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UNSOLICITED PROPOSALS FOR PPPINTERNATIONL RELEVANCE AND PRACTICE
October 15, 2014
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OUR WORK IN PPPS
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RELEVANCE OF UNSOLICITED PROPOSALS – GLOBAL PRACTICE
SELECT POLICY LEVERS AND ISSUES
UNLEASHING PRIVATE INITIATIVE AND INGENUITY - MP POLICY ON UNSOLICITED PROPOSAL
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UNSOLICITED PROPOSALS NOTHING NEW…
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…HISTORIC CASE STUDIES
EGYPT - SUEZ CANAL
Unsolicited proposal, 99 year concession, award 1854 financial close 1865
canal opened on 17 November 1869,
financial problems, final cost was more than double
the original estimate
FRANCE – CANAL de MIDI
Unsolicited proposal, 1662
Field trial, proof of concept and technical feasibility, 1664
Award 1666, BOO model, (80% VGF, 20% private)
Canal opened 1681; 1898 take over by state;
1996 UNESCO World Heritage Site
CORE QUESTIONS FOR DISCUSSION
SHOULD GOVERNMENTS ENCOURAGE? - MANY COUNTRIES EITHER EXPRESSLY OR IMPLICITLY PROHIBIT THEM?
IF YES, WHAT POLICY TO PROTECT BOTH THE PUBLIC SECTOR AND THE PRIVATE SECTOR?
HOW TO MOTIVATE VALUE-ADD UNSOLICITED PROPOSALS?
CHASING THE BEST OF TWO WORLDS - ENTERTAIN PRIVATE PROPOSALS WITHOUT GIVING UP ON COMPETITIVE PROCESS? BALANCE
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SIGNIFICANT ROLE IN KEY PPP MARKETS
CHILE
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• EARLY PIONEER OF POLICY FRAMEWORK FOR UNSOLICITED PROPOSALS
• ADOPTION OF SIMPLE BONUS SYSTEM, REDUCTION OF BONUS, MOVE TO REFINED BONUS FORMULA
• SMALL FRACTION OF PROPOSALS TENDERED/ HIGH REJECTION RATE
• DECLINING TREND IN SUBMISSIONS? 2013 Road PROGRAMME SHOWS ABOUT 50% ORIGINATED THROUGH PRIVATE INITIATIVE
• DIVERSITY AND VOLATILITY OF SUBMISSIONS DIFFICULT TO MANAGE
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Strong competitive challenges to many unsolicited proposals –bonus system weakened incentive
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Chile - concerns among private sector over difficulties by government authorities to keep to defined timelines
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VICTORIA – NEW 2014 POLICY
Five stage process for assessment of unsolicited proposals; option to open to tender or Swiss challenge, but not required:
• Stage One: A private party submitting an unsolicited proposal for Government consideration, with full information requirements;
• Stage Two: The Government conducting a preliminary assessment of the merits of the proposal and deciding whether to enter into an exclusive negotiation;
• Stage Three: The Government and the private party entering into an exclusive negotiation to develop a full proposal for Government consideration;
• Stage Four: The Government entering into final negotiations to finalise outstanding issues with an intent to enter into a final and binding offer; and
• Stage Five: The Government awarding the contract
Some deviations, but overall consistency with state level and national policy
AUSTRALIA – EVOLVING POLICY
NSW: FIRST PPP – SYDNEY HARBOUR TUNNEL
• Long history of efforts for a harbour crossing, 1981 tender abandoned
• 1986, unsolicited proposal build Harbour Tunnel
• Government entered into exclusive negotiations and awarded without further tender process
• Traffic projections optimistic;, tolls higher than forecast, after initial difficulties now stable
• Process was heavily politicized and subsequent audit reviews pointed towards lack of formal policy; finetuning of policy framework - latest policy adopted in 2012
Victoria: MELBOURNE PAKENHAM AND CRANBOURNE RAIL CORRIDOR ($2–2.5 billion), first under the Government’s new unsolicited proposals process
• high-capacity trains and signaling; level crossing removals, stations; and
• 30 per cent capacity boost for one of
Melbourne’s busiest rail corridors.
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PHILIPPINES, KOREA
Philippines – one of the PPP pioneers in the region; mature PPP market; legal framework for unsolicited transaction since 94; growing growing number of successful unsolicited proposals,
Swiss Challenge method established by law. .
• NLEx-SLEx Link Connector
• Automated fare collection system (AFCS) intended for Metro Manila’s light rail transit lines. – “original proponent” challenge to legitimacy of public tender process
Korea – large share of unsolicited proposals in early stage of PPP program, generous government support to project. Since elimination of minimum revenue guarantees and introduction of more stringent requirements for feasibility studies, number of proposals and rate of successful adoption by government has tapered off considerably in Korea
Taiwan – guidelines for unsolicited project since 2002; significant share of PPPs originate through unsolicited route (50%)
SELECT POLICY OPTIONS
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KEY ISSUES
Motivation of speeding up project development – government capacity to engage?
Clarity and integrity of process
Balancing support towards ensuring flow of proposals and allowing for credible challenges to ensure competitive outcomes
Sanctity of review and award process from future legal challenges, robust legal framework, comfort of project financiers
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REIMBURSEMENT OF DEVELOPMENT COST?
PPP project development cost not insignificant, for more complex PPPs• Risk to recovery of these costs substantial :
• Project may turn out not viable
• Government may chose to not pursue bid process
• Competitors may succeed in challenge
Chile, South Africa, Argentina –• to compensate for IP, level playing field in tender
• Maintain private sector interest, but no obvious correlation
Korea, Philippines - no reimbursement of project development costs• to discourage frivolous bids
• to exclude disputes around level of costs
By the winning bidder or the government? What level of cost eligible for reimbursement?
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MOTIVATING CREDIBLE CHALLENGES
NEW MP POLICY CAPTURES WELL THE BROAD ISSUES…IMPLEMENTATION MATTERS
• Encourage private investors to develop proposals for PPP projects that address policy priorities in relevant sectors
• Ensure projects based on unsolicited proposals are subjected to competitive pressure
• Ensure transparency in assessing projects and awarding contracts based on unsolicited proposals
• Minimize incentives to submit poor-quality or frivolous project proposals, to avoid creating unnecessary workload in assessing unsolicited proposals.
• Clear policy message of support towards unsolicited proposals
• Provision for Swiss Challenge process, some ambiguity how process will work
• Transparency and disclosure principles outlined
• Clarity on reimbursement obligations should project preparation docs be subpar17