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Public-Private

Partnerships (PPPs)
in eGovernment:
Definition, Rationale,
and Regulatory
Frameworks
Ned White
Monday, March 28, 2011
World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

Session Overview
1. Definition: Just what ARE PPPs in
eGovt. and ICT?
2. Rationale for PPPs & the Role of eGovt
PPPs within Public Services Sector
Reform
3. Key Elements of eGovt PPP Policy,
Legal, & Institutional Frameworks
4. Looking Ahead: Key Challenges for
eGovt. PPP Frameworks Going Forward
& Case Examples
World Bank, ICT Days, Washington,

1.1- What ARE PPPs?


Definition:
Public-Private Partnerships (PPPs) are
contracts between the public sector and
private sector, which requires new
investments by the private partner (money,
or technology, or expertise/time, or reputation,
etc.), which transfers some key risks to the
private sector (design/technology,
construction/installation, availability, demand,
etc.), in which payments are made in
exchange for performance, for the purpose
of delivering a service traditionally provided
by the public sector.
World Bank, ICT Days, Washington,

1.2-Range of PPP
Structuring Options:
Average
Contract
Term

PPP Contract
Instrument
Corporatization &
Private Market
Finance
in perpetuity
Service Contract
2-3 years
Management
Contract
2-5 years
Lease/Affermage
7-15 years
BOT/PFI
20 - 30+ years
BOO
20 - 30+ years
Concession
20 - 30+ years
Divestiture &
Asset Sales
in perpetuity

Receives
Provides the
the Net
Service or Provides the Income or
Provides
Legally
the
Working
Covers Net Long-Term owns the
Management
Capital
Loss
Finance
Assets

Provides
Sectoral
Planning &
Regulates
Services

Public
Private

Pub./Priv.
Public

Public
Public

Pub./Priv.
Public

Public
Public

Public
Public

Private
Private
Private
Private
Private

Public
Private
Private
Private
Private

Public
Private
Private
Private
Private

Public
Public
Private
Private
Private

Public
Public
Public
Private
Public

Public
Public
Public
Public
Public

Private

Private

Private

Private

Private

Public

World Bank, ICT Days, Washington,

1.3-Legal vs. Practical Definitions of


PPP
A growing number of recent, new PPP Laws give
legal definitions of PPPs that only apply to
projects for which the private partner provides
the long-term financing (ie new BOT/BOO &
Concessions).
While non-capital investment contracts (leases
and management contracts) still apply the same
practical PPP principles (transfering demand
risks, etc. & pursuing better value for the publics
money), they are not legally PPPs. Their
implementation, therefore, would not have to
follow the same process of preparation, review,
and approval as official PPPs do.
World Bank, ICT Days, Washington,

1.4-Govt of Kenyas PPP Policy


Statement of 2009 defines PPP as:
A contractual arrangement between a public
body and private party in which the private party
and Government enter into a long term
agreement, up to 30 years, to build a new
infrastructure facility or to rehabilitate an
existing one for the purpose of undertaking a
public service on behalf of Government The
private party is required under the terms of the
project agreement to take responsibility to
mobilize finance equity as well as debt in
order to complete the facility according to
agreed specifications and schedule.
World Bank, ICT Days, Washington,

1.5 Jordan Education Initiative


(JEI): A PPP or Not?

2003 World Economic Forum-led team of 30 intl & local ICT


corporations (including Microsoft, Intel, Cisco Systems, et
al) donated $11 million the Jordan Education Initiative (JEI).
Scope: install high-speed internet access, provide electronic
curricula & teacher training, and support services to 102
public Discovery Schools (50,000 students + 2,300
teachers).
The GoJ bound itself to providing specific support and
contributions to the project, (especially active support and
involvement of the King and Queen of Jordan)
The private firms were willing to make this donation and
ongoing support services primarily because they had:

Basically an enforceable agreement with the GoJ,


Clear Govt. contributions & highest level support (no interference),
Project had clear, measurable outputs (Program Management Office)
Context of $380 million Education Reform for the Knowledge
Economy (ErfKE) Program($120 million from WB)

World Bank, ICT Days, Washington,

1.6-JEI: Types & Sources


of Contributions

Source: McKinsey & Companys Building Effective PPPs: Lessons


Learned from the JEI

World Bank, ICT Days, Washington,

1.7-JEI: Perform. Indicators


(Draft)

World Bank, ICT Days, Washington,

2.1-Rationale for PPPs in eGovt &


Delivering Better Value for the Publics Money
ICT:
(VfM): Improved Price & Risk/Quality in the provision of

public services. However, VfM models be subject to


manipulation & not relevant when a public ICT solution
does not exist.
Technology Transfer: Most eGovt technologies &
capabilities are not available by the public sector alone.
Knowledge-Based Economy Policies.
Additionality: More public services & consumer welfare
benefits available with the PPP project than without.
Contracted Outputs & Improved Transparency:
Resistance to new removing discretion from some public
stakeholders
Avoided Public Financing/Borrowing: A priority for
many Governments (especially in current public financial
climate), but risks entering into long-term PPPs that are
unaffordable or require imprudent assumption of risks by
Govt. over long-term

World Bank, ICT Days, Washington, 1

2.2-PPPs are just one component of


an Overall Public Services Reform
Strategy
#

Unbundled Functions

Sector Reform Policies


(allowing PPPs) Plans

Government Line Ministries

Sector Performance
Monitoring & Tariff-Setting

Independent Sector/Utility
Regulatory Bodies

Ownership & contracting


State-Owned Asset Holding
of long-term infrastructure Cos. (AHCs)/ Procuring
assets
Entities/ Ceding
Authorities

Operation of infrastructure Private investors,


Networks & service
operators, & lenders (via
delivery
competition)

Institution

World Bank, ICT Days, Washington, 1

2.3-eGovt PPPs in Isolation Rarely


Work
Without these complementary, long-term sector
reforms:

eGovt PPP contracts alone often have limited success,


are not sustainable (cancelled) or affordable.
Not possible to independently and transparently
compare public sector performance vs. PPP
performance (which offers better value?)
Private partner will not be willing to bear many
commercial risks (ie they will require more public
financial supports & risk-sharing) if there is not a
clear, fair market or level playing-field
PPPs can add new electronic service delivery
mechanisms, but they often simply appear more
expensive and may still rely on inefficient public
monopolies to distribute public services to end-users.

World Bank, ICT Days, Washington, 1

2.4 Value for the


Publics Money is a
combination of PRICE
PPP Option
#3
AND
RISK
The Private
Average
PPP
Tariff

PPP
Option #2

Low

PPP Option
#1

Sectors
Price-Risk
Offer Curve

Public Utility Curves

Level of Sector RISK Bourne by Government

High

Thus, The Lowest-priced bid is often not the best bid


for long-term (5-10
yr.)Bank,
service
contracts.
World
ICTdelivery
Days, Washington,
1

2.5-Optimal vs. Minimal Public RiskSharing

High
PPP Price

Minimal
Public
Support,
But Low
VfM

PPP
Price
(Cost/
Output
Unit)
Low
PPP Price

VfM

Moderate
Public
Support,
=>
Optimal
VfM

High VfM
Private
Sectors
Price-Risk
Publics
Offer Curve Value
For
Money

Public VfM
Utility Curves

Low VfM

Political Land
Market/
Technology/ Operating/
Risk Acq. Demand Risk Eq. Install. Risk Avail. Risk
Low Pub. Risk
Public Support High Pub. Risk

World Bank, ICT Days, Washington, 1

2.6-Illustration of PSC & VfM


Analysis
Illustration: VFM Analysis of a PPP Project
$200,000,000
$180,000,000

Public
Affordability
Limit

RiskAdjusted
PSC

$160,000,000
$140,000,000

Base Case
PSC

$120,000,000

Value
for
Money
Benefits

Winning
PPP
Bid

$100,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
$0

World Bank, ICT Days, Washington, 1

3.1-Key Elements of PPP


Frameworks:

Clear PPP Policy Statement


Multi-Sector PPP/Concession Law or Regulations
PPP Units: Central PPP Unit + Sector PPP Nodes
PPP Project Development/Preparation Facilities (PDF)
PPP Manuals & Guidelines (Standardised Procedures)
PPP Procurement Regulations (Price & Non-Price

Criteria)
Treatment of Unsolicited Proposals: Especially for ICT
& eGovt Projects
Specific/limited Public Credit Enhancements Allowed
PPP & Infrastructure Investment Fund Established
Systematic PPP Training & Capacity-building
PPP Contract Performance Monitoring Capacity
World Bank, ICT Days, Washington, 1

3.2-Emerging Market PPP


Frameworks
PPP Framework Elements
PPP Policy Statement
Multi-Sector PPP/Concession Law & Regs.

Yes
Yes

Yes
Yes

Yes
Yes

Yes
Yes

Yes
Yes

Yes
Yes

Yes
Yes

Multi-Sector PPP Technical Unit


Line Min./Sector PPP "Nodes"

Yes
Yes

Yes
Yes

Yes
Yes

No
Yes

Yes
Yes

Yes
Yes

Yes
Yes

PPP Project Dev. Facility (PDF)


PPP Procurement Regulations

Yes
Yes

No
Yes

No
Yes

No
Yes

No
Yes

Yes
Yes

Yes
Yes

Unsolicited Proposal Procedures


Published PPP Manuals/Guidelines

Yes
Yes

Yes
No

Yes
Yes

No
Yes

No
Yes

Yes
Yes

Yes
Yes

Public Sector Credit Enhancements Allowed


(VGF, Contingent Liabilities, etc.)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Public Sector Risk Management Framework:


Unit & Regulations
Yes

Yes

Yes

Yes

Yes

Yes

Not Yet

Systematic PPP Training & Capacity Building Yes

Yes

Yes

Yes

Yes

Yes

Not Yet

Infrastructure Regulatory Bodies & PPP


Contract Monitoring Units (CMUs)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

World Bank, ICT Days, Washington, 1

3.3Example:
South
Africas
PPP Manual
& Project
Cycle:

World Bank, ICT Days, Washington, 1

Effective PPP Toolkits &


Manuals:
Clearly Distinguish between Required PPP Procedures

vs. Optional Suggestions/Recommended Good Practices


Function as a Reference Volume, Using InstructionalBased Writing Rather than Traditional Analytical-style
Writing
Provide Ready-to-Use PPP Templates or Models
Provide Practical (Not just Theoretical), eGovt.-specific
Guidance (ie Common Practical Pitfalls to Avoid)
Support PPP Capacity Building: able to be read, discussed,
and followed as part of any PPP training program.
Institutionally-Relevant in Explaining specifically who
Performs each specific PPP Review, Procedure & Approval.
Contribute to a Proven Track-Record of Completed PPP
transactions, (not just a nicely-looking PPP framework on
paper)

World Bank, ICT Days, Washington, 1

3.5-Selected Countries with PPP


Guideline Manuals,
Standardised Procedures &
Toolkits:United Kingdom
Victoria, Australia
South Africa
India
Ireland
Philippines
Mauritius
Egypt
Saudi Arabia

World Bank, ICT Days, Washington, 2

3.6-Drivers of Success for PPP


Frameworks

Standardisation: PPP Models & Documentation


that can be easily replicated (PPP Feasibility
Analyses & Business Cases, Risk Allocations,
Tender Documents, PPP Contracts, etc.)
Dealflow:

Quantity: Sufficient scale to justify a PPP Strategy


Quality: Determine which candidates are appropriate
as PPPs; Projects must be clear & bankable

Leverage: Create more opportunities to attract


new finance using credit enhancements
Capacity Building: PPP wont work unless the
public sector understands its Governance and
oversight responsibilities from beginning-to-end.
World Bank, ICT Days, Washington, 2

4.1-Key Issues Facing eGovt & ICT PPPs


Today
Approvals Process: Many new PPP Frameworks

are becoming over-bureaucratized. Too many,


lengthy reviews & approvals make PPP less
attractive to private developers & public agencies.
No
n
PP
P

Sub
Sub Sector
Sector List
List
of
of PPP
PPP Projects
Projects
from
from
Initial
Initial Screening
Screening
with
MVA
withsub-sector
MVA
Priority

Conduct
Conduct
Feasibility
Feasibility
Study*
Study*

No
n
PP
P

Sector
Sector List
List of
of
PPP
PPP Projects
Projects
from
from
Sector-wide
Sector-wide
Screening
Screening with
with
MVA
MVA

MOF
& RMU
List
List of
of
Public
Public
Sector
Sector
Projects
Projects

STAGE 4

Tendering
Tendering

Negotiation
Negotiation

STAGE 5
Contract
Contract
Managemen
Managemen
tt

Priority
sector
PPP
Ministry
Ministry
proposes
proposes Sector
Sector
PPP
Projects
Ministry
P3
PPP
Projects
Node

Need
GS is
more National
National List
List of
of
not
project PPP
PPP Projects
Projects
needed
preparatio
from
from
Prelimina
n Nation-wide
Prelimina
Nation-wide
PPP RC
GS is
ry
ry
Screening
Screening with
with
not
GS
is
consultati
consultati
MCA
MCA
availab
needed
on
on on
on
Budget
Budget Review
Review
le now
GS is
Projects
Projects
(subject
(subject to
to MOF
MOF
availabl
under
under
approval)
approval)
Report to
OBC is developed
e
processin
processin
the Ministry
and
approval is
gg
sought by PPPSC
GS is considered
*
For
a
project that likely needs GS then
not suitable for
the Pre-FS shall be updated to a full FS.
this project

See
See Figure
Figure 33 for
for more
more detail
detail
NATION- WIDE

PPPS

STAGE 3

SECTORWIDE

PPP

Line
Ministry &
P3 Node

Version 4 Sept 2010

STAGE 2

SUBSECTOR
- WIDE

Contracti
ng
Authority

STAGE 1

NOTES:
MOF: Ministry of Finance
OBC: Outline Business Case
RMU: Risk Management Unit
PPPS: Public Private Partnership
Secretariat
PPPSC: PPP Steering Committee
MCA: multi-criteria analysis
GS: government support
major route; optional route

World Bank, ICT Days, Washington, 2

4.2-Key Issues Facing eGovt & ICT PPPs


Today
Public Capacity: Limited capacity of
Governments to identify new eGovt solutions
for public services & develop clear eGovt
output performance standards. Especially
limited PPP performance monitoring & contract
management capacity.
Market & Demand Risk Transfer: Growing
Govt. preference to transfer to full commercial
& demand risks (& profit incentives) to private
eGovt service providers. Taxpayer/Rate-Payer
Concerns about Fairness & Transparency.

Should Private Providers of Traffic Speeding Cameras


receive fixed availability payments (including their
profits) or a fixed-fee per transaction/violation?

World Bank, ICT Days, Washington, 2

4.3-Case Example: NAFITH, Aqaba,


JordanNational Freight Information & Transport. Hub
NAFITH:
Port of Aqaba, Aqaba Special Econ. Zone Authority
(ASEZA): Growing problem of truck congestion around port
Scope: 2006 electronic Truck Control System/logistics on a
PPP contract. Controls truck traffic between 32 key sites
within Ports Special Economic Zone
176 registered trucking companies in Jordan. 13,700 total
truck population. 3,000 trucks serviced daily by NAFITH
10-year Concession Contract
Each truck pays a 2 dinar ($3.00) fee for a permit to
enter/exit port.
Each trucking company & dispatcher had to have a
computer to participate in system.
15% of revenues remitted to ASEZA, 85% retained by
NAFITH

World Bank, ICT Days, Washington, 2

4.4-Case Example: NAFITH, Aqaba,


Jordan
Aqaba Special
Economic Zone
Aqaba Truck

Marshalling Yard Entry


& Exit Points

World Bank, ICT Days, Washington, 2

4.5-NAFITH PPP, Aqaba, Jordan


Results:
Clear Benefits in:

Much less congestion


Lower fuel consumption & pollution
Improved Efficiency:
Cost of freight from Aqaba has fallen 20%
Container cargo has increased 25% while number of trucks has

remained the same


Increase in double moves by trucks (carrying full loads both in to
and out of Aqaba) from 6% to 25%

Accurate and transport data & planning


Significant improvements in truck safety (steep descent into
Aqaba had killed 2 drivers per month, rushing to get to the Port)
Eliminated informal payments to gain access to port sites

PPP Issues:

ASEZA has expressed interest in collecting more revenues


Growth of a secondary market for permits, by market makers
who resell desired permits to truckers and dispatchers at a
premium NAFITH

World Bank, ICT Days, Washington, 2

4.6-Key Issues Facing eGovt & ICT PPPs


Today
Growing Govt. Preference for Simply
Avoiding Public Borrowing: More Govts.
Are pursuing PPPs across sectors simply to
avoid public borrowing instead of delivering
long term value for money.
Limited Relevance of PSC Models and
VfM Analyses in eGovt & ICT Sectors:
More difficult to estimate Public Sector
Costs (PSC) & conduct VfM Analysis for
eGovt & ICT PPPs. Public sector options
rarely exist.
World Bank, ICT Days, Washington, 2

4.7-Key Issues Facing eGovt & ICT PPPs


Today
Technology & Performance Risk: Many IT
and eGovt projects dont work. In 2003 UKs
Treasury discontinued Private Finance
Initiative (PFI) projects in Information
Technology following several failures:

230m 10-year deal to automate the Passport


Office
150m automation of National Insurance
Criminal Records Office
State benefit payments

Only 22% of the UKs IT PFI projects delivered


80-100% of defined programme benefits. For
non-IT projects the figure was 73%.
World Bank, ICT Days, Washington, 2

4.8-Key Issues Facing eGovt & ICT PPPs


Today

PPP Project Pipeline: Biggest current constraint


to PPPs in eGovt & ICT is not inadequate legal
frameworks, but the limited number of candidate
PPP projects being identified and prepared. Govts.
should focus on building the PPP project pipeline.
Public Sector Risk-Sharing in PPPs: During
past 10 years private ICT project developers (and
lenders) are requiring more and clearer forms of
public sector support, risk-sharing, and contingent
liabilities than before. Govt PPP Frameworks must
be ready to manage these requests.

World Bank, ICT Days, Washington, 2

eGovt PPP Example:


Partnerships Victoria (Australia)
Mobile Data Network PPP

World Bank, ICT Days, Washington, 3

Mobile Data Network


Description: To provide a mobile data network
PPP
(MDN)
to Victorias Police, Ambulance & Emergency

Services 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.

World Bank, ICT Days, Washington, 3

PPP Payments & Performance


Standards

If the Service Provider has not remedied a failure under


within the time set out in the remediation plan or within any
further period allowed by the Contract Manager, the State
may reduce the Service Payments which would otherwise be
payable to the Service Provider in accordance with the
following:
ECV CAD End to End Performance Standards
98th
percentile
Message
delivery
time

Percentage
abatement
of daily
Service
Payment per
day

19
seconds
or less

0%

More than 19
seconds, less
than or equal
to 40 seconds

More than 40
seconds, less
than or equal
to 60 seconds

More than
60 seconds

5%

7.5%

10%

World Bank, ICT Days, Washington, 3

Mobile Data Network


PPP Contractor: Motorola Australia Pty Ltd.
PPP
Govt. Client: Victoria Police & Ambulance Services
Contract Term: 5 year contract, beginning June 2003,
2 year contract extension option
Cost of PPP Contract: $138 million in total PPP
Payments over term of contract, equals $85 million
NPV using States discount rate of 8.65%
Estimated Value for Money Savings of PPP = 11%
(A$10.5 million = U.S. $7.8 million)
Lessons Learned: As one of the first eGovt PPPs in
Australia, the procurement took a long time (3 yrs.)
due to need to revise & re-clarify the contracts output
standards. Especially difficult to estimate Public Sector
Costs (PSC) when it was difficult for the public sector to
provide the new technology required on its own

World Bank, ICT Days, Washington, 3

QUESTIONS?
Edward (Ned) White
Ewhite4379@aol.com

World Bank, ICT Days, Washington, 3