How can the World Bank help? eSAR Discussion Series P P P s & e G o v e r n m e n t Mark Dutz Randeep Sudan Andi Dervishi Stefan Haid

How can the World Bank help?

eSAR Discussion Series

P P P s & e G o v e r n m e n t

Mark DutzRandeep SudanAndi DervishiStefan Haid

What should a good PPP include?

• What are PPPs – Mark Dutz• The IFC Perspective – Andi Dervishi• Various Case Studies – Randeep Sudan• Case Study US Portals – Stefan Haid

Agenda


What are PPPs?

Conventional procurement

PPP continuum

Full Privatization

Government responsiblefor inv., operation & risks

Service contracts: pub.inv., pvt.operation of discrete tasks

Private Sector Participation (PSP) models

Management and affermage (O&M) contracts:pub.inv, pvt. Operation & Maintenance of system

DBO contracts: pub.inv., pvt.Design, Build & Operation

BOT & full concession (DBFO) contracts: pvt.Design, Build (construct and/or rehabilitate),Finance & Operate/maintain

increased risk transfer to private sector

What are PPPs?


Privately-owned assets,publicly regulated w/ licenses specifying rights & obligations of private parties & State

Public ownership of assets, services via a range of MT/LT contractual arrangements w/ varying level of risk transfer

Why are PPPs desirable?

• Risk transfer to private sector – Commercial know-how & managerial skills – Best-practice technologies & innovation

• Enhanced government accountability• Entrepreneurship & local enterprise development• Private finance

– Government payments can be leveraged by citizen user fees and/or government cost savings

What are the benefits of PPPs?

Result: Faster deployment of better services



Contractual arrangement should be based on:

1. Substantial risk transfer– allocation of risks to parties best able to

manage them 2. Quality of service & output specification

– focus on services associated with procured assets

3. Performance-related rewards– payment only if performance standards met

4. M&E plan over life of contract– achievement of whole-life performance

What are the ingredients of a good PPP?


What are the steps?


Project Preparation

Service Provider Selection

Contract Management

1. Service Need

(Output specs over time)

2. Option Appraisal

(Report on options)

3. Business Case

(affrdblty./public interest)

4. Project Dev.

(team, PSC, plan)

5. Bid Preparation

(EOI/ Short listing, RFP)

6. Bid Evaluation

(prf. bidder, value for $)

7. Final Negotiation

(sign contract, finc. close)

8. Contract Mgmt.

(construction, commissioning,

monitoring,dispute settlement,

continuing communications

Project/ Funding Approval

Bid Doc Approval

Project Finalization Review

What are pre-requisites for good PPPs?

Clear policy and legal frameworks– Rationale for use of PPPs & legal powers to contract out services– Dispute resolution procedures– Oversight of fiscal costs

Oversight procedures providing checks & balances1) Project preparation – business case & value-for-money2) Provider selection – guidelines for pre-qualification & tender3) Contract management – M&E, performance-linked

payments/penalties

Support functions1) Information dissemination – data, networking, training2) Guidance – model contracts, tools, case studies3) Catalytic functions – political/advisory support, funding

What are the pre-requisites?


Needed: Transparency, Competition, Monitoring, Empowered Public

• Rules to maximize transparency and competition– balance innovation stimulus with value-for-money – give private sector a framework within which to prepare

proposals

• Options to reward valid intellectual property– purchase concept and then award thru competitive bidding– offer proponent pre-defined advantage in a competitive bidding

process:

Special Example:Unsolicited Proposals


bonus system (e.g. the original offer is selected as long as it falls within a stipulated percentage of the best offer, within 10% of the lowest offer)

Swiss challenge system (third parties allowed to make better offers, ‘challenges’ for project during designated period, with proponent then given right to counter-match superior offers)

What can we do?

AAA: – Analysis of government’s ability to identify, procure and

manage PPPs.

TA: – Drafting/implementing policies & regulations– Building institutions– Training– Building support among stakeholders

What can we do?


What can we do?

Financing support:– Providing IFC advisory or financing services for transactions– Supporting PPP preparation via project development

funds– Funding PPPs via loans/credits where subsidies to

complement user fees justified (e.g. OBA)– Providing financing beyond tenor available in capital

markets– Providing credit enhancements to mitigate govt.

performance risks (e.g. Partial Risk Guarantees, MIGA Investment Guarantees)

What can we do? cont’d


The IFC Perspective:The Government Efficiency Curve


Today’sGov’t

Pre-PrivatizationGovernment

CoreGov’t

1960 - 2000 Today Next 10-15 years

Size of G

overnm

ents

Governm

ent Efficiency

Today’sGov’t

Pre-PrivatizationGovernment

CoreGov’t

1960 - 2000 Today Next 10-15 years

Size of G

overnm

ents

Governm

ent Efficiency

Pre-privatizatio

n governmen

t

Today’s Govt.

Core Govt

.

The IFC Perspective:Natural Outsourcing Path


Infrastructure Provision and ManagementInfrastructure Provision and Management

CitizenCitizen CompanyCompany LandLand VehicleVehicle LegalLegal

TaxationTaxationProcur.Procur.

OtherOther

PolicyPolicy

Legis.Legis.

Reg.Reg. Enfor.Enfor.

ElectoralElectoral

ServicesServices

Natu

ral O

uts

ou

rcin

g P

ath

Judic.Judic.

Infrastructure Provision and ManagementInfrastructure Provision and Management

CitizenCitizen CompanyCompany LandLand VehicleVehicle LegalLegal

TaxationTaxationProcur.Procur.

OtherOther

PolicyPolicy

Legis.Legis.

Reg.Reg. Enfor.Enfor.

ElectoralElectoral

ServicesServices

Natu

ral O

uts

ou

rcin

g P

ath

Natu

ral O

uts

ou

rcin

g P

ath

Judic.Judic.

Case Study:GCNet (Ghana Community Network)

Trade facilitation system• Partners:

– Equity $5.3 million– Customs, Excise and Preventive Services (20%)– SGS Switzerland and 3 other partners (80%)

• Fee: – 0.4% ad valorem on imports

• Results:– 49% increase in revenues in first 18 months– Clearance times at international airport reduced from 6 days to

under 4 hours

www.ghanatradenet.com


Case Study:Andhra Pradesh Broadband Project


• Connecting 23 districts, 1127 mandals and 21,000 villages with 80,000 kms of fiber

• Bandwidth from 100 Mbps to 10 Gbps• Investment of $90 million by private sector• Consortium consists of fiber optic manufacturer,

Cable television provider, Railtel, VoIP company, ISP among others

• Government contribution towards equity $5.7 million

• Free right of way permissions• Government as anchor client

Case Study:e-Procurement Projects


• South Korea– Investment of ~$80 million in the Government e-

Procurement System (GePS)– Savings of $2.8 billion annually

• India (Andhra Pradesh)– Partnership with Commerce One– Investment by private sector partner ~$1 million– Payments by bidders– Substantial savings to departments– Issues: software in escrow account

Case Study:e-Government Portal Typology


Component/Model

Model 1 Model 2 Model 3 Model 4

Development Public Private Private Private

Operation Public Public Private Private

Funding Public Public Public Private

© Stefan Haid

Case Study:Categorization of the 50 US State Portals

eSAR Discussion Series© Stefan Haid

http://www.ibm.com/us/

http://bearingpoint.com/portal/site/bearingpoint/menuitem.a4977774bdb00c911dba0624826106a0/channel/published/Home/

http://www.nicusa.com/html/index.html

Case Study:Portal Type 4 - Utah

eSAR Discussion Series© Stefan Haid

•PPP: Utah Interactive •Rankings: Top 5•Development: Private•Operation: Private•Funding: Private•Est. Cost: 5m+2m p/a•Business Model: Transaction fees on eServices•Commentary: An ideal self-funding eGov portal

Case Study:Characterization of Portal Type 4


• Makes maximum use of private sector potential

• Latest technology transfer due to private investment

• Little to no tax money is spent on the eGov portal

• Reinvestment budget

• Makes maximum use of private sector potential

• Latest technology transfer due to private investment

• Little to no tax money is spent on the eGov portal

• Reinvestment budget

• High transaction costs due to PPP with private firm

• Limited control for state• Discontinuity if private

firm leaves PPP prematurely

• Allocative distortions if transaction fee is too high

• High transaction costs due to PPP with private firm

• Limited control for state• Discontinuity if private

firm leaves PPP prematurely

• Allocative distortions if transaction fee is too high

AdvantagesAdvantages DisadvantagesDisadvantages

© Stefan Haid

Case Study:Lessons from US Portals


• Private sector companies can provide...– industry expertise to develop and operate portals.– sufficiently trained and qualified human resources.– enough money to finance an entire eGov portal.

• Private sector companies need...– a viable business case with an attractive ROI.– sources of revenue like online transaction fees.– government guarantees and transparent regulation.– a long-term relationship with their public partners.

© Stefan Haid


• KPMG: Public Private Partnerships/Private Finance Initiatives: An Introductory Perspective: http://www.kpmg.com.hk/en/virtual_library/Property_Infrastructure/Public_Private_Partnership.pdf

• Green Paper on Public Private Partnerships and Community Law on Public Contracts and Concessions (European Union): http://europa.eu.int/eur-lex/en/com/gpr/2004/com2004_0327en01.pdf

• Using Hybrid Funding Strategies to Support the State of Arizona (Development of Portal):

http://www-1.ibm.com/services/us/imc/pdf/g510-1678-01-wheres-the-money-hybrid-funding.pdf

• National Association of State Chief Information Officers: Innovative Funding for Innovative State IT: New Trends and Approaches for State IT Funding, Version 2.0., November 2003.

• www.gpoba.org

• www.ppiaf.org

For More Information


http://www.kpmg.com.hk/en/virtual_library/Property_Infrastructure/Public_Private_Partnership.pdf

http://www.kpmg.com.hk/en/virtual_library/Property_Infrastructure/Public_Private_Partnership.pdf

http://europa.eu.int/eur-lex/en/com/gpr/2004/com2004_0327en01.pdf



http://www.gpoba.org/

http://www.ppiaf.org/

Thank You


Documents

How can the World Bank help? eSAR Discussion Series P P P s & e G o v e r n m e n t Mark Dutz Randeep Sudan Andi Dervishi Stefan Haid