Parpública SA (Portugal) Some lessons from PPP experience in Portugal: from basic effectiveness to efficiency and sustainability Rui S. Monteiro

Overview Portuguese experience until 2003 (Effectiveness proven) PPPs and fiscal risks The 2003 PPP framework (Addressing fiscal risks and affordability) The gateway process and the PPP Unit Project assessment: efficiency and affordability Impact on public sector reform Long-term contract management – a challenge

Portuguese experience until 2003 Main sectors: Highways, railways, trams Hospitals (including clinical services) No need for a PPP law Experience has demonstrated PPP effectiveness for the rapid development of infrastructure the improvement of service to end-users … but sustainability and efficiency problems need to be addressed

PPPs and risk reduction long-term contracts are able to check cost overruns (they rely on private sector management, allowing the public sector to focus on quality and service) payment structure may check time overruns quality may be safeguarded

PPPs and risk increase the public sector faces significant challenges in long-term contractual management → bargaining power, policy changes etc. the long-term characteristic of PPP contracts reduces the incentives to contain fiscal risks → PPP projects may be perceived as zero-cost projects

The 2003 PPP framework Budget: the PPP memo and quasi-appropriation The PPP Gateway process: the role of the Finance Ministry: power to stop or suspend a PPP project or programme if certain conditions are not met, namely if it does not provide efficiency or if it could endanger overall fiscal discipline it allows the Ministry of Finance to discuss the project and its procurement at an early phase it keeps responsibility for policy design in the hands of the sponsoring line ministry

Changes since 2003 greater emphasis on the provision of quality services to the end-user fiscal sustainability assessment innovation in financing new contractual schemes, e.g. schemes involving two (or more) private partners, with different terms risk-sharing (demand risk vs. availability risk)

Efficiency requirements focus on outputs (not inputs nor processes) risk-transfer prior licensing optimisation of financing simplification and standardisation competitive tendering contract management

The Finance Ministry PPP Unit Knowledge and guidance Project assessment: business case public sector comparator PPP vs. non-PPP procurement Optimisation of contractual schemes Renegotiation PPP oversight

Impact on public sector reform PPP focus on quality and performance quality-focussed departments gain input/process-focussed departments lose PPP contracts create benchmarks many PPP contracts are benchmarked PPP create competition and emulation effects on public management performance

Long-term contract management It is the main source of long-term efficiency Mixed results: Highly integrated activities do not rely heavily on the ability of the public sector to manage the contract; But interface risks may be high in sensitive sectors, e.g. hospitals Problems must be prevented In the long term, renegotiation must be assumed unavoidable → strategic management

Conclusions It there is a strong political will, PPPs are a very effective way to transfer some risks to the private sector... but fiscal risks need to be carefully addressed... and long-term affordability must be checked So, a good institutional framework for the preparation and assessment of PPP projects (including PPP knowledge in a PPP Unit, and MoF veto power) is critical both for the efficiency and sustainability of PPP projects and programmes

o Thank you for your attention o Questions? Rui Sousa Monteiro Parpública SA Rua Laura Alves, 4, 8º, Lisboa, Portugal tel: (351) , (351) fax: (351)