1. Public Participation in the Regulatory Process
1: Rationale, Objectives & Forms of Public-Private Partnerships (PPPs) in ICT
Ned White
Institute for Public-Private Partnerships (IP3)
February 17 – 19, 2008
IP3 MENA

2. Module 6: Module 5: Module 3: Module 4: The Sequence of the Project
Life Cycle for
PPPs in ICT & e-Government
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
Module 2: Establishing Effective Policy, Legal, Institutional,
& Regulatory Frameworks for PPPs in ICT/e-Govt.
1. Rationale & Objectives for PPPs in ICT

3. 1. Rationale & Objectives for PPPs in ICT
1: Understanding the Rationale & Objective for PPPs in ICT & e-Government
1.1 The Definition of “Public-Private Partnerships”
1.2 The Goals of PPPs in ICT
1.3 The Benefits of PPPs in ICT
1.4 Forms of PPPs Applicable for Use in ICT & e-Government
1.5 PPP ICT Case Example: Bangalore City Corp., India
1. Rationale & Objectives for PPPs in ICT

4. 1. Rationale & Objectives for PPPs in ICT
1.1 What ARE PPPs?
Definition:
A Public-Private Partnership (PPP) is a form of legally enforceable contract between the public sector and private sector, which requires new investments by the private contractor (money, technology, expertise/time, reputation, etc.), in which payments are made only in exchange for performance, for the purpose of delivering a service traditionally provided by the public sector.
1. Rationale & Objectives for PPPs in ICT

5. “Hard” vs. “Soft” forms of “Public-Private Partnerships”
Policy “Partnerships”
& Dialogs (“Soft”)
Private
Ensures joint support for the PPP policy
Common agreement on the overall framework
Implements the policy
Demonstrates results
Pub.-
Priv.
Pub.-
Priv.
Pub.-
Priv.
Pub.-
Priv.
PPP Transactions & Contracts (“Hard”)
1. Rationale & Objectives for PPPs in ICT

6. PPPs have been called different things..
“Re-Privatization” – Peter Drucker (1970’s)
“Privatisation” - UK and Malaysia (1980’s)
“Private Sector Participation” PSP - Indonesia & Egypt
“Peoplisation” - Sri Lanka
“Indigenisation” – Zimbabwe
“Equitization” – Vietnam
“Ownership Reform“ – China
“Disincorporation” - Mexico
“Marketization” & “Managed Competition” – U.S. Cities
“Partnerships” - South Africa
“Capitalization” - Bolivia
“Private Finance Initiative” (PFI) – United Kingdom
“Commercially Viable Municipal Utilities” - India
1. Rationale & Objectives for PPPs in ICT

7. 1.2 – The Goals of PPPs in ICT & e-Government
Mobilize new private sector investment to leverage limited public sector funds for the development of ICT and e-Government networks
Attract more innovation in ICT & e-Government network designs and in more effective & efficient operation & management by the private sector
Utilize private sector customer service & delivery expertise in ICT & e-Government sectors
1. Rationale & Objectives for PPPs in ICT

8. 1.3 – The Benefits of PPPs in ICT & e-Government:
Increased expansion of ICT & e-Govt. networks due to new, additional private sector financing & investments
The use of more advanced & innovative technology in the design of ICT networks e-Government services
Increased quantity and quality of public services delivery through ICT application & e-Government techniques and increased consumer satisfaction
1. Rationale & Objectives for PPPs in ICT

9. Additional Reasons for PPPs in ICT & e-Govt:
Public Participation in the Regulatory Process
Additional Reasons for PPPs in ICT & e-Govt:
“Avoided Costs”:
By contracting with the private sector to undertake a cost-recovering e-Government project, scarce Government capital budgets can be directed to other priority social services (education, health care, environment, etc.)
Without a PPP:
With a PPP:
Private ICT
Developer
Govt. Capital
Budget
PPP
Govt. Capital
Budget
AND OR
Project A:
ICT Network
Construction
Project A:
ICT Network
Construction
Project B:
Health Clinics
Construction
Project B:
Health Clinics
Construction
1. Rationale & Objectives for PPPs in ICT
IP3 MENA

10. 1. Rationale & Objectives for PPPs in ICT
Additionality:
The increased economic benefits to consumer welfare of having needed ICT services accessible NOW because of the PPP, rather than having to wait until Govt. could provide the services much later
1. Rationale & Objectives for PPPs in ICT

11. Reasons for PPPs in ICT & e-Government
Improved Efficiency & Service:
Higher quality of services & lower per unit costs. Better “Value for the Public’s Money” (This is a combination of both lower prices and/or lower risk to the Government over the entire life of the ICT project)
Increased public control over the delivery of public services: Management decisions are guided by legally enforceable contracts & clear, technical performance indicators – rather than by politics…
Technology Transfer:
Access to new, innovative technologies and experienced management not currently available through the public monopoly providing services in the sector
NOT Policy Change per se…
Increasing the size of the private sector (and the taxes they pay) is a welcomed side-effect of PPPs, but NOT a sufficient reason to undertake a transaction. PPPs can easily be more expensive and offer less quality than traditional public sector provision.
Careful feasibility analysis & risk-structuring for all PPPs is a MUST!
1. Rationale & Objectives for PPPs in ICT

12. “Privatization” vs. “Competition”?
Government Ownership 3?
Monopoly
Competition 2? 1?
Private Ownership
NOTE: The participation of the private sector in ICT is the MEANS of achieving the GOAL of more competitive delivery of public services. PPPs are NOT the GOAL itself.
1. Rationale & Objectives for PPPs in ICT

13. “Value for the Public’s Money” is a combination of PRICE and RISK?
PPP Option #3
The Private
Sector’s
Price-Risk
Offer Curve
Average
Tariff
PPP
Option #2
PPP Option #1 ? P’
P’’
Public “Utility” Curves
P’’’
High
Low
Level of Sector RISK Bourne by Government
Thus, “The Lowest-priced bid is often NOT the best bid”… Especially over a long (5-10 yr.) Contract Term.
1. Rationale & Objectives for PPPs in ICT

14. 1. Rationale & Objectives for PPPs in ICT
Each Govt. Agency and each sector will have its own unique ability to share risks & afford tariffs
The Private
Sector’s
Price-Risk
Offer Curve
Concession
BOT
Average
Tariff
Lease/
Affermage
Management
Contract
Govt. C
Govt. B
Govt. A
Level of Sector RISK Bourne by Government
1. Rationale & Objectives for PPPs in ICT

15. 1.4 – Forms of PPP Applicable for Use in ICT e-Government
Public Participation in the Regulatory Process
1.4 – Forms of PPP Applicable for Use in ICT e-Government
Public Sector
Corporatization
Service Contracting
Management Contracting
Lease/Affermage
Concession/BOT
Divestiture/Asset Sales
Private Incentives
1. Rationale & Objectives for PPPs in ICT
IP3 MENA

16. Menu of PPP Structuring Techniques
Divestiture
(Investor-Owned
Utility)
High
Concession
Lease
“REWARDS”
(Returns to
The Private
Sector)
Management
Contract
Service
Contract
Low
Low
High
“RISK”
(Private Sector Investment Required)
1. Rationale & Objectives for PPPs in ICT

17. Public Participation in the Regulatory Process
Service Contracting
Public Services
Corp.
Service
Pub. Services
Corp.
Private
Service
Contractor
Service 1
Fees
Service 2
Service 3
Service 1
Service 2
A specific area of ICT/electronic service is “unbundled” from a Public Corporation, Govt. Dept. or Ministry (i.e. billing & collections, licensing, records management, customer service, etc.)
A prior full cost analysis of the service must be performed to compare current public performance levels (cost per unit) and with competitive bids to determine if a PPP offers better value for the public’s money, or not
An affordability analysis must identify the limit the public budget can afford to pay for this project; unaffordable projects should be rejected.
Private firms competitively bid on providing the ICT/e-Govt. service
Private investment requirements are relatively low, asset lives of 3-5 yrs.
Contractors are paid only for verified performance delivered
Operating efficiency is usually the principle objective
Labour participation is often critical, especially if ICT replaces human functions.
1. Rationale & Objectives for PPPs in ICT
IP3 MENA

18. Management Contracting
Public Participation in the Regulatory Process
Management Contracting
Public Services Corp.
Management
Fees
Board
Board
Managmnt.
Contractor
MANAGEMENT
MANAGEMENT
Management
Employees
Employees
A Public Corp. identifies specific priority operating problems
Private firms competitively bid for the right to manage the Public Organization in exchange for a “Management Fee”
The Management Contract identifies specific target operating and performance levels that the Contractor must meet (incentives payment clauses are critical)
The Private contractor needs the authority to make all operating decisions (including hiring & firing), Government still owns the organization and its assets, and its Govt.-appointed Board still makes all long-term strategic decisions – including monitoring the PPP contractor’s performance.
New investments required by private contractors are usually low & Contract terms usually years
1. Rationale & Objectives for PPPs in ICT
IP3 MENA

19. Public Participation in the Regulatory Process
Lease
Board
Board
Lease Fee
Working
Capital
Public
Services
Corp.
Leased
Corp.
Lease
Contractor
Net
Profits
A Public Corporation or Asset Holding Company identifies specific short-term and long-term operating problems
Private firms compete for the right to lease some or all of its assets in exchange for a lease payment fee, terms usually years
The Lease Contract specifies required performance measures and targets (including commercial incentives & penalties for lack of performance)
The private lease Contractor provides management, operating & maintenance decisions, spare parts, working capital, and keeps any remaining commercial profits
Government still maintains ownership of all long-term assets, is responsible for servicing long-term debt, and makes long-term planning decisions.
Public employees become employees of the private Lease Contractor
1. Rationale & Objectives for PPPs in ICT
IP3 MENA

20. Design-Build-Operate-Transfer (DBOT)
Public Participation in the Regulatory Process
Design-Build-Operate-Transfer (DBOT)
Govt. Dept. or Public Corp. competitively tenders for a private contractor to Design-Build-Operate & Transfer a new ICT/e-Govt. network or facility, requiring significant new long-term investment (>$20 million) to be recovered over a longer contract term of 7 – 15+ years.
Govt. Dept. still collects any fees or tariffs from end users (if applicable) for the services it provides, and it pays a single “Availability Payment” to the private contractor, as long as the contractor meets performance & maintenance standards
Often a consortium of private firms establish a new Project Company (SPV) to undertake this project, capitalized with equity from the private sponsors and new long-term loans from commercial banks. The lenders look to the projected future revenue generated by the project to repay all loans
Govt. does not provide a sovereign guarantee to lenders, nor do the private corporate sponsors (“Off-Balance-Sheet” financing). However, Govt. Min. of Fin. Usually needs to provide a financial performance guarantee for any “non-creditworthy” Govt. Depts. Or SOEs.
Key to success are clear, measurable ICT/e-Govt. performance standards; monitoring capacity by the Govt., and analytical capacity to determine if the PPP really delivers better value for the public’s money (not just avoided sovereign borrowing)
1. Rationale & Objectives for PPPs in ICT
IP3 MENA

21. Design-Build-Operate-Transfer (DBOT)
Public Participation in the Regulatory Process
Design-Build-Operate-Transfer (DBOT)
Private Sponsor 2
Design/Construction/
ICT Equip. Supply
Private Sponsor 3
IT Operator
Private Sponsor 1
Developer/Investor
Equity
Financial
Perform.
Guarantee $
Government
(Min. of Fin.)
Loan
Single Purpose
Project Co. (SPV)
Lenders
TAXES
Repayments
“Availability”
Services
Unitary
Payments
DBOT
Contract
Govt. Dept./
Public Corp.
State Budget
Public
Services
User Fees
& Tariffs
End Users
1. Rationale & Objectives for PPPs in ICT
IP3 MENA

22. Public Participation in the Regulatory Process
Concessions
Private sponsors incorporate a new single-purpose project co. (SPV)
This SPV receives a Concession Contract from the Govt. which legally “cedes” or transfers an exclusive right to provide new e-Govt. services directly to retail end users to this SPV for a specific period.
The PPP Contractor collects revenues from thousands of different retail end users, rather than from a single Govt. Agency.
The SPV is capitalized by equity from the owners and new project-backed debt from commercial banks & lenders.
Investment requirements are usually large (>$20 million) & contract terms 7-15+years.
Sponsor 2
Sponsor 1
Sponsor 3
Equity $
Loans
Single-Purpose
Project Co. (SPV)
Lenders
Government
Concession
Contract
Repayments
ICT/e-Govt.
Services
User Fees
End Users
1. Rationale & Objectives for PPPs in ICT
IP3 MENA

23. 1. Rationale & Objectives for PPPs in ICT
Concession vs. BOT
Monopoly (one provider)
Based upon “ceding” an exclusive right to provide services, usually enshrined in sector law
Individual End Users now interface directly with the private concessionaire
Higher collection risks
Often involves taking over a poorly functioning Govt. ICT network – risk of unknown condition of assets/records.
Incentive for improved system-wide operating efficiency
Regulatory Body needed, to protect consumers & investors
Monopsony (one customer)
Existing (public) Utility simply buys a key input (e-Govt service) instead of providing it internally
End users still interface with the existing Public Agency/Govt. Dept.
Lower collection risk
Usually involves a new greenfield project, with little or no risk of conditions of existing assets
Adds capacity, but does not always improve system-wide operating efficiency
Contract Compliance Office needed within the client Govt. Agency/Dept.
1. Rationale & Objectives for PPPs in ICT

24. Review of PPP Structures:
Type of Contract
Duration (years)
What the Private Contractor Receives
Nature of Private Contractor Performance
Examples
Service Contract (outsourcing)
1-3
Fee from government for performing a non-core service
Definitive, often technical type of service
Website design and management, ICT Capacity Building
Management Contract
3-8
Fee from government for the service and a performance-based incentive
Manage the operation of a government service
Call center staffing; Seat Management, Parking enforcement, regional water supply management
Lease
8-15
All revenues, fees or charges from consumers for the provision of the service; the service provider rents the facility from government
Manage, operate, repair, and maintain (and maybe invest in) a service to specified standards and outputs
Land for ICT Infrastructure Development, Existing airport or port facilities
BOO & BOOT
15-25
The government mostly pays the service provider on a unit basis
Construct and operate, to specified standards, the facilities necessary for service provision
ICT Infrastructure; e-procurement systems; e-business portals; Network of Kiosks
Concession
15-30
All revenues from consumers service provision; the service provider pays a concession fee to the government and may assume existing debt
Manage, operate, repair, maintain and invest in public service infrastructure to specified standards
Telecom operations and expansion, New airport or seaport facilities, toll road or bridge
1. Rationale & Objectives for PPPs in ICT

25. 1. Rationale & Objectives for PPPs in ICT
1.5 – PPP ICT Case Example
Bangalore City Corporation (BCC), India
BCC was suffering from a continued “leakage” in their financial resources, while at the same time experiencing increased customer dissatisfaction over slow response rates and bureaucratic delays in processing transactions.
With assistance from the Asian Development Bank, BATF was contracted to improve the technical capacity of the financial management systems, and providing electronic access for improved transaction processing speed
1. Rationale & Objectives for PPPs in ICT

26. Technology Architecture of BCC:
1. Rationale & Objectives for PPPs in ICT

27. Role of the BCC’s new ICT System:
The role of information and communications technology (ICT) was not limited to the replacement of manual systems with computer-based systems. It included substantial revamping of business processes, a form of business process re-engineering.
ICT was also more than just an enabler for better information flows - it was used to:
Convert manual sheets to computerized data files,
Create new tools for management
Redefine audit and control mechanisms, and
Providing real-time information flow to and from banks connected to the system via leased dedicated phone lines.
1. Rationale & Objectives for PPPs in ICT

28. Technical Design of BCC:
1. Rationale & Objectives for PPPs in ICT

29. BCC’s PPP Project Results:
This PPP project, in which a private firm provided
The design and engineering;
Also served as government’s partner in the implementation and management of the system,
This PPP was successful in converting a government organization that had been plagued by financial leakage and slow transaction processing into an organization that continues to be financially viable and provides high-quality customer service.
1. Rationale & Objectives for PPPs in ICT

30. 1. Rationale & Objectives for PPPs in ICT
Questions?
1. Rationale & Objectives for PPPs in ICT

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