Abrantes BKP EAC Micro PPP August 2012 v4f

REINFORCING THE CAPACITIES OF EAST AFRICA TO IDENTIFY, DEVELOP AND PROMOTE PPPs FOR INFRASTRUCTURE
Small and Micro PPPs in Africa:

Mariana ABRANTES de Sousa
Validation Workshop 09 and 10 August 2012 Mombasa Beach Hotel Mombasa, Kenya
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DEVELOPMENT RESEARCH & CO NSULTING
Agenda
Public infrastructure investment gap in Africa
Can telecom success be replicated
The economics of public investment and PPP projects
Forms of PPP and the Project Cycle

Project phases Project risks
PPP examples sectors Sources of project funding Project starting points

Project roles Project pipelines
Project identification exercise

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Public investment needs in Africa over the next 10 years: USD 50 bn, excl. telecom
Services of General Economic Interest
Recent past: Large scale telecom absorbed 74% of the investment in the 82 PPP projects the five EAC countries 1990-2011, (according to PPIAF)
Future: smaller and micro scale, replicable Transportation Water and sanitation (municipal and rural) Energy production and distribution Irrigation and water resource management Agri-business value chain integration and food security
Social Services
Education Health
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State Vodafone Shareholder 40%

Capital 20 miln
African Trade Insurance Agency

Coverage 75% commercial risk 97,5% political risk
Coverage 50%
License
ONDD ECA Belgium

Guarantee 70%
TELKOM Kenya Shareholder 60%
Safaricom Ltd Kenya 2004
International Banks
Crdit 25 miln 6 anos, Euribor+1,5%
Funding
Citibank
Nairobi e New York
Clients
Siemens Blgica Supplier

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FRN
KES 4 biln (30 miln)
5 year, BT91dias+1%
Guarantee 75%
Telecom in Africa: Can success be replicated in other sectors?

Large but modular scale Imported innovative technology with ECA funding International management skills International regulatory standards Economies of scale and falling prices boosted user airtime volume and affordability Low collection risks and costs with pre-paid services (pioneered by TMN in Portugal in 1995) Closed network, cancellation of (non-essential) services acceptable
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Public services operators are different

Natural monopolies, scale and network effects Essential public services cannot close down (nor go out of business) Asymmetric risk sharing, creditors and suppliers not usually exposed to risk of loss, State must always pay No one is indifferent to public services
Numerous, vocal Skakeholders Key subject for party politics, protests
=> Need to compensate for the absence of

market discipline
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Public vs. Collective Goods & Services

Public Constitutional definition Economic definition, public interest
Collective, indivisible Social and economic infrastructure Externality Equitable access, first necessity Cost of context for economy Economies of scale, natural monopolies
Private Divisable
Political definition

Sofia 2005
Government responsibility Citizen demands, public opinion Impact on election, legitimacy

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Individual demand, consumption Market supply, demand Allocation and access by price Private responsibility Private supply except in centralized economy, high inflation, rationing May have economies of scale, scope
Economic determinants in public services provision

Traffic and demand forecasts Service needs of population volume User supported tariff levels Affordability Willingness to pay Taxpayer supported Operating regimen Financing Sustainability
price
Technical solution, investment, Capex Operating options, Opex Scale, Dimension, Breakeven
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Pricing and paying for public services

User supported (user fees) User tariffs or specific taxes Tolls, affordable and collectable Pre-contracted (ex. inflation-indexed) or regulated
Equitable and proportionate to utilization Differentiated, peak hour, etc
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Taxpayer supported (Government budget)

Investment subsidy, including donor funds, OBA User subsidy,voucher, coupon (senior discount, etc) OBA Operating subsidy, shadow tolls distance-based toll (with traffic counting ) OBA Operating subsidy, availability payment, time-based toll (without traffic counting)
Other random operating subsidies to cover deficit or minimum services

Combining user tariffs with taxpayer subsidies

NPV Revenues Maximum versus Affordablel
NPV Revenues (discounted cash flow )

NPV maximum revenue:
3000 2000 1000 0 -1000 1 -2000 -3000 -4000 -5000
13 17 21 25
10.885,82
Revenues Receita max
Receita comp
10.885
NPV Investment:
8.667
NPV affordable revenue: 5,442 (Fee reduction of 50%)

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User fee reduction creates shortfall and need for taxpayer subsidy, for investment and/or operation
Paying for Public Services: operating vs. capital expenses

User tariff affordability vs. Taxpayer subsidy sustainability
11 airport
7 water & sanitation 8 1 2 passenger transport, bus primary schooling municipal roads
11 9 7 5 3 1 -40 -20 0 20 40 60 80 100 120 140
1- 4 hospital 3 9 5 urban metro toll road irrigation
10 -11 telecom
2 - 6 sidewalks
9- 6 ports
User tariffs
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Receita tarifas Subsidio explorao Subsidio investimento

Operating subsidy Investment subsidy
PPP families sources and uses of funds

Who pays ?
Services only Opex PPP User paid (services) concession of existing infrastructure, operating leases, affermage Taxpayer paid
Mixed User/Taxpayer Co-payments, Output Based Aid Joint ventures Collaborations
Out-sourcing services Greenfield PFI , BOT, shadow tolls, availability payments
Works only Capex PPP Greenfield or Works & Services expansion PPP, PPP concession, toll roads, ports, etc
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PPP concession
PPP concession, investment and/or operating subsidies
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PPP Project Cycle - Phases

Selection Preparation
Pre-FEASIBILITY Identify user needs (traffic study) Tariff affordability Technical solution, capex and opex Contracting OPTIONS Market sounding Sources of financing
Policy alignment Stakeholder consultation Consensus Objectives, targets, indicators Sustainability Continuity
Structuring Financing Budgeting

Financial modelling
Scenarios User revenues Budget subsidies Financing criteria Due diligence Risk analysis, allocation Arrange financing Budget impact Guarantees Risk management
Procurement Contracting
Competitive procurement
Tender Standardized contract
Execution
Construction
Operations Monitoring
Entry into service
Tariff collections Quality control
Evaluation Reversion
Land expropriation Rights of way Cost control

Inputs
Inspections Verifications Audits Evaluation OUTCOMES
Outputs Final approvals Control, cost, quality Ttime Miletstones Collections Maintenance Reporting Reimbursement Stakeholder relations Impact Benefits
Financial close Contract signing
Disbursemen t Defects
Renewal Renegotiation
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Port Concessions
State Grantor (Condedente)

Concession Contract Direct Agreement
Port Regulator
Capital Shareholders
Concessionnaire SPV
Financing contract
Banks
Insurance Policies
Sales contracts
Construction Operation Contracts
Insurers
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Contractor Operator
Forms of PPP
Joint ventures PPP (Works & Services) Collaborations
Privatization
Value / Complexity
Services concession Operating Contract
Hard facilities Soft facilities Services
Leases, affermage
5-15 years
Management Contract 5-10 years

Works Contract
Works Concession BOT, PFI & FBOT 15-25 years
Outsourcing
3-5 years
Duration
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Public Private Partnerhip / Concession

1. A multi-year (administrative) very long term contract by which the public partner (Concedant/Grantor, the State or Municipality or other unit of Public Administration) transfers to the private partner or concessionaire the obligation to build and/or operate the public infrastracture and to provide a public service of a given quality to the public service users or the Grantor/Concedente itself together with the right to charge or receive fees in remuneration of the services rendered to be paid by the users or by the Grantor/Concedant (taxpayer) itself, over time with the private partner assuming responsability for the financing of the infrastructure and services by banks
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2.
3. 4. 5. 6. 7. 8.
Comparing:
Public partner Scope Duration Procurement methods Rights of State, public partner Project changes
Public Works
Any Government entity Construction to physical specifications 1-5 years All Infrastructure delivered on time and within budget Extra works paid directly
Concession
State or Municipality Provision of infrastructure and public services 20-30 years International tender, competitive dialog Provision of services to users, or the State itself Unilateral modifications subject to Rebalancing over 30 year tenor Financial rebalancing Govt investment subsidy, operating subsidy only over time Must transfer construction risk, and either traffic or availability risk
Rights of private partner Govt financing
Revision of contract price to reflect inflation On Govt budget, Govt debt
Risk sharing, transfer TCC fixed price contract can transfer some risks to builder to private partner
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Project Cycle - Risks and Threats

Preparation and Tender
Project overdimensioned to traffic forecasts Skewed selection criteria Inadequate analysis of risks to Stategrantor, environmental Few bidders, inadequate proposals Unclear tender specifications Slow tender process or suspension Lack of consultation and involvement of Stakeholders
Construction and execution

Delays on various sides Unilateral modifications and variation orders with additional costs, incremental CAPEX which threatens cost/benefit of project Poor risk management Frequent tacit approvals
Structuring and Contracting,
Low levels of experience of State project managers and negotiations
diligence
due
Operating, maintenance, monitoring

USER insatisfaction, protests Low demand, traffic shortfall User fees increases Increase in operating costs, OPEX Frequent financial rebalancings paid by the State Lack of reporting and low transparency
Excessive flexibility or rigidity Very tight deadlines for decision, especially on public side Non standardized contacts, unbalanced or unrealistic risk allocation Frequent changes in Government policies and sector programs
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Example 1 - Maternal Health Vouchers

Needs: to improve maternal health and reduce mortality Project concept: OBA subsidized voucher for outputs safe delivery (SD) including 4 prenatal visits, attended delivery and one post-natal visit, screening for STDs. Pilot 2006 Payment: User co-payment of 3,000 shillings, voucher costing 60,000200.000 shillings Service providers: Accredited local clinics, community distributors (VCBDs) Promoter: INGO (MSI-U), Voucher Management Agency, arranging, selection and training clinics and distributors Independent Verifier: MSI-U under sub-contract from Ministry of Health Subsidies: KfW US$4.3 million until Dec-2011, Government budget commitment of US$ 3 million in 2012 Results: 136,000 people treated until Dec-2011
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1.Maternal Health Voucher with OBA subsidy

KfW, OBA
Verification Claims processing (by SMS)
Ministry of Health
Voucher Management Agency Clinic accreditation
Clinics Clinics Clinics Clinics Clinics
Voucher Distributors
Providers
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Example 2- Water and Sanitation affermage / O&M Contracts

Needs: potable water supply and sanitation Project concept: operator provides services, with cost recovery from user tariffs, may receive OBA subsidies for connections Contract: Local contracting authority asset owner, management, operation & maintenance 1-5 years, renewable, to users association, CBO, NGO or local entrepreneurs Regulation: Ministry/DG Water provides central guidelines, generic documentation (tender, contract, monitoring). Regional water authority oversees tariffs Construction undertaken and financed by asset owner
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2- Water and Sanitation affermage / O&M

Ministry Regional Water Dept Local Govt 1 Operator 1
docs Local Govt 2 Operator 2

Local Govt 3
Operator 3
user
user
user
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user
user
user
user
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Example 3 - Small scale Aquaculture Livelihood Service Centers (ALSC) Aceh

Needs: Production hurt by shrimp diseases, low quality, 2004 tsunami
Project concept: ALSC partnerships between farmers organizations, donors, local governments and research institutions, with enterprise value-chain approach, including Technical support, demonstration ponds Business training , legal services, Micronance Collective purchase of inputs, aggregation Collective stock management and post harvest services Collect marketing and gaining access to international markets
Objective: Smallholder clusters to become commercially competitive Financing: Humanitarian donations and rehabilitation investments
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3. Small Scale Aquaculture Service Centers Value Chain integration

Research Institute Producer Association Government Donors
Service Center
Suppliers
Market
producers
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Example 4 Irrigation, drainage Megech (Lake Tana) Ethiopia

Needs: 60% of food gains in future will come from better irrigation, only 4% of Sub-saharan agricultural land is irrigated Project concept: Construction and management of a new, largescale irrigation scheme to serve 6000 smallholder subsistence farmers, over 4,000 hectare. Service fees set to cover O&M costs, including energy The contract: 8-year enhanced operation and maintenance, operator supervises construction (any savings shared with construction company); operator remunerated per performance indicators, has no demand risk Financing: Investment funded by $30 million IDA loan to Government. O&M contract funded by $8 million IDA loan
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4. Megech (Lake Tana) large scale irrigation project

Government
O&M++ BRL Ingnierie
Market
Construction Contractor
producers
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Example 5- SSIP small scale infra provider, Water

Needs: 60% of rural population lacks access to safe water; variety of contracts Project concept: Operator to install 400 new water connections in 2 years, households to pay 10% of connection costs Contract: Standardized 5-year management contract, competitive tender to Trandint Limited for lowest price of $270,000 in Busembatia Financing: Subsidy of $300,000 from ADA, for connection costs (one off) $100,000 loan from bank GPOBA provided funding for capital investment costs to support the private operator Advisor: IFC, since 2007
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Example 6 - International Tef Improvement Research Project

The need : To raise crop yields of TEF , an African orphan crop which is the most widely cultivated cereal in Ethiopia The project concept : Joint research to develop semi-dwarf plants that wont topple over The operator: Various non-profit partners, including University of Berne, Switzerland with Ethiopian researcher, Research institute in Kenya, Ethiopian field research Funding: SFSA Syngenta Foundation for Sustainable Agriculture Tef (Eragrostis tef, from the sorghum/millet family) is an African orphan crop, little studied because of limited international trade. The plant is well adapted to the climatic and soil conditions in Ethiopia, and the he seeds contain high levels of protein are free of gluten. Also working with Borlaug Global Rust Initiative on a new wheat rust which first appeared in Uganda, and developing farm insurance in Kenya
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Example 7- Water micro-financing in periurban aereas

Needs: Potable water Project concept: small scale water operations, installing household or yard connections, based on user tariffs Contract: to CBOs, 13 sub-projects Financing, average US$ 83,000
Output based donor subsidies, EU for connections PPIAF-PDF investment subsidy for major capex capital expenditure Local micro finance institutions, local bank
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Example 8 Business Development Services (BDS)

Needs: Coffee Farmers Cooperative needs to improve quality and yields and create brand Project concept: To strengthen competitiveness and raise added value with business development services (BDS), Fairtrade certification and linkages to markets Contract: Marketing company to pre-finance farm inputs, to recover from coffee sales. BDS providers selected competitively. Financing: Pilot Value Chain Grant from Matching Grant Fund (MGF)
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Example 9: Small scale passenger services, urban vs. rural (Intl)

Funds
Regional Government Municipality
Insurer
Exclusivity Subsidy
Microfinance
matatu
dala dala
Rural only
chapa
Common carrier licenses, duration, (non) exclusive routes, subsidies

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Example 10 Unsolicited proposals

Private proponent identifies need and presents project (technical) concept to Public Authority PA either rejects the techncial concepts or asks proponent to prepare feasibility study If technical proposal is accepted, PA issues request for tenders (including financial proposal)
Original proponent may, or may not, enjoy advantage ex. right of first refusal, bonus points, etc If award goes to new bidder, original proponent is reimbursed for feasibiltiy study as per pre-approved cost
Contract details disclosed, full transparency

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Public / Collective goods in agriculture

Tangible Intangible Irrigation, drainage and Small producers flood control systems organization and aggregation Drip irrigation kits Supply chain integration, Collective storage from purchasing to market facilities, accredited Certification of origin, Resource quality, organic, Fairtrade, management, water branding rights, grazing lands International market Forestation access
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Examples of pro-poor value chain projects funded by the PPP facility and implemented by GTZ
The export company Target Agricultures trains 320 farmers in organic production (dried pineapple & papaya) in Sri Lanka and commits itself to accept their produce for export. Fair organizer BioFach trains and organizes organic food producers and creates a Centre of Excellence in Brazil. DaimlerChrysler supports smallholder production of natural fibers for auto seats, creates a processing cooperative in the Philippines and supports the development of alternative fibre products. Fruta del Pacfico trains 600 farmers in ecological banana production and helps to set up a farmers cooperative in Ecuador. Deichmann introduces social and environmental standards in Indian supply chain for shoe production. Seda & Fibras establishes silk production in Paraguay, including the forestation of mulberry trees and family-based cocoon production, targeting 2000 families. Kraft Foods introduces a national quality standard for coffee production in Peru, trains advisers and helps to set up a national certification system. Cosmetics producer Wala introduces organic rose production in Romania, trains 250-300 farmers, commits to fix purchasing prices and helps to build up an organic farmers association and a certification system. Unilever Bestfoods rehabilitates out-dated state-owned tomato processing plant in Ghana, transfers ownership to farmer families and commits to pre-established prices for tomato products. A Flower Importers Association introduces a flower label program which establishes and certifies social and environmental standards in flower production in Zimbabwe and Kenya http://www.fao-ilo.org/fileadmin/user_upload/fao_ilo/pdf/DonorApproachestoPro-PoorValueChains.pdf
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KSF and lessons learned in PPPs

Effective project risk sharing essential Value for money must be better than under public provision Long term partnership, equitable, flexible
Replication of best practices Central PPP Unit, responsible for design, standardization and coordination with line ministries responsible for technical decisions, in order to accelerate flow of smaller scale deals Ministry of Finance responsible for financial due diligence and budgeting and allocation of scarce and valuable taxpayer support, OBA/donor funds, external debt capacity
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Project Cycle Key Success Factors

Needs MDG Objectives
Target population Focus of Projects Basic needs Food security
Partners
Project Design Development

Adequate to objectives Practical and doable Tariff setting Funding for development impact User affordability willingness to pay Government budget commitments Licenses and approvals
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Funding Donors Creditors

Donors, criteria Funding cycles Co-funding Eligible projects Calls for proposals, tenders Due diligence, site visit
Execution Delivery
Local capacity Skills transfer Control Monitoring site visits Continuity
Evaluation
Local knowledge contacts Goverment authorities Capacity Credibility Technology NGO, CBO, Association s, cademia Entreprene urs Roles in project
Results for beneficiaries Reporting Transparency
Improve nutrition Generate income
Local community development Continuity
Sustainability Follow-up Replication
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Basic principles as Key Success Factors

Dimension appropriate to demand, for good level of utilization (load factor) consistently above breakeven, modular expansion if possible Cost control in investment, maintenance, operations Satisfaction of (naturally captive) Users/Clients Optimization and collection of user charges (affordability), aim for full recovery of operations & maintenance costs SMART Government/donor subsidies, output-based, budgeted Minimizing fiscal risks to taxpayers (budget sustainability) Medium term contracts, evaluations pre-renewal Engage Stakeholders, build consensus, aggregate
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Stakeholder Roles and Functions

Users and beneficiaries Governments
Public contracting entity Regulator Third Party Payor of subsidies Investor/creditor
Sponsor and promoters

Operators Contractors Suppliers Equity investors
Finance Parties
Creditors Donors
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Financing: Govt vs Private operator

Sources of Funding
Public Asset Owner Operator Commercial management Financial self sufficiency, or SMART subsidies based on volume and quality of services rendered Eligibility criteria Projects vs programs Economic feasibility Public procurement Risk allocation Guarantees Private Operator Procurement, public tender Financial self-sufficiency Govt monitoring Rigor, professionalism Identifiable projects Public procurement Financial Feasibility Guarantees Financial feasibility Risks vs return Commercial risks, regulation
Issues
Policy priorities Approval process Efficiency Cost recovery Co-financing Bankability Cost recovery
Govt Budget
IFIs EIB, EBRD, EDFIs Europeaid Donors, GPOBA Commercial Banks Private promoters investors Microfinance
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Sources of funding: Output Based Aid

Title Funding Bracket Facility Objectives GPOBA Global Partnership on Output-Based Aid Minimum US$ 25,000 and a maximum US$ 500,000 per project To provide increased access to reliable basic infrastructure and social services to the poor in developing countries through the wider use of Output Based Aid (OBA) approaches To provide funding of output-based payments (i.e. operating subsidies) to facilitate the piloting of innovative, small-scale projects; studies and other inputs To assist in the design, implementation and evaluation of projects To identify, document and disseminate best practices and emerging knowledge on OBA and public services To build capacity with training, publications, workshops, and conferences
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Key Activities
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Financing Criteria
Official creditors
Identifiable project, technical feasibility Commercial economic feasibility Fully budgeted, integral financing Execution capacity, project team Public tendering, EU international procurement rules Financial model, feasiblity Identity of promoters, KYC Environmental concerns, sustainability Long approval processes, due diligence
Private creditors, add emphasis

+ Risk identification, allocation - Risk < financial return + Client relationships
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FUNDING SOURCES
Official IFI
Multi-lateral, regional World Bank/IDA/IFC MIGA BID/CII EIB AfDB African Development Bank, ATF African Trade Facility African Water Facility ATI African Trade Insurance Islamic Development Bank EU/EDF
Commercial IFI
Other Funding Sources

Suppliers (capital goods) Clients (eg petroleum) Foundations ONG-NGO Red Cross Save the Children UNICEF
Micro-credit institutions Intl commercial banks Capital markets Infrastructure funds Global Environment Facility IFAD
Bilateral Local banks DFID, CDC, EDFIs, Cofides, SOFID, FMO, Proparco Local credit unions USAID OPIC Local cooperatives Eximbanks KfW, AfD ECAs - export credit agencies
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Private donors, foundations
Emigrants remittances
Contribution in kind (work, sweat equity)
42 http://ppplusofonia.blogspot.com
Attributes of the State as Grantor (Concedant)

1. An organism of Public Administration, with: 2. Permanent obligation to provide the public service concessioned temporarily 3. Annual budget allocation and long term debt capacity to support public service to the extent not supported by user fees 4. Technical capacity to define, control and ensure the provision of the public service (which cannot close down) 5. Continuing and ongoing envolvement in the public service provision 6. Authority and capacity to decide and to commit budget funds, current and future, contingent PPP liabilities 7. Ultimate political accountability and responsability, to public service users and to taxpayers
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Government Public Service Objectives

More public infrastructure faster Overcome short term budget constraints Mobilize local counterpart funds for external grants Avoid cost overruns of traditional public works Improve quality as well as coverage of public services
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NGOs and CBOs

NGO, local or international nongovernmental organization, specialist Needs assessment, surveys Project design, facilitation between public and private partners Negotiations with OBA donors, independent verification Selection of providers, monitoring, quality control Training, capacity building Representation of users
CBO, local community based organizations, user associations, cooperatives Needs assessments Service provider Negotiation with public partner and OBA donor Representation of users
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Starting point for PPPs

Public investment program / project pipeline
Cost benefit analyses, priorities, consensus Include PPP liabilities in Government budget / debt (MTEF) PPP as only one of the delivery options, max 25% of public investment
PPP Unit or management agency

Legal, regulatory and institutional frameworks Public service program budgeting Learning curve for transaction / contract management Pilots projects, policies, best practices Evaluation, transparency, accountability
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Creation of PPP Project Pipeline

Project Feasibility
Technical, legal, environmental, social
Economic viability
Economic benefits exceeding economic costs
Commercial viability
Returns exceed cost plus required return on capital
Affordability and sustainability

Direct and/or contingent liabilities
Value for money assessment of PPP option

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What to look for in a project

Cearly defined, short, proposal for an public or collective service , which will
Improve the quality of life for users, project participants and beneficiaries Be appropriately dimensioned, modular
Calibration of user tariffs for O&M Opex cost recovery, after investment subsidy, or complemented by SMART /OBA operating subsidies The ability of the promoter to receive and apply money as intended (bank account, annual audits, track record) An explanation of how the work can become self-supporting or can find local sources of support, after donor funding ends Alignment of the project with MDGs and Government policy, compatibility with donor principles
Local self-reliance, community governance , participatory decision making Production geared toward local consumption, food security first Mutual Support and Accountability - Beneficiaries organized in a group which offers support and accountability to its members
Description of the experience of the project team or coordinator.
Lisboa June 2008
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48 http://ppplusofonia.blogspot.com ppplusofonia@gmail.com
Exercise Phase I: Identifying, prioritizing, and

building consensus regarding PPP projects
Good PPP investment planning starts with a diverse project pipeline:
Your task: Working in groups of 3-4 people, and based your local knowledge, please take 10 minutes to identify 1-2 projects to present to other Stakeholders, the Authorities and potential promoters, investors and/or donors. Prepare to deliver a 2-minute elevator speech presenting your project to the group, which will vote to classify it as priority I, II or III. For each project, please detail, if possible: Public service or collective need (beneficiaries, location), outputs that can be identified and objectively measured, volume and predictability of demand, alignment with MDGs and Government sector policies Project concept: scope of services, with/without construction/capex , O&M opex Technical solution, scale, modular technology, reliability, flexibility, fixed costs
Financial solution, who will pay, user/taxpayer support required, user affordability, budget sustainability Public contracting authority, or concedant, form of contract , why the PPP option, procurement Potential market interest, from private promoters, investors, sources of funding from creditors, donors
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PPP Lusofonia
Obrigada!
Mariana ABRANTES de Sousa PORTUGAL ppplusofonia@gmail.com
http://ppplusofonia.blogspot.com
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REINFORCING THE CAPACITIES OF EAST AFRICA TO IDENTIFY, DEVELOP AND PROMOTE PPPs FOR INFRASTRUCTURE

Small and Micro PPPs in Africa:

The economics of public investment and PPP projects

Forms of PPP and the Project Cycle

PPP examples sectors Sources of project funding Project starting points

Project identification exercise

State Vodafone Shareholder 40%

African Trade Insurance Agency

ONDD ECA Belgium

TELKOM Kenya Shareholder 60%

Safaricom Ltd Kenya 2004

Siemens Blgica Supplier

Telecom in Africa: Can success be replicated in other sectors?

Public services operators are different

=> Need to compensate for the absence of

Public vs. Collective Goods & Services

Government responsibility Citizen demands, public opinion Impact on election, legitimacy

Economic determinants in public services provision

DEVELOPMENT RESEARCH & CO NSULTING

Pricing and paying for public services

Taxpayer supported (Government budget)

Other random operating subsidies to cover deficit or minimum services

Combining user tariffs with taxpayer subsidies

NPV Revenues (discounted cash flow )

3000 2000 1000 0 -1000 1 -2000 -3000 -4000 -5000

Revenues Receita max

NPV affordable revenue: 5,442 (Fee reduction of 50%)

Paying for Public Services: operating vs. capital expenses

1- 4 hospital 3 9 5 urban metro toll road irrigation

Receita tarifas Subsidio explorao Subsidio investimento

DEVELOPMENT RESEARCH & CO NSULTING

PPP families sources and uses of funds

Mixed User/Taxpayer Co-payments, Output Based Aid Joint ventures Collaborations

Out-sourcing services Greenfield PFI , BOT, shadow tolls, availability payments

PPP concession, investment and/or operating subsidies

DEVELOPMENT RESEARCH & CO NSULTING

PPP Project Cycle - Phases

Structuring Financing Budgeting

Land expropriation Rights of way Cost control

Inspections Verifications Audits Evaluation OUTCOMES

Financial close Contract signing

DEVELOPMENT RESEARCH & CO NSULTING

State Grantor (Condedente)

Construction Operation Contracts

Services concession Operating Contract

Hard facilities Soft facilities Services

Management Contract 5-10 years

Works Concession BOT, PFI & FBOT 15-25 years

Public Private Partnerhip / Concession

Rights of private partner Govt financing

Revision of contract price to reflect inflation On Govt budget, Govt debt

Project Cycle - Risks and Threats

Construction and execution

Structuring and Contracting,

Low levels of experience of State project managers and negotiations

Operating, maintenance, monitoring

DEVELOPMENT RESEARCH & CO NSULTING

Example 1 - Maternal Health Vouchers

1.Maternal Health Voucher with OBA subsidy

Voucher Management Agency Clinic accreditation

Clinics Clinics Clinics Clinics Clinics

Example 2- Water and Sanitation affermage / O&M Contracts

2- Water and Sanitation affermage / O&M