Policy, Finance & Management for Public-Private Partnerships. Edited by. Akintola Akintoye

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1 Policy, Finance & Management for Public-Private Partnerships Edited by Akintola Akintoye School of the Built and Natural Environment University of Central Lancashire & Matthias Beck The York Management School University of York )WILEY-BLACKWELL A John Wiley & Sons, Ltd., Publication

2 Foreword Contributors Acknowledgements Introduction xi xiii xxiii xxv PART ONE PPP POLICY 1 Chapter 1 Private Finance Initiative in Use 3 Ezekiel Chinyio and Rod Gameson 1.1 Introduction The Private Finance Initiative UK Government's Influence on the Use of PFI Private Sector Tasks in PFI Establishing PFI Contracts Forms of Finance Used in PFI Performance of PFI Schemes - A Theoretical Perspective Improving the Performance of PFI Performance of PFI Schemes - An Empirical Review A Generic Overview of PFI Schemes Comparative Studies Conclusion 20 Chapter 2 Using the Private Sector to Finance Capital Expenditure: The Financial Realities 27 Jean Shaoul 2.1 Introduction The Control of PFI Post-implementation Evaluation of PFI Conclusion 42 Chapter 3 Obstacles to Accountability in PFI Projects 47 Darinka Asenova and Matthias Beck 3.1 Introduction Finance Capital and Institutional Decision Making Conclusion 61

3 Chapter 4 Refinancing and Profitability of UK PFI Projects 64 Steven Toms, Darinka Asenova and Matthias Beck 4.1 Introduction PFI Finance and Value for Money Mechanisms and Policies of Refinancing PFI Profits and Refinancing Conclusion 77 Chapter 5 The Dedicated PPP Unit of the South African National Treasury 82 Philippe Burger 5.1 Introduction The Rationale for PPPs The Rationale for a Dedicated PPP Unit A Brief History of PPPs and the PPP Unit in South Africa The Role of the South African Dedicated PPP Unit Future Challenges Conclusion 95 Chapter 6 PPP in Greenfield Airport Development: A Case Study of Cochin International Airport Limited 97 ThillaiA. Rajan, Sheetal Sharad and Sidharth Sinha 6.1 Introduction Private Participation in New Airport Development Indian Aviation Sector The Cochin International Airport Project Performance of CIAL Summary and Lessons 117 Chapter 7 PPPs for Physical Infrastructure in Developing Countries 123 Akintola Akintoye 7.1 Introduction An Overview of Public-Private Partnerships PPP: Developed Economies PPP: Developing Economies PPP: Analysis of Private Sector Participation Discussion Conclusions 141 Chapter 8 Team Building for PPPs 145 Mohan M. Kumaraswamy, Florence Y. Y. Ling and Aaron M. Anvuur 8.1 Introduction Integrating and Sustaining PPP Teams 147

4 vii 8.3 Hong Kong Perspectives of PPP Teams Singapore Perspectives of PPP Teams Integrating PPP Project Teams Selecting Project Consortium Teams Concluding Observations 160 PART TWO PPP FINANCE 163 Chapter 9 PPP Infrastructure Investments: Critical Aspects and Prospects 165 Demos C. Angelides and Yiannis Xenidis 9.1 Introduction Critical Issues in Financing PPP Projects Prospects for PPP Infrastructure Development Conclusion 178 Chapter 10 Patterns of Financing PPP Projects 181 Sudong Ye 10.1 Introduction General Patterns of Financing PPP Projects Choice of Financing Patterns Summary 196 Chapter 11 PPP Financing in the USA 198 Arthur L Smith 11.1 Introduction PPP Financing Models in the US Case Studies Conclusions 210 Chapter 12 Financial Modelling of PPP Projects 212 Ammar Kaka and Faisal Alsharif 12.1 Introduction Research in PPP Financial Modelling Cost Models Occupancy Cost Cash Flow Models PFI Financial Modelling in Practice An Example of a PFI Financial Model for Schools Conclusion 226 Chapter 13 Application of Real Options in PPP Infrastructure Projects: Opportunities and Challenges 229 Charles Y.J. Cheah and Michael J. Garvin 13.1 Introduction Infrastructure Project Flexibility as Real Options 231

5 13.3 Real Options Literature Related to Architecture, Engineering, Construction and Infrastructure Projects Modelling Issues and Concerns An Integrated Real Options-Risk Management Process for PPP Infrastructure Projects Summary 245 Chapter 14 Financial Implications of Power Purchase Agreement Clauses in Revenue Stream of Independent Power Producers in Nepal 250 Raju B. Shrestha and Stephen Ogunlana 14.1 Introduction Financial Analysis Analyses of Clauses Summary 263 Chapter 15 Government Policy on PPP Financial Issues: Bid Compensation and Financial Renegotiation 267 S. Ping Ho 15.1 Introduction Game Theory Is Bid Compensation Effective in PPP Tendering? Financial Renegotiation and its Associated Problems Financial Renegotiation Game and its Equilibrium Propositions and Rules Governing Principles and Policy Implications for Project Procurement and Management Conclusion 299 PART THREE PPP MANAGEMENT 301 Chapter 16 Innovation in PPP 303 David Eaton and Rifat Akbiyikli 16.1 Introduction Innovation and Competitive Advantage in PPP Stimulants and Impediments to Innovation in PFI/PPP Projects Innovation and Financial Issues in PFI/PPP Projects Conclusion 324 Chapter 17 Combining Finance and Design Innovation to Develop Winning Proposals 327 Colin F. Duffield and Chris J. Clifton 17.1 Introduction The Drivers of PFI/PPP Projects in Different Jurisdictions 327

6 ix 17.3 Design Innovation: The Issues Financing Arrangements for PFI/PPP Projects The Theory and Practice of Winning Proposals 342 Chapter 18 The Application of a Whole-Life Value Methodology to PPP/PFI Projects 346 John Kelly 18.1 Introduction Projects Client Value System Whole-Life Costing The Application of Whole-Life Value to the PPP/PFI Process Discussion 360 Chapter 19 Best Value Procurement in Build Operate Transfer Projects: The Turkish Experience 363 Irem Dikmen, M. Talat Birgonul and Guzide Atasoy 19.1 Introduction Bid Evaluation in BOT Projects Case Studies Best Value Procurement in BOT Projects An Application of the Proposed Methodology Concluding Remarks 376 Chapter 20 Application of Risk Analysis in Privately Financed Projects: The Value For Money Assessment through the Public Sector Comparator and Private Finance Alternative 379 Tony Merna and Douglas Lamb 20.1 Introduction The PSC and the PFA Conclusion 395 Chapter 21 Developing a Framework for Procurement Options Analysis 398 Darrin Grimsey and Mervyn K. Lewis '21.1 Introduction What do PPPs Bring to Procurement? Developing a Methodology Conclusion 412 Chapter 22 The Payment Mechanism in Operational PFI Projects 414 Jon Scott and Herbert Robinson 22.1 Introduction The Key Principles Value for Money Arguments 415

7 Key Components of the Payment Mechanism The Output Specification Performance Measurement System Case Studies Analysis and Discussion of Findings Concluding Remarks Chapter Concession Period Determination for PPP Infrastructure Projects in Hong Kong Xueqing Zhang Introduction PPP Projects in Hong Kong Build, Operate, Transfer Scheme Concession Period Concession Period Determination Methods Simulation-Based Concession Period Determination Methodology Simulation-Based Concession Period Determination Framework Conclusions 454 Index 457

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