PROJECT FINANCE INITIATIVE and PUBLIC PRIVATE PARTNERSHIPS

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PROJECT FINANCE INITIATIVE andPUBLIC PRIVATE
PARTNERSHIPS
Simon Par Keeling,Société Générale Paris
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Public Private Partnerships

• Project Finance Initiative / Public Private
  Partnership (PPPs) is a partnership between the
  public sector and the private sector for the
  purpose of delivering a project or a service
  traditionally provided by the public sector
• The overall aim of PPPs is to structure the
  relationship between the public sector and the
  private sector, so that the risks are borne by
  those best able to manage them
• Increased value is achieved for public services
  through the exploitation of private sector skills
  and competencies
• Transfer of appropriate level of risks and
  responsibility
• But, government maintains control where
  appropriate (e.g. regulation, transport policy)

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Public Private Partnerships in Europe

• PPPS are increasingly being seen as an attractive
  approach to the provision of infrastructure
  projects and services across Europe
• An ever increasing number of countries are
  embarking upon PPP programmes (Greece, Ireland,
  Finland, Italy) that will lead to a significant
  redefinition in the role of the public sector in
  the financing and provision of public services

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Public Private Partnerships in Europe
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Objectives of PPPs Public Sector

• Value for Money better services at lower prices
  for customers
• Competition - ensures that Value for Money
  achieved for taxpayers
• Risk Transfer
• Introducing private sector expertise
• Innovative solutions
• Off balance sheet financing and long-term private
  funding

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Implications of PPPs Public Sector

• Change in procurement process
• Development of core requirement (output
  specifications, frequency of trains)
• Consideration of whole-life costing
• Detailed analysis of project risks
• Regulation of the provision of services
• Relationship with funders and sub-contractors
  through Direct Agreements
• Consistency of approach through central
  government

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Objectives of PPPs Private Sector

• Long-term projects with strong underlying
  economics
• Proper risk allocation - risks that can be
  managed
• Acceptable returns

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Possible Benefits derived from PPPs

• Experience of PPPs suggest that significant
  benefit could be achieved in the followings areas
  
• acceleration of infrastructure provision / faster
  implementation
• reduced whole life costs
• better allocation of risk
• better incentives to perform
• improve quality of service
• generation of additional revenues for the public
  sector (revenue share, concession fee)

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Lessons learnt

• PPPs Learning the lessons
• laying the foundations (experienced external
  advisors, clear regulatory regime..)
• clearly defined process to reduce the time and
  cost
• clearly defining project and performance
  requirements
• removing unintended obstacles (parliamentary
  appraisal, trade unions)
• critical role of the central and local government
  agencies to play in the management and regulation
  of PPPs

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Types of PPPs

• Wide range of options allocation of
  responsibility for asset ownership, management
  and capital investment between the public and
  private sectors

• Private ownership, control and investment
• Incentives for efficiency

• Potential benefits for consumers
• Risk

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Traditional Risk Allocation for Public Sector
Procurement
Roll Out
Quality/Cost
Technology
Design
Quality/Cost
Cost/Obsolescence
Cost/Availability/Terms
Public Sector
Finance
Operation
Cost/Quality
Time/Cost
Cost/Quality
Approval Process
Maintenance
Residual Value
Usage/Price
Market
Asset Value
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Public Private Partnership Risk Allocation
Commissioning
Quality/Cost
Design
Technology
Quality/Cost
Cost/Obsolescence
Operation
Procurement Contract
Private Sector
Cost/Quality
Public Sector
Cost/Quality
Residual Value
Maintenance
Time/Cost
Cost/Availability /Terms
Usage/Price
Time/Cost
Residual Value
Finance
Approval Process
Regulatory Process
Asset Value
Demand