Public-Private Partnerships UNITED NATIONS Special Unit/South-South Cooperation September 18, 2006 Rick Norment NCPPP Executive Director

O OMI 1 Why Use Public-Private Partnerships?  Demands –General Citizenry –Increasing Populations –Business Development –Special Interests  Budgetary Limitations

O OMI 2 Private Sector and Public Works – The First Step Toward PPPs  Mass Transit Systems  Railroads  Electric Utilities  Telephone and Telegraph  Water/Wastewater Systems

O OMI 3 PPPs as a Public Policy Tool  Private Sector Can Not Be “Unrestrained”  The Evolution of Law During the 19 th Century in Europe and US –Regulatory controls equally applied –Anti-Trust laws enforced by the courts –Enforced contract laws Between private and private Between public and private  But a balance is needed so both private and public Sectors win

O OMI 4 Public-Private Partnerships Defined A Public-Private Partnership is a contractual agreement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility. source:

O OMI 5 Some Vocabulary  B = Build  D = Design  F = Finance  L = Lease  M = Maintain  O = Operate  T = Transfer BOT, BBO, DBO, DBFOM, LOM, etc. Any Combination = PPP  DBFOM = PFI in Europe  LOM – Concession

O OMI 6 Private Sector Strengths The Result of Market Competition  Management Efficiency  Newer Technologies  Workplace Efficiencies  Cash Flow Management  Personnel Development  Shared Resources (Financial and other)

O OMI 7 Public Sector Strengths  Legal Authority  Protection of Procurement Policies (more on this later)  Broad prospective/balance the competing goals to meet public needs  Personnel – dedicated but constrained  Capital resources & underutilized assets

O OMI 8 Successful Partnerships The secret is to balance the strengths of each sector Balance

O OMI 9 Partnerships at Work  Transportation  Water/Wastewater  Financial Management  Urban Development  Public Safety  Social Programs  Environmental Programs  Education The Experience of One Sector Helps Another

O OMI 10 Worldwide Major PPP Projects Since 1985 * By Project Type  Roads65631%  Water61629%  Rail24712%  Buildings25312%  Airports1829%  Seaports1427% TOTAL VALUE: $887.4 billion * Projects of more than $5 million and not including O&M contracts

O OMI 11 Worldwide Major PPP Projects Since 1985 By Region  Europe20531%  North America17427%  Asia13721%  Latin America12619%  Africa 14 2% TOTAL VALUE: $887.4 billion Source: Synthesis of PPP Projects, on under “resources”

O OMI 12 Recruiting the Private Sector  What will bring them to the table?  Remember: –Development cost often over $1 million –Risks are higher than a traditional DBB –Long-term is needed to repay the initial capital investment

O OMI 13 The Private Sector’s Criteria  Guarantee of property rights  Established and enforceable contract law  Enabling legislation in place  Actual demand – Does the public really want this project?  Reasonable development timeframe  Financially feasible (public, user fees, etc.)  Manageable, shared risks

O OMI 14 The Private Sector’s Criteria Continued  Political Climate  Transparent Procurement Process  Market Evaluation  Environmental Evaluation  Solid Partnership Philosophy of Public Sector –Dedicated team for the processes Concept to RFP Management of negotiations Management of the partnership

O OMI 15 PPPs and Cost Savings = Part of the Puzzle  Quicker delivery vs. inflation  Design-Build can be another cost saver  Economies of scale –Engineering –Materials –Management practices  Savings – 5% up to 40%  Manage currency fluctuations

O OMI 16 GENERAL RULE: TOLLS/USER FEES DO NOT COVER THE TOTAL COST  But can provide enough income to make a project possible  Provide a cash stream for private equity investment - “enough dough to make it go”  There are “cash cows” –share the wealth with less fortunate parts of the system Cost Savings = Half the Benefits The Other is Income Generation

O OMI 17 Other Income Sources  Dedicated Tax Districts and Tax Increment Financing (TIF) –DC’s New York Avenue Metro Station  Underutilized Assets –Economic Development Oyster School –Transportation Oriented Development Union Station Cost Savings = Half the Benefits The Other is Income Generation

O OMI 18 Non-Construction Project PPPs  Operations and Maintenance –All types of infrastructure  Competitive Sourcing of Personnel Functions –Social program delivery –Financial management (debt collection, etc.)

O OMI 19 Managed Competition for Maintenance  Public and Private compete for the same contract  Can have an even split on the winners  Example: Highway Maintenance –Massachusetts Saved $15 million per year (Harvard Study) –Virginia Saved 12% on average –Texas Expanding program rapidly because of savings experience (again 12 to 15%)

O OMI 20 Asset Management Contracts  Applies to any capital investment  Energy Savings Performance Contracts  Can be included with construction through a defined life cycle –Build better = lower maintenance  Florida –Saved over 15% in maintenance costs

O OMI 21 Six Keys to Successful PPPs  Statutory and Political Environment  Organized Structure  Detailed Business Plan  Guaranteed Revenue Stream  Stakeholder Support  Pick Your Partner Carefully

O OMI 22 Managing for Success – Six Keys Component One: The Environment  Statutory authority and regulations  Political leadership must be in place –Leading Political Figure –Top Administrative Officials –“The Will to Change the System” –A Strong Policy Statement

O OMI 23 Managing for Success – Six Keys Component Two: Organizational Structure  Dedicated group (tied to the purpose of the partnership)  Dedicated and TRAINED personnel to monitor implementation  Examples: –TXDOT –VDOT –PPP Centrum –Partnerships UK –Irish Government’s Central PPP Unit  Need for Good Governance –To assure an open and fair procurement process –Consolidate staff = easier to monitor –Independent authority (domestic/internal or international)

O OMI 24 Managing for Success – Six Keys Component Three: Detailed Business Plan a.k.a. Enforceable Contract  Performance goal oriented - Allow for innovative plans  Best Value vs. Lowest Price  Plan/Contract should include: –Specific milestones and goals –Reporting of metrics and frequency  Risk Allocation –Shift to the private sector can raise costs –Identify best prices to retain, which to shift  Dispute Resolution Methodology  Workforce Development? –Develop in-country resources/small businesses

O OMI 25 Managing for Success – Six Keys Component Four: Guaranteed Revenue Stream  Funds to Cover the Long-Term Financing –Tolls/Fees (real or shadow) –TIF or other form of a Tax District –Long-Term Maintenance Contracts –Underutilized Assets –Creative Approaches

O OMI 26 Managing for Success – Six Keys Component Five: Stakeholder Support  Public Sector Employees  Private Sector  Labor Unions  End Users  Competing Interests  Requires: –Open and frank discussion between sectors –Knowing the FACTS (no myths) –Translating each other’s language

O OMI 27 Managing for Success – Six Keys Component Six: Pick Your Partner Carefully  This is a long-term relationship  Verify experience (technical capability)  Verify financial capability  Best Value vs. Lowest Price  Remember each sector’s motivation –Timely and effective execution –Reasonable return on investment

O OMI 28 Managing for Success The Most Critical is Component One: Strong LEADERSHIP makes all the other factors come together

O OMI 29 A Case Study: Dakar, Senegal – Water system

O OMI 30 A Case Study Dakar, Senegal – Water system  Originally, less than 56% had access to potable water  Government created an asset holding company -- Société Nationale des Eaux du Sénégal (SONES) Component One:Political environment Component Two:Organizational Structure  Developed a contract with a private consortium, with clearly defined goals and penalties –Maintenance specifications –Upgrading of equipment –Meet WHO standards for water quality Component Three:Enforceable Contract

O OMI 31 A Case Study Dakar, Senegal – Water system  Financial agreement included partial funding from the World Bank, and a gradual increase in the water rates with a “social block” Component Four:Guaranteed Revenue Stream  Extensive contact with local officials for evaluating the program before and during implementation Component Five:Stakeholder Communications  Award was made through an open competitoin, with the advance and counsel of a Dutch consultant (not part of the private consortium) Component Six:Pick Your Partners Carefully

O OMI 32 Six Keys to Successful PPPs  Statutory and Political Environment  Organized Structure  Detailed Business Plan  Guaranteed Revenue Stream  Stakeholder Support  Pick Your Partner Carefully