1. PPP Policy Framework for St. Petersburg
William Dachs
The World Bank
St. Petersburg- May 22, 2008

2. Background
St. Petersburg has embarked on one of the largest PPP programs in the world
Four mega-projects, multi-hundred billion Ruble investment
City PPP Law and Federal Concession Laws provide framework
Committee for Investments and Strategic Projects has played a key role in the PPP programme to date
The City supported by the World Bank has done a lot of work examining best practice to apply to the City

3. What are the City’s objectives?
To implement socially important projects in the City,
To increase the involvement of private investments into the economy,
To provide effective use of City assets and
To improve the quality of goods, works and services provided to consumers

4. Objectives will be met by…
Implementation of PPP projects that…
are affordable to the City and its people,
which offer good value for money in the services they provide
and in the risks that they transfer to the private sector a solid framework for appraising projects

5. How will the City do it? Four Key Challenges to policy framework
To implement a clear project preparation and approval system
by setting out a clear approval process for PPP projects
To improve coordination of activities
by being clear on the allocation of responsibilities between Committees
To standardize systems
by systemizing the project processes so that the time taken to prepare projects is reduced and the outcomes of the project are consistently of a high standard
To widen the range of PPP projects in the City
By examining all sectors methodically for potential PPP projects

6. Investment committees to provide training
PPP training program on
Use of standard PPP methodologies
Project appraisal and risk management
PPP projects at inception, feasibility study, bidding, negotiation, and contract management stages
Sector specific training on international and domestic experience in PPPs
Other international conferences and training relevant to the City
Available to all City Committees and Agencies.

7. Standardized Procedures and Documents
Investments Committee will develop detailed guidance material and methodologies for use by all City Committees on PPP Projects
Project initiation, project screening and the appointment of advisors
PPP feasibility studies
PPP Bidding and negotiation
PPP Implementation, contract management and monitoring
Standardized PPP Agreement (Contractual) provisions

8. Who will coordinate?
An appropriate forum should act as the coordination and policy committee responsible for
ensuring that the City PPP programme is consistent with the principles and objectives of the City law
oversee the communication and marketing of the PPP to all local stakeholders including the public and to international investors

9. City’s Policy on Unsolicited Proposals
International experience shows that unsolicited proposals will not be able to replace the strong role for government
The City should maximize competition and transparency by subjecting all unsolicited proposals to competitive bidding
However the City should accept unsolicited proposals where the private sector has identified a potential PPP project
It must be technically innovative and it must not be for a project identified by the City for development as a PPP or other form of open tender

10. PPP Policy Framework for St. Petersburg
THANK YOU !!!
William Dachs
The World Bank

11. William Dachs The World Bank St. Petersburg- May 22, 2008
PPP Project Cycle
William Dachs
The World Bank
St. Petersburg- May 22, 2008

12. Outline
Typical PPP project cycle
Timeline & milestones
Stakeholders: Where they fit in?

13. Timeline
1 month
2-6 months
6-24 months
10-30 years 13

14. Developing and approving a PPP in Victoria, Australia

15. Process flow of PPP projects: Phase I
Project Inception
Guidance Note 1
Advisory service
(Internal) Economic/Financial/Technical
Milestone
List of PPPs with preparation funding allocated
Timeline
3-4 weeks

16. Process flow of PPP projects: Phase II
Feasibility
Guidance Note 2
Advisory service
Economic/Financial/Technical/Legal/Environmental
Milestones
Decrees approving F/S and bidding documents
Timeline
2-6 months

17. Process flow of PPP projects: Phase III
Procurement
Guidance Note 4
Advisory service
Economic/Financial/Technical/Legal/ Environmental
Milestone
Approval of Final Contracts
Timeline
6-24 months

18. Process flow of PPP projects: Implementation Phase
Contract Management
Guidance Note 5
Advisory service
As needed
Milestone
Project Implementation
Timeline
Project Life

19. Detailed timelines for Procurement Phase
Possible investors’
conference
Issue RFQ documents
Appoint per-qualified
bidders
Issue final RFP
documents
Possible expression
of Interest
Prepare RFQ
documents
RFQ response
Phase
Evaluate RFQ responses
Issue RFP
documents
Prepare draft
RFP documents
Consultation with bidders
Prepare amendments
to RFP documents
Feasibility Study
Completed institution
due diligence
Continuing and completing land acquisition and EIA processes, legislative or regulatory
Processes to enable project, third party agreements
4 to 8 weeks
3 to 6 weeks
4 to 16 weeks
Decree approving
project FS
Decree approving
project bidding
documents
Tender
Commission

20. Procurement Phase timeline contd 2
Issue final RFP
documents
Bid submission
date
Selection of preferred
Bidder or decides on BAFQ
Selection of
Preferred bidder
Bid preparation
Bid evaluation
BAFO documents
BAFO preparation
BAFO evaluation
Prepare evaluation summary report
6 to 20 weeks
3 to 8 weeks
2 to 3 weeks
5 to 10 weeks
Tender
Commission
Tender
Commission

21. Procurement Phase timeline contd 3
Govt announces
Preferred Bidder
PPP agreement
signing
Financial closure
Negotiation of PPP agreement
Prepare evaluation report
including negotiation strategy
Fulfillment of funding conditionalities
Prepare Final Approvals
Prepare PPP agreement
management plan
Prepare close-out report
and case study
12 to 26 weeks
2 to 6 weeks

22. Typical PPP project structure and stakeholders
Political and Macroeconomic Risks
FX Risks and Refinancing Risks
Shareholders
Regulatory Risks
Granting
Authority
Lenders /
Bondholders
Shareholder’s Agreement
Concession Agreement
Regulatory & Demand Risks
Operator
Project
Company
Services
Purchaser
End-users
Operation & Maintenance Agreement (O&M)
Purchase Agreement (e.g., power purchase agreement)
Performance Risks
Construction Contracts
Regulatory and Performance Risks
Construction
Contractor
Raw Material
Supplier
Supply Agreement (e.g., gas supply agreement)
Completion Risks

23. Stakeholders roles: Public side
Line Committees
Project execution authority and signatory in the PPP agreement
Committee on Finance
Allocates explicit and contingent budget support
Part of approval process throughout project cycle
Committee for Investment and Strategic Projects
Implements policy for strategic investments of the City
Develops and implements projects classified as strategic investments
Committee for Economic Development, Industrial Policy and Trade
Implements economic development policy on industry, trade, consumer markets
Manages special economic zones
Other relevant committees (housing policy, public health, environmental etc.)

24. Public Stakeholders contd.
Committee on City Property Management
Manages public property of both the City and the Federal government
Signatory to City/Federal property on lease agreements
Tariff Policy Committee
Set tariffs for power, solid waste, housing subsidies, public utilities
Does not set tariffs for public transport, toll roads, parking or airports
PPP Support Unit
Assist Line Committees with PPP expertise throughout PPP project cycle
City government
Promulgates City PPP Law
City budget support
Federal government
Federal Concession law
Federal funding support

25. Stakeholders: Non-Public side
Private sector
Investor (equity)
Lender (debt)
Sponsor (contractors, operators)
Advisor (legal, technical, transaction etc.)
Users of services (direct beneficiaries)
E.g. toll road users, hospital patients/doctors, electricity consumers
Environmental groups (primary and secondary effects of the project)
Affected groups (indirectly interested groups)

26. PPP Project Cycle THANK YOU !!! William Dachs The World Bank

27. Phase I: Project Inception
William Dachs
The World Bank
St. Petersburg- May 22, 2008

28. Objective: Project Inception
…is to screen projects for suitability for development as a PPP
…not same as a feasibility study to demonstrate viability
…nor a test whether a PPP is better than a publicly funded project

29. Where to start? Step 1: Screening for suitability as a possible PPP
Step 2: Appointing a project manager and project team
Step 3: Appointing a transaction advisor
2929

30. Step 1: Project screening
Initial needs analysis and project screening through a Project Concept Document
[Full needs analysis and solution options analysis are done in feasibility study phase based on the institution’s initial assessment of needs and options at inception]
List the project on database and assign responsible committees/agencies 30

31. Project screening is an important step
Helps to exclude projects that will not offer value for money if developed as PPPs and allows:
Early identification of potentially good PPPs
Savings in development costs and time
Competition and focus from private sector
Improves probability of value for money

32. Aligning sector priorities and objectives
Line committee assisted by PPP Support unit screens projects to:
Demonstrate that the project aligns with the institution's strategic objectives
Move away from project by project approach to overall sector approach
Identify and analyze the available budget(s)
Demonstrate the institution's commitment and capacity
Specify the outputs
Define the scope of the project

33. Criteria used in project screening
Scale
Present value of capital costs at min of €20 million or Rubles 725 million
Difficult to create better VfM through small scale PPPs due to high transaction costs
Output specification
Service delivery as basis of project’s performance indicator over the whole life of the project
Opportunities for risk transfer
Allocation of risk to a private party is primary driver
When risk transfer is limited, VfM for PPP vs. Public procurement is limited
Applying the risk matrix during project screening can test risk transfer opportunities
Competitive market
Should be a minimum of two active private sector providers

34. Criteria contd.
Possibility for innovation or particular skills from the private sector
Test for historic development of innovative solutions in a particular sector by the private sector
Time available for development
Careful consideration to allow adequate time for development of PPP projects
If genuinely not possible, only then consider quicker alternatives
Likely costs and City support required
Costs should include known and explicit costs as well as contingent fiscal obligations
Assessment should include public financial support needed and city’s strategic objectives

35. Indicative Risk Matrix
Availability
Completion
Cost over-run
Design
Environmental
Exchange rate
Force Majeure
Inflation
Insolvency
Insurance
Interest rate Demand
Operating
Regulatory
Residual value
Change in law
Technology
Subcontractor

36. If project not selected, then
Potential PPP or not?
If project selected, then
Listed in a database and registered to formally carry out a feasibility study
At this stage, estimate Advisor fees, project management fees and appropriate budget
PPP unit should research to estimate costs realistically
If project not selected, then
Forms part of the normal budget process

37. Constraints in identification of PPPs
Lack of information to make realistic estimates
Scope of the project may change with new information
Public budget constraint as the main driver instead of efficiency gains
Sector strategic objectives change
Lack of political commitment
Value for money (VfM) and efficiency gains are difficult to quantify
Unrealistic expectations for the private sector
Political pressure to select certain projects

38. Step 2: Ensuring effective project management
Relevant line committee and PPP support unit should ensure effective project management by:
Identifying budgets
Appointing project manager
Appointing project team
Setting up project secretariat
Including the project in strategic focus of the government
Considering federal funding for project development and/or operation 38

39. Role of a project manager
Project manager is institution’s anchor and champion throughout the PPP project cycle
Manages the appointment and work of the transaction advisor through feasibility and PPP procurement
Manages the PPP agreement for the project term, representing the institution
Project manager may be appointed on contract or from within the institution
Within ensures capacity building and continuity
Senior management position, within Line Committee. Full-time job 39

40. Step 3: Appointing transaction advisor
Typically a consortium of professional consultants, from one or more firms, which works collectively as a team
Under the management of project manager and the oversight of project team
Contracts with the institution through the lead firm
Assures a single point of accountability
Easier to manage than a diverse group of advisors
Exceptions are environmental consultants and external reviews/auditors who should be independent 40

41. What does a transaction advisor do?
Phase II: PPP feasibility study,
transaction advisor does all the detailed financial, technical and legal work required to prepare the project. The advisor completes feasibility study to a standard that will enable the project to obtain necessary decision to execute the PPP agreement by issuance of City Regulation
Phase III: PPP procurement,
transaction advisor helps institution to implement PPP procurement, including preparing all documents for level II and III approvals, and completes close-out report and case study
Phase IV: Contract management onwards,
transaction advisor may be retained to support the City 41

42. Transaction advisor’s skills and experience42

43. Advantages of good transaction advisors
Experience in similar transactions
Protection against costly, avoidable mistakes
Access to national and international best practice
Technical strength to the City’s project team
Enhancement of investor confidence
Opportunity for skills development among government officials
Single point of accountability for getting the job done well and on time 43

44. Getting value for money from transaction advisors
Should be viewed as an investment and not simply an expense
Important to balance the need for top quality technical assistance with the need to keep overhead costs of preparing the PPP in check
Appointment process and contract terms aim to get optimal value for money from the transaction advisor 44

45. Managing advisors through the project cycle
Requires good management and effective leadership and oversight by the City
From defining the advisor’s terms of reference, to selection, and throughout their term of appointment
Recruiting reputable and expensive advisors…
Should not prevent the City from understanding the outputs in advisor’s work in order to make key decisions on the design and procurement of the project 45

46. Appointing a transaction advisor: avoiding common pitfalls
Appoint after project passed screening and listed as potential PPP
Retain until after signing of PPP Agreement
Ensures continuity and accountability
Procurement must be accordance with applicable federal law
Law focuses only on prices of services currently
Difficult to quantify advisor’s experience as a selection factor
Terms of reference should be precise and focused on clear deliverables
Set realistic timetables, budgets and output-based incentives 46

47. Avoiding common pitfalls contd.
Terms of reference should be precise and focused on clear deliverables
Set realistic timetables, budgets and output-based incentives
Selection of advisors should be:
Transparent & fair: avoid hiring additional consultants
Free of conflict of interest: either close ongoing consultancies or clearly separate
Understand limitations in the use of international consultants as they might lack local knowledge and experience
International and local advisors should be paired to ensure knowledge transfer 47

48. Phase I: Project Inception
THANK YOU !!!
William Dachs
The World Bank