Building Partnerships for Development and Management of Public Infrastructures and Service

Delivery

How to structure bankable PPP projects for financing public infrastructures and service delivery in Nepal?

Training organized by Nepal Administrative Staff College, Jawalakhel

for

GoN Officers

Presented byManiram Singh Mahat

Executive Director Town Development Fund

1

18th August 2017

PPP Project Cycle: Phases, Stages and Steps

AGENDA

A. PPP Project Cycle

I.Understanding PPP transactions

II.PPP Identification and Inception

III.Detailed Preparation

IV.Procurement

V.Project Implementation

B. Challenges for Successful PPPs in Nepal: Issues and Prospects

2

PUBLIC PRIVATE PARTNERSHIPS

What they are…

3

“A cooperative venture between the public and privatesectors, built on the expertise of each partner, that bestmeets clearly defined public needs through theappropriate allocation of resources, risks and rewards.”

The Canadian Council for Public-Private Partnerships

PUBLIC PRIVATE PARTNERSHIPS

4

"A public-private partnership exists when public

sector agencies (federal, state, or local) join with

private sector entities (companies, foundations,

academic institutions or citizens) and enter into a

business relationship to attain a commonly shared

goal that also achieves objectives of the individual

partners-for creating public good and public

services delivery.

5

• A medium to long term co-operation between public and private actors

• Aligned according to different but compatible objectives

• Provision of public products and services.

• Built varying expertise

• Appropriate sharing and allocation of responsibilities, resources, risks and results.

What is PPP?

6

Benefit of PPPs1. Efficiency and Cost

Increased efficiency

Lower service costs

Generate employment

Reduces risk to both parties

Greater access and coverage

Refocus Govt resources to core service

2. Value for money (impact)

Project life costing

Optimal allocation of resources

7

Affordable Service

Valuefor Money

Public Sector

Private Sector

CommercialRisks

LegislativeRegulatory

Risks

Competition Contestability

TRANSPARENCY AND ACCOUNTABILITY(Incentive)

RISK ALLOCATION(Incentive)

PPPObjectives

PPPDrivers

PPPSustainers

PPPAnchors

Conceptual Framework

PUBLIC PRIVATE PARTNERSHIPS

Value for money...

8

“The main driver of PPP is value for money (VFM), whichcan be defined as the optimal combination of whole lifecost and quality to meet the users' requirements”

VFM is achieved through • optimal allocation of risks between public and private sectors

• long term nature of contract (life costing)

• use of output specification which allows bidders to innovate

• competition that provides fair value of project

• performance payment mechanism

• private sector management of skills and innovation

Forms of Partnerships

Duration

Increasing level of delegation, risk &

irreversibility

Service contracts

Management Contracts

Leases

Concessions

Divestures100 % non-public

ownership

100 % Public

ownership

5 10 15 20 25 30

BOT

BOO

Governments’ Role

Provider

Enabler/ Regulator

PPP: various options

PPP Participation vs. Sector Maturity

Responsibility of

Private Sector

Asset ownership

with operational

and commercial

responsibility

No asset

ownership;

with

operational

responsibilities

Low cost

recovery

Full cost

recovery

Service Contract

Management Contract

Lease

Concession / BOT

Divestiture / BOO

Key Considerations

Service contracts: Cost-effective way to meetspecial technical needs, but benefits are limited

Management contracts: useful for rapidlyenhancing technical capacity, efficiency, and degreeof private sector’s involvement

Leases: An efficient way to pass on commercial risk.Appropriate when large scope for operatingefficiency and limited scope for new investments

Concessions: Pass full responsibility for operationsand investment to the private sector

Build-operate-transfer (BOT) or variations resembleconcessions but are normally used for greenfieldprojects, such as wastewater treatment plant

11

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cfwf/ tyf kIfx?

;fl;gfsf :j?kx?

;]jf s/f/

(Service Contract)

Aoj:yfkg s/f/

(Management Contract)

lnh

(Lease Contracts)

sG;];g s/f/

(Concessions)

lgdf{0f ;~rfng

x:tfGt/0f s/f/

(BOT)

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h:t} ld6/

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z'? ;Demf}tfdf,

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sfo{;Dkfbgdf

;'wf/ x'g]

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hgzlQm ljsf;

x'g]

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hgzlQm ljsf;

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;d:of tyf

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/xg g;Sg] .

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s;/L nufgLsf]

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;St5 .

12

1. Project Identification

• The need analysis

• Context analysis1.1. Project selection and definition

• Affordability

• Risk allocation

• Bankability

• Value for money

1.2. Pre-assessment of PPP options

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2. Detailed Preparation (DPR)

• Project team

• Transaction advisory team

• Plan and schedule

2.1. Getting Organized

• Needs assessment

• Option analysis

• Project due due diligence

• Value assessment

• Economic valuation

• Procurement plan

• PFS

• FS/DPR

2.2. Feasibility

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2. Detailed Preparation (DPR)

• Further studies/reviews

• Detailed PPP design

• Procurement method

• Bid evaluation criteria

• Tender documents

• Draft PPP contract paper

2.3. Before launching the tender

15

3. Procurement

• Notice

• Prequalification (EOI)

• Invitation to tender

• Receipt of bids

3.1. Bidding process

• RFP evaluation process

• confidentiality and communications

• Conflict of interest review

• Approval process

• Contract award

3.2. Bid evaluation process

16

3. Procurement

• Final PPP contract

• Financing agreement

• Financial close3.3. PPP contract and financial close

17

4. Project Implementation

• Management responsibilities

• Partnership management

• Service delivery management

• PPP contract administration

• Key challenges and task of PPP agreement

• Monitoring service outputs (KPIs)

• Change to PPP contract

• Dispute resolution

• PPP contract termination

4.1. Contract management

• Institutional framework

• Analytical framework

4.2. Ex-post evaluation

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I. Sound Legal Instruments (PPP Policy, PPP Act, Guidelines, PPP focus SBD....) yet to be established.

II. Good transaction skills yet to be developed: on the part of the public sector partner (including legal, financial, environmental, negotiation and industry specific skills)

III. Lack of experienced service provider or PSC from the private sector.

IV. Political Commitment ?? (for up to 10-30 years):

V. Lack of financing instrument! (consortium, long term financial tools, VGF...)

VI. Capacity of government (federal, province and local) yet to be developed.

VII. Institutional framework which facilitates the whole PPP process.

B. Challenges for Successful PPPs in Nepal: Issues and Prospects

Source: Heather Skilling and Nils Janson 2006 19

nfut p7lt x'g]

cj:yf (cost recovery)

ljZn]if0f .

dxz'nsf] txut

;+/rgf cg';f/ c+s

lgwf{/0f (Level and structure of tariffs)

;]jf u|fxLsf] dxz'n ltg]{

O{R5fzlQm / Ifdtf to

(willingness and ability to

pay)

;]jfsf] ck]lIft :t/

(Service Standard)

Go"g kl/k"lt{ sf]if

(VJF) tyf cg'bfg

(Subsidy)

;~rfng sfo{Ifdtf (Operational Efficiency) recovery)

;flg;f cGt/ut dx;'n lgwf{/0f (Tariff Design) ubf{ b]xfosf] k|ltls||ofTds df]8]n ckgfO{ dxz'n lgwf{/0f k|ls|ofnfO{

;xhLs/0f ug{ g]kfndf ;xh 5}g .

20

The way forward: Perspectives in local levelSocial services infrastructure Basic urban services

infrastructure

Revenue generating urban

infrastructure

• Drainage

(Roads/Bridges/Culverts if part

of drainage),

• Public Toilets,

• Slum Area Improvement (water,

road, drainage, solid waste, and

access roads to hamlets of the

poor communities),

• SWM (Collection, Transportation

and Disposal including

equipment),

• Sanitation Programmes,

• Pre-primary Schools,

• Libraries/Reading Halls (book

bank for poor children),

• Health Centres/Health Posts,

• Fire Station, Aged Rest-

Houses/Orphanages,

• Roads and Bridges,

• Drinking Water,

• Preservation of

Natural/Cultural/Archae

ological/Heritage Sites,

• Slaughter House,

• Street Lightings,

• Municipal Buildings,

• Community Buildings

and Rest Houses,

• Sports/Stadium,

• Recreational Area,

• Crematoriums,

• Museums,

• Protection of Natural

resources ( Public Land

Protection Works, River

training for Soil Erosion

• Bus Parks and Parking

lots (Trucks, taxi,

motorbikes,

Rickshaws/Horse

Carts/etc.)

• Cottage/Medium/ Small

Industries,

• Tourism development

Projects,

• Market development

project (Haat

Bazar/Market Fair

Centres/ Exhibition

Centres)

• Communication

Facilities,

• Generation/Distribution

of Electricity