B. MAIN OBJECTIVES THAT THE PROJECT HAS TO ACHIEVE
C. THE PPP PROCESS IN THE COUNTRY
Table 2. Stages in PPP project development and implementation
E. GOOD GOVERNANCE
Key Tasks
The key tasks in this stage would involve:
Project identification and preliminary internal stakeholder consultation
Scoping the project
Identifying the major issues in project planning
Assessing institutional due diligence
Establishment of a project management structure
Appointing a transaction advisor
Establishing a mechanism for public participation and information disclosure
Establish the need for the project and its objectives
Identify services needs and project objectives
Outline delivery options
Establish scope of the project
PROJECT DEVELOPMENT II:
THE FEASIBILITY STUDY AND DUE DILIGENCE
Key Tasks
The key tasks in this stage include:
A. Project planning and feasibility
Project selection
Engagement with the private sector
Realistic demand analysis
Social and environmental impacts and mitigation measures
Legal and regulatory matters
Sector specific issues/physical and natural characteristics of sectors
B. RISK ANALYSIS AND MANAGEMENT
Identification of all possible risks
Examining the likely effects of the risks in quantitative and qualitative terms
Consideration of mitigation measures
Mitigation measures
Allocation of risks to parties
C. FINANCING
Box 1. How subordinate debt helps in debt financing
The revenue available for debt service is used first to meet the senior claims. If revenue is still available, it is used to meet the junior claims (subordinate debt and thereafter equity). A simplified example below shows how it works in reducing the burden of debt on a project.
Amount Coverage Ratio
Revenue: $1,050
Senior claims: $700 1,050/700 = 1.50
Junior claims: $230 1,050/(700+230) =1.13
On a combined claim (if the whole amount of loan was of the same type, i.e. senior debt), the coverage ratio is 1.13, which may be considered low and may not qualify for cheaper credits. The coverage ratio, however, is significantly improved if the debt is divided into two parts: a senior debt and a subordinate debt. As the senior debt is only a portion of the total debt and has the first claim on all the revenues available for debt service, its coverage is increased to 1.5 and its credit quality would be enhanced. The credit quality is very important to debt financing. With a good credit rating the project may also be bond financed. As the cost of bond financing is generally lower than commercial borrowing from banks and financial institutions, bond financing can also significantly enhance the financial viability of a project.
The availability of subordinate debt helps in reducing the risk to senior debt lenders and allows the project sponsor to borrow at lower interest rates. The subordinate debt provider, however, absorbs a share of the risk if revenues fall short of debt service requirements.
Because of this feature of subordinate debt in reducing the monetary cost of debt, some governments provide loans to implementing agencies (under public credit assistance programmes) to improve the credit quality of senior debt. It lowers the risk to lenders and helps the implementing agency to obtain loans at a lower interest rate reducing the debt burden on the project.
Source: Based on an example given in a publication of the Federal Highway Administration, US Department of Transportation (undated). Innovative Finance Primer, Publication Number FHWA-AD-02-004, available at http://www.fhwa.dot.gov/innovativeFinance/ifp/ifprimer.pdf
Cash flow analysis
Financial indicators
D. VALUE FOR MONEY
E. PRICING POLICY AND COMPENSATION TO THE PROJECT COMPANY
F. GOVERNMENT SUPPORT
H. REGULATORY ARRANGEMENTS
I. SERVICE AND OUTPUT SPECIFICATIONS
J. TERMS OF CONTRACT
K. GOVERNMENT APPROVAL
L. DEALING WITH UNSOLICITED PPP PROJECT PROPOSALS
PROCUREMENT AND CONSTRUCTION
Key Tasks
The key tasks in this stage include:
Considering the legal and governance aspects in procurement
Deciding the implementation arrangements
Undertaking the pre-procurement activities
Conducting the procurement process
A. LEGAL AND GOVERNANCE ASPECTS IN PROCUREMENT
The legal basis of procurement
Good governance in procurement
B. IMPLEMENTATION ARRANGEMENT
Implementation issues
Project implementation arrangement
Independent credit rating
Establishing the procurement process, evaluation committee and setting the evaluation criteria
Setting the terms of contract and preparing a draft contract/agreement
Preparation of bidding documents
D. PROCUREMENT
The procurement process
Interest of the private sector
Prequalification of bidders
Tendering
Request for proposal (RFP) from selected bidders: First stage of tendering
Information exchange and feedback from the bidders
Finalization and Issuance of final tender: Second stage of tendering
Evaluation and selection of preferred bidder
Contract negotiation, award and financial close
E. PROJECT CONSTRUCTION
Key Tasks
The key tasks in contract management are:
Establishment of an administrative process and a contract management team,
Formalization of management responsibilities,
Monitoring of operation and service delivery, and
