1. Toolkit for Public-Private Partnership in Highways
Cesar Queiroz
June 2004

2. 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 (

3. 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.

4. 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

5. 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.

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

7. Some PPP Useful Sites
Toll Roads and Concessions
Public-Private Options for Roads
Port Reform Toolkit
How to Hire Expert Advice on PPP
Labor Issues in Infrastructure Reform

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

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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 2. Project Characteristics
Tailoring appropriate PPP
A continuum of alternatives
Comparing PPP with music
PPP Equalizer
Examples of well-known PPP

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

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

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

21. 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

22. 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.

23. 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

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

26. And where is the toolkit?

27. Graph 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.

28. Graph Simulation Case Study
Basic data include:
Construction cost: US$170 million
Source of funds: Subsidies, equity and credit
Real interest rate: 8.5%
Concession duration: 23 years
Initial traffic: 20,600 vpd
Toll rate: US$3.40 (indexed on inflation)
Inflation rate: 5% per year

29. Graph 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

30. Graph 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 20.43% (with a Government contribution of 36% of the construction cost) to 13.33%. No change in IRR.

31. Graph 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 37% of the construction cost, as 36% would generate a US$1,186,000 surplus and 38% would lead to a US$954,000 deficit.

32. Graph 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 20%?
Answer: With no subsidies, an initial daily revenue of US$90,000 yields a 19.5% ROE; an initial daily revenue of US$95,000 yields a 20.9% ROE. Using linear interpolation, an initial daily revenue of US$91,790 yields a 20% ROE. As the initial daily revenue is the product of the initial traffic (i.e., 20,600 vpd) and the initial toll rate, the required toll rate would be US$4.45 per vehicle (i.e., / 20600).

33. Subsidies and ROE