1. Public-Private Partnerships (PPPs) Bosnia and Herzegovina
Seminar: PPP’s: Public Private Partnerships
Overview of
Public-Private Partnerships (PPPs)
Mr. Sabino Escobedo – Senior Infrastructure Specialist –
The World Bank
Session 1 - Sarajevo, Tuesday July 24th 2007
The Government of
Bosnia and Herzegovina

2. Trends in Private Participation in Infrastructure
Definition of PPPs’ and options available
Overview of PPPs

3. Trends in Private Participation in Infrastructure

4. The Global Setting for Private Capital Flows
Net long-term flows to developing countries,
$Billions
Argentina Financial Crisis
Asian Financial Crisis
Russian Financial Crisis
Tech Bubble Collapse
Enron Crisis
Source: The World Bank

5. Inflows Into Developing Countries
Individual Country, Regulatory and Project Risk Matters More Than Ever
Predictably, good projects in developing countries with large markets, strong growth potential and increasingly transparent legal and regulatory environments are preferred over others.
With the downturn in investor appetite, other markets and opportunities are often not even being considered
1995
1996
1997
1998
1999
2000
2001 60
120
180
240
Inflows Into Developing Countries
$BN
Source: UNCTAD
Developing Countries
Asia and the Pacific
China
Africa
LDC’s

6. What went wrong in the late 90s?
External factors
Macro-shocks: East Asia and Argentinean crisis
strong currency fluctuations
retreat of international investors to core activities (post-Enron)
Problems with the PSP model
inexperience
incomplete contracts and risk allocation
insufficient local monitoring capacity (institutions)
political factors affecting stable investment environment
cost-recovery tariffs versus affordability
regulatory framework

7. Where Do We Stand Today?
all parties have learned: governments, investors, international financial institutions, consumers
… pure private provision is not the panacea, but shortcomings will not be solved by reversion to pure public provision
infrastructure needs remain huge
7% to 9% of GDP per annum in developing countries on average (US$ 500 to 600 billion)
private capital mobilization is still small (US 30 cents per US$)
the link between infrastructure investment, growth and employment, and poverty reduction is clearer and very strong (MDGs)
a new pragmatic approach based on PPP is needed
fiscal space is insufficient to fulfill investment needs
cost recovery policies but at a realistic pace. Need to reconsider use of targeted subsidies link to performance based criteria (output-based aid approaches)

8. PPI Global Trends: Looking Ahead
Public sector funding will remain central. However need to improve mobilization of private capital to effectively reduce poverty (PPPs).
70% of all infrastructure investments were publicly financed over the 1990s, 8% official development aid, 22% private funds
Stronger role of local and regional investors in infrastructure development (i.e., South Africa in SSA, Gulf investors in MNA, China, India in East Asia, etc.)
Domestic and regional capital markets, are likely to increase their role participating actively as financiers and investors in PPP schemes in the forthcoming years.
PPPs in sectors where the business model (customer base) is wholesale will continue to flourish (I.e., ports, airports, natural gas pipelines, freight railways, etc.)
PPPs in sectors where the business model is mass-retail and provision is decentralized will continue to have a larger public sector presence (I.e., water and sanitation, urban trasnport, etc.). However, private sector providers interested in O&M role and in improving efficiency.
Telecom (mobile in particular) will continue to be a dominant force (technology)
Delivery of infrastructure services to poor communities is essential to the achievement of the MDGs. Realistic cost recovery mechanism and targeted subsidies will drive the agenda. Small scale providers.

9. The New Infrastructure Agenda (WBG)
Business Model based of Service Delivery
WBG engagement along the full spectrum (public to private)
Expanding infrastructure finance, particularly at the sub-sovereign level
Assist with leveraging public funds on private capital markets (local currency financing – development of local markets)
Provide innovative risk mitigation products
currency risk
regulatory risk, etc
Realistic cost recovery mechanisms and targeted subsidies will drive the agenda:
Maximize access despite affordability issues
provide help in transition periods to ease distribution concerns
Support for effective and realistic implementation of PPP schemes that can maximize private resource mobilization per unit of public sector contribution.

10. Definition of PPP and options available

11. Public Private Partnerships: Basics
PPPs are contractual arrangements between the public sector and a private sector party for the private delivery of public infrastructure services or other basic services. PPPs are complex structures, involving different parties, long and demanding negotiations and relatively high transaction costs.
PPPs are a procurement tool where the focus is payment for delivery of services rendered (outputs – outcomes)
Project related risks (i.e., technical, performance, market and financial risk are transferred (to a great extent) to the private entity. Political, regulatory and foreign exchange risks should be allocated to the party best suited to deal with them (government, international financial institution, private insurers).
Contract payments are usually structured in such a way that the public authority and / or users pay only for services rendered satisfactorily and not for assets, which are inputs to service provision. Revenues are generated via: (i) user fees, (ii) government payments (subsidies) and (iii) multilateral / donor funding and or (iv) a combination of all of the above.

12. Public Private Partnerships: Advantages
Private sector efficiency and management skills are introduced to public service provision, producing higher service levels and / or reduced costs.
As noted in the previous slide, PPPs reduce project implementation risks for the government, and reallocate these risks to a private provider better suited to manage them.
Access to private capital is gained and public finances are improved.
The private sector is able to optimize whole-life asset costs, and the trade offs between capital and operating costs, in a way the public sector cannot.
Private sector can invest in new techniques and exploit economies of scale.
Higher stock of infrastructure results in higher growth – higher growth results in less poverty and more employment.

13. PPPs : Spectrum of Options

14. Overview of Public-Private Partnerships (PPPs)

15. Overview of Public-Private Partnerships (PPPs)
Day 1 - Session 2
Considering
Private
Participation
Day 3- Session 12
Unsolicited Bids
Day 3 – Session 10
Selecting an Operator
Part 1 and 2
Day 1-Session 3
Planning the Process `
Day 2 Session 9
PPP’s in Transport Sector
Elements of the Public Private Partnership Approach (PPP): Over the next three days we will look at the overall approach for establishing Public Private Partnerships:
We will establish an overview of the approach taken in developing a PPP arrangement, discuss the key issues related tp providing services, the definition of basic principles and look at tools and options for planning and design of reforms needed to establish a successful PPP Arrangement
DAY 1
2 Considering private participation:
A review of the key issues that governments can resolve in order to introduce private participation, including resolution of policy problems, effects of privatization, making privatization work, the various private participation models, and how the Toolkit approach works.
3 Planning the process of introducing private participation:
A four step process for developing policy, designing details of the arrangement, selecting the operator and managing the arrangements are reviewed. Key elements of the overall design such as stakeholder consultation, government institutions to manage the arrangement and key analytic and advisory work to support the arrangement are discussed.
4 Involving Stakeholders in the design of the arrangement:
Discussion on ways of identifying and involving stakeholders in the design of the arrangements and of distributing the benefits and costs of private participation so as to increase support and long term sustainability.
Day 2
5 Setting upstream policy:
This considers some of the key reform choices for the sector upstream of the design of the private participation arrangement, such as the allocation of responsibilities among different tiers of government, definition of the market structure for the sector (including appropriate scale and scope) and establishing policies and rules governing competition.
6 Setting service standards, tariffs, subsidies, and financial arrangements:
A section reviewing the key issues related to setting targets relating to coverage and quality; the implications of those targets for the cost of service; options for supplementing tariff revenue with subsidies; and some implications for design of the arrangement and its financing.
7 Allocating responsibilities and risks:
Provides advice on the identification, assessment and allocation of risks and responsibilities among customers, the operator, and the government and how to design tariff-adjustment and other rules to achieve the desired allocation.
8 Institutional Frameworks - Developing institutions to manage the relationship:
The choice and design of institutions—including courts, arbitration panels, independent experts, and regulatory agencies—that will interpret and apply the rules over the life of the arrangements.
PPP’s in the Transport Sector – with some Case Studies
Day 3
Selecting the Operator: This is in two parts as we have a lot of interesting material to cover
A review of the key issues to be addressed and steps involved in selecting an operator governments can use to select the operator. This includes detailed discussion on selection methods, selection criteria, managing the bidding process and some key bidding issues.
Unsolicited Bids:
Some of the key issues in resolving how to address unsolicited bids – how to maximize advantages, whilst ensuring transparency and fairness
Day 1–Session 4
Involving Stakeholders
PPP
Approach
Day 2 – Session 8
Institutional
Frameworks
Day 2 – Session 5
Setting Upstream Policy
Day 2-Session 7
Responsibilities & Risks
Day 2 – Session 6
Standards, Tariffs, Subsidy, Financials

16. Public-Private Partnerships (PPPs) Bosnia and Herzegovina
Seminar: PPP’s: Public Private Partnerships
Overview of
Public-Private Partnerships (PPPs)
Thank you!
Session 1 - Sarajevo, Tuesday July 24th 2007
The Government of
Bosnia and Herzegovina