Ppp policy Framework for St. Petersburg

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PPP Policy Framework for St. Petersburg

  • William Dachs
  • The World Bank
  • St. Petersburg- May 22, 2008


  • St. Petersburg has embarked on one of the largest PPP programs in the world
    • Four mega-projects, multi-hundred billion Ruble investment
    • City PPP Law and Federal Concession Laws provide framework
  • Committee for Investments and Strategic Projects has played a key role in the PPP programme to date
  • The City supported by the World Bank has done a lot of work examining best practice to apply to the City

What are the City’s objectives?

  • To implement socially important projects in the City,
  • To increase the involvement of private investments into the economy,
  • To provide effective use of City assets and
  • To improve the quality of goods, works and services provided to consumers

Objectives will be met by…

  • Implementation of PPP projects that…
    • are affordable to the City and its people,
    • which offer good value for money in the services they provide
    • and in the risks that they transfer to the private sector a solid framework for appraising projects

How will the City do it? Four Key Challenges to policy framework

  • To implement a clear project preparation and approval system
    • by setting out a clear approval process for PPP projects
  • To improve coordination of activities
    • by being clear on the allocation of responsibilities between Committees
  • To standardize systems
    • by systemizing the project processes so that the time taken to prepare projects is reduced and the outcomes of the project are consistently of a high standard
  • To widen the range of PPP projects in the City
    • By examining all sectors methodically for potential PPP projects

Investment committees to provide training

  • PPP training program on
    • Use of standard PPP methodologies
    • Project appraisal and risk management
    • PPP projects at inception, feasibility study, bidding, negotiation, and contract management stages
    • Sector specific training on international and domestic experience in PPPs
    • Other international conferences and training relevant to the City
  • Available to all City Committees and Agencies.

Standardized Procedures and Documents

  • Investments Committee will develop detailed guidance material and methodologies for use by all City Committees on PPP Projects
    • Project initiation, project screening and the appointment of advisors
    • PPP feasibility studies
    • PPP Bidding and negotiation
    • PPP Implementation, contract management and monitoring
    • Standardized PPP Agreement (Contractual) provisions

Who will coordinate?

  • An appropriate forum should act as the coordination and policy committee responsible for
    • ensuring that the City PPP programme is consistent with the principles and objectives of the City law
    • oversee the communication and marketing of the PPP to all local stakeholders including the public and to international investors

City’s Policy on Unsolicited Proposals

  • International experience shows that unsolicited proposals will not be able to replace the strong role for government
  • The City should maximize competition and transparency by subjecting all unsolicited proposals to competitive bidding
  • However the City should accept unsolicited proposals where the private sector has identified a potential PPP project
    • It must be technically innovative and it must not be for a project identified by the City for development as a PPP or other form of open tender

PPP Policy Framework for St. Petersburg

  • THANK YOU !!!
  • William Dachs
  • The World Bank
  • Wdachs@worldbank.org

PPP Project Cycle

  • William Dachs
  • The World Bank
  • St. Petersburg- May 22, 2008


    • Typical PPP project cycle
    • Timeline & milestones
    • Stakeholders: Where they fit in?
  • Timeline
  • 1 month
  • 10-30 years
  • 6-24 months
  • 2-6 months

Developing and approving a PPP in Victoria, Australia

Process flow of PPP projects: Phase I

  • Project Inception
  • Guidance Note 1
  • Advisory service
  • (Internal) Economic/Financial/Technical
  • Timeline
  • 3-4 weeks
  • Milestone
  • List of PPPs with preparation funding allocated

Process flow of PPP projects: Phase II

  • Feasibility
  • Guidance Note 2
  • Advisory service
  • Economic/Financial/Technical/Legal/Environmental
  • Timeline
  • 2-6 months
  • Milestones
  • Decrees approving F/S and bidding documents

Process flow of PPP projects: Phase III

  • Procurement
  • Guidance Note 4
  • Advisory service
  • Economic/Financial/Technical/Legal/ Environmental
  • Timeline
  • 6-24 months
  • Milestone
  • Approval of Final Contracts

Process flow of PPP projects: Implementation Phase

  • Contract Management
  • Guidance Note 5
  • Advisory service
  • As needed
  • Timeline
  • Project Life
  • Milestone
  • Project Implementation

Detailed timelines for Procurement Phase

  • Possible investors’
  • conference
  • Issue RFQ documents
  • Issue final RFP
  • documents
  • Appoint per-qualified
  • bidders
  • Evaluate RFQ responses
  • Issue RFP
  • documents
  • Prepare RFQ
  • documents
  • RFQ response
  • Phase
  • Prepare amendments
  • to RFP documents
  • Prepare draft
  • RFP documents
  • Consultation with bidders
  • Continuing and completing land acquisition and EIA processes, legislative or regulatory
  • Processes to enable project, third party agreements
  • 4 to 8 weeks
  • 3 to 6 weeks
  • 4 to 16 weeks
  • Possible expression
  • of Interest
  • Feasibility Study
  • Completed institution
  • due diligence
  • Decree approving
  • project bidding
  • documents
  • Tender
  • Commission

Procurement Phase timeline contd 2

  • Issue final RFP
  • documents
  • Bid submission
  • date
  • Selection of
  • Preferred bidder
  • Selection of preferred
  • Bidder or decides on BAFQ
  • BAFO documents
  • BAFO preparation
  • Bid preparation
  • Bid evaluation
  • Prepare evaluation summary report
  • 6 to 20 weeks
  • 3 to 8 weeks
  • 5 to 10 weeks
  • BAFO evaluation
  • 2 to 3 weeks
  • Tender
  • Commission
  • Tender
  • Commission

Procurement Phase timeline contd 3

  • Govt announces
  • Preferred Bidder
  • Financial closure
  • PPP agreement
  • signing
  • Negotiation of PPP agreement
  • Prepare evaluation report
  • including negotiation strategy
  • Prepare PPP agreement
  • management plan
  • Prepare Final Approvals
  • 12 to 26 weeks
  • 2 to 6 weeks
  • Fulfillment of funding conditionalities
  • Prepare close-out report
  • and case study

Typical PPP project structure and stakeholders

  • Project
  • Company
  • Shareholders
  • Lenders /
  • Bondholders
  • Operator
  • Construction
  • Contractor
  • Granting
  • Authority
  • Services
  • Purchaser
  • Raw Material
  • Supplier
  • Shareholder’s Agreement
  • Concession Agreement
  • Purchase Agreement (e.g., power purchase agreement)
  • End-users
  • Supply Agreement (e.g., gas supply agreement)
  • Construction Contracts
  • Operation & Maintenance Agreement (O&M)
  • Regulatory Risks
  • Regulatory & Demand Risks
  • Regulatory and Performance Risks
  • Completion Risks
  • Performance Risks
  • FX Risks and Refinancing Risks

Stakeholders roles: Public side

  • Line Committees
    • Project execution authority and signatory in the PPP agreement
  • Committee on Finance
    • Allocates explicit and contingent budget support
    • Part of approval process throughout project cycle
  • Committee for Investment and Strategic Projects
    • Implements policy for strategic investments of the City
    • Develops and implements projects classified as strategic investments
  • Committee for Economic Development, Industrial Policy and Trade
    • Implements economic development policy on industry, trade, consumer markets
    • Manages special economic zones
  • Other relevant committees (housing policy, public health, environmental etc.)

Public Stakeholders contd.

  • Committee on City Property Management
    • Manages public property of both the City and the Federal government
    • Signatory to City/Federal property on lease agreements
  • Tariff Policy Committee
    • Set tariffs for power, solid waste, housing subsidies, public utilities
    • Does not set tariffs for public transport, toll roads, parking or airports
  • PPP Support Unit
    • Assist Line Committees with PPP expertise throughout PPP project cycle
  • City government
    • Promulgates City PPP Law
    • City budget support
  • Federal government
    • Federal Concession law
    • Federal funding support

Stakeholders: Non-Public side

  • Private sector
    • Investor (equity)
    • Lender (debt)
    • Sponsor (contractors, operators)
    • Advisor (legal, technical, transaction etc.)
  • Users of services (direct beneficiaries)
    • E.g. toll road users, hospital patients/doctors, electricity consumers
  • Environmental groups (primary and secondary effects of the project)
  • Affected groups (indirectly interested groups)

PPP Project Cycle

  • THANK YOU !!!
  • William Dachs
  • The World Bank
  • Wdachs@worldbank.org

Phase I: Project Inception

  • William Dachs
  • The World Bank
  • St. Petersburg- May 22, 2008

Objective: Project Inception

  • …is to screen projects for suitability for development as a PPP
  • …not same as a feasibility study to demonstrate viability
  • …nor a test whether a PPP is better than a publicly funded project

Where to start?

  • Step 1: Screening for suitability as a possible PPP
  • Step 2: Appointing a project manager and project team
  • Step 3: Appointing a transaction advisor

Step 1: Project screening

  • Initial needs analysis and project screening through a Project Concept Document
  • [Full needs analysis and solution options analysis are done in feasibility study phase based on the institution’s initial assessment of needs and options at inception]
  • List the project on database and assign responsible committees/agencies

Project screening is an important step

  • Helps to exclude projects that will not offer value for money if developed as PPPs and allows:
    • Early identification of potentially good PPPs
    • Savings in development costs and time
    • Competition and focus from private sector
    • Improves probability of value for money

Aligning sector priorities and objectives

  • Line committee assisted by PPP Support unit screens projects to:
    • Demonstrate that the project aligns with the institution's strategic objectives
    • Move away from project by project approach to overall sector approach
    • Identify and analyze the available budget(s)
    • Demonstrate the institution's commitment and capacity
    • Specify the outputs
    • Define the scope of the project

Criteria used in project screening

  • Scale
    • Present value of capital costs at min of €20 million or Rubles 725 million
    • Difficult to create better VfM through small scale PPPs due to high transaction costs
  • Output specification
    • Service delivery as basis of project’s performance indicator over the whole life of the project
  • Opportunities for risk transfer
    • Allocation of risk to a private party is primary driver
    • When risk transfer is limited, VfM for PPP vs. Public procurement is limited
    • Applying the risk matrix during project screening can test risk transfer opportunities
  • Competitive market
    • Should be a minimum of two active private sector providers

Criteria contd.

  • Possibility for innovation or particular skills from the private sector
    • Test for historic development of innovative solutions in a particular sector by the private sector
  • Time available for development
    • Careful consideration to allow adequate time for development of PPP projects
    • If genuinely not possible, only then consider quicker alternatives
  • Likely costs and City support required
    • Costs should include known and explicit costs as well as contingent fiscal obligations
    • Assessment should include public financial support needed and city’s strategic objectives

Indicative Risk Matrix

  • Availability
  • Completion
  • Cost over-run
  • Design
  • Environmental
  • Exchange rate
  • Force Majeure
  • Inflation
  • Insolvency
  • Insurance
  • Interest rate Demand
  • Operating
  • Regulatory
  • Residual value
  • Change in law
  • Technology
  • Subcontractor

Potential PPP or not?

  • If project selected, then
  • Listed in a database and registered to formally carry out a feasibility study
  • At this stage, estimate Advisor fees, project management fees and appropriate budget
  • PPP unit should research to estimate costs realistically
  • If project not selected, then
  • Forms part of the normal budget process

Constraints in identification of PPPs

  • Public budget constraint as the main driver instead of efficiency gains
  • Value for money (VfM) and efficiency gains are difficult to quantify
  • Political pressure to select certain projects
  • Scope of the project may change with new information
  • Sector strategic objectives change
  • Lack of information to make realistic estimates
  • Lack of political commitment
  • Unrealistic expectations for the private sector

Step 2: Ensuring effective project management

  • Relevant line committee and PPP support unit should ensure effective project management by:
    • Identifying budgets
    • Appointing project manager
    • Appointing project team
    • Setting up project secretariat
    • Including the project in strategic focus of the government
    • Considering federal funding for project development and/or operation

Role of a project manager

  • Project manager is institution’s anchor and champion throughout the PPP project cycle
    • Manages the appointment and work of the transaction advisor through feasibility and PPP procurement
    • Manages the PPP agreement for the project term, representing the institution
  • Project manager may be appointed on contract or from within the institution
    • Within ensures capacity building and continuity
  • Senior management position, within Line Committee. Full-time job

Step 3: Appointing transaction advisor

  • Typically a consortium of professional consultants, from one or more firms, which works collectively as a team
    • Under the management of project manager and the oversight of project team
  • Contracts with the institution through the lead firm
    • Assures a single point of accountability
    • Easier to manage than a diverse group of advisors
    • Exceptions are environmental consultants and external reviews/auditors who should be independent

What does a transaction advisor do?

  • Phase II: PPP feasibility study,
    • transaction advisor does all the detailed financial, technical and legal work required to prepare the project. The advisor completes feasibility study to a standard that will enable the project to obtain necessary decision to execute the PPP agreement by issuance of City Regulation
  • Phase III: PPP procurement,
    • transaction advisor helps institution to implement PPP procurement, including preparing all documents for level II and III approvals, and completes close-out report and case study
  • Phase IV: Contract management onwards,
    • transaction advisor may be retained to support the City

Transaction advisor’s skills and experience

Advantages of good transaction advisors

    • Experience in similar transactions
    • Protection against costly, avoidable mistakes
    • Access to national and international best practice
    • Technical strength to the City’s project team
    • Enhancement of investor confidence
    • Opportunity for skills development among government officials
    • Single point of accountability for getting the job done well and on time

Getting value for money from transaction advisors

  • Should be viewed as an investment and not simply an expense
  • Important to balance the need for top quality technical assistance with the need to keep overhead costs of preparing the PPP in check
  • Appointment process and contract terms aim to get optimal value for money from the transaction advisor

Managing advisors through the project cycle

  • Requires good management and effective leadership and oversight by the City
    • From defining the advisor’s terms of reference, to selection, and throughout their term of appointment
  • Recruiting reputable and expensive advisors…
    • Should not prevent the City from understanding the outputs in advisor’s work in order to make key decisions on the design and procurement of the project

Appointing a transaction advisor: avoiding common pitfalls

  • Appoint after project passed screening and listed as potential PPP
  • Retain until after signing of PPP Agreement
    • Ensures continuity and accountability
  • Procurement must be accordance with applicable federal law
    • Law focuses only on prices of services currently
    • Difficult to quantify advisor’s experience as a selection factor
  • Terms of reference should be precise and focused on clear deliverables
    • Set realistic timetables, budgets and output-based incentives

Avoiding common pitfalls contd.

  • Terms of reference should be precise and focused on clear deliverables
    • Set realistic timetables, budgets and output-based incentives
  • Selection of advisors should be:
    • Transparent & fair: avoid hiring additional consultants
    • Free of conflict of interest: either close ongoing consultancies or clearly separate
  • Understand limitations in the use of international consultants as they might lack local knowledge and experience
    • International and local advisors should be paired to ensure knowledge transfer

Phase I: Project Inception

  • THANK YOU !!!
  • William Dachs
  • The World Bank
  • Wdachs@worldbank.org

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