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Session 6: Public-Private Partnership in ADB Trevor Lewis Senior Infrastructure Specialist (Public Private Partnerships) Secretariat, PPP Community.

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Presentation on theme: "Session 6: Public-Private Partnership in ADB Trevor Lewis Senior Infrastructure Specialist (Public Private Partnerships) Secretariat, PPP Community."— Presentation transcript:

1 Session 6: Public-Private Partnership in ADB Trevor Lewis Senior Infrastructure Specialist (Public Private Partnerships) Secretariat, PPP Community of Practice Asian Development Bank Regional & Sustainable Development Department 30 April 2014

2 Changed emphasis in ADB process
PPP Operational Plan – approved in April 2012 Defines clearly PPPs in the context of ADB operations Prioritizes projects that can or should be done in the private sector Prioritizes ADB sovereign supports to projects that have the potential to attract private sector investment and lending Pure public sector projects only in those areas where private sector cannot go and/or have a strong poverty alleviation focus ADB needs to leverage its budget Budget is to remain flat for the foreseeable future DMC government needs are increasing & costs of each project are increasing BUT…ADB public sector support remains critical Sector-based reforms are still greatly needed and fully complement PPP Cross-cutting government wide themes in governance and public financial management also continue to be needed ADB’s PPP Operational Plan signaled a prioritisation of private sector participation where feasible. That said, PPPs are not a panacea. Much literature points to the negative effects on public budgets because of contingent liabilities not being adequately assessed, insufficiently reported, or accounted for off-balance sheet. Furthermore, PPPs are generally considered to be more expensive than purely public financing due to higher private sector borrowing costs and high transaction costs in general.

3 PPP Operational Plan The Plan aims to provide a consistent analytical and operational framework for PPP assistance in support of Strategy 2020. PPP Definition: A PPP refers to a contractual arrangement between, public (national, state/provincial or local) and private entities through which the skills, assets and/or financial resources of each of the public and private sector are allocated in a complementary manner, thereby sharing the risks and rewards, to seek to provide optimal service delivery and good value to citizens.

4 Range of PPPs As service contracts and management contracts do not involve significant private sector investment, and transfer less risk than projects with significant private sector investment, they do not fall within some PPP definitions ADB’s inclusion of service contracts and management contracts within its PPP definition reflects: The role that service contracts and management contracts can play in developing DMC capability to move towards forms of contract with greater private sector investment The common aspects of performance-based service contracts, management contracts and other forms of PPP Not everything about “PPPs” applies to service contracts and management contracts

5 Integrating PPP into strategy/business plan
PPP initiatives National and sector frameworks Project-based intervention, carve-out from a sovereign project Complementary Interventions – setting the stage: PPP-friendly Tightening terms of sovereign lending With reform agenda in mind: accountability, performance, sustainability Sector reform programs Tariff rationalization, corporatization of state entities; Performance-based contracting, measurement Public financial management Governance, Companies Law, Investment Policy, Budget sustainability and accountability Capital markets Debt market reform, debt and guarantee instruments In summary as to why PPPs… well, countries have three principal options: (i) review traditional sources of funds and explore additional funding from them; (ii) investigate mechanisms for generating more resources from off-budget sources; and (iii) consider a greater role for Public-Private Partnerships (PPPs) as a way to procure infrastructure, and identify and address impediments to the development of PPP transactions However, there remains the ongoing need to undertake analyses and road maps of sectors that have potential for PPPs and that are consistent with the overall policy and development framework of the country. The lack of frameworks to facilitate PPPs in DMCs or the lack of appropriate frameworks founded on balanced, market-based commercial risk-reward principle is often a major reason the private sector is hesitant to enter into a PPP. Overarching issues of investment law, tax law, rights of parties under and enforceability of contracts, definitive land rights, and resource allocations all impact the feasibility of PPP projects. Project or sector-specific matters of revenues and/or payments, tariff adjustments, and available security structures greatly impact project feasibility, and often require overarching regulation, policy, or law. If such enabling environment adjustments are codified by contract under a specific project, the risk is significant that the outcome will be either sector- or project-specific or result in a one-off project (if any at all), where institutional learning and development suffers or does not create the conditions for sustainability or replication.

6 Operational Framework

7 Advocacy and Capacity Development
ADB Initiatives Across the Four Pillars of the PPP OP Pillar 1 Pillar 2 Pillar 3 Pillar 4 Advocacy and Capacity Development Enabling environment Project Development Project Financing ADB PPP Initiative in India PPP Cells set up in 23 States and 7 Ministries over 5 years with $15.3 million technical assistance. Focused in addressing the constrains and challenges to PPP development through the provision of capacity development and support to strengthening the policy and institutional framework. Pipeline development and support for pilot projects was also provided under the initiative. PPP Program Operationalization in Bangladesh The impact of the TA will be improved ability within the government to identify, structure, tender, and close on privately invested and/or owned and operated infrastructure and infrastructure services. The outcome of the TA will be the delivery of an operating PPPO and MOF PPP unit within government, with the staff, policies, and operating procedures to identify, structure, bid out, and implement PPP infrastructure Project Preparation Facilities & Provision of Transaction Advisory Preferred bidder announced for the CHP5 PPP Project in Mongolia where ADB is acting as the transaction advisor ADB mandated as transaction advisor for the Turkmenistan-Afghanistan-Pakistan-India energy project ADB supported Project Development and Monitoring Fund of the Philippines is funding the project development of PPP projects in the pipeline Establishment of PDFs in INO and VIE (planned) Mainly PSOD project finance with some RD-led initiatives In 2013, PSOD financed 6 PPP projects using $697m in loans, $120m in B loans, $100m co-financing (Clean Tech Fund & Climate Change Fund) and $35m in a local currency loan. The total project cost that PSOD’s PPP activities helped deliver was $3.035bn $128 million partial credit guarantee facility set up by India Infrastructure Finance Company with ADB’s support In June 2011, for example, the Government of Mongolia selected ADB as its mandated advisor to structure the Combined Heat and Power Number 5 Project as a build-operate-transfer concession—a $1.2 billion investment. A multidisciplinary team with project finance and private sector legal skills was assembled to deliver this PPP advisory mandate. The prequalification process started in September 2011; 34 firms worldwide expressed interest in the project and 11 consortia made a submission. The four shortlisted consortia were asked to submit proposal documents in early Bids were received in May 2012 and the preferred bidder was announced in July After the project site was changed in December 2012, the government asked the final two bidders to submit their final offers in February The preferred bidder was announced in August ADB's advisory team is now assisting the government in its negotiations with the preferred bidder. The concession agreement is scheduled to be signed in the second quarter of 2014 with financial closure in 2015. In November 2013, ADB was appointed as a transaction adviser to the state gas companies of Turkmenistan, Afghanistan, Pakistan, and India to help attract a private partner to lead the consortium that will build, own, and operate the planned 1,800-kilometer Turkmenistan–Afghanistan–Pakistan–India natural gas pipeline. This project will aim to export up to 33 billion cubic meters of natural gas a year from Turkmenistan to critically unserved markets in South Asia, where energy needs are estimated to double by It will bring multiple benefits to the participants including access to new markets and greater energy security and job opportunities. The project will also help transform regional cooperation and boost other initiatives aimed at bringing peace and stability to the region. The implementation of the mandate is underway with the mobilization of the first batch of consultants who have started their due diligence. The recruitment of other consultants is in process.

8 Examples of how ADB can support* PPPs
Regional Depts: Sovereign financial support (Loan, TA etc…) On-lending Program Public Sector / PPP Unit / Ministry of Finance Funding/admin Project Preparation Facility Project Preparation Facility Transaction Advisory Services Viability Gap, Output payment, Gov’t debt/equity Financial intermediary Private Sector Operations/Non-Sovereign Project Debt / Equity Guarantees Equity / Debt Funds Govt Contracting Authority Govt Contracting Authority There are a wide variety of ways in which ADB can participate in PPPs Options include sovereign loans to governments undertaking PPPs, commercial loans to private sector participants in PPPs, and guarantees The appropriate option will depend upon a number of factors including: Whether the private sector has the capacity to fully finance the project Whether the project is financially viable (that is, revenues generated by the project can meet the cost over the term of a PPP contract) Whether the project can be sensibly split into separate packages Project Company / SPV Public-financed assets Private Sector Financiers/ Investors Private Sector O&M Service BOT / Concession Srv/Mgmt Contract * Illustrative and not exhaustive

9 Mid-Term Review of ADB Strategy 2020: ADB as Project Enabler, Developer, Facilitator
“..ADB will strengthen its project development role and improve leveraging of its resources to attract greater investments from public sector, private sector, and other development partners. This will involve a combination of efforts including: using project preparation facilities and establishing new ones to develop infrastructure projects on a scale larger; linking bankable PPPs and other infrastructure projects to possible long-term financing sources, such as contractual savings and institutional investors; raising local currency financing in domestic markets for infrastructure, and using credit enhancement products; and replicating innovative instruments for financing, such as the ASEAN Infrastructure Fund, in other subregions of Asia and the Pacific. (i) using project preparation facilities and establishing new ones, such as the Asia Pacific Project Preparation Facility, to develop infrastructure projects on a scale larger than ADB’s resources could finance—and at a level and quality that attracts private sector investment; (ii) linking bankable PPPs and other infrastructure projects to possible long-term financing sources, such as contractual savings and institutional investors, including pension, insurance, and equity funds; (iii) raising local currency financing in domestic capital markets for infrastructure development, and accelerating the use of credit enhancement products; and (iv) replicating innovative instruments for infrastructure financing, such as the ASEAN Infrastructure Fund, in other subregions of Asia and the Pacific.

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