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Public-Private Partnerships
2009Skikda , Argelia
2010Chennai, India
Under construction (2012)Qingdao, China
Overview
• Terminology• Quick History• Basic Rules• Financing Structures• Closing
Terminology
“PPP”
• A Public-Private Partnership is a contractual agreement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party also shares the risks and rewards potential.
Source: Council for Public-Private Partnerships
“PPP” (crayon version)
• A Public-Private Partnership is private financing of public infrastructure.
Quick History
United States
1600 1700 1800 1900 2000
United States
1600 1700 1800 1900 2000
1652 – First privately-owned water system; Water Works Company of Boston agreed to provide drinking water to local citizens.
United States
1600 1700 1800 1900 2000
18th and 19th Centuries – Predominantly private water systems (domestic, industrial and agricultural).
United States
1600 1700 1800 1900 2000
20th Century – Broad trend of public acquisition and consolidation of privately-owned water systems as a means of reducing water-borne disease and improved standards.
Benefits of Public Systems
• Dramatic improvements in public heath.• Significant increase in public revenues.• Low customer rates.• Excess revenues available to supplement the
general fund.• Increase in public sector employment.
Challenges for Public Systems
• Established an effective public monopoly on water resources and customer bases.
• Inherent political pressure to keep rates low.• Budgetary competition with other public
financial obligations.• Low investment in long-range planning and
capital replacement programs.
Opportunities for PPP Today
Public Sector• Significant new capital investment is
needed:• To replace aging infrastructure• To develop new infrastructure to meet new
demand• To meet increasing stringent drinking water
standards• Diminishing amount of public funding is
available
Opportunities for PPP Today
Sources: EPA
Opportunities for PPP Today
Sources: EPA
Opportunities for PPP Today
Drinking Water Wastewater Total
Annual Capital Spending $12 billion $10 billion $22 billion
Sources: EPA, CBO, AWWA, WIN and DWNS.
Opportunities for PPP Today
Drinking Water Wastewater Total
Annual Capital Spending $12 billion $10 billion $22 billion
Annual Capital Need
$12 to $24 billion
$15 to $23 billion
$27 to $47 billion
Sources: EPA, CBO, AWWA, WIN and DWNS.
Opportunities for PPP Today
Drinking Water Wastewater Total
Annual Capital Spending $12 billion $10 billion $22 billion
Annual Capital Need
$12 to $24 billion
$15 to $23 billion
$27 to $47 billion
Annual Gap $0 to $12 billion
$5 to $13 billion
$5 to $25 billion
Sources: EPA, CBO, AWWA, WIN and DWNS.
Basic Rules
1. Service is Paid For
PaymentService
Consumers
Infrastructure
1. Service is Paid For
PaymentPotable Water
Consumers
Desalination Plant
2. PPP Needs a Reason
• Financial Need: Public entity is unable (or unwilling) to use public financing options.
• Technical Need: Technology solution requires skills for design, construction and/or operation not held by the public entity.
• Both
3. Risk Drives Cost
Risk = Increased Cost
Financing Structures
PublicFinancing Consumers
PublicFinancing
O&M
Equity
Consumers
Service
Public Entity
Fees and Taxes
PublicFinancing
O&M
Equity
Consumers
Service
Public Entity
Loan
P&ILenders
Fees and Taxes
PublicFinancing
O&M
Equity
Consumers
Service
Public Entity
Loan
P&ILenders
Fees and Taxes
Designer
Design Contract
PublicFinancing
O&M
Equity
Designer Builder
Design Contract
Construction Contract
Consumers
Service
Public Entity
Loan
P&ILenders
Fees and Taxes
PublicFinancing
O&M
Equity
Designer Builder
Design Contract
Construction Contract
Consumers
Service
Public Entity
Loan
P&ILenders
Fees and Taxes
Infrastructure
PrivateFinancing Consumers
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
SPV
Water Supply Contract
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
SPVLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPVLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPVLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
Infrastructure
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPV Operator
O&M ContractLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
Infrastructure
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPV Operator
O&M ContractLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
Infrastructure
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPV Operator
O&M ContractLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
Infrastructure
Demand Risk
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPV Operator
O&M ContractLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
Payment Risk
Infrastructure
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPV Operator
O&M ContractLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
Performance RisksInfrastructure
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPV Operator
O&M ContractLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
Infrastructure
Engineering Risk
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPV Operator
O&M ContractLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
CurrencyRisk
Infrastructure
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPV Operator
O&M ContractLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
Infrastructure
Legal Rights Risk
PrivateFinancing Consumers
Fees and TaxesService
Public Entity
Design Builder
Design- Build Contract
SPV Operator
O&M ContractLoan
P&ILenders
Water Supply Contract
Equity Partners Dividends
Equity
Infrastructure
RegulatoryRisk
Closing
Risk Responsibility
Development
Design
Construction
Financing
Maintenance and Lifecycle
Operations
PublicFinancing
Risk Responsibility PublicSector
Private Sector
Development X
Design X
Construction X x
Financing X
Maintenance and Lifecycle X x
Operations X
PrivateFinancing
Risk Responsibility PublicSector
Private Sector
Development X
Design x X
Construction X
Financing X* X
Maintenance and Lifecycle x X
Operations X
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