A guidebook on public-private partnership in infrastructure

Document Outline

• Guidebook PPP-Final.pdf
  • A. THE CHARACTERISTICS THAT MAKE PPPs DIFFERENT 
    • IMPORTANT CHARACTERISTICS OF PPP PROJECTS 
      • B. MODELS OF PPP 
    • Figure 1. Basic features of PPP models 
    • Table 1. Classification of PPP models
      • Supply and management contracts 
      • Turnkey 
      • Affermage/Lease 
      • Concessions 
      • Private Finance Initiative (PFI) 
      • Which model to select? 
    • UNDERSTANDING THE OVERALL PROCESS AND 
      • A. THE LEGAL AND REGULATORY ENVIRONMENT AND
      • GOVERNMENT POLICY 
      • 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
        •  
        • A. CONTRACT MANAGEMENT
        • B. DISPUTE RESOLUTION