gains more experience. This can bring about new laws and restraints on the provision of guarantees. As pointed out in the Indonesia case, the use of excessive guarantees can be addressed through infrastructure guarantee funds that require limited exposure that can only be covered by the government upon rigorous review, similar to the Indonesia Infrastructure Guarantee Fund.

Accounting for uncertainty. PPPs carry uncertainty and risks that may be difficult to measure and capture in accounting, such as contingent liabilities. It is difficult to determine whether contingent liabilities will arise or to what extent, and thus, are difficult to account for. Nevertheless, these should at least be explained in the books, or addressed in the annex. A good practice is to ensure that the uncertainty is acknowledged, made transparent, and all parties are made accountable for the uncertainty. This may be in a form of a liability report to recognize the existence of the contingent liability, treat it transparently, and provide explanations on the status. Some reports also impose a probability to the occurrence to be able to account for it. Growing actuarial evidence of failure rates and costs are now being tracked and could aid in contingent liability reporting in the budgetary process.

23

VI. Institutional Arrangements for Results-Based Public–Private Partnerships

From the presentation of Ian Hawkesworth, Organisation for Economic Co-operation and Development (OECD) Secretariat

This session discussed the ideal public–private partnership (PPP) institutional framework that can help deliver value for money, affordability, and transparency. The presentation began with a discussion on the common denominators of PPPs and the key objectives of PPP procurement. It identified the necessary institutional structures and capacities that can help deliver the objectives, the OECD Principles that can provide specific guidance for PPP governance, and the important role of a PPP Unit.

Definitions and Concepts

PPPs can be classified according to risk distribution and mode of delivery (Figure 13). While the definition of PPPs vary among different institutions (OECD, International Monetary Fund, European Investment Bank, etc.), there are common denominators that define a PPP as a:

(i) Provision by private sector of a public service through a contract that backloads the cash flow payment for the government arising from the provision of the service compared to traditional infrastructure procurement.

(ii) Sharing of risk between public and private sector that is innovative and more complex compared to traditional contracts.

(iii) Means to deliver a service that provides value for money (VfM) compared to traditional pro-curement by• harnessing private sector expertise in

combining design and operation of an asset (whole-of-life view); and

• allocating the risks to the party that manages them best

(iv) Commitment on the part of the government to a long-term obligation and possible contingent liabilities.

Key Objectives of a Public–Private Partnership Procurement Cycle

The institutional framework conducting the procurement cycles should

• maximize VfM,• ensure affordability for government and/or users,• eliminate the wrong incentives, • bring forward projects that are realized,• set up a strong enabling environment,• develop the right public sector skills,• transparently make information available, and• maintain a performance management system

In OECD countries, the attainment of maximum Vfm could be improved by ensuring that existing rules are not stacked to create incentives to prefer one form of investment over another.4

4 P. Burger & I. Hawkesworth. How to attain value for money. OECD Journal on Budgeting, No. 1, 2011.

Figure 13 Public and private participation classified according to risk and mode of delivery

100%

Governmentrisk

0%

100%

Privaterisk

0%Complete

governmentproduction

and delivery

Traditionalpublic

procurement

PPPs Concessions Privatization


Necessary Institutional Structures and Capacities

Various actors play a primary role for each phase in the procurement process. The procuring agency carries most of the burden of a PPP. Central budget authorities play a significant role in the planning and budgeting phase. Supreme audit institutions may play a role in monitoring.

To guide primary actors on the principles that should govern what they do, the OECD came up with the Principles for Public Governance of Public–Private Partnerships.5 (See Box 6 for the complete principles).

The OECD Principles highlight the importance of grounding the selection of public–private partnerships in value for money (VfM). An example of issues to consider in the procurement option pre-test include:

• Can the risks of the project be clearly defined, identified, and measured?

• Does the project involve any transfer of risks onto other stakeholders, including workers and local communities?

• Is the risk appetite of potential private sector partners sufficiently robust to explore a PPP?

• Do potential private sector partners have a track record of good service delivery, responsible business conduct, and PPP experience?

• What is the potential level of competition in the market? If competition is lacking, is the market contestable?

• How large are the whole-of-life benefits from combining the construction and the operating phases of a project in one contract?

• Can the desired project output be specified clearly ex ante?

• Is the planned project operating in a rapidly changing policy or demand environment?

• Are the underlying assets to be used to deliver the output in an area subject to rapid technological change?

In OECD countries, both absolute VfM analysis (such as a cost-benefit or cost effectiveness analysis) and relative VfM analysis (such as public sector comparators) are generally used.

5 OECD (May 2012). http://www.oecd.org/gov/budgeting/PPPnoSG.pdf

The Public–Private Partnership Unit

Dedicated PPP Units include any organization set up with full or partial aid of the government to ensure that the necessary capacity to create, support, and evaluate multiple PPP agreements are made available and reside in government. Common features of PPP Units include:

• What are the functions — PPP Units act mostly as consultants for implementing organizations but may also have a mandatory review dimension. PPP Units may play different roles as to whether they green-light projects. In most cases, ministries of finance often play a key role in PPP approval.

• Where located—There are three models: (i) within the ministry of finance or treasury, (ii) constituted as an arm’s length agency with

a link to the finance ministry (partnership model), or

(iii) located in an individual line ministry that is the main user of PPPs

• How staffed—PPP Unit staff should have sector technical skills, along with skills in economics and finance, regulation, procurement, communications, and training. Staff should be provided competitive salaries combined with public sector benefits and job security

• How funded—PPP Units should be funded from the public sector budget, through user charges from contracting agencies, or a combination thereof.

• How assessed—Assessments of PPP Units should ideally be based on measurable results that are realistic and phased. Assessing PPP Units based on the number of PPPs approved would prove to be a problematic measure. The promotion and assessment of PPPs should be split.

PPP Units should primarily be judged based on their ability to fill the capacity gap. Thus, the PPP Unit can be made up of one or more units (located in the line agency, as a central agency, or in the ministry of finance). Finally, a PPP is only as strong as its links to and credibility with the key players.

Institutional Arrangements for Results-Based Public–Private Partnerships 25

Box 6 OECD Principles for Public Governance of Public–Private Partnerships

A. Establish a clear, predictable and legitimate institutional framework supported by competent and well-resourced authorities

1. The political leadership should ensure public awareness of the relative costs, benefits and risks of Public–Private Partnerships and conventional procurement. Popular understanding of Public–Private Partnerships requires active consultation and engagement with stakeholders as well as involving end-users in defining the project and subsequently in monitoring service quality.

2. Key institutional roles and responsibilities should be maintained. This requires that procuring authorities, Public–Private Partnerships Units, the Central Budget Authority, the Supreme Audit Institution and sector regulators are entrusted with clear mandates and sufficient resources to ensure a prudent procurement process and clear lines of accountability.

3. Ensure that all significant regulation affecting the operation of Public–Private Partnerships is clear, transparent and enforced. Red tape should be minimised and new and existing regulations should be carefully evaluated.

B. Ground the selection of Public–Private Partnerships in Value for Money

4. All investment projects should be prioritised at senior political level. As there are many competing investment priorities, it is the responsibility of government to define and pursue strategic goals. The decision to invest should be based on a whole of government perspective and be separate from how to procure and finance the project. There should be no institutional, procedural or accounting bias either in favour of or against Public–Private Partnerships.

5. Carefully investigate which investment method is likely to yield most value for money. Key risk factors and characteristics of specific projects should be evaluated by conducting a procurement option pre-test. A procurement option pre-test should enable the government to decide on whether it is prudent to investigate a Public–Private Partnerships option further.

6. Transfer the risks to those that manage them best. Risk should be defined, identified and measured and carried by the party for whom it costs the least to prevent the risk from realising or for whom realised risk costs the least.

7. The procuring authorities should be prepared for the operational phase of the Public–Private Partnerships. Securing value for money requires vigilance and effort of the same intensity as that necessary during the pre-operational phase. Particular care should be taken when switching to the operational phase of the Public–Private Partnerships, as the actors on the public side are liable to change.

8. Value for money should be maintained when renegotiating. Only if conditions change due to discretionary public policy actions should the government consider compensating the private sector. Any re-negotiation should be made transparently and subject to the ordinary procedures of Public–Private Partnership approval. Clear, predictable and transparent rules for dispute resolution should be in place.

9. Government should ensure there is sufficient competition in the market by a competitive tender process and by possibly structuring the Public–Private Partnerships program so that there is an ongoing functional market. Where market operators are few, governments should ensure a level playing field in the tendering process so that non-incumbent operators can enter the market

C. Use the budgetary process transparently to minimize fiscal risks and ensure the integrity of the procurement process

10. In line with the government’s fiscal policy, the Central Budget Authority should ensure that the project is affordable and the overall investment envelope is sustainable.

11. The project should be treated transparently in the budget process. The budget documentation should disclose all costs and contingent liabilities. Special care should be taken to ensure that budget transparency of Public–Private Partnerships covers the whole public sector.

12. Government should guard against waste and corruption by ensuring the integrity of the procurement process. The necessary procurement skills and powers should be made available to the relevant authorities.

Source: OECD (May 2012). http://www.oecd.org/gov/budgeting/PPPnoSG.pdf


KEY MESSAGES: Institutional Arrangements for Results-Based Public–Private Partnerships

➢ The Public–Private Partnership (PPP) framework should help ensure value for money, affordability, and transparency.

➢ The goal is not to procure PPPs, but to procure good capital projects. ➢ In order to get PPPs right, several governance issues must be tackled at the same time. It’s a reiterative process. ➢ The Principles can provide specific guidance. The context might vary, but there are common PPP challenges

across countries.

Box 7 Roundtable Discussion: Public Sector Players in Public–Private Partnerships

Public–Private Partnerships (PPPs) require ministries of finance and line agencies to be more involved in public investment. It is important to identify the bottlenecks in each step of the PPP process and look to the corresponding agency responsible for this. At the project implementation stage, this would require the strengthening of line agencies, while chokepoints in budgeting would require strengthening capacities in the ministry of finance. While planning ministries have traditionally taken control over public investment decisions, PPPs have shifted the way the public budget is looked at and would necessarily require a closer involvement by the ministry of finance. Line agencies that implement PPPs and should take ownership of the project. It is important to take a whole-of-government approach to public investment programming.

Consider the country context in the public sector comparator (PSC). In some instances, the country’s immediate need for infrastructure necessitates PPPs. In Indonesia, for example, the country is rapidly growing and would need new infrastructure built quickly to continue to fuel the growth. Thus, unlike a more developed country that has a more limited growth potential, it may be more ideal for a country like Indonesia to rely on PPPs rather than traditional infrastructure procurement.

Value for Money (VfM) is not a mechanical concept. VfM should surpass and encompass more externalities in a country. VfM is not a mechanical concept and should consider what is important in a country at a given time. It may be ideal for a country to state upfront that the VfM covers other criteria, which can prompt public debate on the direction the country would like to pursue.

PPPs are complex but may be necessary for developing countries. PPPs are not only suitable for developed and developing countries alike but may even be necessary. PPP concessions and private party participation have helped countries develop. All infrastructure development is complex and entails risk. The difference with PPPs is that they make those risks and costs transparent. Those risks will not go away but they can be better managed. Experience has shown that PPPs can be done and can be done well. Even if many PPPs are complex, they have an important role to play in developing countries and roundtables such as this illustrate the opportunities for capacity development.

PPPs versus traditional infrastructure procurement versus state-owned enterprises. As a middle ground between PPPs and traditional infrastructure procurement, using state-owned enterprises might fail to provide the benefits of PPPs. This would include the benefits of competition and transparency in the procurement process.

27

VII. Public–Private Partnerhip Experiences in South Asia

This session aimed to share and draw lessons from the public–private partnership (PPP) experiences in South Asia. The first presentation provided an overview and comparative analysis of PPP achievements, systems, and challenges in India and Bangladesh. This was followed by a country presentation on efforts in Bangladesh to effectively manage PPPs by developing public sector institutions, processes, and capacities.

India and Bangladesh—A Tale of Two Countries

From the presentation of Grant Hauber, Principal PPP Specialist, ADB

India and Bangladesh are two very different countries, especially when it comes to PPPs. There are large differences in the two countries’ populations and economies. However, there are also striking similarities. (Figure 14). Further comparing the investment landscape of the two countries, it can be seen that Bangladesh is heavily dependent on foreign direct investments (FDIs), a significant amount of which go into infrastructure investments.

Public–Private Partnership Systems

Looking at the two countries’ PPP systems, India has had a longer and larger extent of engagement in PPPs. India’s Initial PPP policies date back to

1994. It has yielded 1,300 PPP projects and several government agencies involved in PPP at the central and subnational levels.

On the other hand, the initial PPP policy of Bangladesh dates back to 1998. It has two central agencies involved in PPPs, the PPP Center and the Fiscal Unit in the Ministry of Finance. Bangladesh has been effectively engaged in 12 projects, which are at least closed and under bidding (Figure 15).

Despite significant disparities in the number of projects, however, the institutions in India and Bangladesh may have similarly adapted to manage

Figure 14 A Tale of Two Countries

Population

Economy

Economic Growth

Per Capita Income

Poverty Level

Investment Needs

1,300 million $1,947 billion

5.4%

$3,900

30% 30%

160 million $119 billion

6.1%

$2,000

31% 25%

Population

Economy

Economic Growth

Per Capita Income

Poverty Level

Investment Needs

1,300 million

$1,947 billion

5.4%

$3,900

30%

30%

160 million

$119 billion

6.1%

$2,000

31%

25%

A tale of two countries

Figure 15 Public–Private Partnership Systems

Central

State

Municipal

Initial PPP Policy

Latest PPP Policy

Projects

7 23

>100

1994

2006

1300

2 0 0

1998

2010

12

PPP Systems

Central

State

Municipal

Initial PPP Policy

Latest PPP Policy

Projects

7

23

>100

1994

2006

1,300

2

0

0

1998

2010

12

PPP = public–private partnership.


the corresponding PPP engagement. India has engaged in 1,300 PPP projects and has instituted 120 PPP cells or nodal units that are responsible for matters concerning PPP policies, programs, management, capacity development and other matters related to PPP mainstreaming. On the other hand, Bangladesh has effectively been engaged with 12 projects that have been managed by 2 PPP cells.

Effective PPP management requires a balancing act. On the public sector side, it requires reconciling governmental goals with societal needs. On the private sector side, it requires ensuring investor profits and lender’s requisites. It would also be necessary to balance technical outcomes with safeguards while ensuring financial and commercial viability and an enabling legal environment.

Although country context and approaches may vary in India and Bangladesh, the PPP process remains similar. It is important to identify, structure, and develop PPP projects with the following steps:

(i) screening,(ii) advising,(iii) developing,(iv) financially supporting,

KEYS TO SUCCESSFUL PUBLIC–PRIVATE PARTNERSHIP APROACH

➢ Standardize as much as possible ➢ Follow a disciplined process ➢ Maintain objectivity ➢ Create certainty

(v) safeguarding, and(vi) tendering and contracting.

While both India and Bangladesh have tried to come up with a manual to standardize the PPP process, these may not be sufficient for them to get enough projects. PPPs require thinking about big picture issues as well as the micro-level issues for each project. (See Figure 15 on the Ideal Approach to PPP Power Program).

The State of Karnataka, India came up with a unique approach to manage PPPs. A distributed PPP structure was established that created specialized PPP functions within government development units in specific sectors. In addition, the private sector has been co-opted to catalyze individual projects.

PPP Experiences in South Asia 29

Building Institutions: Public–Private Partnership in Bangladesh

From the country presentation of Md. Tajul Islam, Assistant Chief, Finance Division, Ministry of Finance of Bangladesh

To sustain the targeted gross domestic product (GDP) growth rate of 8% in 2016 and beyond, the share of investment to GDP would need to be raised from the current 24%–25% to 35%–40%. To enable this, an additional $58 billion would be required for 2010–2016. Given that foreign financing is declining and that the government’s investment in infrastructure and public services would be inadequate, there is a need for a greater role of the private sector.

PPP Background. Bangladesh first adopted a PPP Policy for Infrastructure Development in 2004 through the Private Sector Infrastructure Guidelines (PSIG). Since then, there has been some success in attracting private investment in PPPs in the power, gas, and telecommunications sectors. To overcome procedural and institutional weaknesses under the PSIG, further broaden the PPP platform and ensure the extensive participation of the private sector, the government issued the new Policy and Strategy for Public–Private Partnership in 2010.

New PPP Framework. The framework for PPP consists of three pillars: legal, institutional, and financial. To reinforce each pillar, the government

adopted policies, established facilities, and strengthened institutions to support various aspects of the PPP Program to help increase private sector investment:

(i) Legal Pillar ➢ Policy and Strategy 2010 ➢ Public Procurement Act and Rules

(ii) Institutional Pillar ➢ PPP Advisory Council ➢ PPP Office under the Prime Minister’s Office ➢ PPP Unit under the Ministry of Finance ➢ Line ministries and agencies

(iii) Financial Pillar ➢ Public–Private Partnership Technical Assistance

Financing (PPTAF)—the PPTAF is a revolving fund administered by the PPP Office. The PPTAF is designed to finance pre-feasibility and feasibility studies, the preparation of request for qualification (RFQ) and request for proposal (RFP) documents, the preparation of concession contracts, and PPP capacity and awareness building.

➢ Viability Gap Financing (VGF)—the VGF is a capital grant support or annuity payment

Figure 16 Institutional Framework for Public–Private Partnership

Institution Responsibility From

Public–Private Partnership Advisory Council (PPPAC)

Provide guidance/review/achievements PM Chairperson, Finance Minister, Vice Chairman and 21 Members

Cabinet Committee on Economic Affairs (CCEA)

Approval of regulatory instruments/Guidelines/In-principle approval for large project, Final approval of Large/Medium project/Approval of all VGF received project, Approval of incentives, Termination of concession contract.

PPP Office Facilitating/Central point of promoting PPP concept

Autonomous unit under PM Office

Line Ministry/implementing agency Identification, Formulation, Appraisal, Procurement, Monitoring

A regular Branch or Division

PPPU, Finance Division Financing (VGF, TA & Debt/equity through SPV)

Planning Commission Link components/ADP

ADP = Annual Development Program, SPV = special purpose vehicle, TA = technical assistance, VGF = viability gap financing.


Box 8 Roundtable Discussion: Public–Private Partnerships in the Bangladesh Context

The Public–Private Partnership (PPP) Unit, the PPP Office, and the PPP process. The cabinet committee is the highest approval body for PPPs. Line agencies that identify possible PPPs are referred to the PPP Office. The PPP Office is the project advocate office for line ministries. As soon as the project comes in for screening, more information is added to build on it and all these documents get passed seamlessly to the Ministry of Finance. If the project is viable, it is sent to the Cabinet Committee for pre-approval. The PPP Office conducts a feasibility study and, if feasible, the proposal is sent at the same time to the line agency and to the PPP Unit for viability gap financing (VGF) and contingent liability studies. If the proposal passes this stage, it is sent back to the PPP Office, which prepares all the documentary requirements and sent to the Cabinet Committee for final approval.

There is no time limit to the PPP process. Preliminary preparation could take as long as it can to ensure that the objectives and criteria are met. The program aims to set appropriate expectations for the bidding process. It helps ensure that the project design addresses issues before it is set out for bidding.

Viability Gap Financing study required. All projects go through the Cabinet Committee and require VGF studies, whether small, medium, or large. At the moment, the VGF study is conducted on a first come first serve basis because of limited funds. This has caused current backlogs in the pipeline. Prior to VGF assessments, studies are conducted to ensure certain pre-conditions are fulfilled.

PPPs manage to minimize disputes. The Law and Parliamentary Ministry is in charge of dispute settlements. Proper PPP design and management minimize disputes. Model contracts have been drafted and provide for international arbitration in Singapore.

disbursed after the private sector company has subscribed and expended its equity contribution. The PPP Unit under the Ministry of Finance manages the VGF. It is limited to build–operate–transfer projects and subject to pre-determined parameters and thresholds.

➢ Bangladesh Infrastructure Finance Fund Limited (BIFFL)—the BIFFL was established to extend financing for PPP projects in the form of debt or equity through specialized financing institutions. The BIFFL will be

managed by the appointed fund manager through international competitive tendering.

Along with establishing facilities and strengthening institutions to support PPPs, Bangladesh has drafted a PPP Law and manuals on project screening, project development, tender process, and drafted model RFQ, RFP, and concession documents. With the establishment of facilities and institutions, the government recognizes that the current primary need for PPP in Bangladesh is for capacity development.

31

VIII. Public–Private Partnership Experiences in Southeast Asia

This session aimed to share and draw lessons from the public–private partnership (PPP) experiences in Southeast Asia. The first presentation provided an overview of ideal PPP institutional arrangements based on functions and a comparative analysis of the strengths and challenges of different PPP institutional arrangements in Southeast Asia. This was followed by three country presentations. The Philippine country presentation discussed the role of the Philippine PPP Center in coordinating PPP project development. The Indonesian country presentation discussed the role of the Indonesia Infrastructure Guarantee Fund in PPP risk management. The Malaysian country presentation discussed the role of the PPP Unit in coordinating PPP project development, monitoring and evaluation.

Public Sector Management and Public–Private Partnerships in Southeast Asia: A Country Comparison

From the presentation of Bob Finlayson, Principal PPP Specialist, ADB

The adoption of PPPs creates significant issues for existing public sector management (PSM) systems at the national and local levels. This is particularly challenging for developing countries, which often lack capacities. The PPP project lifecycle does not fit traditional planning, budgeting, implementation, monitoring, and evaluation arrangements. PPPs require new methodologies to design projects based on value for money concepts before making a decision on preferred method of procurement and financing. PPPs require new instruments such as output subsidies and guarantees, and risk management capacities. New procedures and institutions are needed to address these issues. Procedure for developing PPPs is reasonably standard across countries, but the institutional responses to operationalize PPP procedures are quite diverse.

Public–Private Partnership Institutional Arrangements

Figure 17 illustrates the ideal PPP institutional arrangement, which no one country has established in reality.

In this ideal scenario, the two parallel major activities are:

(i) Project Development Activity—project devel-opment facilities (PDFs) typically do not exist in more developed countries. However, PDFs would be important for developing countries that lack capacities.

(ii) Government Support Activity—this activity would require facilities that include the risk management unit (RMU), as well as contingent liability and viability funds. The functions of these facilities focus on whether the project represents VFM.

Comparison of Actual Public–Private Partnership Institutional Arrangements in Southeast Asia

Malaysia. The Malaysian PPP program was established in 1983. There are more than 500 projects in a wide range of sectors.

Malaysia has a dedicated PPP Unit (3PU) established under the Prime Minister’s Office. The 3PU is


responsible for screening, structuring, negotiating projects, and managing the Facilitation Fund, a form of viability gap financing (VGF). Line ministries, state, and local authorities are responsible for originating and managing projects. An interministerial PPP Committee supervises projects and is chaired by the Director General of 3PU with members from relevant central and line ministries. As a common law system, Malaysia’s reliance on guidelines rather than laws make it easy to effect change.

Philippines. The Philippine PPP program was established in 1990. The primary focus has been transport infrastructure but projects are being explored in water, power, and agriculture, and at the local government level.

The Philippines has a dedicated PPP Center linked to the planning ministry. The PPP Center leads the PPP Program and manages the Project Development and Monitoring Facility, a revolving fund for advisory services. The PPP Center reports to an interdepart-mental coordinating committee that is co-chaired

by the Department of Finance. There is no formal PPP government support or RMU at this point, but is under consideration. Project development capacity is high with limited risk management capacity. The civil code system relies on laws and regulations to implement PPP policies.

Indonesia. The PPP Program was established in 2005 with limited projects being developed to focus on traditional infrastructure in energy, transport and water.

BAPPENAS, the planning ministry, promotes PPP through a “PPP Book” and project development facility. There is no dedicated PPP Unit, but there is a well-established RMU. The RMU in the Ministry of Finance assesses need for government support and can provide VGF. The Indonesia Infrastructure Guarantee Fund is a state-owned enterprise that acts as a single window to provide guarantees. Government contracting agencies identify projects and lead development. The civil code system makes laws and regulations important.

ProjectDevelopment

Facility

Risk Mgt Unit

ContingentLiability

Fund

PPP Board

ViabilityGapFund

Inter-MinisterialTask Force

Consultants

GovernmentContractingAuthority

ProjectCompany

(SPV)

CostRecovery

Agreement

CostRecovery

Agreement

LandAcquisition

Fund

InfrastructureFinancing

Facility

LeaseAgreement

CostRecovery

Agreement

GovernmentSupportAgreement

Project Agreement

ConsultingServicesAgreement

PPP Unit

ProjectDevelopmentActivity

GovernmentSupportActivity

Figure 17 Potential Public–Private Partnership Institutional Arrangements

Mgt = management, PPP = public–private partnership, SPV = special purpose vehicle.

Public–Private Partnership Experiences in Southeast Asia 33

Institutional Drivers of Public–Private Partnership Programs

The maturity of PPP programs matter as it takes time to resolve issues, such as developing laws and regulations, authorizing private sector participation, land acquisition, and coordinating across agencies. High-level political support and presence of an interagency coordination board are critical for project development. The presence of a PPP Unit, supported by a PDF, is probably the most important driver of initial change. Risk management and government support functions such as VGFs, contingent liability funds, land acquisition funds, and access to finance are second-generation reforms that are critical enablers of change. Figure 18 shows the relative strength of the institutions that drive PPP programs in Malaysia, the Philippines, and Indonesia.

KEY MESSAGES: Public Sector Management and Public–Private Partnership Management

in Southeast Asia

➢ Political support for public–private partnerships and infrastructure ranges from strong in Malaysia and the Philippines through to weak in Indonesia. As a result, project development capacity has led in Malaysia and the Philippines, and lagged in Indonesia.

➢ Conversely, risk management capacity has been advanced in Indonesia, and lagged in Malaysia and Philippines.

➢ Both project development and risk management functions are complementary and need to be properly managed and resourced to implement projects that demonstrate value for money.

➢ Difficulties coordinating project development and risk management programs is creating pressures for ministries of finance to take a much more active role in PPP development than traditionally case in Southeast Asian countries.

➢ This trend reflects institutional arrangements for PPPs in countries such as Australia, Singapore, South Africa, and the United Kingdom, where the treasury or ministry of finance takes the lead on PPP development.

government). An interministerial committee should decide the preferred procurement modality based on advice from both the PPP Unit and the RMU. PPP Units require PDFs to be effective, whereas RMUs require VGFs and/or contingent liability funds.

Coordination of the project development and risk management functions is difficult to achieve in practice and can result in long delays. In Malaysia, the two functions are merged. In the Philippines, government support arrangements in the Department of Finance are lagging project development capacity in the PPP Center. In Indonesia, the Ministry of Finance recently decided to establish the PPP Unit and the PDF in-house in parallel with its RMU.

Figure 18 Public–Private Partnership Institutional Arrangements in Southeast Asia

Political/MinisterialSupport

PPPUnit

PDF Core Team/Advisory Panel

RMU VGF/CLF

Malaysia

Philippines

Indonesia

Inter AgencyCoordination(Board)

Public–Private Partnership Development Capacity and Risk Management Capacity

PPP Units and RMUs both provide essential inputs into the PPP procurement decision. In effect, PPP Units represent potential supply (from the private sector), and RMUs represent demand (from the


Project Development and the Role of the Public–Private Partnership Center

From the country presentation of Eleazar E. Ricote, Director, Philippine Public–Private Partnership Center

Background. Public–private Partnerships (PPPs) are identified as a key component of government’s strategy to accelerate infrastructure development toward inclusive growth. There is no PPP Law in the Philippines and the main legal basis remains to be the Build-Operate-Transfer Law adopted in 1990. Provisions in the Local Government Code also apply to PPPs at the subnational level, which local governments can undertake under decentralization.

Institutional arrangements for PPP programming in the Philippines includes the following:

(i) Contracting parties or implementing agencies ➢ National line agencies ➢ Government corporations ➢ Local government units

(ii) Coordinating and monitoring agency ➢ Public–Private Partnership Center (PPP Center)

(iii) Review and approving bodies – the appropriate approving agency depends on the procurement cost ➢ National Economic and Development

Authority (NEDA) Board – NEDA is the planning ministry of the Philippines. The NEDA Board approves all national projects costing more than P300 million and all national negotiated projects regardless of amount, all upon the recommendation of the ICC.

➢ Inter-Agency Investment Coordination Committee (ICC) – this is chaired by the Secretary of the Department of Finance and co-chaired by the NEDA Director-General. The ICC approves national projects costing below P300 million and local projects costing above P200 million. The ICC also reviews all national projects costing more than P300 million and national negotiated projects regardless of amount and makes recommendations to the NEDA Board.

➢ Local government councils

Evolving Role of the PPP Center. The current PPP Center evolved from previous institutions engaged in early PPPs. In the late 1980s to 1990s, the Build-Operate-Transfer (BOT) Center was set up. It was initially attached to the Office of the President, moved to the Department of Finance, transferred back to the Office of the President, and then attached to the Department of Trade and Industry.

In 2010, the BOT Center was renamed as the PPP Center and attached to NEDA. Its mandate was expanded to cover all other modes of PPPs. It is involved in every part of the PPP project cycle, ensuring that projects are bankable, transparent, and advancing public interest. The PPP Center (i) provides advisory services, (ii) facilitates development of PPP projects, (iii) manages the Project Development and Monitoring Facility, (iv) provides PPP capacity building support to national implementing agencies and local government units, (v) advocates policy reforms, and (vi) monitors implementation of PPP projects. The Project Development and Monitoring Facility (PDMF) is a revolving pool of funds made available to enhance the investment environment and to develop a robust pipeline of viable PPP projects.

Critical Next Steps—Philippine Public–Private Partnership Program

➢ Project identification, selection, and prioritization of project management and improvement measures

➢ Legal and regulatory reforms, including the adoption of a PPP Law

➢ Project and contract monitoring and evaluation ➢ Capacity development interventions, including a

PPP Manual for national agencies and twinning arrangements with development and institutional partners

➢ Creation of a contingent liability fund under the Department of Finance.


The Role of the Indonesia Infrastructure Guarantee Fund in Supporting Public–Private Partnership Projects

From the presentation of Sinthya Roesly, Chief Executive Officer, Indonesia Infrastructure Guarantee Fund

Background. Strong economic growth is projected in Indonesia and with this, there is significant infrastructure needs. The government estimates an infrastructure-funding gap of more than $74 billion that is needed to support economic growth targets. To address the challenges of infrastructure investment, the government has established and strengthened various institutions that play a role in promoting private sector participation, including: BAPPENAS (planning ministry), line agencies, a viability gap financing (VGF) facility under the Ministry of Finance, and government investment funds under the Ministry of Finance to help guarantee the bankability of projects.

Indonesia Infrastructure Guarantee Fund (IIGF) is a 100% government-owned investment fund under the Ministry of Finance. It is a fiscal instrument with limited liability established in 2009 as a single window in providing guarantees for infrastructure projects. The IIGF has an authorized capital stock of about $1 billion with paid-in capital of $500 million, and is staffed by managers with a private sector background and appraisal consultants. It is mandated to provide guarantees for government contracting agencies’ (ministries, regional governments, or state-owned enterprises) financial obligations under public–private partnership (PPP) agreements for infrastructure projects. The benefits of the IIGF include:

➢ Limiting direct interaction between private sector and the Ministry of Finance. Thus, the government acts more as a regulator and policymaker.

➢ Enhancing the bankability of PPP projects to broader investors/financiers base with products that are acceptable to the market, thus encouraging more competition.

➢ Encouraging market discipline on the guarantee provision process through its single-window policy. The single window process is important to provide a clear, transparent, standardized process, and more responsive process as well as clarity on the timing. The single window promotes (i) a consistent policy on appraisal, (ii) a single process for claims, and (iii) introducing transparency and consistency.

The IIGF’s business model is designed to make the government guarantee provision more consistent, transparent and efficient (Figure 19). It sets the following project eligibility criteria for IIGF guarantees:

(i) Sector coverage—eight economic infrastructure sectors, including water, power, transportation, toll roads, waste, irrigation, telecommunications, oil and gas;

(ii) PPP contract—awarded through competitive bidding;

(iii) Project viability—economically, financially, technically, and environmentally viable; socially desirable;

(iv) Regulations—complies with related sector regulations;

(v) Feasibility study—prepared by credible experts/consultants; and

(vi) Arbitration clause—binding arbitration provision in the concession/PPP agreement.


Figure 19 IIGF’s Business Model Is Designed to Make the Government Guarantees Provision Consistent, Transparent, and Efficient

Contracting Agency(Ministries,RegionalGovernments, SOE)

Investors

PPP Agreement 2

Proposal for Guarantee

Recourse Agreement

1

3a

3b

A

Minister of Finance

MultilateralDevelopment

Agency/ Others

Equity Injection & GuaranteePolicy

Coun

ter G

uara

ntee

for M

DA G

uara

ntee

Fac

ility

Credit & Guarantee Facility

Co-Guarantee Agreement

Guarantee Agreement

B

Note:

will exist only if exist, i.e. when become part

of the guarantee structure provided to investors

B AA

IIGF = Indonesia Infrastructure Guarantee Fund, PPP = public–private partnership.


Public–Private Partnership in Malaysia and the Role of 3PU

From the presentation of Siti Zaleha Mohd Fathillah, Director, PPP Unit (3PU), Prime Minister’s Department of Malaysia

Background. Rapid infrastructure development in Malaysia was made possible through PPPs. Since 1983, 592 public–private partnership projects have been implemented, allowing 113,487 jobs to be eliminated from the government payroll. Savings amount to RM174.62 billion in capital expenditure and RM9.25 billion in operating expenditure.

Institutional Arrangements

The PPP Committee was formed as a body for centralized planning and decision making on PPP projects and issues arising from it. The PPP Committee is chaired by the Director-General of the Public–Private Partnership Unit (3PU) with members from the Attorney General’s Chamber, the Economic Planning Unit, the Ministry of Finance, the Property and Land Valuation Department, the Federal Land Commissioner, and implementing ministries or agencies and meets at least once a week. The PPP Committee evaluates, endorses, and recommends PPP project proposals for approval to the Prime Minister’s Department or the Cabinet.

The Public–Private Partnership Unit (3PU) is the project development facility on PPPs. Initially part of the Economic Planning Unit of the Prime Minister’s Department, 3PU was established as a new unit in 2009 in recognition of the increasing need to develop a closer public–private relationship. The functions of 3PU are to:

(i) receive and evaluate viability of PPP project proposals;

(ii) prepare and issue pre-qualification and tender request for proposal (RFP) documents;

(iii) evaluate the bidders qualifications and bidding proposals;

(iv) negotiate terms and conditions for the draft of concession and supplemental agreements;

(v) act as the secretariat for the PPP Committee;(vi) prepare cabinet papers for principle approval,

recommend TFP winners and approval of concession agreements;

(vii) monitor the progress of the negotiation process and implementation of the projects;

(viii) conduct PPP programs to promote PPPs;(ix) manage the facilitation fund; and(x) act as the secretariat for five corridors of

development.

Monitoring Framework. The 3PU Project Monitoring Team was formed in 2009 to ensure the timely planning and implementation of all PPP projects. The monitoring mechanism involves (i) the collection of data and information to be used to manage, track, monitor, analyze, and store project details for every project under 3PU; and (ii) an Integrated Project Monitoring System that works as a data bank for negotiation activities and implementation of projects. For each project, the project monitoring measures include:

(i) A comparison of project status by desk officers from 3PU and coordinating officers from minis-tries with the timeline of negotiation and imple-mentation of the project,

(ii) Organizing site visits to determine on the ground physical progress of the project in comparison to progress reported by coordinating officers,

(iii) Organizing impromptu visits on selected projects to check on the quality of service towards key performance indicators, and

(iv) Conducting a survey to measure the actual level of customer satisfaction of the services provided by the concessionaire.

Key Success Factors for Public–Private Partnerships in Malaysia

➢ Government’s commitment ➢ Single-point responsibility for PPPs ➢ Transparent procedure and processes ➢ Effective monitoring system to ensure the timely

negotiation and implementation


Box 9 Roundtable Discussion: Complexity and Political Economy Factors in the Success of Public–Private Partnerships

The complexity of land acquisition. Land acquisition involves significant economic and political issues, including relocation and renegotiation. To help address the economic constraints, the Government of the Philippines set up a strategic support fund for sector agencies to utilize for land use acquisition. In Malaysia, the private sector partner is asked to help in the relocation process. The Government of Malaysia allocates another 25% to the land value to answer for costs in case the original landowners go to court to seek a higher land valuation. In Indonesia, the government also provides a fund that the private sector can avail of, however, experience has shown that it is very difficult to push people out because the democratic process must be respected. The Government of Indonesia requires that for every public infrastructure, land must be provided by the government so this takes away the risk from the private sector. However, the government does not have the compulsory right to acquire land. To address the problem of rising land value during the course of land acquisition, legislation was passed to put in a time-bound process together with market-based valuation prices. Moreover, good corporate social responsibility programs could help in the engagement with the local communities.

Indonesia Infrastructure Guarantee Fund and a transparent and predictable process. In the case of Indonesia, for any projects in which guarantees are a deal breaker, the Indonesia Infrastructure Guarantee Fund (IIGF) tries to support these projects and ensure that conditions remain adequate from the public perspective. Previously, line agencies dealt with the private sector directly and the ministry of finance had no choice in the matter. The new scheme, however, requires that negotiations include the IIGF upfront in the development of the concession agreement, the request for proposal, and the guarantee agreement. Thus, all bidders know exactly what is involved in the deal and its terms and conditions. Once finalized, the IIGF and ministry of finance can issue a guarantee approval, which cannot be changed. This created certainty in the short term. The pricing of guarantees requires many approaches: risk-based, priority, exposure, and the market-based approach.

Payment guarantee is an important instrument in Public–Private Partnerships. The fundamental premise of PPPs is that some demand risk is retained by the government. Crucial to this is the payment guarantee. It is not possible to get this kind of insurance from the market and this may create perverse incentives. Thus, in Indonesia, a floating charge for breach of contract is imposed on the line agency, which the IIGF can eventually recover from the government contracting agency that fails to meet its obligations under the contract. It is not possible to generalize that the public sector should absorb the risks of a PPP because this would depend on the sector and the context of the project. The IIGF, however, guarantees the credit risk and the political risk of the public sector and/or the national utility. There is a risk allocation guidelines and each project requires a published risk exposure report.

39

IX. Monitoring and Evaluating Public–Private Partnerships

From the presentation of Hyungtai Kim and Soojin Park, Public and Private Infrastructure Investment Management Center (PIMAC),

Korean Development Institute

This session discussed monitoring and evaluation systems as an integral part of effective public–private partnership (PPP) management. The first presentation provided an overview of an ideal monitoring and evaluation system with monitoring and evaluation being conducted at the macro-level as well as the micro or project level. It identifies different types of monitoring and evaluation assessments and their purpose in the overall management of the project and as a feedback to PPP decision making. The overview presentation was followed by two country presentations. The first country presentation discussed the efforts in developing institutions that support monitoring, evaluation and PPP management in Korea. The Philippine country presentation discussed the monitoring and tariff regulatory efforts in the water sector to increase access and improve water and sanitation services at an affordable cost.

Monitoring and Evaluation

Monitoring and evaluation have an important role in achieving development goals. Monitoring and evaluation are continuous processes that involve every aspect of PPP management from beginning to the end (Figure 20).

Monitoring and evaluation can be conducted at two levels:

(i) Macro-level which includes: ➢ Macroeconomic fiscal risk management; ➢ Comprehensive ex-post evaluation through

the (a) macro-level evaluation, (b) stakeholder satisfaction surveys, and (c) ex-post value for money (VfM) test; and

➢ Infrastructure information (Infra-info) database system;

(ii) Micro-level which includes: ➢ VfM Test ➢ Performance management evaluation, and ➢ Intermediate and ex-post management.

Macroeconomic Fiscal Risk Management

Despite the benefits of PPPs in terms of financing and efficiency gains, it is not possible to increase PPP without limit. Macroeconomic fiscal risk management evaluations address the following key questions:

➢ What is the sustainable level of PPPs? ➢ How do we measure the government debt due

on PPPs? ➢ How do we manage a PPP liability ceiling? Who

evaluates the ceiling? When and how often should it be evaluated? How do we report and get the approval from the National Assembly?

A safeguard ceiling for PPPs may emphasize that if a government drives a large-scale PPP project forward that involves large-scale borrowing from future generations, the aggregate fiscal commitment should be limited to a sustainable level for maintaining fiscal soundness and stability. In the Republic of Korea, for example, a safeguard ceiling is set based on a percentage of annual government payment or a percentage of total public investment.


Comprehensive Ex-Post Evaluation

Macro-level evaluation. A comprehensive ex-post macro-level evaluation involves various assessments on the impacts of PPPs. In Korea, assessments conducted include:

(i) Government budget constraints alleviation impact assessment—This analyzes how PPP projects contribute to easing constraints on the government’s financial resources that may enable it to provide funding for other priority sectors, programs or projects.

(ii) Tax revenue effect assessment—This analyzes the contribution of PPP projects on tax revenues, such as the increased value-added taxes from PPP toll income or corporate taxes on private concessionaires.

(iii) Economic growth impact assessment—This analyzes the ripple effects that PPP projects could have on economic growth through macroeconomic modeling.

Ex-post VfM test. An ex-post VfM test is conducted after project implementation to determine the effect of the PPP project in reducing fiscal burdens.

Stakeholder satisfaction survey. To appraise the satisfaction level with the projects, surveys may be conducted among major stakeholders, such as competent authorities, project companies, and experts, about user satisfaction, project performance, and other issues. To find out the level of user satisfaction, interviews and e-mail surveys can be conducted with a significant sample of users, or face-to-face surveys with a number of public officials, project company employees, and experts related to the projects. For users, questionnaires can focus on how much they were satisfied with the quality of construction and operation of the facilities involved. For competent authorities and project companies, surveys tend to focus on their perceptions of the project performance, the attainment of VfM, and the necessity for monitoring.

Figure 20 Monitoring and Evaluation by Project Cycles

Vfm test

Revised Vfm test

Macro level Project level

Intermediate& Ex-post

management

BTO/ BTLPerformanceevaluation

Comprehensiveex-post evaluation

• Macro-lev. evaluation• Ex-post VFM• Satisfaction survey

Ensuring macroeconomic sustainabilityand better PPP policies

ContinuousReporting

&Improvement

Feedback

Infra-info DBFeedback

&Input

Competent Authority

Designation as the PPP Project

Selection of PPP Project

Competent Authority

Competent Authority

Competent AuthorityPreferred Bidder

Private SectorCompetent Authority

Announcement of RFPs

Submission of Project Proposals

Evaluation and Selection ofPrefered Bidder

Negotiation and Contract Award(Designation of Concessionaire)

Application for Approval ofDetailed Implementation Plan

Construction and Operation

VFM Test

Competent Authority

Competent AuthorityReview by PIMAC

ConcessionaireCompetent Authority

Concessionaire

BTL = build–transfer–lease, BTO = build–operate–transfer, DB = database, PPP = public–private partnership, RFP = request for proposal, VfM = value for money.

Monitoring and Evaluating Public–Private Partnerships 41

Infrastructure Information Database System

An integrated database system is essential for monitoring and evaluation as it helps collate information into a central system for analysis. Reporting to a central system and regular updates enable a continuous monitoring process. Korea began to develop an integrated database system in 2011, and initiated the system in 2012. Prior to the system, the PPP data was managed by each procuring authority or municipal government. Figure 21 illustrates the information flow with the use of an integrated database system.

Micro-Level or Project Level Evaluation

VfM and Revised VfM Test. Conducting a VfM test include the following phases:

Phase 1: Feasibility study (Decision to invest)—The cost-benefit analysis is conducted to determine feasibility of the project from a national economy perspective.

Phase 2: Value for Money Assessment (Decision on PFI)—The government payment of public sector comparator is compared against that of private finance initiative (PFI) to decide whether the PFI achieves VfM.

Phase 3: Formulation of PFI alternatives—Based on the results of Phase 2, appropriate PFI alternatives are formulated. The level of project cost, user fee, subsidy scale, etc. are suggested from the government. Bonus points that are awarded to the initial proponent are estimated based on the results of VfM tests and the quality of the proposal.

Phase 4: Award bonus points to the initial proponent, if any.

Performance management evaluation. The purpose of the performance management evaluation is to check and assess whether operation and maintenance services are in accordance with the concession agreement and output specification. Performance management evaluation is generally stricter for build-transfer-lease (BTL) projects than for build-transfer-operate (BTO) projects since the

Figure 21 Integrated Database System Information Flow

Min. of Strategy & Finance

PIMAC

Min. of Land, Transport & Maritime Affairs

Min. of Culture, Sports & Tourism

Min. of Education, Science & Technology

Min. of Environment

Min. of Health & Welfare

Min. of Natl. Defense, etc.

Procuring Ministries

Ex-post management

Infra-info System

Project Implementation

Reporting

Informationdelivery

Informationinput

Supportwith expertise

ComprehensiveEx-post Evaluation

Feedback

Continuous monitoring and improvement

Min = Ministry.


satisfaction surveys and performance evaluation results are reflected in the government payment to the project company for BTL projects.

Ideally in BTL projects, the project company should be allowed to first submit a self-evaluation report, which is reviewed by the competent authority. A performance evaluation committee, which may be composed of government officials, representatives from the project company, and experts in the relevant field, can decide whether to conduct an additional independent evaluation by a third party. User satisfaction surveys should be conducted periodically by each project company and submitted to the competent authorities.

In BTO projects, performance evaluation should consider the following criteria:

(i) acceptable service quality or degree of user satisfaction,

(ii) operational and cost efficiency, and (iii) cooperation between competent authority and

private investor.

The standard operating procedure for performance management evaluations would require regular data collection of operations, data review, field evaluation, and user satisfaction surveys.

It is important for all evaluations to consider the possible trade-offs among different desired outcomes. PPPs, in particular, highlight the issue of trade-offs because of the many stakeholders involved who may hold different perceptions, including public authorities who desire the attainment of VfM, experts who may focus on the quality of the construction, and users who may desire high quality of construction and operation. For example, Figure 22 illustrates the possible trade-off between user satisfaction and VfM. Efforts to achieve a very high quality of service to please all users may have cost implications while too much focus on cost savings may sacrifice the quality of the facility or service provided. Evaluating project performance solely through user satisfaction surveys creates an incentive for operators to improve the quality of the facility without regard for costs. On the other hand, evaluations based on ex-post value for money tests alone may drive improved cost savings while sacrificing user satisfaction. Evaluations can help drive development priorities and, thus should take into consideration trade-offs to ensure the ideal balance of desired outcomes.

Intermediate and Ex-Post Management

Even with successful institutional settings of PPP, Korea is now facing new challenges that need to be resolved in order to move forward. So far, most of the government’s efforts focused on improving the PPP procurement process from project initiation to the construction stage. Relatively little attention has been paid to the ex-post operational phase. In addition, PPP projects typically involve significant investment by the private sector over a long period of time, and substantial changes of the business environment or policy objectives may cause disputes during this period. Disputes are costly, time-consuming and lead to a breakdown the project. Thus, it is important to monitor and resolve conflict as quickly and efficiently as possible.

Preemptive efforts to monitor and reduce disputes include:

➢ Building capacity of government officials through training and education in the concession agreement design, sound knowledge and understanding of PPP rules, and communication with stakeholders

➢ Create a formal PPP dispute resolution committee within the government to manage and assist operational PPP projects. The committee must be neutral, unbiased, and independent.

Figure 22 Monitoring and Evaluation by Project Cycles

* The quality of facility can be represented by user satisfaction survey. ** The cost efficiency can be measured by ex-post value for money.

Value for Money**

User Satisfaction*

Impro

vemen

t

with ev

aluati

on

Evaluation drive direction 1

1) Choice with more priority to quality

2) Choice with more priority to cost savings

Evaluation drive direction 2

Trade-off attributes should be carefully considered to achieve the goalof development when designing evaluation and monitoring criteria

KEY MESSAGES—Monitoring and Evaluating Public–Private Partnerships

➢ Monitoring and evaluation are continuous processes that involve every aspect of public–private partnership (PPP) management from the beginning to the end.

➢ Independent institutions with capable expertise is a prerequisite for monitoring and evaluation. ➢ Evaluation criteria should reflect operational experience and fiscal policy direction. ➢ Evaluation criteria would depend on the practical realities of the PPP facility. ➢ Monitoring data should inform subsequent projects. ➢ Project monitoring should be timely and ensure that issues and disputes are properly resolved to enable

project success. ➢ Developing a monitoring and evaluation system requires continuous efforts. In the early stages, efforts should

focus at project level. ➢ As the number of PPP projects accumulate and the project level evaluation system matures, the focus may move

toward macro level evaluation. ➢ The project information should continuously be reported to a central system and updated to a database to

inform future decision making. ➢ When designing evaluation and monitoring criteria, trade-off attributes should be carefully considered to

achieve the goal of development. ➢ Preventive efforts and timely problem solving are more important than ex-post evaluation.



Republic of Korea’s Public–Private Partnership Program and the Role of Public and Private Infrastructure Investment Management

Center

From the presentation of Hyungtai Kim and Soojin Park, Public and Private Infrastructure Investment Management Center (PIMAC),

Korean Development Institute

The Public–Private Partnership (PPP) Program is currently engaged in 600 projects with a total cost of $79.3 billion. It introduced in 1994 with the enactment of the PPP Act, which has gone through several revisions. In 1999, the revisions allowed unsolicited proposals to be accepted, which has been a key measure to induce private investment. In 2005, the law was amended to promote its use in educational facilities, military residences, environmental facilities and other sector projects. In 2011, a Dispute Resolution Committee was established.

Legal framework. The PPP Act and the PPP Act Enforcement Decrees are the principal components of the PPP legal framework. They provide for the eligible infrastructure projects, procurement types, procurement processes, and the roles of the public and private parties. The PPP Act is a special legislation that precedes other Acts and exempts PPP projects from strict regulation in national property management. As provided under the PPP Act, the Ministry of Strategy and Finance and the Public and Private Infrastructure Investment Management Center (PIMAC) issue a PPP Basic Plan to identify the PPP policy directions, project implementation procedures, and documentation directions.

Institutional framework. A Project Review Committee (PRC) has been established, chaired by the Minister of Strategy and Finance with members from procuring ministries and private sector experts. The PRC convenes when needed to decide on important PPP policies and major projects.

The PIMAC is a statutory organization established under the amendment of the PPP Act in 2005. PIMAC is an affiliated body of the Korean Development Institute (KDI), which is the leading think tank in Korea. Under the National Finance Act and the PPP Act, the PIMAC roles include:

(i) Evaluator to carry out ➢ preliminary feasibility studies, ➢ re-assessment study of feasibility, ➢ re-assessment of demand forecast, and ➢ in-depth evaluation of budgetary program;

(ii) Researcher to support ➢ the formulation of the Basic Plan for PPP, ➢ theoretical and policy studies on PPP

programs, and ➢ development of implementation guidelines

(iii) Advisor in project management for the ➢ development of PPP projects, ➢ execution and review of VfM tests ➢ support for formulation of RFPs, ➢ review of RFP and concession agreement,

and ➢ assistance in tendering and negotiation;

(iv) PPP Market Promoter for ➢ training programs and seminars on PPP for

public officials, ➢ international cooperation, and ➢ database management; and

(v) Consultant for intermediate and ex-post management.

Monitoring and Evaluation. Evaluation and feedback systems have been in use since 2005. After assessment data were accumulated at the project level, comprehensive evaluation and macroeconomic effect evaluation systems were introduced in 2010.

PIMAC began to develop the integrated data base system (Infrainfo DB system) in 2011, and initiated its use in 2012. Prior to the system, the PPP data was managed by each procuring agency or municipal government. The current system requires all the status changes to be reported to the Ministry of Finance and constantly updated in the system to allow for a continuous monitoring process.

Monitoring and Regulating Public–Private Partnerships in the Philippine Water Sector

From the presentation of Cecilia Soriano, Member, Board of Trustees, Metropolitan Waterworks

and Sewerage System (MWSS), Philippines

In the mid-1990s, coverage of water supply and sewerage in Greater Metropolitan Manila was low and uneven. Only 58% of the population was served while many poor communities remained uncovered. Additional challenges included low water pressure, intermittent supply, illegal connections, poor infrastructure, and inefficient services.

The Metropolitan Waterworks and Sewerage System (MWSS) is a government corporation created by law in 1971. Under subsequent laws, it was reorganized and authorized to involve the private sector in its operations. In 1997, the MWSS entered into two concession agreements, dividing the Greater Metropolitan Manila into the East and West zones to rehabilitate, expand, and operate services. Competitive bidding was based on the lowest basic charge for water. The concession included provisions on tariff adjustments and required the following service obligations:

➢ Increase coverage of water supply and sewer-age services,

➢ Improve continuous availability of water supply, ➢ Meet water and wastewater quality standards,

and ➢ Meet customer service standards

Monitoring framework. The MWSS monitors private concessionaires to ensure compliance with service obligations based on:

Public Assessment of Water Services. To strengthen the monitoring activities of MWSS, a third-party public assessment of concessionaire performance is conducted periodically. Initially viewed with apprehension, public assessments are now seen as a partnership tool that serves as an early warning device.

Regulatory Framework. The objective of regulation is to balance the competing interests of stakeholders.

Key Performance IndicatorsBusiness Efficiency

Measures

Water Services•Domestic connections•Continuity of supply•Pressure of water supply•Water quality at plant outlet•Water quality in distribution•Sampling

Income•Billed volume•Revenue collection

rate

Nonrevenue water

Customer Service (CS)•Response to CS complaints•Response to billing

complaints•Response to requests for new

water service connections• Installation of new water

service connections•Response to disruptive mains

Operating Expenses •Labor •Power •Other controllable

operating expenses

Sanitation•Sewerage connections•Sanitation •Wastewater effluent

standards

Capital Expenditures

Allowable tariff adjustments under the Metropolitan Waterworks and Sewerage System (MWSS) supervision:

➢ Inflation: annual adjustments based on the consumer price index are allowed automatically

➢ Extraordinary price adjustments: tariffs can be changed due to major unforeseen events

➢ Foreign currency differential adjustment: quarterly adjustments based on foreign exchange losses or gains from foreign currency loans of the MWSS or concessionaires

➢ Rate re-basing: every 5 years, a review of tariffs is made to allow for the full recovery of costs plus a reasonable rate of return.



On the one hand, it is crucial to protect consumers from high prices and poor services and to protect the environment. On the other hand, it is important to provide incentives to firms to invest, be efficient, and earn profits. Water supply and sewerage services being a natural monopoly, effective economic

regulation takes the place of competition in maximizing consumer welfare. In addition, effective economic and resource regulation can also protect the environment and ensure inter-generational equity. Finally, calibrating tariffs enables the achievement of the objectives of the PPP.

Box 10 Roundtable Discussion: Institutions in Monitoring, Regulation, and Evaluation

Coverage of water supply and sewerage services have increased but at a higher cost. In the case of the public–private partnership (PPP) concessions for water and sewerage in Manila, access to piped water increased significantly with a minor improvement in sewerage connectivity. However, tariffs for piped water also increased. If compared to the cost of water from alternative sources such as sellers of bottled water or from water tanks, however, the cost of piped water is still much cheaper for the consumer.

The flexibility to adjust tariffs helps balance interests of stakeholders. As part of its monitoring and regulatory functions, the Metropolitan Waterworks and Sewerage System (MWSS) periodically reviews tariff rates. The MWSS studies concessionaire operation and maintenance expenses and financial reports to set tariff rates that balance affordability for consumers and allowing reasonable rates of return for the concessionaires. The revised concession agreements now also provide for foreign currency adjustments in tariff rates to adjust for losses or gains from foreign currency loans taken out by MWSS or the concessionaires.

Independent monitoring and evaluation body is critical. In the Philippines, each sector has a specific regulatory board to monitor and regulate public utilities. In Korea, the Public and Private Infrastructure Investment Management Center plays the role of a watchdog or gatekeeper agency and is separate from other ministries and line agencies. Ultimately, what matters is that the monitoring and evaluation body is sufficiently independent and credible. In Malaysia, the Monitoring and Evaluation Division of the PPP Unit conducts evaluations on projects and publishes a report that is submitted to the cabinet.

Supreme audit agencies can play a role in PPP evaluation. Existing public sector agencies and evaluation modalities such as supreme audit agencies can play a role in the evaluating PPPs. In the Philippines, for example, The MWSS has requested the Commission on Audit to conduct an audit on the water concessionaires for the last five years. However, the MWSS pays for the cost of the audit since the concessionaires are private parties and beyond the regular mandate of the commission. In addition, the Commission on Audit conducts courses on how to conduct audits on value for money, which may help build the capacities of public sector agencies involved in PPPs. In Malaysia, the auditor’s office conducts a regular audit of PPP projects that is submitted to the parliament.

47

X. Future Directions for Strengthening Public Sector Management in Public–Private Partnerships

This session distilled the lessons learned from the roundtable and determined what the participants found most useful. Feedback from participants can help inform future capacity development initiatives and identify areas of further collaboration. Chaired by Trevor Lewis, participants were encouraged to share the lessons they learned that will help them identify gaps and issues in their own country frameworks, the particular challenges faced by their own countries, and how donor partners can help address these issues.

The diverse public–private partnership (PPP) experiences and capacities in the Asia and Pacific region highlight the need for strong country systems to manage public investments. To maximize the benefits of PPPs, the key features of results-based public sector management can serve as a framework for public sector capacity development. Successful PPPs require the assessment and management of risks and incentives to achieving development results. To do this, PPPs would necessitate results-oriented planning, budgeting, implementation, monitoring and evaluation. These functions and processes along the management cycle must be linked to deliver common PPP outcomes. In addition, the multiple skills required of PPPs entail institutional arrangements in the central and line ministries and subnational governments to be vertically and horizontally linked.

Other lessons highlighted in the discussion include:

The features of results-based public sector management are important for PPPs or any other procurement modality. PPPs are just another way of delivering public services that should have been delivered by the public sector. Rigorous PPP processes help ensure transparency, accountability, sustainability, management of risks, and results. However, the same standards should be expected from any kind of public infrastructure and service.

PPPs require balancing multiple trade-offs to maximize benefits. PPP management should consider fiscal risks, societal needs, private sector profits, quality of service, cost efficiency, and public interest for transparency, accountability, safety, security, equity, and sustainability.

Common language is critical to dialogue. It is important to have a common language for results. In PPP engagement, clarifying terminology would help clear misconceptions, build trust among stakeholders, and minimize disputes.

Other stakeholders play an important role in strengthening public sector management capacities and the success of PPPs. The private sector, consumers, the local community, and donor partners, contribute to the success of PPP projects and should be engaged in the PPP process and dialogue.

Capacities and needs differ context but there are common risks and all countries must learn to manage them. There are common challenges faced by developed and developing countries alike, as highlighted by the experiences of Australia and other OECD countries, Bangladesh, India, Indonesia, Japan, Korea, Latin America, Malaysia, and the Philippines. On the other hand, specific country context, needs, and PPP-readiness could help guide future capacity development initiatives in terms of country-specific programs or grouping and twinning schemes.

Capacity building is a continuous and iterative process. For countries in the early stages of PPP engagement, the discussions provided an opportunity to learn from the success and the challenges faced by other countries that can guide them in developing their PPP capacities. As the example of Korea illustrates, however, building public sector capacities in PPP management is a continuous learning process.

48

Appendix 1

The Role of Japan in Supporting Public–Private Partnerships for Development

This session consisted of two presentations and discussed the role of Japanese agencies in supporting public–private partnership (PPP) projects. The first presentation discussed the role of the Japan Bank for International Cooperation and the lessons from privately financed initiatives in Japan. This was followed by a presentation on efforts by the Japan International Cooperation Agency to promote private sector investment in development projects in developing countries.

Lessons from Privately Financed Initiatives in Japan

From the presentation of Masaaki Amma, Director General, Corporate Planning Department,

Japan Bank for International Cooperation (JBIC)

The Japan Bank for International Cooperation (JBIC) is a fully government-owned financial institution. Unlike Japan International Cooperation Agency (JICA), however, JBIC loans out equity investment at commercial rates and maturity. This differs from JICA, which provides concessional loans. Along with commercial banks, JBIC cofinances investments in emerging market economies.

Privately Financed Initiatives in Japan

The Privately Financed Initiative (PFI) Law was introduced in 1999 with more than 375 projects approved. With the exclusion of power, gas, and railways that are privatized, however, most economic infrastructure remain as government monopolies under the central or local governments. Having a later start in PFI engagement compared to other countries such as the United Kingdom, Japan finds itself left behind under international standards.

PFIs in Japan are mostly building and facilities with very limited operational components. Financial institutions are still reluctant to take on project operation risk on a non-recourse basis. Moreover, the absence of major private specialized

infrastructure operators make banks less willing to take the project operation risk on the basis of the sponsors’ track record. The lack of PFI experience in economic infrastructure projects and the continuing government monopoly has resulted in non-competitive Japanese operators. This has also contributed to high public debt.

The right kinds of PFIs to ensure value for money. Build-transfer-operate schemes dominate PFIs, which are predominantly limited to building new facilities. However, building new facilities with limited operational components should not be the target of PFIs, since these kinds of projects could easily be bid out for construction to general contractors at a lower cost. However, in Japan, many facilities that were built under a PFI are still mostly operated by the public sector, such as school catering that remain staffed by public servants. While public sector servants’ wages might be relatively lower in developing countries compared to the private sector, in Japan public sector salaries are much higher. Using public servants to cook and provide meals is very expensive and drives up overhead costs. Therefore, the kinds of PFIs in Japan fail to deliver value for money.

The Role of Japan in Supporting Public–Private Partnerships for Development 49

Japan International Cooperation Agency and Private Sector Partnership Activities

From the presentation of Takehiro Yasui, Private Sector Partnership and Finance Department,

Japan International Cooperation Agency (JICA)

Ensuring value for money. Increasing competition is the way to avoid high profits on the part of the private contractor. If a contract is designed to assign a high risk burden to the private operator, it may limit the number of bidders and the company will ask for higher profits. If the contract is designed to promote competition and risk-sharing, however, the private contractor will only seek reasonable rates of return that is just enough to justify their investment. The best way to value PFIs in each country is to assess how much the public sector can save money within the lifespan or lifecycle of the whole project. This is the most important consideration.

The Japan International Cooperation Agency (JICA) assists social and economic development in developing country through technical assistance, loan assistance, and grants. Recognizing the increasing role of the private sector in social and economic development, JICA has strengthened its partnership with the private sector involved in development projects.

In 2008, JICA established the Private Sector Partnership and Finance Department. JICA provides a one-stop support for all phases of the project, including (i) sourcing and structuring, (ii) construction, and (iii) operation and maintenance. In supporting private sector engagement in developing countries, JICA provides:

➢ long-term financing with modest lending conditions;

➢ technical assistance for policy or system improvement, planning, and human resource development;

➢ support in risk management by leveraging its close relationship with developing country governments; and

➢ access to JICAs information, knowledge, and networks to help lower project costs and entry barriers.

One of the private sector support schemes established by JICA is the Private Sector Investment Finance (PSIF), which provides direct support for private companies in the form of long-term loans and equity participation. The PSIF targets projects in the following sectors:

(i) Millennium Development Goals and Poverty Alleviation,

(ii) Climate Change, and(iii) Infrastructure and Growth.

PSIF supports projects that private financial institutions cannot finance without JICA’s involvement. JICA invests in commercially viable projects or participates in equity up to 25% of total capital. However, a pre-arranged exit plan for JICA is agreed upon to enable the successful transition toward a sustainable private business.

50 Appendix 1

KEY MESSAGES: Role of Japan in Supporting Public–Private Partnerships for Development

Lessons from Privately Financed Initiatives in Japan ➢ Be mindful of the quality of services and recurrent costs as opposed to focusing on costs of construction ➢ Define the goal clearly and set pre-qualification criteria that define the quality desired to ensure the quality and

experience of operators ➢ Avoid challenging risk allocation ➢ Use good precedents and save time, such as tested successful team and kits ➢ Count on practitioners (banks, lawyers, and consultants and advisors who have experience in successful deals) ➢ International financing institutions should shift away from economic and technical evaluations and allocate

more resources for designing PPP contracts and financial analysis ➢ Governments should identify and define projects where the willingness to pay for services is strong and the

reduction of operating costs is substantial

JICA’s Private Sector Activities ➢ Risks should be borne by the party that can best control and manage the risk. ➢ The Japan International Cooperation Agency (JICA) and other donor partners can help the public and private

sectors to dialogue and understand the importance of optimal risk allocation. ➢ JICA and donor partners can provide technical advice on public–private partnership-related issues and help build

capacities.

51

Appendix 2

Program at a Glance

Regional Roundtable on Public Sector Management and Public–Private Partnerships for Development Results

22–24 April 2013, ADBI, Tokyo, Japan

AGENDA

Objective: This Roundtable aims to discuss the role of the public sector in managing public–private partnerships to deliver development results. It emphasizes the role of the public sector as the actor primarily accountable to deliver public goods. Thus, the need to develop government capacity to effectively mobilize public and private resources, create the enabling environment, minimize risks, and maximize the benefits of these partnerships.

DAY 1, MONDAY, 22 APRIL 2013

8:30–9:00 Registration

9:00–9:30

OPENING SESSION

Welcome Remarks: Neeraj Jain, Country Director, Philippines, ADB

Opening Address: Masahiro Kawai Dean, ADBI

9:30–9:45 Overview of Roundtable Speaker: Anbumozhi Venkatachalam, CBT Specialist, ADBI

9:45–10:30

SESSION 1: Results-Based Public Sector Management and PPPs This session would present the results-based PSM framework that describes the basic features of a results-based public sector management and how it applies to PPPs.

Moderator: Jae-Ha Park, Deputy Dean, ADBI

Speaker: Farzana Ahmed, Lead Results Management Specialist, ADB

Open Discussion

10:30–11:00 Tea Break and Photo Session

11:00–12:00

SESSION 2: PPP Myths and RealitiesThis session will discuss the rationale for PPPs, the benefits and expectations of developing countries in PPP engagement, the roles and responsibilities for developments outcomes, and evaluating PPP engagement vis-à-vis risks and returns.

Moderator: Farzana Ahmed, Lead Results Management Specialist, ADB

Speaker: Trevor Lewis, Infrastructure Specialist (Public Private Partnerships), ADB

Open Discussion

12:00–13:30 Lunch

52 Appendix 2

13:30–15:15

SESSION 3: Planning and the PPP Option: An Integrated Approach

Moderator: Yuqing Xing, Director for CBT, ADBI

Speaker: Richard Foster, PPP Expert, Former Executive Manager of Partnerships Victoria, Australia

Open Discussion

15:15–15:30 Tea Break

15:30–17:00

SESSION 4: Accountability and Risk-Sharing: Risks, Rewards, and Incentives

Moderator: Muhammad Cholifihani, CBT consultant, ADBI

Speaker: Richard Foster, PPP Expert, Former Executive Manager of Partnerships Victoria, Australia

Open Discussion

17:00–19:00 RECEPTIONHosted by Asian Development Bank Institute, Tokyo, Japan

DAY 2, TUESDAY, 23 APRIL 2013

8:30–10:00

SESSION 5: Public Governance and Financing PPPsThis session will discuss financing and budgetary issues related to PPPs, including addressing fiscal gaps and the Central Budgetary Authority’s role for PPP project transparency and sustainability. It will address issues to ensure that PPPs are affordable, represent value for money, and are transparently treated in the budget process

Moderator: Grant Hauber, Principal PPP Specialist, ADB

Speakers: • Ian Hawkesworth, Budgeting and Public Expenditures Division, OECD• Gerardo Reyes-Tagle, Senior Fiscal Economist, Inter-American Development Bank

Open Discussion

10:00–10:15 Tea Break

10:15–11:30

SESSION 6: Country Presentations

Moderator: Neeraj Jain, Country Director, Philippines, ADB

Speakers: • Grant Hauber, Principal PPP Specialist, ADB• Bangladesh: PPP Office

Open Discussion

11:30-–2:30 Lunch

12:30–19:00FIELD VISIT

Hokubu (Northern) Water Treatment and Sludge Recycle Center, a Private Finance Initiative of Yokohama City

Program at a Glance 53

DAY 3, WEDNESDAY, 24 APRIL 2013

8:30-9:45

SESSION 7: The Role of Japan in Supporting PPPs for Development

Moderator: Venkatachalam Anbumozhi, CBT Specialist, ADBI

Speakers: • Masaaki Amma, Director General, Corporate Planning Department, JBIC• Takehiro Yasui, Director, Private Sector Partnership and Finance Department, JICA

Open Discussion

9:45–10:30

SESSION 8: Institutional Arrangements for Results-Based PPPs

Moderator: Bob Finlayson, Principal PPP Specialist, ADB

Speaker: Ian Hawkesworth, Budgeting and Public Expenditures Division, OECD

10:30–10:45 Tea Break

10:45–12:30

SESSION 9: Country Presentations

Speakers:• Bob Finlayson, Principal PPP Specialist, ADB• Eli E. Ricote, Director, Capacity Building, PPP Center, Philippines• Siti Zaleha Mohd Fathillah, PPP Unit, Prime Minister’s Department, Malaysia• Sinthya Roesly, Chief Executive Officer, Indonesia Infrastructure Guarantee Fund

Open Discussion

12:30–14:00 Lunch

14:00–16:00

SESSION 10: Monitoring and evaluating PPPs

Moderator: Minquan Liu, Senior Fellow, ADBI

Speakers:• Hyungtai Kim, Public and Private Infrastructure Investment Management Center (PIMAC),

Korea Development Institute • Soojin Park, PIMAC, Korea Development Institute• Cecilia Soriano, Board Member, The Metropolitan Waterworks and Sewerage System (MWSS),

Philippines

Open Discussion

16:00–16:15 Tea Break

16:15–17:30

CLOSING SESSION: Future Directions for Strengthening PSM for PPPsModerator: Trevor Lewis, PPP Specialist, ADB

Discussants: Selected experts, ADB staff, and partners

54

Appendix 3

Profile of Experts

Richard Foster PPP Expert and Founder of Foster Infrastructure Former Executive Manager of Partnerships Victoria , Australia

Richard Foster commenced his career as lawyer, working with a major Australian law firm in Melbourne and Papua New Guinea. He then joined one of Australia’s “Big 4” banks, where he held a number of legal and risk management roles.

In 2002, Richard was recruited by the Partnerships Victoria Unit within the Department of Treasury and Finance (Victoria, Australia) to take a key role in the development of the Partnerships Victoria Contract Management Framework. He then led the Partnerships Victoria Unit’s involvement in a wide range of public–private partnership infrastructure projects and policy initiatives, and spent extended periods as Acting Director of Partnerships Victoria. He also contributed to the formulation and delivery of a variety of broader infrastructure and procurement policy initiatives.

Richard formed Foster Infrastructure in March 2011 to leverage his skills and experience by providing commercial and risk management advisory services, and related training services, for project teams and policymakers in the infrastructure and PPP sectors.

Ian HawkesworthBudgeting and Public Expenditures Division, Organisation for Economic Co-operation and Development (OECD)

Ian Hawkesworth is responsible for OECD/GOV’s activities regarding Public–Private Partnerships/Private Finance Initiatives. He led the work culminating in the OECD Recommendation for Public Governance of Public–Private Partnerships. The Recommendation brings together the accumulated lessons of OECD countries on how to use PPPs and is part of OECD ‘soft law’ for member states. The Recommendation was endorsed by OECD member countries in May 2012. Ian is responsible for convening the annual meeting of senior PPP Officials, the premier forum for PPP Officials from OECD countries. He has published research on PPP Units and methods for attaining value for money in capital procurement. He also conducts peer reviews of PPP governance systems and training in PPP finance and structure.

Profile of Experts 55

Ian has extensive experience as a team leader of OECD Reviews of country budget systems. These reviews are commissioned by OECD member and non-member countries to assess the country’s budget, financial, management and performance framework against OECD best practices, typically as part of a wider budget modernization effort. Ian has worked on countries including Australia, Brazil, Russia, Poland, Greece, Indonesia. Before joining the OECD Ian worked as Head of Section in the Budget Department of the Ministry of Finance in Denmark. He led the implementation of accrual budgeting and oversaw the budgets of the Ministry for Agriculture and the Ministry for Industry, Commerce and Housing.

Hyungtai Kim, Ph.D.Director of Public Investment Evaluation Division Public and Private Infrastructure Investment Management Center (PIMAC)Korea Development Institute (KDI)

Hyungtai Kim has been the director of the Public Investment Evaluation Division of PIMAC since 2012 and is responsible for the ex-ante appraisal, intermediate evaluation, and ex-post evaluation of the fiscal investment projects including the general policy analysis of the public investment management system (PIMS) of Korea.

He earned a Doctor of Philosophy in Urban Design and Planning at the University of Washington in 2006 and commenced his career in PIMAC and has been working on the feasibility analyses for fiscal and SOEs’ investment projects as well as the national medium-term fiscal planning for SOC.

Soojin Park Specialist in Accounting and Finance Public and Private Infrastructure Investment Management Center (PIMAC)Korea Development Institute

Soojin works for the PPP Division of PIMAC and is responsible for broad range of PPP assignments such as feasibility studies, preferred bidder evaluation, concession agreement review, negotiation, refinancing, dispute resolution, MRG review, ex-post comprehensive evaluation, PPP annual plan development, PPP policy research, government advice, and PPP education.

He commenced his career in Deloitte FAS (Financial Advisory Services) and moved to PROTIVITI (formerly Andersen Risk Consulting) where he worked as a financial consultant. He also worked for POSCO E&C as a Project Financing Team leader, in charge of feasibility studies and funding for various kinds of development projects cross borders.

He studied real estate finance and development in Cornell MPSRE (Master of Professional Studies in Real Estate), and professionally qualified with CPA, CTA, CCIM, CIA, and CFE. He is currently a candidate for CFA and Phd in Development Policy of KDI School.

56 Appendix 3

Ma. Cecilia SorianoMember, Board of Trustees Metropolitan Waterworks and Sewerage System (MWSS)

Dr. Soriano was appointed by Philippine President Benigno Aquino to the MWSS Board of Trustees in October 2011. As Vice Chair of the MWSS Board Concession Monitoring Committee, she oversees preparations for the rate rebasing exercise, which is conducted every five years. As former Undersecretary of the Department of Finance, Dr. Soriano guided the crafting of the National Government guarantees for concession agreements.

As a former Undersecretary for the Department of Finance (DOF), Dr. Soriano helped establish its International Finance Group (IFG). She became the only Undersecretary to oversee all five operating groups—the Policy Development and Management Services Group, Revenue Operations Group, Domestic Finance Group, IFG and Corporate Affairs Group. In addition to helping manage the fiscal affairs of the national government and government corporations, she spearheaded the development of the Financing Policy Framework for Local Government Units (LGUs) and the National Microfinance Strategy. She also served as Vice-Chair of the Technical Boards of the inter-agency Investment Coordination Committee and Development Budget Coordinating Committee of the National Economic and Development Authority (NEDA) Board.

Dr. Soriano earned her Ph.D. in Economics at the University of California in Berkeley and has been working as an independent consultant since 1999, continuing to promote access of subnational entities to private capital including through PPPs. She has completed several studies on PPPs of LGUs in the Philippines and other developing countries. Dr. Soriano also provides technical assistance to the Department of Finance on strategic planning, asset and liability management, and professional development.

Gerardo Reyes-TagleSenior Fiscal Economist SpecialistFiscal and Municipal Management DivisionInter-American Development Bank

Gerardo Reyes-Tagle is a senior fiscal economist in the Fiscal and Municipal Management Division at the Inter-American Development Bank (IADB). He has more than 15 years of experience working in subjects related to tax policy and tax administration, quality of expenditure and debt sustainability. Mr. Reyes-Tagle has led senior-level policy dialogue and key technical assistance and financing operations across the public finance spectrum in Latin America. Prior to joining the IADB, he worked as the chief of the Direct Taxes Department at the Ministry of Finance in Mexico.

In recent years Mr. Reyes-Tagle has focused in the analysis of fiscal risks in the Latin American region, including fiscal advantages and disadvantages of the PPPs. He did his Master´s and Ph.D. studies in Public Policy and Economics at Georgetown University and the George Washington University in the Washington, DC.


ASIAN DEVELOPMENT BANK

Farzana AhmedLead Results Management Specialist Strategy and Policy DepartmentADB

Farzana Ahmed is Lead Results Management Specialist of the Strategy and Policy Department of ADB. She joined the department in July 2009. She is also the Principal Coordinator of the Secretariat of the APCoP. In her current role, Ms. Ahmed coordinates support for APCoP activities at the regional and country level working together with the APCoP coordinating committee and ADB operations.

Ms. Ahmed started her career in ADB in 1998 in the Budget, Personnel and Management Systems Department. Following that, she held positions in the Southeast Asia Department of ADB in portfolio management in the office of the Director General and then in financial management at the Indonesia Country office. While in Indonesia, Ms. Ahmed was seconded to the Australian Agency for International Development where she developed programs for the post-Tsunami rehabilitation of Aceh and coordinated the Australia-Indonesia country strategy paper.

Before joining ADB, Ms. Ahmed worked in various financial positions in the private sector in UK and Australia. Bangladeshi by origin, Ms. Ahmed holds a Masters degree in Economics and Politics from Oxford University, UK, and is a qualified chartered accountant.

Bob FinlaysonPrincipal Public Private Partnership SpecialistSoutheast Asia Department, ADB

Bob Finlayson is a Principal Public–Private Partnership Specialist in the Southeast Asian Regional Department in ADB. Bob has been supporting the development of PPP projects since 2009 in Cambodia, Indonesia, Lao PDR, Philippines, Thailand, and Viet Nam.

Bob started work with ADB in 2000 in the Private Sector Operations Department, financing infrastructure projects. He then held positions with East and Central Asia and Operations Evaluation Departments focusing on private sector development and investment related activities. He was responsible for undertaking an independent evaluation of ADB’s performance developing PPPs, and has presented at numerous conferences on PPPs.

Prior to joining ADB, he worked for KPMG in London and Australia, ANZ Bank, and the New Zealand Treasury. Mr. Finlayson has a Masters degree in economics and finance.

58 Appendix 3

Grant HauberPrincipal Public—Private Partnership SpecialistSouth Asia Regional Department, ADB

Grant Hauber has been serving the ADB as Principal Public-Private Partnership Specialist in the South Asia Department where he has been helping the Government of Bangladesh design and implement a comprehensive PPP process and institutional framework to operationalize the country’s new PPP policy.

In addition, Grant has been helping coordinate provision of project-level PPP advisory services to governments who are engaging with the private sector. Mr. Hauber is a core member of ADB’s PPP Community of Practice and was a co-author of the Bank’s 2012 PPP Operations Plan.

He is in the process of transitioning from Bank’s South Asia to its Southeast Asia Department to help, like this forum, cross-fertilize ideas and approaches to PPP.

Mr. Hauber has over 20 years of experience in private sector project development, project finance banking, and management consulting to the infrastructure sector, focused on the emerging markets of Asia. Prior to joining ADB, he ran a Singapore-based financial advisory boutique helping raise investment capital for clean energy projects throughout developing Asia.

He holds an MBA from the Yale School of Management and a Bachelor of Science in civil engineering from Carnegie-Mellon University.

Trevor LewisInfrastructure Specialist (Public Private Partnerships), andSecretariat, ADB PPP Community of Practice

Trevor Lewis leads and supports innovative infrastructure financing, focusing on public–private partnerships (PPPs) in the operations of the Asian Development Bank (ADB) and its developing member countries.

Trevor also leads the Secretariat of ADB’s PPP Community of Practice in its contribution to catalyze private participation in ADB’s DMCs in terms of infrastructure investment as well as infrastructure service delivery. As the knowledge anchor, he assimilates and disseminates PPP best practices within ADB and externally.

Prior to joining ADB, Trevor previously held roles in the private sector. He oversaw principal investment and strategy at a regional commercial bank and he co-founded one of the largest private equity infrastructure funds in Asia with the Macquarie Bank Group. He began his infrastructure finance career in financial advisory and has advised both public sector and private sector clients. He holds a B.Sc. from Mount Allison University, Canada.


ASIAN DEVELOPMENT BANK INSTITUTE

Masahiro KawaiDean and CEOAsian Development Bank Institute

Masahiro Kawai is ADBI’s dean and CEO. He was previously special advisor to the ADB president in charge of regional economic cooperation and integration. Before that he was in the academia, first as an associate professor of economics at The Johns Hopkins University and later as a professor of economics at the University of Tokyo. He also served as chief economist for the World Bank’s East Asia and the Pacific Region and as deputy vice minister for international affairs of Japan’s Ministry of Finance. His recent publications focus on economic regionalism. He holds a BA in economics from the University of Tokyo and a PhD in economics from Stanford University.

Jae-Ha ParkDeputy Dean for Special ActivitiesAsian Development Bank Institute

Jae-Ha Park is ADBI’s Deputy Dean for Special Activities. He was previously Vice President of Korea Institute of Finance. He worked for numerous public positions in Korea, such as Senior Advisor to the Minister of Finance and Economy, Director General of the Task Force for Economic Restructuring in the Office of the President. He also has served as Chairman of the Board of Directors of Shinhan Bank, which is the largest commercial bank in Korea. His recent areas of interest are regional economic and financial cooperation, and financial market development in Asia. He holds a BA in economics from the Seoul National University and a PhD in economics from Pennsylvania State University.

60 Appendix 3

Yuqing XingDirector of the Capacity Building and Training DepartmentAsian Development Bank Institute

Yuqing Xing is the Director of the Capacity Building & Training Department, Asian Development Bank Institute. Prior to joining ADBI, he was Professor of Economics and the Director of the Asian Economic Policy Program of the National Graduate Institute for Policy Studies in Tokyo. Before joining GRIPS in 2008, he was Professor of Economics and the Director of the International Development Program at the International University of Japan. Dr. Xing also held the positions of Sabbatical Fellow at the World Institute for Development Economics Research, and Visiting Professor at the Institute of Advanced Studies, both at the United Nations University; Visiting Senior Research Fellow of East Asian Institute at the National University of Singapore; and Visiting Researcher of the Bank of Finland. He also provided consulting services to the Asian Development Bank.

Dr. Xing’s research focuses on international trade, FDI, exchange rates, and regional economic integration in Asia. He has published numerous articles in internationally refereed journals. His published research on the iPhone and the Sino-US trade balance has been discussed widely in the mainstream media, such as The Wall Street Journal, The Financial Times, Time Magazine, Forbes Magazine, Foreign Policy, etc., challenging conventional views on bilateral trade statistics and instigating a reform of trade statistics.

Dr. Xing earned his B.S. and M.A. degrees from Peking University, PRC, and received a Ph.D. in economics from the University of Illinois at Urbana-Champaign, US.

Venkatachalam AnbumozhiCapacity Building SpecialistAsian Development Bank Institute

Venkatachalam Anbumozhi is a Capacity Building Specialist at Asian Development Bank Institute (ADBI). His previous positions include Assistant Professor at the University of Tokyo, Project Manager and Senior Policy Researcher at the Institute for Global Environmental Strategies, Assistant Manager in Pacific Consultants International, Tokyo and Research Associate in Asian Institute of Technology, Thailand. A distinguished fellow of Asia Pacific Rim University (APRU) Forum on Development and Environment, he also advised JICA, JBIC, UNESCAP projects on sustainable development. He has published several books, authored numerous research articles and produced many project reports on natural resource management, environment friendly infrastructure design, and private sector participation in Green Growth. He obtained his PhD from the University of Tokyo.


Tomotaka HiguchiJapan Water Agency RepresentativeAsian Development Bank Institute

Tomotaka Higuchi joined ADBI in August 2011 on secondment from the Japan Water Agency (JWA). He has worked at JWA for more than 15 years, including spells as a JICA expert in the Syrian Arab Republic and as a government official of the Ministry of Land, Infrastructure and Transport of Japan.

He has worked on dams, canals, barrages as an electric and telecommunication system engineer in the Kanto, Chubu, Kansai and Kyusyu regions of Japan. During his time at JWA, he has had experience of the construction and operation of water-related facilities, contracts, public bidding, capacity development, running some committees, and public relations.

Muhammad CholifihaniConsultant for Capacity Building and TrainingAsian Development Bank Institute

Muhammad Cholifihani is a staff member of the National Development Planning Agency (BAPPENAS) in Indonesia. Before joining ADBI in February 2012, he was Deputy Director in the Directorate of Planning and Enhancing for Development Funding. His previous positions have included head of section in the Directorate of Bilateral Foreign Cooperation at BAPPENAS (2002-2005) and visiting lecturer in the Graduate School of Public Administration, Esa Unggul University, Jakarta (2009–date). His research interests include debt sustainability, foreign direct investment, and economic development. His works have been published in Journal of Management and Social Sciences and Forum of International Development Studies. He holds a bachelor’s degree in economics from Gadjah Mada University, Yogyakarta, Indonesia, a master’s degree from the International University of Japan (IUJ), and a PhD in Economic Development Policy and Management from Nagoya University, Japan.

62 Appendix 3

Liu, MinquanSenior Research FellowAsian Development Bank Institute

Minquan Liu joined ADBI in July 2011. Previously, he was Professor and Chair of the Department of Development Economics, School of Economics, Peking University, and the Founding Director of the Center for Human and Economic Development Studies (CHEDS), Peking University. Before he joined Peking University in 2005, he was Professor of Economics at Hopkins-Nanjing Center, Johns Hopkins University, and a lecturer and research fellow with the University of Leicester and the University of Cambridge in the UK. His recent research has focused on human development and in other East and Southeast Asian economies. Professor Liu received an M.Phil from the University of Cambridge, and a D.Phil from the University of Oxford.

63

Country/Organization No. Participants

Armenia 1MS. ARMINE HAKHINYAN Lead Specialist Investment Policy Department, Ministry of Economy

Azerbaijan 2

MR. HUSEYN GULIYEV Chief Adviser Division for Cooperation with International Financial Institutions, Ministry of Economic Development

Bangladesh 3

MR. MD. TAJUL ISLAM Assistant Chief PPP Unit, Treasury and Debt Management Wing Finance Division, Ministry of Finance, Bangladesh Secretariat

Cambodia 4

MR. BOREY KEM Director General General Directorate of Public Works, Ministry of Public Works and Transport

Georgia 5MR. IRAKLI KOVZANADZE Chief Executive Officer Partnership Fund

Georgia 6MR. GIORGI PERTAIADirectorGeorgian National Investment Agency

India 7DR. KONDURU VENKATA RAMACHANDRA RAJUDirectorNational Productivity Council

Indonesia 8MS. SINTHYA ROESLY Chief Executive Officer Indonesia Infrastructure Guarantee Fund

Indonesia 9

MR. EKO NUR SURACHMAN Head of Infrastructure Sub-Division Risk Management Unit, Fiscal Policy office Ministry of Finance

Indonesia 10MR. YADI JAYA RUCHANDIChief Operating OfficerIndonesia Infrastructure Guarantee Fund

Japan 11

MR. MASAAKI AMMADirector GeneralCorporate Planning DepartmentJapan Bank for International Cooperation (JBIC)

Japan 12

MR. TAKEHIRO YASUIDirectorPrivate Sector Investment Finance Division IPrivate Sector Partnership and Finance DepartmentJapan International Cooperation Agency (JICA)

continued on next page

Appendix 4

List of Participants

64 Appendix 4



Japan 13MR. RYUTARO KOGAConsultantJapan Airport Consultants Inc.

Japan 14

MR. KAZUYOSHI FUKUSHIMA Councilor Panasonic Excel International Co., Ltd. Consulting Business Group Consultant Team

Kazakhstan 15MR. ZHOMART ABIYESSOV Chairman of the BoardKazakhstan PPP Center

Korea, Republic of 16

DR. HYUNGTAI KIMDirectorPublic Investment Evaluation Division, Public and Private Infrastructure Investment Management Center Korea Development Institute

Korea, Republic of 17

MR. SOOJIN PARKSpecialistFinance and International Cooperation Unit, Public Investment Evaluation Division, Public and Private Infrastructure Investment Management Center, Korea Development Institute

Kyrgyz Republic 18

MR. NURMAMBET TOKTOMATOV Head of Department Investment Policy Department, Ministry of Economic Development, Trade and Industry

Lao, People’s Democratic Republic of 19

MR. HOUMPHANH SOUKPRASITH Deputy Director General Department of International CooperationMinistry of Planning and Investment

Malaysia 20

MS. SITI ZALEHA MOHD FATHILLAHDirectorProject Monitoring & Secretariat SectionPublic Private Partnership Unit, Prime Minister’s Department

Nepal 21MR. KHUM RAJ PUNJALI Joint Secretary Public Enterprises, Ministry of Finance

Nepal 22MS. BINITA BHATTARAI Program Director National Planning Commission Secretariat

Pakistan 23MR. ARIF AHMED KHAN Additional Chief Secretary (Development) Government of Sindh

Philippines 24

MR. ROLANDO G. TUNGPALANDeputy Director-GeneralNational Development Office for Investment Programming National Economic Development Authority

Philippines 25MR. ELEAZAR RICOTEDirectorPublic Private Partnership Center

Philippines 26DR. MA. CECILIA SORIANOMember of the Board of TrusteesMetropolitan Waterworks and Sewerage System

Appendix 4 Table continued

List of Participants 65


Singapore 27MS. RU YAN TAY Technical Cooperation Officer Technical Cooperation Directorate, Ministry of Foreign Affairs

Thailand 28MR. CHAIPHAT THEMEYABUTR Senior State Enterprise Analyst State Enterprise Policy Office, Ministry of Finance

Thailand 29DR. WATCHAI CHARUNWATTHANA Head of Health Affairs Administration Bureau of Health Administration, Ministry of Public Health

Thailand 30

MR. THITIPHAN PAIROJTEERARACH Economist Public Infrastructure Financing Bureau, Public Debt Management Office

Viet Nam 31MS. NGUYEN THI LINH GIANGExpert/OfficerPublic Procurement Agency, Ministry of Planning and Investment

Foster Infrastructure Pty Ltd 32MR. RICHARD FOSTERDirectorFoster Infrastructure

Organization for the Economic Co-operation and Development 33

MR. IAN HAWKESWORTHCoordinatorOECD PPP Network, Budgeting and Public Expenditures Division Public Governance and Territorial Development Directorate

Inter-American Development Bank 34MR. GERARDO REYES-TAGLESenior Fiscal Economist and Project Team Leader Inter-American Development Bank

Asian Development Bank 35

MR. TREVOR LEWISInfrastructure Specialist (Public–Private Partnership)Sustainable Infrastructure Division, Regional and Sustainable Development Department

Asian Development Bank 36MR. GRANT HAUBERPrincipal Public–Private Partnership SpecialistSouth Asia Regional Department


MR. BOB FINLAYSONPrincipal Public–Private Partnership SpecialistPublic Management, Financial Sector, & Trade Division Southeast Asia Regional Department

Asian Development Bank 38MR. NEERAJ JAINCountry DirectorPhilippine Country Office


MS. FARZANA AHMEDLead Results Management Specialist (Public Sector Management) and APCoP Principal CoordinatorResults Management Unit, Strategy and Policy Department

Asian Development Bank Institute 40 DR. MASAHIRO KAWAIDean and CEO

Asian Development Bank Institute 41 MR. JAE-HA PARKDeputy Dean for Special Activities

Asian Development Bank Institute 42 MR. YASURO NARITADirector, Administration, Management, and Coordination





Asian Development Bank Institute 43 DR. YUQING XINGDirector, Capacity Building and Training

Asian Development Bank Institute 44 DR. GANESHAN WIGNARAJADirector for Research

Asian Development Bank Institute 45 DR. VENKATACHALAM ANBUMOZHICapacity Building Specialist

Asian Development Bank Institute 46 DR. HA-YAN LEECapacity Building and Training Economist

Asian Development Bank Institute 47 DR. MUHAMMAD CHOLIFIHANIConsultant for Capacity Building and Training

Asian Development Bank Institute 48 DR. MINQUAN LIUSenior Research Fellow

Asian Development Bank Institute 49 MR. TOMOTAKA HIGUCHIJapan Water Agency Representative

Asian Development Bank Institute 50 MR. ATSUSHI MASUDAJBIC Representative

ADBI Secretariat 51 MS. YOSHIE HAMAIAdministrative Staff

ADBI Secretariat 52 MS. TOKIKO YAMANAKAAdministrative Staff

ADBI Secretariat 53 MS. YUKO ICHIKAWAAdministrative Staff

APCoP Secretariat 54 MS. CRISTINA REGINA BONOANTechnical Advisor

APCoP Secretariat 55 MS. MYLENE BUERANOTechnical Coordinator

APCoP Secretariat 56 MS. SHERYL NAZARETProject Analyst

66 Appendix 4

Farzana AhmedPrincipal Coordinator, APCoP andLead Results Management Specialist, [email protected] Tel +63 2 632 4444 loc 5224

Cristina Regina BonoanTechnical Advisor

Mylene BueranoTechnical Coordinator

Sheryl Nazaret-CasasProject Analyst

Ma. Rosario BaxaLogistics Coordinator

Catherine ClarinResults Management Assistant [email protected]

For more information on APCoP and to access its resources, visit:http://cop-mfdr.adb.org

regional roundtable on public sector management and public ... · roundtable, public sector...

Documents