Public Private Partnerships Lessons Learned John Davie Chairman, Altra Capital April 2017

The public – private continuum …and ignore all this nonsense Public Private  Public Private Partnerships (PPP) Private Finance Initiative (PFI) Private Concessionaire (Operator) Operator Engineer Concession Build-Own-Transfer (BOT) Contractor Design-Build-Finance-Operate Public or Private Ownership Affermage Build-Transfer-Operate (BTO)  Direct works department Traditional Public Sector Procurement Traditional tender Design-build Public Owner/ Operator/ Financier Operator Contractor Engineer Privatisation / Divestiture Asset Capitalisation Operator Contractor Engineer Private Sector Procurement Build-Own-Operate  Private Owner Lets not forget that the private sector will only seek involvement in new infrastructure schemes if it is convinced that it will make a profit. There is nothing wrong with profit; it provides the motive to be successful and herein lies the importance of incentivising all partners. We are looking at long-term contracts with PPP

investor’s perspective …and concentrate on preparing a robust and accurate business case …that considers the project from the investor’s perspective

Eight common problems Lack of a clear link between the project and the organisation’s key strategic priorities, including agreed measures of success Lack of clear senior political and management ownership and leadership Lack of effective engagement with stakeholders Lack of skills and proven approach to project management and risk management Too little attention to dividing development and implementation into manageable steps Evaluation of proposals driven by initial price rather than long-term value for money (especially securing delivery of business benefits) Lack of understanding of, and contact with, the supply industry at senior levels Lack of effective project team integration between clients, the supplier team and the supply chain

Some important overall issues the need to take time in the early stages to establish the right management capabilities, the right project and the right framework – it is very difficult to fix these in the later stages early contact between the public and private sectors to enable an understanding of relevant issues is very helpful  both the public and private sectors need to perform effectively to achieve success the public sector needs to adapt to a fundamentally different role - becoming a commissioner, sponsor and contract manager rather than a provider of services the private sector needs to adopt a contracting approach suitable for a sustainable long term partnership robust programme and project governance at an early stage, looking beyond immediate needs, makes the process smoother and quicker

Where is the finance? Today the problem is that of matching the supply of finance from the private sector with investable projects The main forms of financing infrastructure remain: government funding traditional procurement design-build-operate corporate finance or on-balance sheet finance corporate financing – which would involve getting finance for the project based on the balance sheet of the private operator the mechanism used in lower value project project finance “limited recourse” or “non-recourse” financing in general, ‘funding’ applies when an organisation fills the need for cash from its own internal reserves.. …. the term 'financing' is used when the need is filled from external or borrowed money

PPP - conclusions Building the right capabilities, management and culture Choosing the right technical solution Ensuring the project is affordable and value for money Agreeing the right programme/project governance framework Agreeing a sensible commercial structure Developing sound, predictable legal, institutional and regulatory frameworks Abiding by Saudi and Shari’a Law Taking social/environmental factors into account

Thank You www.altracapital.com johndavie@altracapital.com