PPP for infrastructure Financing Evolving Good Practices By Peter Stein CEO Stein Brothers AB MENA OECD INVESTMENT PROGRAMME AMMAN 2007-09-05
PPP=Public-Private Partnerships No agreed definition. Characteristics: Private companies deliver contractible public services, i.e. roads, railways, bridges, tunnels, ports, airports, traffic control systems, hospitals, schools, water & sanitation plants. Private provider responsible at each stage in the project (funding, design, building, running and owning assets). Long term contractual relationships No public sector control over day-to-day management Public partner defines outputs to be attained Sharing of risk Payments to provider linked to performance
Comparison with other schemes No end-user payment. End-user payment. Public provider. Private provider. Tax-financed public production. Contracting out. PPP. User charges. Privatised assets. PPP.
Organisation of PPP-project Procurer Shareholders SPC Lenders Contractor Contractor Insurer
Value For Money Arguments PPPs allow private sector financing PPPs make projects affordable Private sector takes life cycle cost risk PPPs make use of private sector skills PPPs force partners to price risks Public sector focus on outputs from start Providers incentivised to optimise over project duration
Correct and Less Correct Attitude Towards PPP The main argument for PPP is not the issue of private financing Private capital is a means not an end The key value for money argument is that PPP makes use of private sector skills Use PPP only when that model seems appropriate PPP is especially appropriate when the quality of services is contractible, there is adequate risk sharing and incentive-based legislation
Requirements to obtain Value for Money Strong political commitment from national government Competitive procurement Output-based contracts Optimal risk sharing Performance-linked payments Regular performance benchmarking Effective mechanisms for conflict resolution
ON COMPETITIVE PROCUREMENT State objectives clearly Project manager needs authority Credible selection of projects Maximise competitive tension until final stage Choose provider based on price and quality Model prospective shadow price bid Keep option of unconditional bidders
Sharing of risk PRIVATE SECTOR Construction risk Performance Risk Demand risk General political risk PUBLIC SECTOR Project specific political risk Bad procurement SHARED RISKS Force majeur Change of exchange regime Archeological discoveries
MANAGING ONGOING PROJECTS Benchmarking Gain sharing Open book accounting Pricing policies Working group meetings
KEY COMPONENTS PROJECT LEVEL Output-based contracts Payments to provider linked to performance over the contract life Project manager independence and authority Effective mechanisms for conflict resolutions and benchmarking Establish policy how to divide benefits resulting from refinancing
Additional Components National Level Appropriate legal framework - overhaul of legislation Usually traditional laws on public work do not have sufficient flexibility to design PPPs Need for well defined accounting rules and clear channels of responsibility and accountability Earmarking revenues for future PPP-payments
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PETER STEIN CEO STEIN BROTHERS AB KOMMENDÖRSGATAN 14 SE-114 48 STOCKHOLM TEL: 46 8 785 06 03 FAX: 46 8 785 06 04 GSM: + 46 70 424 09 68 pstein@comhem.se
ON PETER STEIN Current Position: Academic Education: Swedish private sector clients: Swedish public sector clients: International consultant: CEO, Stein Brothers AB. Economic consultants based in Stockholm. Stockholm School of Economics. Specialised in international economics. Fluent in English and French. Large Swedish multinational corporations. Expert consultant on issues dewlaing with private-public partnerships to 3 government commissions. Long-time expert on interplay between private and public sector. Secretary of Privatization task force of the International Chamber of Commerce (ICC). Working with OECD on regulatory affairs in the 1990s. Frequent lecturer around the world.