Project risk and Government support UNCITRAL Third International Colloquium on Public-Private Partnerships (PPPs) 23-24 October 2017, Vienna Experts for Chapter II Project risk and Government support October 2017

Possible future work on PPPs General concerns of Group II members General improvements considering PPP developments MLP and LG: sufficiently open texts to be applicable in developed and in developing countries Different levels of Public-private governance Corruption Certainty of public payments (gov. support) Wording adjustments to improve the Model Legislative Provisions improve Legislative Guide better align the two UNCITRAL texts

Possible future work on Ps PROPOSALS FOR CHAPTER II New chapter: Preparatory Measures and Project Selection – essential to project success  previous to actual Chapter II, that contains “Coordination of preparatory measures” via slidehunter.com (copyright-free)

Possible future work on PPPs PROPOSALS FOR CHAPTER II General proposals Use “PPP” instead of “concession”  “Concession” should only be used as one of the different types of contract considered in the PPP expression Replace “Concessionaire” for “private partner” Replace “Concession contract” for “PPP contract”

Possible future work on PPPs PROPOSALS FOR CHAPTER II General proposals The manner in which pre-selection criteria will be evaluated and scored/ranked should be clearer Revise bidders’ inviting process, when short- listing is allowed Re-draft unsolicited proposal process to promote competition, transparency, consistency, economy, and efficiency

Possible future work on PPPs PROPOSALS FOR CHAPTER II General proposals Add requirement that unsolicited proposals be subjected to project screening and selection processes Establish competitive processes for soliciting competing proposals

Possible future work on PPPs PROPOSALS FOR CHAPTER II Value for Money – VfM: in selection of project phase  motivation for the administrative choice of a project or the PPP form for a project Can be reached through comparators, like Public Sector Comparator – PSC via theconversation.com (copyright-free)

Possible future work on PPPs PROPOSALS FOR CHAPTER II VfM Insertion of three economic analyses in texts: 1) Cost-benefit and social impact analysis (possibly using PSC); 2) Value for Money (strict) analysis; and 3) Affordability analysis This previous phase could be mandatory for governments before launching a project

Possible future work on PPPs PROPOSALS FOR CHAPTER II VfM Analyze whether VfM makes sense in developing countries: in most there are not viable comparators  Establishing a link between VfM and the proper allocation of risk may be a challenge Establishing the need of creating VfM procedures would be a way to develop countries for PPP arrangements?

Possible future work on PPPs PROPOSALS FOR CHAPTER II Socio-economic policy goals – analyze the purpose of PPP projects Should the SDGs be taken in account for a PPP project choice?

Possible future work on PPPs PROPOSALS FOR CHAPTER II Exclusivity May be a good instrument, but, for the protection of competition, it: deserves a specific recommendation  consider compliance, anticorruption, antifraud and anti-collusion measures should be restricted to the minimum required and without affecting the possibility of future development for the country

Possible future work on PPPs PROPOSALS FOR CHAPTER II Risk allocation Is different in Civil Law and Common Law systems Varies as a result of the private partner's remuneration source: whether by the end-user (concession system) or by the public partner (wholly or partially) the certainty of payment by the public partner is crucial

Possible future work on PPPs PROPOSALS FOR CHAPTER II Risk New topic: requirement for a Risk Matrix Clarifies risks and its sharing Is a well-known instrument Should be present in LG and in MLP Adoption of proper institution and procedures for assessment and mitigation of risk Use of Public Investment Management (PIM) (World Bank instrument) – in LG

Possible future work on PPPs PROPOSALS FOR CHAPTER II Risk The content of the most recent World Bank Reference Guide (risk-related examples) can be mentioned in the LG, in categories (high-low, project, State etc.) Establish if risk transfer or limitation of risk is, in some extent, intrinsic to PPP format Consider wording for risk analysis and managing involved in financial modeling

Possible future work on PPPs PROPOSALS FOR CHAPTER II Risk Governments: establish and express clearly reasons for risk transfer – accordingly to VfM and budget analysis Provisions on risk sharing, operation/operating risk, demand and supply risks to be expanded Risk allocation accordingly to budget risks – in case the Government has no or less budget to cover its commitment to the project

Possible future work on PPPs PROPOSALS FOR CHAPTER II Risk Risk allocation should be implemented regarding the regulatory system of each country Risk allocation should change considering natural monopolies and possible competition Possible new section: “Mechanisms of managing the risks that belong to responsibility of the public partner” – institutional and legal mechanisms for monitoring risks assumed by the public partner – foresee enforcement measures

Possible future work on PPPs PROPOSALS FOR CHAPTER II Risk Possible new section “Mechanisms for the fulfillment by the public partner of its obligations under a PPP contract in the event of risks materialization Risk quantification and risk assessment wording to be expanded in MLP and LG Re-drafting of Recommendation 13 – clarify

Possible future work on PPPs PROPOSALS FOR CHAPTER II Government support Which forms of government support are suitable for PPPs? In which cases does it make sense to provide them? Governments should state clearly why support the project and the reasons for using the means chosen Procedure for assessment of need and justification of Government support or guarantee and award process to be fixed by law

Possible future work on PPPs PROPOSALS FOR CHAPTER II Government support Clarify “degree” of guarantees – breaking even/guarantees or tariffs covering all costs and investments /direct subsidies and linking it to the risk Two essential elements of previous decisions to government support – identify and increase : attractiveness of the project means to guarantee the fulfillment of the public partner obligations

Possible future work on PPPs PROPOSALS FOR CHAPTER II Government support Identify properly availability payment system Possible: add section “Impact of risks distribution on state budget deficit and debt” Redraft ancillary resources wording Address budget risks and specify mitigation measures

Possible future work on PPPs PROPOSALS FOR CHAPTER II Government support Wording for taking account of all guarantee(s) obligations even if off balance sheet/budget Incorporate international practices for backstopping government related to obligations in PPP contracts Ministry of Finances to take account of and manage every support, direct or indirect – direct and contingent liability

Possible future work on PPPs PROPOSALS FOR CHAPTER II Government support Government support and guarantees should be valid and remain binding all over the contract life Granted support do not disqualify the contract as a PPP – Civil law, in general, and EU requires at s least some risk assumed by the private partner Make mandatory or recommend as good practice the use of political risk insurance for PPP contracts

Possible future work on PPPs PROPOSALS FOR CHAPTER II Guarantees provided by international financial institutions (IFI) New wording: the role of step-in-rights considering other IFI guarantees Participation of IFI in the structuring of the projects for which they plan to provide guarantees: direct agreements / tripartite agreements

Possible future work on PPPs PROPOSALS FOR CHAPTER II Thank you Group II