Dealing with Unsolicited Proposals John Hodges INF Vice Presidency April 3, 2006

Possible PPP Project Awarding Scenarios

Why an Issue?  Prevalence: Philippines 17% (9/52), Chile 25% (12/48 - $1b), South Korea 31% (40/128)  Competition: Often for natural monopolies (i.e. toll roads, airports, water dist., etc.)  Transparency: Often original private proponent being awarded project through sole-source negotiations  Cost and Risk to Public Sector: e.g. Guarantees - Chile (75%), Korea (60%-80% - now abolished)

How unsolicited proposals are commonly handled  Majority of Countries - No formal policies, some prohibit (e.g. Colombia)  Part of Formal PPP System Require “market-testing” (e.g. Canadian and Australian States) Formal review and competition (e.g. Chile, S. Africa, S. Korea, and….to a lesser degree….Philippines & Virginia) Newer hybrid models: Costa Rica, Taiwan

Competitive Systems SystemCountryKey Characteristics Bonus System Chile, South Korea  Introduced into same competitive process as public tenders  Government determines final project characteristics  Original proponent must bid in formalized competitive process against counter-proposals but gets a “bonus” Swiss Challenge System Phils, South Africa  Original proponent negotiates final project characteristics  Introduced into a challenging process  Government calls for counter-proposals, original proponent has opportunity to also compete / match

Chile: Experience to Date

Conclusion  Competition and Transparency are Key  2002/2006 Diagnostic: Phase 1: Update experiences to date Phase 2: Develop “toolkit” type framework to directly assist govts and colleagues to develop policies Phase 3: Work with pilot countries

Thanks

Common Arguments for Sole-source Awards  Often in markets with little or no competition by nature (i.e. toll roads, airports, water dist., etc.)  Too small, too remote, or involves political risk and therefore will not attract much private sector interest  May not be cost efficient to tender  Developed more rapidly through direct negotiations  Projected was an unsolicited proposal, and proponent claims intellectual property rights to the project concept or engineering technologies

Unsolicited Proposals: Pros and Cons  A means for the private sector to bring governments constructive ideas for project development  Many governments’ experiences with unsolicited proposals thus far have been unfavorable (e.g. Dabhol Power Plant in India, IPPs in Indonesia)  Criticism usually stems original private proponent being awarded project without sufficient competition and transparency  Governments, almost everywhere, do not have expertise to negotiate with corporate lawyers  Politically, sole-source negotiations are often unpopular regardless of outcomes

Time Frame For Awards Country Prelim. approval Final approval Call for open tenders Counter- proposals / open tender Additional time Total (months) Chile712 2–4n.a.33–35 Korea, Rep. of 0.54—2–4n.a.6.5– 8.5+ Phils23—218+ South Africa

Virginia’s Unsolicited Transport PPPs  Governed by Public-Private Trans Act (1995)  $50,000 Proposal Review Fee  Can use public funds to finance project  Public does have some access (VA FOIA, website postings, comment period of 60 days)  Allow counter-proposals within 45 days  Various “subjective” internal reviews  and finally…..…sole-source negotiations