Public-Private Partnerships

Transcription

1 Management of Fiscal Risks from Public-Private Partnerships by Benedict Clements Chief of Expenditure Policy Division, Fiscal Affairs Department, IMF APEC Finance Ministers Process Conference: The Framework and Options for Public and Private Financing of Infrastructure Washington D.C. June 22-23, This presentation represents the views of the author and should not be attributed to the IMF, its Executive Board, or its management. 1

2 Outline PPPs: IMF Definition PPPs: Why Do Them? Managing Fiscal Risks Concluding Remarks 2

3 PPPs: What Are They? PPPs: IMF Definition and Main Risks Arrangements where the private sector supplies infrastructure assets and services that traditionally have been provided by the government Main Risks: Construction risk: design problems, and cost and schedule overruns Financial risk: cash flow falling short of level needed to repay project loans and capital invested Demand risk: demand for the services provided declines Availability risk: lack of continuity and quality of service Political risk: government actions could impair private sector s earnings Force majeure: natural disasters 3

4 PPPs: Why Do Them? Right approach Increase efficiency, VfM Private sector expertise; quality services; Maintenance strategy internalized User fees Wrong approach Infrastructure for free? Move spending off budget and bypass spending controls Move debt off balance sheet and create contingent and future liabilities for the government Could threaten budget process integrity and undermine efforts to safeguard macroeconomic sustainability 4

5 Principles for Managing Risks Good Projects Technical procedures need to be in place that allow policy makers to take informed decisions. Good Laws PPPs are less likely l to get renegotiated t when the regulatory framework is embedded in the law (17% of all renegotiated) than when it is embedded in the concession contract itself (40%) or in government decrees (28%). Good Institutions Requires clear institutional responsibilities, and skilled and dedicated staff; creating PPP units can help Can help the government build a reputation as a good partner; lower political and regulatory risks and risk premia. Will ultimately increase VfM of public spending

6 Principles for Managing Risks The Importance of a Gateway Process Ministry of Finance needs to be involved at all stages to ensure VfM and affordability 6

7 iod t Preparation Peri Project Principles for Managing Risks Example of a Good Gateway Process Phase 1: PLANNING Phase 2: DESIGN AND PREPARATION OF TENDER Phase 3: BIDDING AND NEGOTIATION Line Ministries / Various committees Prepare feasibility study and PSC (public sector comparator) analysis. PPP Unit of MoF and other public bodies PPP Unit: evaluate initial feasibility study and the PSC analysis, assess VfM and global affordability. Budget Dpt: evaluate project affordability and ensure consistency with overall fiscal priorities. PPP Unit: Report to Minister of Finance; advise to turn down project if insufficient VfM or unaffordable. GATEWAY 1: Minister of Finance recommends to PPP committee approval/rejection of initial project Prepare tender PPP Unit: Review tender documents for consistency with original project specifications in Phase 1. documents. PPP Unit: Report to Minister of Finance (MoF). Receive tender bids and select bidder(s). Negotiate PPP contract. GATEWAY 2: Minister of Finance approves/rejects issuance of tender documents PPP Unit: Ascertain VfM of the preferred bid. Budget Dpt: Ascertain fiscal implications of the preferred bid and ensure consistency with fiscal strategy. PPP Unit: Report to MoF; advise to reject the preferred bid if insufficient VfM or unaffordable. GATEWAY 3: Minister of Finance recommends to PPP committee approval/rejection of preferred bid PPP unit: Review VfM and the technical committee draft PPP contract. Budget Dpt: Ascertain implications of PPP contract and ensure consistency with fiscal strategy. PPPUnit:ReporttoMoF; to advise to reject draft contract if found to offer insufficient VfM or unaffordable. GATEWAY 4: Minister of Finance recommends approval/rejection of contract to Council of Ministers PPP contract signed Proje ect Impleme ntation Perio d Phase 4: CONSTRUCTION AND OPERATION Supervise and monitor contract regularly. If needed, renegotiate terms of the initial contract. PPP Unit, Budget Dpt and Audit Bureau follow project implementation based on regular implementation reports by line ministries. PPP Unit: Review VfM of renegotiated draft contract. Budget Dpt: Check implications of renegotiated contract and ensure consistency with fiscal priorities. Both: Report to MoF; advise to reject renegotiated contract if insufficient VfM or unaffordable. GATEWAY 5: Minister of Finance recommends approval/rejection of renegotiated contract to Council of Ministers 7

8 Principles for Managing Risks Accounting and Reporting: Current Situation There is no universal accounting and reporting standard for PPPs. Existing standards (ESA 95, GFSM 2001) cover cash payments by and to government, the transfer of PPP assets to government, and calling of guarantees. Eurostat decision: PPP assets should be classified as private sector assets if the private partner bears most construction risk, and either most availability risk or demand risk. Classifying PPP assets as government or private sector Classifying PPP assets as government or private sector assets ignores the fact that PPPs are designed to share risks.

9 Principles for Managing Risks Accounting and Reporting: An Alternative Approach An alternative accounting and reporting approach would be to record PPP assets on private sector balance sheets, consistent with legal ownership. The fiscal costs and risks associated with PPPs would then be assessed, quantified, and disclosed. PPP obligations and risks should be taken into account when assessing debt sustainability. It may also be prudent under certain circumstances to limit the size of a PPP program. PPP contracts have to be disclosed.

10 Concluding Remarks PPPs can be more efficient than traditional public procurement...but also entail fiscal risks These risks are not theoretical. Some countries have paid dearly for them Wrong approach will amplify fiscal risks Move spending off budget Create contingent and future liabilities and budget rigidities Threaten the integrity of the budget and macro sustainability Even under right approach, need to manage fiscal risks 10

11 Thank you! 11