Public-Private Partnerships: Risks & Rewards S. Brian Samuel, PPP Coordinator, CDB High-Level PPP Workshop, Caribbean Growth Forum St. Lucia, 15 th June 2015
POSSIBILITIES REWARDS RISKS LESSONS OPPORTUNITIES
POSSIBILITIES:
PPPs can lead to value for money, but it s not guaranteed Motivations: Challenges: Lack of fiscal space Fiscal implications are often overlooked Private sector efficiency and innovation Improving project and service delivery Public and private interests are not automatically aligned PPPs are complicated and development / transaction costs high
PPPs can deliver the goods if done properly In addition to likely levels of public procurement, the infrastructure funding gap is estimated at around $10 billion over the next decade innovative solutions are needed to unlock private sector investment PPPs usually result in better value for money: In the UK, the National Audit Office found that 73% of traditional projects ran over budget, versus 22% for PPP projects 70% of traditional projects were late, versus 23% for PPPs
REWARDS:
Sangster International Airport 1 Long but successful process: 1990s Aging and overcrowded facility GoJ fiscally unable to make necessary capital investment 1996-1998 GoJ attempted sole-source PPP Negotiations broke down 1998-2003 Competitive PPP procurement GoJ enters into 30-year concession with Vancouver Airport Services Concession (now Vantage Airport Group) 1 Source: PPPs in the Caribbean: Building on Early Experience. CDB 2014
Sangster International Airport Results & Lessons Learnt: Over US$200 million in private sector investments Better results obtained through competitive bidding Need for staff with PPP training and specialized advisors Agency coordination driven by political champion Establish legal & regulatory framework prior to transaction
Bahamas Non-Revenue Water (NRW) 2 Money down the drain literally: 58% NRW in New Providence, led to widespread use of desalination (93%) Solution: Performance based PPP to reduce NRW over 10 years US$83 million capex, financing from IDB 2 Source: Consolidated Water
Bahamas Non-Revenue Water 2 Results: From 2012 to 2014, NRW reduced from 58% to 36% 1 billion gallons of water saved in 2 years US$6.5 million savings to date Less dependence on desalinated water Not politically sensitive 2 Source: Consolidated Water
Highway 2000, Jamaica 3 Innovative structure for land development: US $600 million 50-year concession GoJ not providing financing nor traffic guarantees Up to 1,200 acres adjacent land available for development by toll road operator Developer has time limits, or land reverts to GoJ 3 Source: NROCC Jamaica Traffic Revenue Design & Construction Access to Land Risk Sharing Utility Relocations Political Risk Development Land GoJ X X X Developer X X X X
RISKS:
Early Dominican Republic Toll Roads 4 Skewed risk allocation: Governments often assume a portion of traffic risk to make road projects bankable DR govt. signed PPP road contracts totaling US$1.0 billion Autopista del Nordeste: Traffic 30-40% lower than forecast; Govt. pays US$38M shadow tolls annually CODACSA: Govt agreed to compensate for traffic, inflation and FOREX risks; Arbitration awarded US$ 42 million 4 Source: Caribbean PPP Road Map, World Bank 2014
Project development: Overcoming failure to launch Urgent need for early stage screening; to weed out concepts that don t make sense Investment in preparation results in lower risk at operational stage Preparation & implementation around $1 million per project; not proportionate to deal size Cost - plus lack of capacity - why only 12 percent of the Caribbean PPP project pipeline reaches the tender stage 5 Source: Caribbean PPP Road Map, World Bank 2014 Caribbean PPP Pipeline 2014 5 Concept Feasibility Tender 16 13 8
LESSONS:
Sobering Lessons: Risks Endless delays Failure to close Post-closing fiscal surprises Reasons Flawed transaction processes Gaps in due diligence and preparation Lack of capacity Insufficient project preparation Lack of awareness of PPP potential Lack of Regional support mechanisms Inappropriate risk allocation Inadequate due diligence and preparation Insufficient fiscal oversight
Successful implementation of PPPs requires a good enabling environment Clear support from the highest levels of government and political champions State-of-the art PPP expertise and experience on all stages in the PPP project life cycle Robust PPP tools, regulations, policies, and procedures Funding for project preparation and PPP structuring
OPPORTUNITIES:
There are many PPP Opportunities: Conventional Energy Renewable Energy / Energy Efficiency Ports and Cruise Ship Terminals Airports Roads and Bridges Education Government Facilities Health Tourism Water and Sanitation
Thank you! S. Brian Samuel PPP Coordinator, CDB