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Policy, Legal & Regulatory, and Institutional Options for Public-Private Partnerships (PPPs) in Information & Communications Technology Ned White Institute.

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Presentation on theme: "Policy, Legal & Regulatory, and Institutional Options for Public-Private Partnerships (PPPs) in Information & Communications Technology Ned White Institute."— Presentation transcript:

1 Policy, Legal & Regulatory, and Institutional Options for Public-Private Partnerships (PPPs) in Information & Communications Technology Ned White Institute for Public-Private Partnerships February 17 - 19, 2008

2 2- Policy & LIR Options for PPPs in ICT2 Module 3: Identifying, Analyzing & Structuring ICT Projects to be Viable PPPs Module 4: Tendering & Procuring PPP Projects in ICT Module 5: Negotiating Contracts & Financing PPP Projects in ICT Module 6: Managing PPP ICT Contracts & Monitoring Contractor Performance The Sequence of the Project Life Cycle for PPPs in ICT & e-Government Module 2: Establishing Effective Policy, Legal, Institutional, & Regulatory Frameworks for PPPs in ICT/e-Govt.

3 2- Policy & LIR Options for PPPs in ICT3 Session Overview: 1.The role of PPPs within overall ICT sector policy & institutional reforms 2.The International Record on PPP investments in telecommunications infrastructure 3.PPP Legal, Institutional & Regulatory (LIR) Framework Good Practices 4.PPP LIR Frameworks for Public Sector Supports 5.Case Example: “Partnerships Victoria” - LIR Framework for PPP in Victoria, Australia and Mobile Data Network PPP Case Example

4 2- Policy & LIR Options for PPPs in ICT4 ICT Sector ObjectivesStrategies Institutions New Investment Legal Enforcement Consumer Protection Competition Private Sector Participation Line Ministries (Infra. Reform Policies) Independent Infra. Regulators Autonomous Public Infra. Contract Agencies (Asset Hldg. Cos.) Competitive Private Operators PPP Technical Unit Efficient Management & New Technologies

5 2- Policy & LIR Options for PPPs in ICT5 PPPs are just one component of Strategies of Overall ICT Sector Reform #Unbundled FunctionsInstitution 1Policy Making & Sector PlanningGovernment Ministries 2Regulation, Performance Monitoring & Tariff-Setting Independent Sector Regulatory Bodies & Contract Compliance Offices 3Ownership & contracting of long- term network infrastructure assets State-Owned Infrastructure Contracting Agencies & Asset Holding Cos. (AHC’s) 4Operation of ICT network infrastructure & service delivery Private Sector PPP contractors Without these supporting sector-wide reforms & unbundling of institutional functions, multiple PPPs will add new capacity & costs, but will not, on their own, deliver needed sector-wide ICT efficiency & sustainability

6 2- Policy & LIR Options for PPPs in ICT6 PPP LIR Good Practices: Policies: should make ICT PPPs an attractive option for line ministries & contracting agencies (ready approvals, quick implementation, available public supports, etc.) Laws: Public Finance Laws should make PPP a required option to be analyzed for any new ICT investment project Capacity: Line Agencies need to have the skills, models & technical resources to identify & tender candidate PPPs Institutions: PPP Technical Units to: Promote the PPP policy & help build PPP capacity in line agencies Review & approve proposed PPP projects for quality & completeness Measure, Manage, Minimize & Monitor Public Sector Risks Separate the institutional functions of PPP project proposal vs. PPP project approval Monitoring: continuously monitor PPP performance, ensure compliance with contracts & assess lessons learned

7 2- Policy & LIR Options for PPPs in ICT7 Effective PPP LIR Frameworks must reduce transaction costs over time to be sustainable 1st 2nd3rd4th 5th PPP Transaction Costs ($): Preparation Times, Development Costs, PPP Financing Risk Premia (%) Opportunity Costs, etc. Sequence of PPP Pilot ICT Transactions

8 2- Policy & LIR Options for PPPs in ICT8 International PPP Record: ICT (Telecom) Sector Continues to Dominate PPPs:

9 2- Policy & LIR Options for PPPs in ICT9 PPPs in ICT/Telecom by Region

10 2- Policy & LIR Options for PPPs in ICT10

11 2- Policy & LIR Options for PPPs in ICT11 Selected International PPP LIR Frameworks

12 2- Policy & LIR Options for PPPs in ICT12 PPP LIR Goal: Better “Value for the Public’s Money” 1. Estimate the how much it would cost (or currently is costing) the Public Sector to provide an ICT service 2. Add the likely (historic) costs of additional risks the public sector would take (construction/installation cost overruns, ineffective technologies, project completion delays, higher operating cost than planned) 3. How much would it cost the private sector to provide the SAME output service levels (lower construction & operating costs, but higher costs of financing…) 4. Which option offers the best “Value for the Public’s Money?” “Value for Money” = Risk-Adjusted PSC – Winning PPP Bid

13 2- Policy & LIR Options for PPPs in ICT13 PPP Laws & Regulations The International Record has shown that in order to succeed, Public Finance Laws must require: Good Practice: That before any new infra. project can ask the National Treasury or MoF for new funds for long-term projects it should first analyze if PPP is feasible (South Africa, Pakistan, India) Better: Public Finance Laws should require that before public funds can be given by Treasury/MoF for a new ICT project, the line ministry/infrastructure contracting agency must first prove that a PPP approach is not feasible (UK, Australia, Chile, et al)

14 2- Policy & LIR Options for PPPs in ICT14 PPP Laws & Regulations Affordability: In developing & middle-income countries, like ESCWA members, one of the biggest limits to the viability of any PPP projects (in ICT and other sectors) is going to be their affordability. PPP Laws should require that Govt. agencies first demonstrate that they (or public end users) can afford the payments needed by any new ICT project, before offering it as a PPP PPP Laws & Regs should prevent the “deferred payments”, “avoided sovereign borrowing” and the “off-balance Sheet” components of PPPs from being used to make them appear more affordable (in the short- term…)

15 2- Policy & LIR Options for PPPs in ICT15 Deferred PPP Payments Example A Govt. Agency wants to build a new ICT project for $10 m. It will cost $2 m to operate each year, growing at 10%/yr. for 20 years (including all Risk Adjustments: cost overruns, operating inefficiency risks, etc.) However, the Govt. Agency cannot borrow the $10 m needed to construct & install this ICT project A PPP bid proposes payments from the Govt. of $2.5m year, growing at 10%/yr. for 20 years. Govt. Contracting agency estimates its planned budget could make these lower annual payments. Government’s Cost of Capital (Discount Rate) is 12%. Is this PPP an attractive offer? Should the Govt. agency accept this PPP bid?

16 2- Policy & LIR Options for PPPs in ICT16 Analyzing Deferred PPP Payments NPV of Payments

17 2- Policy & LIR Options for PPPs in ICT17 PPPs do place new long-term (performance-based) financial obligations onto Govts. (almost the same as sovereign loans…) “Fiscal Opportunism”: In the past (Pre-1997), many PPPs & BOTs had been opportunistically used by Govt. agencies to finance priority public infrastructure projects “Off the Govt’s. Balance Sheet.”: PPP payment liabilities were not disclosed to outside credit rating agencies or lenders analyzing Sovereign creditworthiness PPP payment obligations (Contingent & Non-Contingent) were also not recorded, monitored or provisioned against by Govts. themselves (Ministries of Finance, Central Banks, etc.) Emerging Mkt. Financial Crises in late-1990’s revealed multiple “Off- Balance Sheet” PPP liabilities undermine Sovereign creditworthiness (& increase long-term credit risks faced by PPP investors) To sustain PPPs, Govt. MoFs must: Endeavor to minimize use of Public Liabilities (Maximize VFM) Disclose all PPP liabilities (within Govt. & to outside analysts & lenders) Ensure that all PPP liabilities can be paid & Provision Against them Monitor the Govt’s PPP risk exposure continuously PPPs & Public Sector Risks

18 2- Policy & LIR Options for PPPs in ICT18 Financial Attractiveness (FIRR) Low High Social & Political Priority (EIRR) Low Publicly Identified Projects Privately Identified Projects 1.Project Structuring (Public Supports) 2. Project Screening PPP is a “leverage” technique not a replacement for public finance Only about 15% of all public infrastructure investments can be feasibly provided by PPPs

19 2- Policy & LIR Options for PPPs in ICT19 Managing Public Sector Risks Generally, public sector supports for PPP projects should be minimized (to transfer key risks away from the public sector_ Use only enough public sector support to make the PPP project financially viable, but not more (avoid publicly subsidizing private profits) In general, reducing public sector support increases the “Value for the Public’s Money” in the project (up to a point…) However, Public Sector Supports should not be eliminated, because some risks are more effectively (and cheaply) managed by the public sector. Transferring too much risk onto private sector, raises overall costs of the project

20 2- Policy & LIR Options for PPPs in ICT20 Optimal Public Support vs. Minimal or “NO” Public Support for PPPs Public Support High Pub. Support Low Pub. Support Govt’s. Value For Money Private Sector’s Price-Risk Exchange Offer Low VfM High VfM PPP Price (Cost/ Output Unit) Minimal Public Support, But Low VfM Moderate Public Support, => Optimal VfM Low Cost High Cost VfM Public VfM Utility Curves

21 2- Policy & LIR Options for PPPs in ICT21 Separate Govt. PPP Institutions: “Proposing & Promoting PPP ICT Projects” vs. “Review & Approving/Disapproving PPP ICT Projects” Line Ministries & Govt. Agencies (as the customer of any PPP) should be responsible for identifying & selecting which ICT projects they want to implement as PPPs. Thus, Line Ministries and their “PPP Nodes” should propose and promote their own specific PPP transactions. A separate body, responsible for managing public sector finances & public sector risks (ie a “PPP Unit” within the Min. of Finance), should independently review these proposed PPPs and either approve or disapprove them, based upon what offers the best value for the public’s money. It is a hazardous conflict-of-interest to combine these two key functions under a single Government unit…

22 2- Policy & LIR Options for PPPs in ICT22 PPP LIR Example: Partnerships Victoria, Australia Victoria: 2 nd Largest Australian State, by economy & population (pop. = 5.0 million) Plans to spend $A 3.2 Billion (U.S.$2.5 Billion) on public infrastructure 2006 – 2010 History of individual PPPs & BOTs in 1980’s to finance projects “Off Balance Sheet,” avoid public borrowing limits, but little risks transferred to private sector 1990’s sought to maximize risk transfer to private sector, but some projects could not be sustained June, 2000: New “Partnerships Victoria Policy” Adopted

23 2- Policy & LIR Options for PPPs in ICT23 Partnerships Victoria Policy, 2000 A more balanced policy to integrate sustainable private investment into public infrastructure Primary goal of providing “Value for Money” in the public interest Does not assume that the private sector is necessarily more efficient at building & operating infrastructure assets Requires estimating and recognizing whole-life costing for projects Emphasizes “Optimal Risk Transfer” to private sector, instead of “Maximal Risk Transfer”

24 2- Policy & LIR Options for PPPs in ICT24 Partnerships Victoria - Principles PPP is not “another bucket of money” for projects PPP does not avoid public funding procedures PPP does not get projects & public liabilities “Off the Balance Sheet” PPP is not just about “building new things” PPP is not privatisation PPP does not suit all projects & service delivery needs (goal of just 10-15% of total public investments) PPP is one option for procuring and delivering needed services PPP IS about delivering services, and not just about financing & building Overarching goal is providing “Value for the Public’s Money”

25 2- Policy & LIR Options for PPPs in ICT25 Partnerships Victoria – PPP Tools, Models & Publications June, 2000:Partnerships Victoria Policy June, 2001: Partnerships Victoria Practitioners’ Guide Risk Allocation & Contractual Issues Guide Public Sector Comparator – Technical Note June, 2003: Contract Management Framework July, 2003: Public Sector Comparator – Supplementary Technical Note Use of Discount Rates June, 2005: Standard Commercial Principles Available for Download at

26 2- Policy & LIR Options for PPPs in ICT26 Major Steps in Developing Partnerships Victoria Projects

27 2- Policy & LIR Options for PPPs in ICT27 Partnerships Victoria – PPP Process 1.Business Case Assess the PFI Potential & Commence PSC 2.Funding Approval Review preliminary PSC Funding approval signals bankability to private investors & lenders 3.Expressions of Interest Formally notify private market about the project Define timetables & deadlines Confirm the level of market interest Allow potential bidders to comment on proposed project structure Shortlist at least 3 bidders 4.Project Brief (Request for Proposals) Formal Govt. commitment to project Detailed Project information & requirements for bidders Bid evaluation criteria & process 5.Final Negotiation

28 2- Policy & LIR Options for PPPs in ICT28 Partnerships Victoria PPP Projects 2004 Review of 8 early projects revealed average savings was 9% against the Risk-Adjusted PSC

29 2- Policy & LIR Options for PPPs in ICT29 ICT PPP Example: Partnerships Victoria’s Mobile Data Network PPP

30 2- Policy & LIR Options for PPPs in ICT30 Mobile Data Network PPP Description: To provide a mobile data network to Victoria’s Police & Ambulance vehicles in Melbourne area. Includes access in vehicles and outside to relevant databases, maps, emergency information & locator functions at a guaranteed operational reliability of 99.9%: Allow important information about the emergency and the people involved to be sent directly to the vehicles involved; Use Satellite technology to track vehicle location, allowing the closest vehicles to be sent to an emergency; Give mobile access to databases such as vehicle registrations and drivers licenses; and Allow police to submit paperwork via computer while still in the field.

31 2- Policy & LIR Options for PPPs in ICT31 Mobile Data Network PPP PPP Contractor: Motorola Australia Pty Ltd. Govt. Client: Victoria Police & Ambulance Services Contract Term: 5 year contract, beginning June 2003 Cost of PPP Contract: $138 million in total PPP Payments over term of contract, equals $85 million NPV using State’s discount rate of 8.65% Value for Money Savings of PPP = 11% (A10.5 million = U.S. $7.8 million) Lessons Learned: As one of the first ICT PPPs in Australia, the procurement took a long time (3 yrs.) due to need to revise & reclarify the contracts output standards. Difficult to estimate a Public Sector Cost when the public sector could not technically provide the service on their own

32 2- Policy & LIR Options for PPPs in ICT32 Partnerships Victoria – PPP Project Selection Criteria: Scale: Minimum of $A10 million ($A 7.5m - $A75 m is better) Key Performance Indicators (KPIs): Measurable service outputs Risk Transfer: Clear opportunities to transfer risks (construction, completion & operation) to private sector Term: Long term of contract (15 – 30 yrs.) Innovation: Project allows opportunities for private sector to innovate in designing, building, financing, and operating projects Market Appetite: clear indications that there are experienced private developers interested in these contracting opportunities

33 2- Policy & LIR Options for PPPs in ICT33 Partnerships Victoria – Lessons Learned The first stage, the Business Case, is the most important opportunity to establish a PPP project’s clear strengths, or to stop unsuitable projects from advancing as PPPs Focus on the project’s clear, stated objectives throughout the process (output standards MUST be clear & quantifiable) Clear output specifications are essential for an effective project development process PPP Procurement processes are complex and time-consuming. More time & money spent on risk analysis & PPP structuring leads to more efficient PPP solutions Contract signing is the “beginning,” not the “end.” PFI Contract management requires more legal & commercial resources than assumed Multiple Public Sector parties to a PPP make governance very challenging PPP processes must be flexible to learn lessons of experience and to adapt & improve

34 2- Policy & LIR Options for PPPs in ICT34 Questions?

35 The Institute for Public-Private Partnerships (IP3) Washington | Cairo | Jakarta | Dakar Cairo 19 Ahmed El Shattoury Street Dokki, Giza, Egypt Washington 1010 Wisconsin Avenue, NW, Suite 250 Washington, DC 20007 USA Tel: 1-202-466-8930Fax: 1-202-466-8934 Jeff Wuorinen Regional Representative, Middle East/North Africa E-mail: Tamer Shaltout Program Manager, Egypt E-mail:

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