1. Public Private Partnerships: The Next Phase for World Bank
Bob Prieto
Senior Vice President
Fluor
World Bank
Transport Unit Presentation
May 15, 2008
Washington DC
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2. Agenda What is a Successful PPP?
PPP Legislation and Regulation from a “Greenfield” Developer Perspective
PPP “How To” Process
Things to Consider
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3. What is a Successful PPP?
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4. What is a Successful PPP?
High-Speed Line
JFK Airport
Route 895
Connect
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5. What is a Successful PPP?
Provides improved project execution and performance certainty to the public sector.
More efficiently applies available capital or accesses additional sources of capital.
Scope control
Life cycle framework
Real pricing of risks
Sculptable finance structures
Effectively allocates life cycle risks
Provides attractive return with good performance upside to private sector
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6. Public-Private Partnerships (PPP) Top Ten
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7. PPP Legislation and Regulation from a “Greenfield” Developer Perspective
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8. PPP Legislation and Regulation from a “Greenfield” Developer Perspective
Good Legislation
Good Regulation
Design of an Efficient and Effective Bidding Process
Contract Issues to be Addressed by the Regulator
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9. Attributes of Good Legislation
Clear statement of policy
Provision to receive unsolicited proposals – a competition of ideas
Approval authority delegated to DOT
Requirement for clear regulations including evaluation of proposals
Involvement of local governmental units defined
Clear authority to commit public property
Powers of private sector partner delineated
Right to toll or charge other user fees explicitly stated
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10. Attributes of Good Legislation
Exemption from property and ad valorem taxes
Authority and requirements related to pre-development and comprehensive development agreements fully delineated
Termination provisions for cause and convenience provided for, including any remedies
Funding resources identified if federal, state, or local resources to be included
Condemnation authority defined
Enforcement provisions related to tolls and traffic enforcement
Waiver of any procurement regulations inconsistent with PPP delivery model
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11. International PPP Framework
The wealth of experience provides a framework for policy, project, and procurement design
Government financial models are gradually evolving toward models that better allocate risk and measure the financial effects of uncertainty
Regulatory regimes recognize the change that occurs in key financial variables over time and provide for renegotiation
Models are built for either outright sale of government assets or privately financed concessions
Models take a longer term view than a traditional project-specific financial model and explicitly consider available regulatory instruments
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12. Clear Regulatory Objectives
Financial viability of PPP
Toll rate structure efficiency
Fairness of toll rate structure
Efficiency of delivery and operation
Reinvestment efficiency
Recalibration of toll rate structure at periodic refinancing
Development of regulatory regime must be simple, transparent, non-conflictive, justifiable and justified, fair in allocation of risks, and avoid pricing discrimination and excessive price fluctuation
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13. Tools of the Trade Policy framework
Concession period and its linkage to rate of return
Toll rate level, structure, and adjustment mechanisms
Concession payments
Penalties and fines for non-compliance
Timing of investment and reinvestment
Quality standards, including those related to effective management and operation of the facility over time
Depreciation and amortization rules (tax and accounting policy issues)
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14. Types of Regulation Price or revenue caps Rate of return Hybrid
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15. Design of an Efficient and Effective Bidding Process
Encourage the bidder’s creativity
Judge all proposals received by carefully assessing the capabilities, credibility, and commitment of the proposers and carefully respecting the intellectual property rights
Choose a proposer on the basis of known and qualitative abilities. Financial criteria cannot be sole selection criteria
Recognize that the concessionaire’s capital contribution is determined by financing community requirements and should not be artificially capped
Establish the clear legal framework required
Implement a well-defined and transparent concession process with clearly defined selection criteria
Clearly define the obligations of concessionaire to:
Build
Maintain in good condition
Operate
Hand over the works at end of period
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16. Design of an Efficient and Effective Bidding Process
Identify rights of the concessionaire
Counterparty rights which arise from financial agreements, including subsidies and tariff guarantees included in the contract
Rights to operate the service and the degree of independence of those rights from the granting authority
De facto monopoly rights
Rights with respect to third parties
State rights transferred to concessionaire (eminent domain)
Rights to use the facility and receive fees
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17. Design of an Efficient and Effective Bidding Process
Procurement process itself should be carefully conceived:
Should not be built around competing on toll levels or expected usage (increase risk to government from increased likelihood of concession company default)
Should have adequate preliminary studies complete to define project scope and facilitate advancement of the environmental process
Rely on careful pre-selection of qualified bidders to ensure capability to meet financial commitments
Carefully define government’s role and obligations at outset of process
Provide an opportunity to comment on tender documents and negotiate contract form in advance of proposal submission
Clearly define the evaluation criteria
Establish a realistic timetable for the negotiation process
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18. Contract Issues to be Addressed by Regulator
Concession period
Investment
Toll rates and structure
Quality
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19. PPP “How To” Process
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20. Does Political Will Exist?
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21. Does A Potential Project Exist?
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22. Will Stakeholders Support the Project?
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23. Are There Any Fatal Flaws?
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24. Will It Make Financial Sense?
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25. Are There Any Fatal Flaws?
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26. Will the Project “FLIP”?
inancial
egal and risk
nnovation/value creation
olitical
ocial and environmental L I P S
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27. Will the Project “FLIP”?
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28. Sharing the Risks
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29. Risk Allocation – Value of Money
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30. Contract Issues Issues Considerations Risk
Uncertainty and who owns it is what a PPP negotiation is all about
Concession period
Time to recover target rate-of-return; repayment of debt
Procedure for toll rate approvals (and linkage to cash flows and costs)
Rules related to transfer of assets for non fully amortized investments
Investment
Commitments
Timing of toll rate increases and linkage to political cycles
Amortization rules (accounting, tax, and concession agreement-specific)
Toll rates and structure
Rates, structure, free vehicles, mechanisms for adjustment over time
Targeted efficiency gains
Modeling of uncertainty and changing financial coverage ratios become key parameters in the negotiation process
Handling of any non-regulated activities must be carefully addressed
Cross subsidies clearly defined and any restrictions placed on use of cross subsidies fully understood
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31. Contract Issues (continued)
Considerations
”Social engineering”
Objectives and their potential impacts on toll rates and structure must be clearly developed
Quality
Technical and service quality standards
Caps or floors
Level of fines
Relationship between cost, quality, and level of fines
Contractor/developer rights
Counterparty rights which arise from financial agreements, including subsidies and tariff guarantees contained in the contract
Rights to operate the service and degree of independence of those rights from the granting authority
De facto monopoly rights
Rights with respect to third parties
State rights transferred to concessionaire (eminent domain)
Rights to use the facility and receive fees
Rights of government to repurchase concession at an early date and basis for any such repurchase
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32. Can We Close It?
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33. Things to Consider
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34. Things to Consider Policy
Model legislation and regulation including alternative dispute resolution process (by World Bank)
Special category of tax free debt
Pricing as scarce resource allocation mechanism
Managed lanes
Congestion in and around urban areas accounts for significant portion of annual greenhouse gas emission growth
Pocahontas “variant”
Financing tools
TIFIA style sub-debt facility (by World Bank)
Defined rules
Sculptable
National level private activity bonds for use by local governments (tax features)
Monoline type facility
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35. Things to Consider Technical work
Life-cycle cost tradeoff models (concrete vs asphalt)
O&M cost models and long term performance specs for PPP contracts
Income vs CPI differences for major urban centers
Value of time correlations
Traffic models that consider:
Changing income demographics (economic link)
Peak spreading over long PPP periods
Changing annualization factors over long PPP periods
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36. Questions?
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