structuring effective ppp units
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Structuring Effective PPP Units
Stephan Schmitt-DegenhardtBratislava Regional Center
Budapest, 7th June 2010
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Entry point:
“Successful PPP units address areas where the government has identified
weaknesses or low/no capacities”
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Ultimatum Game Link PPP – Ultimatum Game
– The splitting of some potential gains between Government (offerer) and private consortium (receiver).
– In a repeated game the optimal strategy is fairness/cooperation General experience:
– The average offer is between 40% and 50%! – Approximately half of the receivers turn down offers under
30%! Conclusion: PPP tenders and contracts need to be
designed with perceived fair splits in mind.
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Prerequisites for successful partnerships
Expected answers according to intuition:
“Trust” and potentially derivatives such as transparency, credibility, honesty, etc.
“Flexibility”Rules of the game
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“Most people can be trusted”Country % 35 countriesTurkey (2nd)** 4.9%Latin America 13.1% Peru**, Brazil**, Chile**, Colombia**, Mexico**,
Guatemala**, Argentina**
Non-EU SEE/CEE
19.0% Macedonia*, Serbia**d, Bosnia/Herz.*, Moldova**, Croatia*, Ukraine**
EU new members
20.6% Slovakia*, Latvia*, Slovenia**, Poland**, Romania**i, Hungary*, Bulgaria**, Estonia*, Czech Rep.*, Lithuania*
CIS without CEE
21.2% Kyrgyzstan*, Georgia**, Azerbaijan*, Albania*, Armenia*, Russia**
EU15 35.8% Portugal*, France**, Spain**d, Greece*, Luxembourg*, Italy**, UK**, Belgium*, Austria*, Ireland*, Germany**, Netherlands**d, Finland**, Denmark*, Sweden**
Belarus* 41.9%Scandinavia 66.9% Finland**, Denmark*, Sweden**, Norway**
Source: World Values Survey, *1999/2000 wave , **2005/08 wave, (i)/(d) significant increase/decrease between last two waves
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“Do you think most people try to take advantage of you?”
Country/Region Median score 52 countriesMorocco 3.9
SEE/CEE 5.0 Serbia, Bulgaria, Poland, Romania, Ukraine, Slovenia, Moldova
Russia 5.4
EU + Norway 6.2 Spain, Italy, Germany, UK, France, Netherlands, Finland, Sweden, Norway
Georgia 6.9
Scandinavia 7.0 Finland, Sweden, Norway
Source: World Values Survey 2005/8 (comparison with 1999 survey not possible)1 = Would take advantage, 10 = Try to be fair
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Prerequisites for successful partnerships
Conclusions: Trust is highly culture specific (extent and
specificity)Accordingly, PPP Units should contribute to trust
building
“Widespread distrust in a society … imposes a kind of tax on all forms of economic activity; a tax that high trust societies do not have to pay.”
Francis Fukuyama, US Political Economist
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Flexibility of agreementsPPPs in transition economies face many uncertainties:
– Developing legal and regulative frameworks– Developing formal and informal institutions– Unpredictable development patterns– Developing social/environmental concerns (e.g. MDG)– Changeable tariff structures– Fluctuating exchange rate (rather: risk)
and thus require exceptional flexibility. Flexibility requires:– Flexible contracts– Trust– Low uncertainty avoidance
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Uncertainty avoidance index
Country/Region ScoreSingapore 8
EU-North + Norway 38.5 Scandinavia (Denmark 3rd lowest), Anglo-Europe
EU-Midwest 62.7 Netherlands, Germany, Austria
SEE/CEE 79.5 Slovakia, Estonia, Czech Rep., Croatia, Hungary, Bulgaria, Slovenia, Romania, Serbia, Poland
EU-Roman 86 Luxembourg, Italy, Spain, France, Belgium, Portugal
Russia 95Greece 112
Source: Hofsteede
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Consequence in terms of principle – agent problem
Principle-agent problem: Information asymmetry (obtaining information costly for principle)
– Behavior based contracts (e.g. Management contracts)– Outcome based contracts (e.g. Concessions)
But in SEE/CEE basic assumption of risk averse agent and risk neutral principal (often) wrong
Conclusion: Based on differences in risk aversion, outcome based contracts should be preferable
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Corruption Perception
Therefore: Good arbitration agreements
Country/Region ScoreNew Zealand 9.4
Scandinavia 9.0 Denmark, Sweden, Finland, Norway
EU (West/North) 7.8 Netherlands, Luxembourg, Germany, Ireland, Austria, UK, Belgium, France
EU (South) 5.0 Spain, Portugal, Italy, Greece
EE (New EU members) 5.0 Estonia, Slovenia, Hungary, Poland, Czech Rep. Lithuania, Latvia, Slovakia, Bulgaria, Romania,
Balkans 3.5 Croatia, Macedonia, Serbia, Albania, Bosnia/Herzeg.
Western CIS 2.6 Moldova, Belarus, Ukraine,
Central Asia, South Caucasus
2.4 Georgia, Armenia, Kazakhstan, Azerbaijan, Russia, Tajikistan, Kyrgyzstan, Turkmenistan, Uzbekistan
Somalia 1.1
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Governance Indicators
TURKMENISTA
N
UZBEKISTAN
BELARUS
KAZAKHSTA
N
BANGLADESH
KOSOVO
ALBANIA
MOLDOVA
ARMENIA
GEORGIA
MACEDONIA
MONTENEG
RO
CROATIAIN
DIA
POLAND
LITHUANIA
LATVIA
KOREA, S
OUTH
CZECH REP
UBLIC
SLOVENIA
ESTO
NIA
BELGIUM
HONG KONG
UNITED KIN
GDOM
IRELA
ND
AUSTRALIA
FINLAND
AUSTRIA
NORWAY
-3
-2
-1
0
1
2
3
Rule of Law
Regulatory Quality
Government Effectiveness
Control of Corruption
Source: World Bank
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Governance and PPP units
Conclusions:PPP units in SEE/CEE need to specifically address
weak governance issues (regulatory environment, corruption, quality of public service, civil society involvement, potentially Human Development)
“Best Practices” are mainly derived from countries with significantly higher governance indicators. A 1:1 transfer might not be advisable.
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Efficiencies of PPPs
Allocative efficiency
Technical efficiency
X-efficiency
Decision on the project/service; Cost-benefit calculation
Decision on the means to obtain project/service;Private sector involvement/PPP;Public Sector Comparator
Dominant objective of PPP!
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Government’s reasons for pursuing PPPs
Limited municipal revenues with tendentially discretionary allocation of additional central/regional resources
Most countries’ municipalities can only get indebted up to 20-30% above budget
Limited experience with cost-benefit analysisÞ PPP as financing and not efficiency instrument
But: No resources to finance PPP project preparation
Conclusion: Focus on finance and Public Sector Comparator
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Sector Diagnostic
Feasibility Study
Decisionon PPP
Calculationof PSC
PPP projectdesign
Tenderingprocess
Award &contracting
Implemen-tation
Ensure fairness
Facilitate civil society involv.
Engage in trust building
Ensure right risk distribution
Advise on regulatory env.
Facilitate anti-corruption
Ensure application of PSC
Advise on financing
Derivative functions
Transparency AccountabilityTrust buildingStakeholder involvementRegulatory adviceProject efficiency
and
Capacity building / technical assistance with goal that gov’t can increasingly take over functions
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Critical issues
Decision power of unit / power of controlIndependence of unit / institutional set-upScope of unit’s responsibilityEvaluation / success factors of unit
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Decision power
may advise decides, “green-lights”
The more decision power the• higher the potential impact • higher the responsibility• more opposed by procuring
government organizations• more dangerous position in
environments of weak law enforcementThe effective decision power
depends on the independence of the unit (low decision power unit attached to high decision power institution can yield similar results as high decision power independent unit)
can be limited to certain steps of the procurement process might be substituted by right to “blow the whistle”/to publish
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Independence
integrateddepartment
fully independentwith automatic
finance
The more independent the• lower the potential interference• lower the potential conflicting
interests (if autom. finance)• less protected and connected
The impact/importance of independence depends on the decision power (independence with low decision
power is rather meaningless) is questionable if unit is dependent upon financing through voluntary
clients
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Scope
few selected steps
complete procurement
process
The higher the scope the• more can effectiveness and
efficiency be ensured• more conflicting interests
can occur• more the unit is exposed to
outside pressure
The impact/importance of scope co-determines the ownership feeling and capacity building chances at the level of
the procuring government organization the unit’s clients and the opportunity to address other stakeholders
(esp. civil society, businesses) beyond the procuring government
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Success factors
The success factors influence the overall PPP programme regarding• its orientation• its efficiency• its scope
The impact/importance of the success factors depend upon the actual influence of the unit on the overall PPP
programme and thus the unit’s power, independence and scope might be very difficult to measure (attribution gap, lags, etc.)
PPP contracts - Number
PPP contracts - Turnover
PPP contracts - Sustainability
Procurement - Life cycle efficiencyProcurement - Cost savings
Stakeholders - Satisfaction
Unit - Cost per deal
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Comparison of PPP units globally
None of the established PPP units actively deals with transparency, accountability, trust building, stakeholder involvement
Their scope and power is usually rather limited
Most are established as dependent governmental units
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Food for thoughtPPP units in SEE/CEE should actively engage in issues of transparency, accountability,
trust building and stakeholder involvement might have limited decision power but should be obliged and
protected to “blow the whistle” should nevertheless be institutionally linked to powerful
ministries might be engaged in all public procurement processes (cf.
Korea) but at least in most core processes (except negotiation) & mediation during implementation
Might be evaluated according to efficiency cum sustainability criteria
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Sources and further information CRGP: “Public-Private Partnership Agencies: A Global Perspective”, 2008 OECD: “Dedicated Public-Private Partnership Units - A Survey of Institutional and
Governance Structures”, 2010 PPIAF: “GridLines: Designing and using public-private partnership units in
infrastructure - Lessons from case studies around the world”, 2007 UNECE: “Guidebook on Promoting Good Governance in Public-Private
Partnerships”, 2008 UNDP: “Toolkit on Pro-Poor Municipal PPP”, 2006 UNDP: “Review of the national policy, legislative and institutional environment
necessary for the establishment of municipal public private partnerships (PPPs) for public service delivery and local development in the Europe and CIS region”, 2006
World Bank: “Public-Private Partnership Units: What Are They, and What Do They Do?”, 2006
World Bank: “International Experience in Establishing and Operating PPP Units”, 2007
World Bank/PPIAF: “Public-Private Partnership Units: Lessons for their Design and Use in Infrastructure”, 2007
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Thank you!
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Definition of PPP unitsWorld Bank: “Any organisation designed to promote and/or improve public-private partnerships that has a lasting mandate to manage multiple public-private partnerships transactions in response to government failures (poor procurement incentives, lack of co-ordination, lack of skills, high transaction costs, lack of information, etc.).“ It may control the total number of public-private partnership projects and ensure that proposed projects fulfil specific quality criteria (e.g. affordability, value for money and appropriate risk transfer). A dedicated unit’s possible functions are policy and strategy, project identification, project analysis, transaction management, contract management, monitoring and enforcement.
Asian Development Bank: “A point of co-ordination, quality control, accountability and information on public-private partnerships for one or more sectors.” These units are created as a new agency or within a ministry such as the finance ministry, which is seen to be at arm’s length from the sector utilising public-private partnerships as a service delivery mechanism.
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Pros and cons of PPP units
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Approach to PPP Unit development
Functions Mandate Scope
Stakeholder outreachFundingTemplates
Structure Phasing
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Government failures
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Presidential, semi-presidential and parliamentary systems
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Evolution of PPP unit development
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PPP units globallyAsia/Pacific:
Australia, Bangladesh, China, Fiji, Japan, India, Indonesia, Israel, Japan, Pakistan, Papua New Guinea, Philippines, Kazakhstan, Rep. of Korea, Singapore, Sri Lanka
Africa: Egypt, Malawi, Mauritius, Nigeria, South Africa, Turkey
Europe: Austria, Belgium, Croatia, Czech Rep., Denmark, Estonia, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Moldova, Netherlands, Poland, Portugal, Russia, Slovakia, Slovenia, Spain, Switzerland, UK
Americas: Brazil, Canada, Chile, Costa Rica, Jamaica, Peru, Puerto Rico, USA
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Functions of benchmark PPP units Korea Germany S.Africa UK Vic./AUS China Turkey
Procuring gov’t organizatio
n
Ministry of
Strategy and Financ
e
PIMAC
Procuring gov’t organiz
ation
Federal
Ministry of
Finance
Partnership Germany
Procuring
gov’t organization
National
Treasury
PPP Unit
Procuring
gov’t organization
HM Treasury
Partnerships UK
Procuring gov’t
organization
Partnershi
ps Victoria
Procuring gov’t organizatio
n
Efficiency Unit, Hongkong
Procuring gov’t organizati
on
Safyada
International PPP
Platform
Pre-tender Project initiation ● - - ● - - ● ● ● ● ● ● ● ○ ● -Assess feasibility/VfM ● ○ ● ● - ○ ● ● ● ○ ○ ● ● ● ○ ● -Budgeting ● ● - ● ● ○ ● ○ ● ● ● ● ● - ● -Project approval ● ● ○ ● ● ○ ● ● ● ● ○ ● ● ● - ● -Tender Invitation to tender ● - - ● - ○ ● ○ ● - ● ● - ● ○ ● -Bid evaluation ● ● ○ ● - ○ ● ○ ● - ○ ● - ● - ● -Negotiation ● - ○ ● - ○ ● ○ ● - ○ ● - ● - ● -Bid approval ● - - ● - ○ ● ● ● - ● - ● - ● -Post-award Contract management ● ○ - ● ○ ○ ● ○ ● - ● ● ○ ● - ● -Payment oversight ● ○ - ● ○ ○ ● ○ ● ○ ● ○ ● - ● -Project M&E ● - - ● - - ● ○ ● ○ ● - ● ○ ● ○Other roles Policy guidance ● ● ● ● ● ●Capacity building ● ○ ● ○ ● ● ●Technical support ● ● ● ● ● PPP promotion ● ○ ○ ● ● ●PPP investment ● Indepencence Y Y N Y N Y Y
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Functions of EE/CIS PPP units Croatia Czech Rep. Estonia Latvia Poland Slovakia Kazak. Russia
Procuring gov’t
Agency for
PPP (MF/MinE
c)
Procuring gov’t
Min. Finance
PPP
Association
PPP
Centrum(MF)
Procuring
gov’t
Public
procureme
nt centr
e
Procuring gov
’t
PPP Association
PPP Taskforce(MF)
Procuring gov
’t
Centrum PPP
Institute
PPP
Procuring gov
’t
Min. Finance
Asociac
e PPP
Procuring
gov’t
Kaz. PPP Cent
er (MinEc/Budget)
Procurin
g gov’
t
PPP Centre of
Vnesheconombank
Benchmark units (Korea,
Germany, S. Africa, UK, Aus.)
Pre-tender Project initiation ● - ● - - ○ ● - ● - - ● - - ● - ○ ● - ● - -/●Assess feasibility/VfM ● - ● ○ - ● ● ● ● - - ● - ○ ● ○ - ● ● ● ● ●/○Budgeting ● - ● ○ - - ● ● ● - - ● - - ● ● - ● ● ● ○ -/●/○Project approval ● ● ● ○ - ○ ● - ● - - ● - ○ ● - - ● ○ ● - ●/○Tender Invitation to tender ● - ● - - ● ● ○ ● - - ● - - ● - - ● - ● ○ -/●/○Bid evaluation ● ● ● - ○ ○ ● ○ ● - - ● - - ● - - ● ● ● ○Negotiation ● - ● - - ● - ● - - ● - - ● - - ● ○ ● ○ ○Bid approval ● ● ● - - - ● - ● - - ● - - ● - - ● ○ ● - -/●/○Post-award Contract management ● ● ● - ○ ○ ● ● ● - - ● - ○ ● ○ - ● ○ ● ○ ○
Payment oversight ● - ● - - - ● - ● - - ● - - ● ○ - ● - ● ○ ○Project M&E ● ● ● ○ ○ ● ● - ● - - ● - ● ● ○ - ● ● ● ○ -Other roles Policy guidance ● ● ● ● ● ○ ● ● ● ● ●Capacity building ○ ○ ● ● ● ● ● ● ●/○Technical support ● ○ ● ● ● ● ○ ●PPP promotion ● ● ● ○ ● ● ● ● ● ○ ●/○PPP investment ○ Independence N Y N Y Y N N Y Y N Y
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