PUBLIC-PRIVATE PARTNERSHIPS

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• PUBLIC-PRIVATE PARTNERSHIPS
• United Nations
• Special Unit for South-South Cooperation
  September 18, 2006
• Arthur L. Smith
• President, NCPPP
• President, Management Analysis, Incorporated
• asmith_at_mainet.com

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PPP Objectives and Governance
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Public-Private Partnerships Providing Public
Needs on a Cost-Effective Basis

• Service Provision
• Economic Objectives
• Social Objectives

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Economic Objectives

• Reduce development risk
• Obtain project financing
• Reduce public capital investment
• Accelerate service availability
• Optimize value for money
• Access to management expertise
• Access to technology
• Optimize risk allocation
• Mobilize excess or underutilized assets
• Foster local capital markets
• Indirect economic benefits

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Social Objectives

• Achieve legitimate political goals
• Improved service to the community, e.g.,
  increased access to drinking water which meets
  WHO standards
• Extend services to remote or marginalized regions
  or populations
• Reduce income inequality
• Provide environmental enhancement

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Public-Private Partnerships Defined

• 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 shares in the risks and
  rewards potential in the delivery of the service
  and/or facility.
• source www.ncppp.org

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Case Study 1Pocahontas Parkway

• The State of Virginias Public-Private
  Transportation Act (PPTA) is a legislative
  framework enabling the Virginia Department of
  Transportation (VDOT) to enter into agreements
  authorizing private sector entities to develop
  and/or operate transportation facilities.
  Proposal evaluation is a six-phase process
• Quality Control Does the proposal address needs
  identified in the appropriate local, regional, or
  state transportation plan? Will it provide a
  more timely, efficient, or less costly solution
  than the public sector? Is there appropriate
  risk sharing?
• Independent Review Panel The proposal is
  reviewed by the panel with members from the State
  Transportation Board, VDOT, transportation
  professionals, academics, and representatives of
  the affected entities. Public Meetings and input
  are part of the process.

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Pocahontas Parkway

• STB Recommendations The STB reviews the
  proposals and recommendations of the IRP and
  recommends to VDOT whether to proceed with the
  project.
• Submission and Selection of Detailed Proposals.
  VDOT forms a proposal review committee and
  requests detailed proposals. Based upon its
  review, VDOT may select none, one, or more
  proposals for further negotiation.
• Negotiations. If the quality of proposals
  merits, VDOT will negotiate for the interim
  and/or the comprehensive agreement which will,
  among other things, outline the rights and
  obligations of the parties, set a maximum return
  of rate of return to the private entity,
  determine liability, and establish dates for
  termination of the private entitys authority and
  dedication of the facility to the State.
• Agreement. The negotiated agreement undergoes
  final legal review, and is then submitted for
  signature.

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Pocahontas Parkway

• New, 14.1 kilometer, four-lane road, including
  high-level bridge over the James River.
• Connects two major commuter routes near Richmond,
  VA, reducing commute by 24 minutes per day.
• DBFO Real Toll, with 63-20 public benefit
  corporation financing.
• Financing 354 million in tax exempt toll
  revenue bonds sold by 63-20 corporation 27 M in
  government funds.
• Bonds to be paid through toll receipts.

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Pocahontas Parkway
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Pocahontas Parkway
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Pocahontas Parkway

• Construction completed October, 2002
• Tolls raised on August 1, 2004, due to revenues
  not meeting levels required for bond payments.
• Project now financially stable
• For more information
• www.pocahontasparkway.com

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Case Study 2Marion Davies Estate
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Marion Davies Estate

• The Marion Davies Estate is a beachfront property
  facing the Pacific Ocean in Santa Monica, CA.
  The facilities were built for Hollywood actress
  Marion Davies in the 1920s by the newspaper titan
  William Randolph Hearst.
• After her death, the property deteriorated. For
  many years, it operated as a private beach club.
  After earthquake damage in 1994, it was declared
  unsafe, and closed to the public.
• In 1998, the City of Santa Monica, through public
  meetings and consultant support, developed a new
  site-use plan which envisioned a public beach
  club and community meeting place, with conference
  space, banquet hall, and availability for films.
  The City formally approved the plan in 1999.

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Marion Davies Estate

• However, the City could not afford to implement
  the 25 million plan.
• In 2004, the City announced formation of a PPP to
  implement the plan. The structure included
• Funding from a charitable foundation, the City,
  and Federal government agencies
• Long-term costs paid for by public-use activities
  on the renovated property
• This long-deferred plan is now being implemented.

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Case Study 3Chesapeake Forest

• In 1999, a lumber company offered for sale a
  tract of 58,172 acres in the Chesapeake Bay
  watershed, including shoreline property. This
  land, all in the State of Maryland, included
  large segments of unbroken forest and more than
  4,000 acres of wetlands, as well as established
  populations of several threatened and endangered
  species. Much of this land bordered on existing
  Stateowned parkland and forest, creating a
  unique opportunity to buffer a large area from
  deforestation and development.

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Chesapeake Forest

• However, the State faced several obstacles to
  this environmentally desirable goal

• The State lacked the funding to acquire the land.
• The State lacked the resources to manage the land
  after purchase (the State estimated that four
  full-time foresters and associated support
  services would be required.

• Cessation of timber harvesting would cause
  unacceptable disruption of the local economy in
  this largely rural part of the state.

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Chesapeake Forest

• The acquisition of the land was achieved through
  fairly traditional means. The State purchased
  one-half of the acreage using State funds, while
  the remaining 29,000 acres were purchased by an
  environmental non-profit which transferred
  ownership to the State. By December 2000, the
  State owned all of the Chesapeake Forest lands.

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Chesapeake Forest

• The State, working with the non-profit
  environmental group, then sought to craft a
  Public-Private Partnership (PPP) with the
  following explicit objectives
• Providing a steady flow of economic activity and
  employment to support local businesses and
  communities
• Preventing the conversion of forested lands to
  non-forest uses
• Contributing to improvements in water quality, as
  part of the larger Chesapeake Bay restoration
  effort
• Protecting and enhancing habitat for threatened
  and endangered species
• Maintaining soil and forest productivity and
  health and,
• Protecting visual quality and sites of special
  ecological, cultural, or historical interest.

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Chesapeake Forest

• To achieve these objectives, the State
  advertised, negotiated, and awarded a multiyear
  contract with a lumber company. This innovative
  agreement allows the company to harvest up to
  1,000 acres of timber annually, an
  environmentally sustainable level. In return,
  the lumber firm is required to manage the
  Chesapeake Forest to the States silvicultural
  standards. Harvesting of timber is allowed only
  where consonant with the environmental objectives
  of water quality and wildlife habitat.

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Chesapeake Forest

• The partners, State and timber company, share the
  profits generated from the sale of timber, with a
  15 percent share of sales revenues also directed
  to the local county governments. To minimize risk
  to its private partner, the State agreed to
  compensate the lumber company for any losses in
  the first two years. However, this guarantee was
  never triggered, since the partnership has
  generated a profit every year since its
  inception.

The lumber company is required to keep a fully
accessible and transparent accounting system,
open to the States review, and audited by an
independent accounting firm.
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PPP Governance Categories

• Governance can be defined as the exercise of
  political, economic, and administrative authority
  to manage a nations affairs.

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The PPP Enabling Environment
POLICY FRAMEWORK
CONCESSIONS LEGAL FRAMEWORK
LEGAL INTEGRATION
PPP
ARBITRATION / DISPUTE SETTLEMENT
TENDERING PROCEDURES
FINANCIAL INSTRUMENTS
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Policy Framework

• High-level Government Support
• Clear Policy Statement
• Central PPP Unit
• PPP Centrum (Cz), Partnerships UK, Irish Central
  PPP Policy Unit, Kenniscentrum (Dutch PPP
  Knowledge Center)

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Concessions Legal Framework

• Create sound legislative basis for PPPs
• Provide clear definitions and applicability
• Provide stable legal framework
• Provide fairness and transparency

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Legal Integration

• Establishment of a strong concessions framework
  does not provide the full legal structure
  necessary for successful PPPs.
• A holistic approach is required, in which
  statutes related to property rights, procurement,
  domestic and foreign investment, etc. are
  integrated with the concessions law.
• Consistent and objective judicial enforcement is
  required.

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Tendering Procedures

• Public advertisement of PPP opportunities, in a
  recognized (standard) source or sources, with
  provision of international exposure
• Clear, detailed Requests for Tender, with full
  disclosure of all known risks
• Opportunity for bidder comment on Request for
  Tender
• Clear, detailed tender evaluation procedures,
  known to all parties, and providing a level
  playing field
• Clearly stated project goals and objectives

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Tendering Procedures (contd)

• Clearly stated performance standards for
  assessing project performance
• Open participation in tender process, to include
  foreign-owned firms
• Qualified tender evaluation board, with subject
  matter expertise and no conflicts of interest
• Objective, documented evaluation and negotiations
  process, consonant with the published evaluation
  factors
• Public notice of award, with debriefing
  opportunity for unsuccessful bidders

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Arbitration / Dispute Settlement

• Inclusion of dispute resolution procedures, to
  include third-party arbitration and/or choice of
  forum (access to international arbiters or
  bodies)

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Financial Instruments

• Creation of financial structures which will
  facilitate generation of project capital
• Availability to security instruments on the
  assets and cash flow of concessions, to include
  step in rights

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Achieving Sustainable Development
Economic Policy Long-term Focus Sectoral
Diversification Asset Investment Strategy
Fiscal Management Revenue Stabilization
Savings Exchange Rate Management
SUSTAINABLE DEVELOPMENT
Good Governance Institutional Capacity
Human Capacity Transparency and Civil Society
Participation