Daniel Loschacoff, Ministry of Finance, PPP Unit 20th of October 2005 PPPs in the Netherlands, policy and practice

Content 1.Public Private Partnerships? 2.Evolution of thinking about private sector involvement 3.What does this imply for the Public sector 4.The first Dutch PPP: HSL-South Infrastructure Provider

Main message Consider for the realisation of future large public investments if the benefits of a PPP approach outweigh the inherent problems

What is a Public Private Partnership ?

Two types of procurement of large public investments: Demand type of PPPs Availability type of PPPs

Availability PPP characteristics  Integrated responsibility for design, build, finance and maintenance  Long term contract based on the project life-cycle  Design, construction and maintenance at the risk of the private consortium  Private capital at stake during the whole of the contract  Payments based on performance, i.e. the availability of the service

Evolution of thinking  In earlier centuries most infrastructure was in private hands (Michael Klein)  The nationalisation period  Margaret Thatcher in the UK (80’s)  Private Finance (budget restrictions)  Demand risk to the private sector  Value for money – availability contracts

Why do we do this ? Lack of capital ? Private Sector is always better ?  PPPs are an example of smart procurement aimed at efficient public spending and higher quality of public service But also: Project life cycle approach (service approach) Use of private sector capabilities (innovations, incentives, economies of scale) Private competition against a public benchmark Public sector reform ?

Public sector implications 1.Political support 2.Dedicated PPP Unit 3.Knowledge on true costs of public works & investments 4.Alignment with COM aid

Critical role of political support  PPPs create resistance  PPPs are part of Government reform

Establish a national PPP unit  Part of a strong ministry  Strong links to the Cabinet  Mix of public and private staff  Not just transaction advise  ….but also policy development  …. And dissemination of knowledge to all investment ministries

What are we currently paying ?  No cost recording  No benchmarking  Hidden costs  Huge risk exposure/maintenance backlog  No relation to performance  Put it on the political agenda

Results from Prof. Flyvbjerg’s research Underestimating Costs in Public Works Projects, Error or Lie? (APA Journal, Summer 2002)  In 9 out of 10 transportation infrastructure projects, costs are underestimated  For rail projects, actual costs are on average 45% higher than estimated costs  Cost estimation exists across 20 nations and 5 continents; it appears to be a global phenomenon  Cost underestimation has not decreased over the past 70 years. No learning that would improve cost estimate accuracy seems to take place  Cost underestimation cannot be explained by error and seems tot be best explained by strategic misrepresentation, i.e. lying

State budgeting system (Cash system) Problem: Focus on initial investments and ignores project life cycle costs and risk valuation

Leading to:  Selection of bad projects  Distortion in the comparison public-PPP  Sub-optimal investments

Alignment with COM aid  The COM transport policy is more and more PPP friendly  For the next Financial Perspective, special PPP initiatives are developed  …. PPP obstacles are mitigated  …. And project requirements more favourable to typical PPP characteristics

The High Speed rail Line

What is HSL-South? London Paris Amsterdam Schiphol Rotterdam Antwerp Brussels Breda

Facts and Figures  15 million passengers 50% national / 50% international  Ready 2007 contract award civils: 2000 contract award IP: 2001  Infra: 96 km new track  State of the art technology

HSL-South business concept Political: maximise passenger volume Marketing: travel times, reliability Operational: avoid delays Infrastructure: high availability Rolling stock: avoid equipment failures

Civil Works Design and construction contractors PPPs for commercial development of railway stations Government Private financiers Passengers NS station Managers Train Operating Companies Operating costs Rolling stock and maintenance Financing/tax/dividends Funding for civil works Supply commercial facilities Access fees Fares Repayment of loans Loans Transfer of management Performance fees Access fees payment during construction phase payment during operations transfers Coordination/cooperation

The HSL-South contract:  Scope: design, build and finance new systems, operate and maintain all new infrastructure  Terms: 5+25 years  Quality level: 99% availability between hours  Payment mechanism: fines if the availability is below 99% and…  Early termination: if the line is not up to safety standards (direct) or if there are structural availability problems

Results  Guaranteed high performance  Better budget control – but a long term commitment  Efficiency gains – less expensive that if traditionally procured

Questions Or contact: