Introduction to Public Private

Partnerships
Module 1
2013

Module Structure

Good Governance
Funding PPPs
Developing an OBC
Effective procurement
Risks in PPPs
Sustainability
Lessons and recommendations

Definition of PPP

Public private partnerships (PPPs) are agreements between

government and the private sector for the purpose of providing
public infrastructure, community facilities and related services.

The private sector enter into a contract with government for

the design, delivery, and operation of the facility or
infrastructure and the services provided.

The private sector finance the capital investment and recover

the investment over the course of the contract.

The asset transfers back to the public sector at the end of the
contract

Range of PPPs

Privatisation
Concession
PPP
Models

Degree of private sector

risk

Adapted from Canadian Council PPP 2009

DBFM-operate
Design build finance
maintain
Build and finance
Operate and maintain

Design and build

Degree of private sector involvement

Principles of PPPs

Cost measured against conventional procurement.

Whole life costs and quality are combined to gauge
VFM

Transfer of design and construction risk

Risk of ownership transferred to the private sector

Long term responsibility for building operation and

maintenance
Focus on reducing cost

Typical SPV structure for PPP

Government
PPP
Agreement

Equity

Shareholdi
ng

Private Sector
(Special Purpose Vehicle)
(SPV)

Loan
agreement

Debt

Subcontractor
s
Subcontractor
Construction

Subcontractor
Operations

PPP and Traditional

Procurement

Governance principles

Participation
Decency
Transparency
Accountability
Fairness
Efficiency

Funding - Project finance

The financing of long-term infrastructure is

based upon a non-recourse or limited
recourse financial
structure where the debt
and equity used to finance
the project are
paid back from the cash flows generated by
the project.

Project finance
High gearing requiring less equity
Tax benefits
Public sector use of revenue
Long term debt funding

Why use PPPs?

Focus on outputs
PPPs make projects affordable
Better value for money over the lifetime of
the project
More efficiency in procurement
Faster project delivery with more projects in
a defined timeframe
Risks are allocated to the party best able to
manage the risk

Why use PPPs? (2)

Outline Business C

Critical stages of a PPP

Initial feasibility
Procurement phase
Construction phase
Operation phase

Stages in procureme
Procurement strategy stage
Qualification and selection stage
Dialogue
Award

Procurement
Process

Prepare
Documents

Project Selection
Brief
development
Market testing

Preparation and evaluation of bidder

documents

Financia
l Close

Risks in PPP
Optimal risk sharing
Risk borne by the party best able to
manage it
Risk management

Identification
Allocation
Mitigation

Stages of risk
management

Sustainability
Embedded environmental and social
safeguards
Focus on longer timescales
Public, business and government
working in partnership

What makes a
successful PPP?

Political will
Government commitment
PPP Champion
Clear output specification
Appropriate risk sharing
Value for money
Performance management

Conclusions
Undertake projects for the benefit of the citizens,
including the socially and economically
disadvantaged
Allows governments to approach projects hitherto
unobtainable due to lack of funding
Provide incentives to the private sector to adopt
green criteria
Embraces the MDGs

PPPs allow the injection of private sector

capital

End-of-Module
Questions
1. Which of the following best describes PPP projects?
a) Using funding from public borrowing.
b) Local government sets the specification
c) Public sector details design and pays for the
construction
d) Government sets the required outputs and funding is
by the private sector.
Answer:provided
d)
2. What is the name of the organisation created to
design, build finance and maintain the asset?
Answer: Special Purpose
Vehicle - SPV

End-of-Module
Questions
3. Which of the following are critical to good
governance?
a)Funding for the project
b)Clarity and openness
c)Putting the public first
d)Transferring
Answer:
b) and c)the risk to the private sector.
4. Which one of the following would not be
described as an international investor?
a) Banks
b) Pension funds
c) Insurance companies
d) Employees holding shares through an
employee share scheme.
Answer: d)

End-of-Module
Questions
5. The term sustainability refers to?
a) Maintaining resource use at current or higher levels
b)Keeping the natural environment and society in a
happy healthy and functional state
c)Holding or increasing the value of human life
d)Focus on fulfilling short term need.
Answer: b)
6. Risks should be borne by the party best able to
manage them.
a) True
b) False
Answer: a)

End-of Module
7. What does anQuestions
OBC demonstrate?
a) That a project is economically sound, financially viable and will be well
managed
b)That a project meets market expectation
c) That significant profit will accrue for the public and private sector
d) None of a)
the above
Answer:

8. What are the phases in a PPP project life cycle?

Answer: Initial feasibility, Procurement phase, Construction
phase, and
Operational
9. Match
up thephase
boxes.
Service contracts

Design, build, finance

Concession contracts

Private sector managing

services

Construction contracts

Public sector provides

management support