world bank, ict days, washington, dc, march 28-april 1, 2011 1 public-private partnerships (ppps) in...

World Bank, ICT Days, Washington, DC, March 28-April 1, 2011 1

Public-Private Partnerships (PPPs)

in eGovernment: Definition, Rationale,

and Regulatory Frameworks

Ned WhiteMonday, March 28, 2011


Session Overview1. Definition: “Just what ARE PPPs in

eGovt. and ICT?”2. Rationale for PPPs & the Role of

eGovt PPPs within Public Services Sector Reform

3. Key Elements of eGovt PPP Policy, Legal, & Institutional Frameworks

4. Looking Ahead: Key Challenges for eGovt. PPP Frameworks Going Forward & Case Examples


1.1- What ARE PPPs?Definition: Public-Private Partnerships (PPPs) are contracts between the public sector and private sector, which requires new investments by the private partner (money, or technology, or expertise/time, or reputation, etc.), which transfers some key risks to the private sector (design/technology, construction/installation, availability, demand, etc.), in which payments are made in exchange for performance, for the purpose of delivering a service traditionally provided by the public sector.


1.2-Range of PPP Structuring Options:

PPP Contract Instrument

Average Contract

Term

Provides the Service or

the Management

Provides the Working Capital

Receives the Net

Income or Covers Net

Loss

Provides Long-Term

Finance

Legally owns the

Assets

Provides Sectoral

Planning & Regulates Services

Corporatization & Private Market Finance in perpetuity Public Pub./Priv. Public Pub./Priv. Public Public

Service Contract 2-3 years Private Public Public Public Public PublicManagement Contract 2-5 years Private Public Public Public Public PublicLease/Affermage 7-15 years Private Private Private Public Public PublicBOT/PFI 20 - 30+ years Private Private Private Private Public PublicBOO 20 - 30+ years Private Private Private Private Private PublicConcession 20 - 30+ years Private Private Private Private Public PublicDivestiture & Asset Sales in perpetuity Private Private Private Private Private Public


1.3-Legal vs. Practical Definitions of PPP

A growing number of recent, new “PPP Laws” give legal definitions of PPPs that only apply to projects for which the private partner provides the long-term financing (ie new BOT/BOO & Concessions).While non-capital investment contracts (leases and management contracts) still apply the same practical PPP principles (transfering demand risks, etc. & pursuing better value for the public’s money), they are not legally “PPPs.” Their implementation, therefore, would not have to follow the same process of preparation, review, and approval as “official PPPs” do.


1.4-Govt of Kenya’s PPP Policy Statement of 2009 defines PPP as:

“A contractual arrangement between a public body and private party in which the private party and Government enter into a long term agreement, up to 30 years, to build a new infrastructure facility or to rehabilitate an existing one for the purpose of undertaking a public service on behalf of Government… The private party is required under the terms of the project agreement to take responsibility to mobilize finance – equity as well as debt – in order to complete the facility according to agreed specifications and schedule.”


1.5 – Jordan Education Initiative (JEI): A “PPP” or Not?

2003 World Economic Forum-led team of 30 int’l & local ICT corporations (including Microsoft, Intel, Cisco Systems, et al) donated $11 million the Jordan Education Initiative (JEI).Scope: install high-speed internet access, provide electronic curricula & teacher training, and support services to 102 public “Discovery Schools” (50,000 students + 2,300 teachers). The GoJ bound itself to providing specific support and contributions to the project, (especially active support and involvement of the King and Queen of Jordan)The private firms were willing to make this donation and ongoing support services primarily because they had:

Basically an enforceable agreement with the GoJ, Clear Govt. contributions & highest level support (no interference), Project had clear, measurable outputs (Program Management

Office) Context of $380 million Education Reform for the Knowledge

Economy (ErfKE) Program($120 million from WB)


1.6-JEI: Types & Sources of Contributions

Source: McKinsey & Company’s “Building Effective PPPs: Lessons Learned from the JEI”


1.7-JEI: Perform. Indicators (Draft)


2.1-Rationale for PPPs in eGovt & ICT:

Delivering Better Value for the Public’s Money (VfM): Improved Price & Risk/Quality in the provision of public services. However, VfM models be subject to manipulation & not relevant when a public ICT solution does not exist. Technology Transfer: Most eGovt technologies & capabilities are not available by the public sector alone. “Knowledge-Based Economy” Policies.Additionality: More public services & consumer welfare benefits available with the PPP project than without.Contracted Outputs & Improved Transparency: Resistance to new removing discretion from some public stakeholdersAvoided Public Financing/Borrowing: A priority for many Governments (especially in current public financial climate), but risks entering into long-term PPPs that are unaffordable or require imprudent assumption of risks by Govt. over long-term


2.2-PPPs are just one component of an Overall Public Services Reform Strategy

# Unbundled Functions Institution

1 Sector Reform Policies (allowing PPPs) Plans

Government Line Ministries

2 Sector Performance Monitoring & Tariff-Setting

Independent Sector/Utility Regulatory Bodies

3 Ownership & contracting of long-term infrastructure assets

State-Owned Asset Holding Cos. (AHC’s)/ Procuring Entities/ “Ceding Authorities”

4 Operation of infrastructure Networks & service delivery

Private investors, operators, & lenders (via competition)


2.3-eGovt PPPs in Isolation Rarely Work

Without these complementary, long-term sector reforms: eGovt PPP contracts alone often have limited success,

are not sustainable (cancelled) or affordable. Not possible to independently and transparently

compare public sector performance vs. PPP performance (which offers better value?)

Private partner will not be willing to bear many “commercial risks” (ie they will require more public financial supports & risk-sharing) if there is not a clear, fair market or “level playing-field”

PPPs can add new electronic service delivery mechanisms, but they often simply appear more expensive and may still rely on inefficient public monopolies to distribute public services to end-users.


2.4 “Value for the Public’s Money” is a combination of PRICE AND RISK

AveragePPPTariff

Level of Sector RISK Bourne by Government

PPP Option#1

Public “Utility” Curves

The Private Sector’s Price-RiskOffer Curve

PPP Option#3

PPP Option #2

P’P’’

P’’’

Thus, “The Lowest-priced bid is often not the best bid” for long-term (5-10 yr.) service delivery contracts.

Low High


2.5-Optimal vs. Minimal Public Risk-Sharing

Public Support High Pub. RiskLow Pub. Risk

Public’sValueFor

Money

Private Sector’sPrice-Risk Offer Curve

Low VfM

High VfM

PPPPrice(Cost/OutputUnit)

Minimal Public Support,But Low VfM

Moderate Public Support,=> Optimal VfM

LowPPP Price

HighPPP Price

VfM

Public VfM Utility Curves

Operating/Avail. Risk

Technology/Eq. Install. Risk

Market/Demand Risk

LandAcq.

PoliticalRisk


Illustration: VFM Analysis of a PPP Project

Base CasePSC

Risk-Adjusted

PSC

PublicAffordability

Limit

WinningPPPBid

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

$180,000,000

$200,000,000

1 2 3 4

Value for

MoneyBenefits

2.6-Illustration of PSC & VfM Analysis


3.1-Key Elements of PPP Frameworks:

Clear PPP Policy StatementMulti-Sector PPP/Concession Law or RegulationsPPP Units: Central PPP Unit + Sector PPP NodesPPP Project Development/Preparation Facilities (PDF)PPP Manuals & Guidelines (Standardised Procedures)PPP Procurement Regulations (Price & Non-Price

Criteria)Treatment of Unsolicited Proposals: Especially for ICT

& eGovt ProjectsSpecific/limited Public Credit Enhancements AllowedPPP & Infrastructure Investment Fund EstablishedSystematic PPP Training & Capacity-buildingPPP Contract Performance Monitoring Capacity


3.2-Emerging Market PPP Frameworks

PPP Framework Elements Philipp

ines

Mal

aysi

a

ChileM

exic

o

Hungary

South A

frica

India

Your Count

ry?

PPP Policy Statement Yes Yes Yes Yes Yes Yes YesMulti-Sector PPP/Concession Law & Regs. Yes Yes Yes Yes Yes Yes Yes

Multi-Sector PPP Technical Unit Yes Yes Yes No Yes Yes YesLine Min./Sector PPP "Nodes" Yes Yes Yes Yes Yes Yes Yes

PPP Project Dev. Facility (PDF) Yes No No No No Yes YesPPP Procurement Regulations Yes Yes Yes Yes Yes Yes Yes

Unsolicited Proposal Procedures Yes Yes Yes No No Yes YesPublished PPP Manuals/Guidelines Yes No Yes Yes Yes Yes Yes

Public Sector Credit Enhancements Allowed (VGF, Contingent Liabilities, etc.) Yes Yes Yes Yes Yes Yes Yes

Public Sector Risk Management Framework: Unit & Regulations Yes Yes Yes Yes Yes Yes Not Yet

Systematic PPP Training & Capacity Building Yes Yes Yes Yes Yes Yes Not Yet

Infrastructure Regulatory Bodies & PPP Contract Monitoring Units (CMUs) Yes Yes Yes Yes Yes Yes Yes


3.3-Example:

South Africa’s

PPP Manual & Project

Cycle:


3.4-Key Characteristics of Effective PPP Toolkits &

Manuals: Clearly Distinguish between “Required PPP Procedures” vs.

“Optional Suggestions/Recommended Good Practices” Function as a Reference Volume, Using Instructional-Based

Writing Rather than Traditional Analytical-style Writing Provide Ready-to-Use PPP Templates or Models Provide Practical (Not just Theoretical), eGovt.-specific

Guidance (ie “Common Practical Pitfalls to Avoid”) Support PPP Capacity Building: able to be read, discussed,

and followed as part of any PPP training program. Institutionally-Relevant in Explaining specifically who

Performs each specific PPP Review, Procedure & Approval. Contribute to a Proven Track-Record of Completed PPP

transactions, (not just a “nicely-looking PPP framework on paper”)


3.5-Selected Countries with PPP Guideline Manuals, Standardised Procedures & Toolkits:

United KingdomVictoria, AustraliaSouth AfricaIndiaIrelandPhilippinesMauritiusEgyptSaudi Arabia


3.6-Drivers of Success for PPP FrameworksStandardisation: PPP Models & Documentation that can be easily replicated (PPP Feasibility Analyses & Business Cases, Risk Allocations, Tender Documents, PPP Contracts, etc.)Dealflow: Quantity: Sufficient scale to justify a PPP Strategy Quality: Determine which candidates are appropriate

as PPPs; Projects must be clear & “bankable”

Leverage: Create more opportunities to attract new finance using credit enhancementsCapacity Building: PPP won’t work unless the public sector understands its Governance and oversight responsibilities from beginning-to-end.


4.1-Key Issues Facing eGovt & ICT PPPs TodayApprovals Process: Many new PPP Frameworks are becoming “over-bureaucratized.” Too many, lengthy reviews & approvals make PPP less attractive to private developers & public agencies.

MOF & RMU

List of Public Sector

Projects

List of Public Sector

Projects

Sub Sector List of PPP Projects

fromInitial Screening

with MVA

Sub Sector List of PPP Projects

fromInitial Screening

with MVA

Ministry proposes Sector

PPP Projects

Ministry proposes Sector

PPP Projects

TenderingTendering NegotiationNegotiationContract

Management

Contract Managemen

t

Sector List of PPP Projects

fromSector-wide

Screening with MVA

Sector List of PPP Projects

fromSector-wide

Screening with MVA

Conduct Feasibility

Study*

Conduct Feasibility

Study*

Budget Review (subject to MOF

approval)

Budget Review (subject to MOF

approval)

GS is availabl

e

Need more

project preparatio

n

GS is needed

STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5

Contracting Authority

Line Ministry & P3 Node

PPPS

Non

PPP

NOTES:MOF: Ministry of FinanceOBC: Outline Business CaseRMU: Risk Management UnitPPPS: Public Private Partnership SecretariatPPPSC: PPP Steering Committee

MCA: multi-criteria analysisGS: government support major route; optional route

Priority sub-sector PPP

Priority sector PPP

Non

PPP

National List of PPP Projects

fromNation-wide

Screening with MCA

National List of PPP Projects

fromNation-wide

Screening with MCA

GS is not available now

SU

BS

EC

TO

R- W

IDE

SE

CT

OR

- W

IDE

NA

TIO

N- W

IDE

GS is not needed

* For a project that likely needs GS then the Pre-FS shall be updated to a full FS.

GS is considered not suitable for

this projectVersion 4 –Sept 2010

PPP RC

OBC is developed and approval is

sought by PPPSC

Ministry P3 Node

Preliminary

consultation on

Projects under

processing

Preliminary

consultation on

Projects under

processing

See Figure 3 for more detailSee Figure 3 for more detail

Report to the Ministry


Public Capacity: Limited capacity of Governments to identify new eGovt solutions for public services & develop clear eGovt output performance standards. Especially limited PPP performance monitoring & contract management capacity.Market & Demand Risk Transfer: Growing Govt. preference to transfer to full commercial & demand risks (& profit incentives) to private eGovt service providers. Taxpayer/Rate-Payer Concerns about Fairness & Transparency. Should Private Providers of Traffic Speeding

Cameras receive fixed “availability payments” (including their profits) or a fixed-fee per transaction/violation?

4.2-Key Issues Facing eGovt & ICT PPPs Today


4.3-Case Example: NAFITH, Aqaba, JordanNAFITH: National Freight Information & Transport. HubPort of Aqaba, Aqaba Special Econ. Zone Authority (ASEZA): Growing problem of truck congestion around portScope: 2006 electronic Truck Control System/logistics on a PPP contract. Controls truck traffic between 32 key sites within Port’s Special Economic Zone176 registered trucking companies in Jordan. 13,700 total truck population. 3,000 trucks serviced daily by NAFITH10-year Concession ContractEach truck pays a 2 dinar ($3.00) fee for a permit to enter/exit port.Each trucking company & dispatcher had to have a computer to participate in system.15% of revenues remitted to ASEZA, 85% retained by NAFITH


Aqaba Special Economic Zone

4.4-Case Example: NAFITH, Aqaba, Jordan

Aqaba Truck Marshalling Yard Entry & Exit Points


4.5-NAFITH PPP, Aqaba, Jordan – Results:Clear Benefits in: Much less congestion Lower fuel consumption & pollution Improved Efficiency:

Cost of freight from Aqaba has fallen 20% Container cargo has increased 25% while number of trucks has

remained the same Increase in “double moves” by trucks (carrying full loads both in to

and out of Aqaba) from 6% to 25% Accurate and transport data & planning Significant improvements in truck safety (steep descent into

Aqaba had killed 2 drivers per month, rushing to get to the Port) Eliminated informal payments to gain access to port sites

PPP Issues: ASEZA has expressed interest in collecting more revenues Growth of a “secondary market” for permits, by market makers

who resell desired permits to truckers and dispatchers at a premium NAFITH



Growing Govt. Preference for Simply Avoiding Public Borrowing: More Govts. Are pursuing PPPs across sectors simply to avoid public borrowing instead of delivering long term value for money.Limited Relevance of PSC Models and VfM Analyses in eGovt & ICT Sectors: More difficult to estimate Public Sector Costs (PSC) & conduct VfM Analysis for eGovt & ICT PPPs. Public sector options rarely exist.


Technology & Performance Risk: Many IT and eGovt projects don’t work. In 2003 UK’s Treasury discontinued Private Finance Initiative (PFI) projects in Information Technology following several “failures”: £230m 10-year deal to automate the Passport

Office £150m automation of National Insurance Criminal Records Office State benefit payments

Only 22% of the UK’s IT PFI projects delivered 80-100% of defined programme benefits. For non-IT projects the figure was 73%.



PPP Project Pipeline: Biggest current constraint to PPPs in eGovt & ICT is not inadequate legal frameworks, but the limited number of candidate PPP projects being identified and prepared. Govts. should focus on building the PPP project pipeline.Public Sector Risk-Sharing in PPPs: During past 10 years private ICT project developers (and lenders) are requiring more and clearer forms of public sector support, risk-sharing, and contingent liabilities than before. Govt PPP Frameworks must be ready to manage these requests.



eGovt PPP Example: Partnerships Victoria

(Australia) Mobile Data Network PPP


Mobile Data Network PPP

Description: To provide a mobile data network (MDN) to Victoria’s Police, Ambulance & Emergency Services vehicles in Melbourne area. Includes access in vehicles and outside to relevant databases, maps, emergency information & locator functions at a guaranteed operational reliability of 99.9%: Allow important information about the emergency and

the people involved to be sent directly to the vehicles involved;

Use Satellite technology to track vehicle location, allowing the closest vehicles to be sent to an emergency;

Give mobile access to databases such as vehicle registrations and drivers licenses; and

Allow police to submit paperwork via computer while still in the field.


PPP Payments & Performance Standards

If the Service Provider has not remedied a failure under within the time set out in the remediation plan or within any further period allowed by the Contract Manager, the State may reduce the Service Payments which would otherwise be payable to the Service Provider in accordance with the following:

ECV CAD End to End Performance Standards98th percentile Message delivery time

19 seconds or less

More than 19 seconds, less than or equal to 40 seconds

More than 40 seconds, less than or equal to 60 seconds

More than 60 seconds

Percentage abatement of daily Service Payment per day

0% 5% 7.5% 10%


Mobile Data Network PPP

PPP Contractor: Motorola Australia Pty Ltd.Govt. Client: Victoria Police & Ambulance ServicesContract Term: 5 year contract, beginning June 2003, 2 year contract extension optionCost of PPP Contract: $138 million in total PPP Payments over term of contract, equals $85 million NPV using State’s discount rate of 8.65%Estimated Value for Money Savings of PPP = 11% (A$10.5 million = U.S. $7.8 million)Lessons Learned: As one of the first eGovt PPPs in Australia, the procurement took a long time (3 yrs.) due to need to revise & re-clarify the contracts output standards. Especially difficult to estimate Public Sector Costs (PSC) when it was difficult for the public sector to provide the new technology required on its own


QUESTIONS?

Edward (“Ned”) [email protected]

world bank, ict days, washington, dc, march 28-april 1, 2011 1 public-private partnerships (ppps) in...

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