1. World Bank Toolkit for Public-Private Partnership (PPP) in Highways
State Technical University - MADI
World Bank Toolkit for Public-Private Partnership (PPP) in Highways
Cesar Queiroz
Lead Highway Engineer
World Bank
Moscow, 7 February 2005

2. Presentation Outline Transport and economic development
PPP and public policy requirements
The main risks of highway projects
International experience with highway PPP projects
Traffic forecasting risks
Impacts on revenues
The Toolkit for PPP in Highways
Case studies
Discussions

3. Developing and Advanced Countries
Developing countries include low- and middle-income economies
Advanced (developed, industrial, rich) countries denote high-income economies

4. Classification of Economies
Economies GNI per capita
Low-income $765 or less
Middle-Income $766 to $9,385
High-income $9,386 or more
Source:

5. Classification of Economies
Economies GNI per capita
Low-income $765 or less
Middle-Income $766 to $9,385
Lower $766 to $3,035
Upper $3,036 to $9,385
High-income $9,386 or more
Source:

6. GNI per capita ($/pop)
Source:

7. $/pop
EU15, EU8 and CIS
EU15
EU8
CIS

8. Economic Development and Transport Infrastructure
GNI ($/pop)
logGNI = 1.39 logPRD
R squared: 0.76
98 countries
Source: Queiroz and Gautam

9. PPP: Public Policy Requirements
Proposed highway projects should be part of Government program
Subject to full social cost-benefit assessment
to ensure public as well as private benefits
to establish need, and provide basis for public participation in financing
Concession award and agreement should
be well designed
be transparent & competitively procured
have clear rules for regulation of the concession

10. “Traffic Risk in Start-Up Toll Facilities” Standard & Poor’s (S&P)
67 toll case studies comparing forecast performance with actual/observed
Toll roads, bridges & tunnels
User-paid & shadow tolls
Key findings:
Systematic errors (optimism bias) in forecasts
Consistency of error-drivers
Produced a traffic risk index
Sensitivity testing is essential

11. S&P Research Results 2002
Mean ~ 70% Spread: 18% - 146% !

12. Traffic Forecasting Risk Index
Project Attributes
More Reliable Less Reliable
Tolling Regime
Shadow tolls
User-paid tolls
Tolling Culture
Tolls well established
No toll roads in country
Infrastructure
Estuarial crossings
Dense urban networks
Extension of existing road
Green field site
Highly congested corridor
Limited/no congestion
Few competing roads
Many alt. routes
Clear competitive advantage
Weak competitive advantage
Only highway competition
Multi-modal competition
Stand-alone facility
Reliant on other, proposed highway improvements

13. Error Drivers Miscalculation of road user willingness-to-pay
Recession/economic downturn
Future land use scenarios that never transpired
Time savings less than expected
Improvements to competitive (toll-free) routes
Underestimate of ramp-up period (traffic stability), both severity and duration
Less usage by trucks

14. Tolling Experience No tolling experience:
actual traffic = 56% of forecast
Tolling experience:
actual traffic = 87% of forecast

15. Future Challenges Point-of-use charging
depends on ability to pay/willingness to pay
New toll collection technologies
Reliability, take-up, back-office processing
Pricing sophistication
discounts (frequent user programs, resident discount schemes), peak/off-peak pricing, day-of-week, season-of-year

16. Main Lessons for Success
A well defined legal framework
Simple and transparent procurement
Shared risk-reward concession structure
First attempt with toll roads tend to have mixed results
Projects should have social benefits as well as commercial viability
Particular attention to traffic forecasting and hence revenues
Public sector comparator advisable

17. World Bank Toolkit for Public- Private Partnership in Highways

18. Toolkit’s Objective
To provide policy makers from economies in transition with some guidance in the design and implementation of a Public Private Partnership (PPP) in the highway sector

19. Definition of PPP
A Public-Private Partnership (PPP) constitutes a sustained collaborative effort between the public sector (government agencies) and private enterprises to achieve a common objective (e.g., the road project) while they pursue their own individual interests.

20. The Toolkit
The toolkit is structured under five headings and is navigated through a series of tree diagrams under each of these headings. It also includes a library and interactive financial models.

21. Availability of the Toolkit
Free of charge
A multimedia product available on a CD ROM
Also available at the World Bank’s web site:

22. Contributors Financing Institution Executing Agency Consultants
Public-Private Infrastructure Advisory Facility (PPIAF)
Executing Agency
The World Bank
Consultants
Groupe Egis (
in association with
Coudert Brothers (

23. The Highway Toolkit Includes
over 5000 pages of reference publications and web links
a 500 word glossary
case studies and financial simulation software

24. 1. Overview and Diagnosis 2. Project Characteristics
Toolkit Modules
1. Overview and Diagnosis
2. Project Characteristics
3. Public Sector Functions
4. Laws, Rules and Contracts
5. Implementation

25. Toolkit Modules
Overview and Diagnosis: rationale for private participation in the highway sector, alternative contractual forms, guide to conduct a diagnostic of the sector
2. Project Characteristics
3. Public Sector Functions
4. Laws, Rules and Contracts
5. Implementation

26. Toolkit Modules 1. Overview and Diagnosis
2. Project Characteristics: key considerations in the design of a public-private partnership, discussions of well-known PPPs
3. Public Sector Functions
4. Laws, Rules and Contracts
5. Implementation

27. Toolkit Modules 1. Overview and Diagnosis 2. Project Characteristics
3. Public Sector Functions: analyzes the roles of the public sector and presents the tools at Government's disposal for performing such roles
4. Laws, Rules and Contracts
5. Implementation

28. Toolkit Modules 1. Overview and Diagnosis 2. Project Characteristics
3. Public Sector Functions
4. Laws, Rules and Contracts: guidance on the design of legal and contractual frameworks for private participation in highways, with boilerplate provisions
5. Implementation

29. Toolkit Modules 1. Overview and Diagnosis 2. Project Characteristics
3. Public Sector Functions
4. Laws, Rules and Contracts
5. Implementation: outlines the key steps in introducing PSP, bringing elements from previous modules and distinguishing by type of private sector contract

30. 1. Overview and Diagnosis
Why Embark on PPP?
Context and Key Issues
Expected Benefits from PPP
Why (and where) is the Private Sector more efficient than the Public Sector?
Overview of PPP experience
PPI project data base
Choosing the right option
Forms of PPP
Making the diagnosis
PPP policy and strategy

31. 2. Project Characteristics
Tailoring appropriate PPP: A continuum of alternatives
Examples of well-known PPP

32. 3. Public Sector Functions
Protect community welfare
Planning and policy making
Provide adequate framework
Facilitator
Contract award
Regulation

33. 4. Laws, Rules and Contracts
Legislation
Legislative framework
Adjust legal framework
Regulatory framework
Standards
Contracts
Maintenance contracts
Operation and maintenance concessions
BOT type projects

34. 5. Implementation Actors Main Steps Managing the Reform
Selection and contract award

36. Public Private Partnerships
Build Operate Transfer Concessions
Management & Maintenance Contracts
Works & Services Contracts
Operation & Maintenance Concessions
Full Privatization
Low
High
Extent of private sector participation

37. BOT-type of Concessions
The responsibility of the concessionaire comprises an initial construction, upgrading or major asset rehabilitation, and operation and maintenance of the facility.

38. Allocation of Risks MaintenanceContracts ManagementContracts
100
MaintenanceContracts
ManagementContracts
Operation & Maintenance Concessions
RISK TO
PUBLIC
SECTOR
BOT
BOO
Decreasing Public Risks, Increasing Private Risks
RISK TO PRIVATE SECTOR
100

39. In addition to the five modules, the Toolkit also includes:
Financial simulation tool
Graphic simulation tool
Case study
CD Map
Documentation
Glossary

40. Glossary
Access control: Limiting the number of points at which vehicles may enter or leave the road ……
Zero-coupon swap: A swap in which the fixed-rate payer does not make any payments until the maturity date of the swap but receives floating-rate payments at regular payment dates

41. Glossary
Swap agreement: A contract whereby two parties agree to exchange periodic payments. The amount of the payments exchanged is based on a notional principal amount. There are four types of swaps: currency swaps, interest rate swaps, commodity swaps and equity swaps.

42. And where is the toolkit?

43. Financial Simulation Case Study
The Government of Farland is considering to build a road between the cities of Farport and Farcapital (located 50 km apart) through a Public Private Partnership (PPP) scheme.

44. Financial Simulation Case Study Basic data include:
Construction cost: US$200 million
Source of funds: Subsidies, equity and credit
Real interest rate: 10%
Concession duration: 30 years
Initial traffic: 15,000 vpd
Toll rate: US$5.00 (indexed on inflation)
Inflation rate: 7% per year

45. Financial Simulation Case Study
Using the above information and other default data in the Graphic Simulation tool of the Toolkit for Public-Private Partnership in Highways, please answer the questions below:

46. Financial Simulation Case Study
Question 1: In the absence of Government subsidies, ceteris paribus, what would be the return on equity (ROE)? What would be the change in the internal rate of return (IRR) of the project?
Answer: ROE would reduce from 15.63% (with a Government contribution of 44% of the construction cost) to 6.94%. No change in IRR (12.27%).

47. Financial Simulation Case Study
Question 2. While subsidies may be paid by the Government during the construction period, it recovers some of this payment through taxes during the operation period. What would be the Government contribution to this project that would lead to a financial balance for the government throughout the concession period?
Answer: About 23% of the construction cost, as 22% would generate a US$171,000 surplus and 24% would lead to a US$2,464,000 deficit.

48. Financial Simulation Case Study
Question 3. In the absence of Government subsidies, ceteris paribus, what would be the required initial toll rate to yield a return on equity (ROE) of 16%?
Answer: With no subsidies, an initial toll rate of US$8.00/veh yields a 15.08% ROE; an initial toll rate of US$9.00 yields a 17.82% ROE. So an initial toll rate between US$8.00/veh and US$9.00 would be required.

49. Some WB-related Sites
Toll Roads and Concessions
Toolkit for PPP in Highways
Port Reform Toolkit
How to Hire Expert Advice on PPP
Labor Issues in Infrastructure Reform

50. World Bank Partial Risk Guarantee Structure
Govern’t
World Bank
Counter
Guarantee
World Bank
Guarantee
Concession
Agreement
Project
Company or
Concessionaire
Private
Lenders
Loan
Agreement

51. Typical Financial Benefit of Partial Risk Guarantees
Reduce cost of private sector borrowing from LIBOR to LIBOR + 200

52. Unsolicited proposals to governments
Origin of most controversial private infrastructure projects
In theory, generate beneficial ideas
In practice, some unfavorable experiences; attempt to avoid competition; exclusive negotiations behind closed doors
Usually sole-source negotiations take much longer than expected

53. Should governments forbid unsolicited proposals?
Some governments forbid all unsolicited proposals to reduce public sector corruption and opportunistic behavior by private companies
Some governments recognize a good project idea in the tender by compensating the original project proponent