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Adrian Howcroft PricewaterhouseCoopers

UNECE PPP Conference – 25 October 2005

Delivering the PPP Promise

© 2005 PricewaterhouseCoopers LLP. All rights reserved.

Government and Public Sector PricewaterhouseCoopers1

Delivering the PPP Promise

PPPs in Context

PPP Progress in Europe

Realising the Promise

Conclusions

PPPs in Context


What is the aim?

Need to know why you are doing it

• various reasons for using PPPs– value for money– lack of public funding/speed of delivery– off balance sheet investment

• clarity of objectives– at programme and project level– often lacking

Judge success against objectives


Why are you doing it?

demand (GDP-led)

time

supply (netinvestment)

value ofinfrastructurein real terms

infrastructure gap


How are you going to do it?

Many different forms of PPP

• revenue generating projects

• availability based schemes

• PPPs with an element of public sector guarantee

• partnering techniques


How are you going to do it?

Many different forms of PPP

• revenue generating projects

• availability based schemes

• PPPs with an element of public sector guarantee

• partnering techniques

Need to ask

• is a PPP the right approach?

• what form should be used to achieve stated objectives?


PPPs Progress in Europe


Increasing use of PPPs across Europe

Summary of PPPs by country and sector


Increasing use of PPPs across Europe

Summary of PPPs by country and sector (cont’d)

Acceding Countries

Candidate Countries

New Member States

… and increasing institutional development


EIB PPP Signatures Per Year(MEUR)

0500

100015002000250030003500

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

/06

Source: EIB

EIB involvement in PPPs


PPPs and the EU

PPPs identified as a means of delivering EU objectives

• PPPs “fit” with EU principles

• Increasing interest in PPPs– funding instruments– Green paper – 2004

But…

• No “policy” on PPPs– procurement regulations and state aid– PPPs and EU grants


PPPs and the EU

“PPPs are booming. They can be an important tool for improving the quality of public services and supporting growth in Europe. The EU needs a suitable regulatory framework for developing these partnerships in order to apply transparency and fair competition for the benefit of the taxpayer. There is a lot at stake, and I call upon all interested parties to respond to this consultation –we will listen to what you have to say.”

Frits Bolkestein - Internal Market Commissioner

… but still awaiting a response to the Green Paper

Realising the Promise


PPPs can make projects affordable

Figure 2: Profile of a PPP Transaction

Road Transaction Revenues / Costs

0

20,000

40,000

60,000

80,000

100,000

1 5 9 13 17 21 25 29 33

Year

£'000s Annual PaymentOperating CostsCapital Costs

Direct costs v PPP Annual Payment


PPPs can maximise the use of private sector skills

• Under traditional procurement the private sector is expected to deliver an asset to time and budget

• PPPs require the private sector to:– deliver assets on time and budget– ensure these assets deliver the services required over

the long term– project manage project delivery– undertake integration risk– maintain and refurbish assets– take life-cycle risks


PPPs can allocate risks to the party best able to manage or absorb risks

• Private sector can manage some risks better than the public sector– construction risk– delivery risk– project management

• However where the private sector cannot manage risks, they will price it badly – carefully consider – revenue/traffic risks– level or nature of services (flexibility)– labour issues


PPPs

• PPPs force the public sector to focus on outputs and benefits – fundamental change

• Whole life costing approach

• Quality of service has to be maintained over the PPP’s life

• PPPs deliver budgeting certainty - only pay a pre-determined amount when services are delivered

• PPPs can deliver better value for money:– but there must be strong competition, private sector

expertise and sensible risk allocation


But…

• PPPs cannot absorb unlimited risk – realistic allocation

• PPPs entail a loss of public sector management control

• The private sector has a higher cost of finance

• PPPs are long-term and relatively inflexible

• PPPs require enhanced capacity and capability – private sector – public sector


Conclusions


Conclusions

• Growing use of PPPs across Europe

• PPPs are a procurement approach the public sector should consider for major capital projects and services

• With the right expertise and competition, PPPs have the potential to deliver good value for money compared to traditional public sector alternatives

• But the qualitative factors that argue for a PPP approach need to be considered and bids need to be competitive

• Need for much better public sector understanding, capability and capacity


Conclusions

PPPs are not a panacea

They require skill, knowledge and understanding

Government and Public Sector PricewaterhouseCoopers22www.ppptransportsummit.com/

PPP is not the answer to every solution – but

used and managed properly, it is a

mechanism through which we can deliver a step change in public

services across Europe.

Rt Hon Alistair Darling MPSecretary of State for Transport.


Coffee Break until 11.00Coffee Break until 11.00

Rooms C4 and C6Rooms C4 and C6

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