managing complex ppp infrastructure projects in belgium and the netherlands
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Managing Complex PPP Infrastructure Projects in Belgium and the Netherlands
Ciska Servais & Dieter VeestraetenBenelux Infrastructure Forum 2016, Amsterdam
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21/11/20161Introduction
Session 1: How to Deal with Governments in a PPP?
Session 2: The Impact of Local Stakeholder Resistance on Infrastructure Projects
Session 3: Cultural Differences a Comparison between Belgium and the Netherlands
Session 4: Guidelines for a Successful PPP
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IntroductionInfrastructure gap in EuropeNecessity to improve public infrastructureCondition for economic growthEU Governments have limited financial resources and face European restrictions on raising additional debt (ESA 2010)Increasing gap between the cost of infrastructure works and resources availableKey question: how to deliver cost-efficient investment?=>Public Private Partnerships (PPPs) are growing element of public sector procurement across Europe21/11/20162
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IntroductionFeatures of a typical PPPLong term partnership between government and private partner(s)Arrangements where the private sector supplies infrastructure assets and services that traditionally have been provided by the government (IMF, 2004)Use of a special purpose vehicle (SPV)Clear task and risk allocationVarious assets and types:building and operating hospitals, schools, prisons, roads, bridges and tunnels, light rail networks, air traffic control systems, and water and sanitation plantsDB(F), DBM, DBFM or DBFO
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IntroductionBeware of ESA 2010Excessive deficit procedure of Maastricht Treaty: public debt ratio of max. 60% of GDP and deficit of max. 3% of GDPEuropean system of accounts (ESA) aims to gather reliable and comparable statistics on the debt and deficit position of Member StatesESA 2010 is reference framework as of September 2014 (legally binding)Contains rules for statistical treatment of PPPRecent guide of Eurostat on statistical treatment of PPP (September 2016)
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IntroductionAdvantagesPPP makes infrastructure projects cost efficient and affordablePPP maximises the use of private sector skillsInjection of private capitalOff balance sheet (ESA 2010 neutral)Case: Oosterweel connection AntwerpFor the private sector, PPPs present business opportunities in areas from which it was in many cases previously excluded
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IntroductionDisadvantagesLoss of management control by public sectorPPP procurement can be lengthy and costlyPrivate sector has higher cost of finance compared to public sectorPPPs are long-term relatively inflexible structures21/11/20166
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IntroductionTypical PPP structure
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Session 1: How to Deal with Governments in a PPP21/11/20168
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Government as Stakeholder or RegulatorGovernment as a Risk FactorGuidelines for Risk Management21/11/20169
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1. Government as a Stakeholder vs Government as a RegulatorConflict of interest?Local government vs regional or federal governmentMembers of same political party on different levels may take different positions!Institutional due diligence: coordination of views by public stakeholdersGovernment as regulator:Granting permitsAssessing complaints / environmental reportsCourts: legal procedures
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2. Government as a Risk FactorPPP more risk for the private party (traditional public procurement: more risk for the public party)ESA2010Recurring risks:Financial riskLegal riskPolitical riskOrganisational riskTechnical riskOften a combination21/11/201611
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2.1 Financial RiskInsufficient financial means of the public party, often caused by wrong persuasive information re costs, income and risksHigher/lower use of the infrastructure than initially estimatedCase: Liefkenshoektunnel (Belgium)toll tunnel between Antwerp and Beveren under the River Scheldecontinuation of Highway R2, the ring motorway surrounding the city and harbour of Antwerp ; the second of three sequential road tunnels running under the river and port installations constructed between 1987 and 1991, and opened on 10 July 19911993 : legal proceedings1995: settlement + buy out = Government now owns SPV Liefkenshoektunnel
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21/11/2016132.1 Financial RiskCase: Diabolo railway connection (Belgium)
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The Diabolo project created a new railway line serving Brussels National Airport.DBFM structureSPV Diabolo will maintain and rent the infrastructure to Infrabel for 35 yearsSuccessful PPP butOverestimation of revenuesRevenues: (increased) surcharge to be paid by travellers21/11/201614
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2.2 Legal RiskAdministrative and legal proceduresContestation of permits by third partiesSuspension or annulation of permits by courtsContestation of selection of PPP partner by competitorsLack of an adequate legal frameworkE.g. Belgian law restricts the creation or transfer of security over assets used in the provision of public servicesMost governments have adopted specific PPP legalisation nowCase: prison of Dendermonde (Belgium)The Belgium Buildings Agency awarded BAM PPP the contracts for the construction of two prisons in Beveren and Dendermonde, which will house 312 and 444 inmates respectivelyLegal proceedings by local action committeesAnnulment of spatial implementation plan of governmentSubstantial delay
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2.3 Political RiskChanges in national and international legislation after contract closureChanges in the decision making processAppointment of new governments following elections, with new political agendaAfter closing: pacta sunt servanda?Before closing: delay or abortion of projectOrganisation of referenda by governmentCase: Oosterweel (Belgium)construction project intended to complete the Antwerp Ring Roadmodification of construction plan following referendum: first a bridge, now a tunnel?substantial delay21/11/201616
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21/11/2016172.3 Political RiskCase: Oosterweel (Belgium)
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1.4 Organisational RiskInsufficient follow-up and project management by the public party after contract closureE.g. Insufficient project methodology (project team, project plan, budget, quality and safety plan,)Lack of or poor communicationE.g. high media profileCase: Oosterweelverbinding AntwerpLack of or poor risk management21/11/201618
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21/11/2016192.4 Organisational RiskCase: Betuweroute (the Netherlands)
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2.5 Technical RiskConstant evolution of methods and techniques Changed initial principles after closure caused by:Wrong initial principlesTime pressureNeed for additional researchSoil/water pollution, archaeological sites, Case: HSL-Zuid (the Netherlands)New train protection systemsLack of test trains and test trailSubstantial delay21/11/201620
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3. Guidelines for risk management Preventive MeasuresProject ManagementCommunication ManagementContract ManagementFinancial ManagementRisk Allocation21/11/201621
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3.1 Preventive Measures3.1.1 Project ManagementMultidisciplinary team and flexible project structureStandard project methods and toolsReporting structureLegal expertise21/11/201622
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3.1 Preventive Measures3.1.2 Communication ManagementCommunication strategyRepresentative but operational consultation network21/11/201623
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3.1 Preventive Measures3.1.3 Contract ManagementIntegration of contract management into the organisation of the projectAvoid hasty decision-makingStandardization (template risk allocation matrices, model contracts,)Long-term contract vs innovation?Periodic review of the contracts21/11/201624
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3.1 Preventive Measures3.1.4 Financial ManagementClear but all-encompassing budgetary frameworkPrepare detailed financial model, including integrated estimated cost, including tax formulas, expected price evolutionsProvide for financial margins for unexpected costsRegular monitoring of financial assumptions
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3.2 Risk AllocationIdentification, analysis, evaluation and management of risks, including stakeholder responsibilitiesRisk analysis by potential contractors as a selection criterionAllocation of risks to the party best able to manage or absorb each particular riskTransfer of certain risks as a requirement for budget neutrality imposed by the ESA2010 rules (e.g. construction risk)Changes in the PPP project should not impact the risk allocation21/11/201626
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Risk allocation matrix
21/11/201627CauseConsequencesPublic PartnerPrivate PartnerSharedNo building permitLoss of timeFinancial consequencesXChanges in national leglisationPossibly financial consequencesXNuisance to nearby residentsFinancial consequencesAdditional measuresX (with cap?)
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3.3 ConclusionDefinition of a successful PPP?The government should know its directionImportance of stakeholder inclusion see Session 221/11/201628
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Session 2: The Impact of Local Stakeholder Resistance on Infrastructure Projects21/11/201629
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Importance/Relevance of Stakeholder InclusionHow to Involve Different Stakeholders?RisksMore Responsibility for Local Governments in the FutureThe Impact of Stakeholders on Determining the Success of a PPP21/11/201630
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1. Importance/Relevance of Stakeholder InclusionThe use of tools and processes, both formal and informal, to increase stakeholder engagement within the planning, evaluation and implementation of large-scale infrastructure projectsWhy? External factor: information gap between government and marketInternal factor: principle of diligence requires government to prepare its decisions carefullyMore equitable distribution of costs and benefitsIncreased (perception of) legitimacy21/11/201631
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1. Importance/Relevance of Stakeholder InclusionCase: Oosterweel (Belgium)
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1. Importance/Relevance of Stakeholder InclusionPoints of attention:Consider impact of stakeholdersStakeholders influencersFocus on co-production so stakeholders evolve from individual players to co-authors (cf. Oosterweel)
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2. How to Involve Different Stakeholders?Stakeholder Identification and CompositionInteraction with StakeholdersGuidelines21/11/201634
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2.1 Stakeholder Identification and CompositionFirst step: define stakeholders with large potential influence on the projects successWhat? / How? / Why?Potential stakeholders:ConsumersNGOs and community based organisationsWorkersPrivate firms and financiersAlternative providersPoliticians and officials (other than those involved in the PPP)Media
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2.1 Stakeholder Identification and CompositionSecond step: categorize stakeholders through different phases of the PPP (Initiation - Definition and planning Adjudication Execution)Categories:Primary stakeholders: realisation of project = realisation of their goalSecondary stakeholders: project is not their goal, but their participation is essentialTertiary stakeholders: participation is not essential, but useful
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2.2 Interaction with Stakeholders5 main types of interaction:Collecting informationProviding informationConsultingDeciding togetherActing togetherBy means of:Printed materialsOpinion polls and surveysFocus groupsOpen forum
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2.2 Interaction with StakeholdersCase: Stakeholder inclusion in the execution phase: Noorderlijn project (Belgium)
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2.3 GuidelinesStep 1: determining the aim and the method of market consultationSet out the aims and trust each otherDetermine how/in which phase(s) the market will be consultedTry to keep a balance between the requirement of transparency and the confidential nature of the information obtainedRespect the other partyCreate a reasonable timeframe Decide who will lead the market consultation and who will do the follow-up
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2.3 Guidelines (ctd)Step 2: Market ConsultationDraft a consultation documentExclude liabilityRespect confidential and protected informationMake the market consultation publicTreat all parties the same wayAvoid conflicts of interestBe aware of wrong or manipulated information
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2.3 Guidelines (ctd)Step 3: Analysis and Further ActionAnalyse the results in light of the chosen methodList the stakeholders objectivesCommunicate with the consulted partiesMaintain equality between the parties and provide them with a reportAvoid cherry picking and tunnelling when using the information obtained (see further)Follow the planning as foreseen in the consultation document
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3. RisksLimited regulation might lead to abuseLack of compensation might lead to limited responseRisk of cherry picking or tunnelling Different stakeholder conflict profile 4 types of PPPs (see next slide)Internal dimension: interplay between the public and the private party and inside the focal stakeholder groupsExternal dimension: potential causes of conflict outside the project environment
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PPP typeCharacteristicsExample in BelgiumResponsibility over SH management1High risk of SH conflicts or opportunity for action, large-scale, transcending multiple governmental levelsE.g. prisons, malls, transport infrastructures,Oosterweel connectionPublic body2Societal support, high-risk profile , transcending different public institutionsE.g. swimming pools, hospitals, tunnels,Liefkenshoek rail connectionPrivate partner3Large opportunity for external actionsE.g. energy plants, windmills, prisons, homeless shelters,BRABO1Mixed4High societal support, very few conflictsE.g. urban development projectsCity garden RonseMixed
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4. More Responsibility for Local Governments in the FutureIncrease of local PPP projectsCase: Flemish Sports Infrastructure Plan (Belgium):
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4. More Responsibility for Local Governments in the FutureNeed for legal framework by EurostatLocal support by PPP unitsBelgium: Flanders: Flemish PPP Knowledge Center (Vlaams Kenniscentrum PPS)Wallonia: Wallonian PPP Unit (Cellule dInformations Financires)The Netherlands:The PPP Knowledge CentreMinistry of Infrastructure and EnvironmentCode of conduct (duty to request advice)
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5. The Impact of Stakeholders on Determining the Success of a PPPSuccess is multidimensionalIn Flanders, no fully finished PPPStakeholder management is one of the main success factors
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Session 3: Cultural Differences a Comparison between Belgium and the Netherlands21/11/201647
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Politics in Belgium and the NetherlandsDifferent procedures have impact on timing of decision makingCommunication with governments, other stakeholders and their advisorsUnderstanding differences avoids frustration
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Introduction: case study Fyra (HSL-Zuid)21/11/201649
Objective: European railway network with limited travelling timeProject failed -> Dutch Parliamentary Committee:One of the main causes of the failure was a lack of communication between the Belgians and the Dutch
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Cultural differences Belgium - NetherlandsBelgiumGovernmental structureFederal stateDecentralisationCultural and economic differences between Flanders and WalloniaPPP-concept is relatively newFlemish PPP Act of 18 July 2003Flemish Knowledge Centre for PPPAdvises Flemish government on and evaluates PPP projectsFinal assessment of PPP ProjectsMostly DBFMPublic authority as shareholderCase: R421/11/201650
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Cultural differences Belgium - NetherlandsNetherlandsGovernmental structureUnitary (central government)Governmental agencies such as Rijkswaterstaat or RijksvastgoedbedrijfPPP as a full-fledged policy instrument is also relatively newMore market driven than in Belgium?When applied? => added value testPublic Private Comparator (PPC) and PSC (Public Sector Comparator (PSC)PPC: compares advantages and disadvantages of different methodsPSC: clarifies the total costs and risks over projects life cycle, if government were to carry it out itselfCase A59 (PSC) and New National Military Museum of the Netherlands (PPC)But: privatisation is no guarantee for success e.g. HSL-Zuid (Fyra)21/11/201651
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Cultural differences Belgium - NetherlandsNetherlands (ctd)Tendering:Usually tendered on the basis of EU procurement legislationCompetitive dialogue procedure with most economically advantageous offerCriteria:Price (net present value)Risk management planValue of certain risks accepted by private partyStandardized DBFM(O) contracts21/11/201652
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Cultural differences Belgium - NetherlandsCommunication in BelgiumReserved and modestFormalPreference to do business in person trust is essentialTry to compromise!Belgians like to do business over lunch or dinnerSlow decision making processRespect the use of languages of Governments:Wallonia: FrenchFlanders: Dutch
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Cultural differences Belgium - Netherlands21/11/201654Communication in the NetherlandsDirect, openheartedInformalNo nonsenseTime is moneyTry to be efficientLanguages: Dutch or English
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Cultural differences Belgium - NetherlandsConclusionDo not underestimate the importance of culturePublic-publicPrivate-public21/11/201655
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Session 4: Guidelines for a Succesful PPP21/11/201656
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Project identificationStructuring of the PPPManaging the tendering processExecution phase and management
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1. Project identificationSteps to project identificationProject ideaPPP feasibility: does PPP offer added value?ESA 2010 neutrality: Beware of excessive focus of off balance projects (may push government to PPP when not appropriate) and affordability illusion (by deferring and spreading public sector payments trough time)Case: Oosterweel connection AntwerpAllocation of building risks and timingFinance sources
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1. Project identificationSteps to project identification (ctd)Project definitionDefining project, background, initial business case, organisation, risksPre-business caseFinancial model showing costs and revenues of projectMarket consultationFormal added value testFinancial and non financial (social) added value Key consideration for choosing between traditional public procurement and PPP21/11/201659
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1. Project identificationCase: A11
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1. Project identificationA 11High added (social) valueRespect for environmentIntegral quality of offers as selection criteria rather than mathematical approachIntensive dialogue with stakeholders and authorities, resulting in one common view prior to market consultationEfficient market consultation
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2. Structuring of the PPPOrganisationProject teamTeam leader, steering committee, project team, advisorsProject planDocumentation, market consultation, procurement procedure, selectionTiming & communicationInstitutional due diligence: public-public coordinationRisk analysis and risk managementBusiness caseDefining procurement strategyPreparing project documentsStandardization of contractsNetherlands vs. Belgium21/11/201662
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2. Structuring of the PPP: example of Brabo I21/11/201663
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3. Managing the tendering processProcurement procedurePublicationInvestigation of offersSelectionFinancial closeStandardization vs. high transaction costsE.g. OosterweelInnovation vs. compensation for tendering procedureWhich project criteria?Lowest price vs. sustainability21/11/201664
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3. Managing the tendering processCase: Kromhout Kazerne Netherlands
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3. Managing the tendering processKromhout Kazerne NetherlandsAttention to sustainability (quality of material, low energy costs)Variable and flexible output specifications
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4. Execution phase and managementContract management vs project managementContract management:Monitoring of key performance indicatorsQuality control Daily contact with project teamReporting to shareholders and principalsRisk managementChanges to project documentation: procurement lawsProject evaluationContinuous process21/11/201667
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4. Execution phase and managementCase: Renovation Dutch Ministry of Finance
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Conclusions and discussionBudget constraints vs. value for moneyNeed for quality improvement and more efficiencyNeed to overcome practical difficulties in legal framework, tendering procedure, training of civil servants, Need for mentality shift?Evaluation of projects and knowledge sharing 21/11/201669
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Ciska Servais & Dieter [email protected] [email protected] 7021/11/2016
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