establishing public-private partnerships in transport sector in russia

Moscow,Marsh 3-4, 2005Moscow,Marsh 3-4, 2005Moscow, March 3-4, 2005Moscow, March 3-4, 2005

SEFI - French Contractors AssociationSEFI - French Contractors Association 11

ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIASECTOR IN RUSSIA

Why the public-private partnership

Immense needs for infrastructures and public utility remaining unsatisfied

Conscience of the limits of the States and the Public bodies (Local States, Provinces, Large Cities, etc) to carry them out

quickly effectively and economically within the traditional budgetary framework and constraints

Moscow,Marsh 3-4, 2005Moscow,Marsh 3-4, 2005 SEFI - French Contractors AssociationSEFI - French Contractors Association 22


Capacity of the private sector to:

bring their know-how propose innovate solutions :

technical financial commercial, etc.

speed up the process decrease the costs for an equivalent or better service delivered



Improvement of conceptsImprovement of concepts

I- Define the Service of General InterestI- Define the Service of General Interest Public/Private: Boundaries and limits for analysis Public/Private: Boundaries and limits for analysis The hierarchy of needsThe hierarchy of needs Who has to pay?Who has to pay? The treatment of debtThe treatment of debt

Public deficit and indebetenessPublic deficit and indebeteness Impact on the geavingImpact on the geaving

II – The 2 grand categories of public procurementII – The 2 grand categories of public procurement

A) Public works or public services contractA) Public works or public services contractPurchase of a property or servicePurchase of a property or service Limited duration of the contractLimited duration of the contract Payment upon deliveryPayment upon delivery



ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT

SECTOR IN RUSSIASECTOR IN RUSSIA

Improvement of concepts (II)Improvement of concepts (II)

B) Public-Private PartnershipsB) Public-Private Partnerships

4 grand categories4 grand categories The concessionThe concession The hire-purchase systemThe hire-purchase system The partnership agreementThe partnership agreement The lease contractThe lease contract

The characteristic differencesThe characteristic differences Framework contract over the life-cycle of the property Framework contract over the life-cycle of the property Significant risk transfer to the private sectorSignificant risk transfer to the private sector Payment from different sources linked to performancePayment from different sources linked to performance Complex contract with a multitude of interfacesComplex contract with a multitude of interfaces



Improvement of concepts (III)Improvement of concepts (III)

III – A conducive legal and contractual environmentIII – A conducive legal and contractual environment

Readable, clear, stable but adaptableReadable, clear, stable but adaptable A clearly proven type of contract: public or privateA clearly proven type of contract: public or private Common contractual clauses Common contractual clauses

General clauses: nature, objective, etc. General clauses: nature, objective, etc. Task to design and build Task to design and build Task to operate and maintainTask to operate and maintain Evolution of the contract over the life cycleEvolution of the contract over the life cycle Economic and financial clauses Economic and financial clauses Sanctions et Termination clauses Sanctions et Termination clauses Dispute settlement Dispute settlement



Project preparation Project preparation

I - The spirit of the proceduresI - The spirit of the procedures Exploit and improve the available information Exploit and improve the available information Evaluate and et hierarchise the needs Evaluate and et hierarchise the needs

Systematise an advantageous cost or approach Systematise an advantageous cost or approach Assess the capacities and the willingness of beneficiaries to payAssess the capacities and the willingness of beneficiaries to pay Dynamic principles of evaluation in order to anticipate the futureDynamic principles of evaluation in order to anticipate the future Organisation of broad consultationsOrganisation of broad consultations Give preference to transparencyGive preference to transparency

of analyses of analyses of choiceof choice of organisation modesof organisation modes



Project preparation (IV)Project preparation (IV)

IV – Comparison between public and partnership proceduresIV – Comparison between public and partnership procedures

Prime objective : Value for Money drives the resort to the private Prime objective : Value for Money drives the resort to the private sector sector

Effective Risk shavingEffective Risk shaving

The obstacle:The obstacle: insufficient bookkeeping and budgetary insufficient bookkeeping and budgetary procedures of the public sector procedures of the public sector

Recourse to off-balance sheet measuresRecourse to off-balance sheet measures

Maintain the interest of enterprises to bid for projects despiteMaintain the interest of enterprises to bid for projects despite uncertainties uncertainties




Preparation of the project (V)

V - Principle to implement for an effective risks sharing The sharing of the risks: the heart of the PPP - 3 stages 1° stage: principles of rigorous analysis

To leave from a detailed inventory

needs to satisfy functionalities of the work

performances requested from the private operator




To introduce the draft contract

To count the events being able to affect negatively each part by the realization of trees diagrams of

adverse events

causes of failure

Fusion in a double matrix of the risks according to:

chronology of the project

cost and nature of the risks encounter




Preparation of the project (VI) 2° stage: the quantification of the risks

To collect relevant informations

To establish and to check the interactions between the variables

To select different scénarii: to call upon a probabilistic model methods of Monte Carlo.

When quantification is not possible to use qualitative approaches:

treated on a hierarchical basis implementing techniques of weighting and scoring




Preparation of the project (VI) 3° stage: the risks sharing 3 main categories of assignment

transfer to the private partner conservation by the public body share the risks out between the parties




Principal criteria of decision-making aid

nature and characteristics of the risks

attitude of the financial and reinsurance markets

expectations of the authorities

users’ demand

figuring of the costs/advantages

research of the optimum




Particular mention for financial risks

Important distinction :

Payment by the concession-granting authority : PFI ;

Payment by users coupled to financial participation of the concession-granting authority : concession ;




PFI-Type projects :

New trend : payment of the operator by public bodies varies, mainly linked to performance and availability rather from traffic level. Dual character of payment :

Payment covering senior loan(s) financing investment ;

Payment remunerating :

The risk-laden component of financing -capital and quasi- capital, junior loan ;

Operating / maintenance costs.

Lenders and investors support risks associated with construction and operation : maintenance attenuated by performance guarantees.




Concession-type projects

Financing is based on the users’ capacity to pay for the service they directly benefit from : time savings, fuel savings, reduced maintenance costs, etc…

This source of income is often insufficient to finance the project. The supplement is brought by the concession-granting authority.

The lender(s) takes risks relating to :

Future payment from the concession-granting authority ;

The results of the traffic / tariff element of the toll. This risk is mitigated by :

A tariff set at the optimum level acceptable by the users (cf. Bitterness Theory)

Reasonable traffic forecasts.

In return, the concession-granting authority is part of a profit-sharing mechanism.




Economic and financial equilibrium Postulate: reintroduction in the financing of the surpluses generated by the realization of the project captured by

Users

State and/or Local Communities Allows to ensure a sustainable financing over the time.

capture of a part of the surplus profiting to users trough the tariff

assignment of a part of the surplus profiting to the State or the Local Communities thank to socio-economic benefits



TariffingTariffing

I – Previous workI – Previous work

Secure the capacity and the willingness of the user to pay the tariffSecure the capacity and the willingness of the user to pay the tariff

II – Define the socially acceptable tariffII – Define the socially acceptable tariff

Empirical for the developing countriesEmpirical for the developing countries The theory of bitterness once statistics are exploitableThe theory of bitterness once statistics are exploitable Rely on local enterprisesRely on local enterprises An evolutionary vision of tariffsAn evolutionary vision of tariffs



Tariffing (VII)Tariffing (VII)

VII – The tariff as an instrument of regulationVII – The tariff as an instrument of regulation

Steer, encourage, restrain the demand and the modes of utilisationSteer, encourage, restrain the demand and the modes of utilisation The tariff as an instrument of adjustment: sub urban water supply inThe tariff as an instrument of adjustment: sub urban water supply in Morocco Morocco





Socio-economic benefit (I) This is the measurement of the utility coming from the implementation of an equipment and/or the delivery of a public utility. Economic calculation allows the determination of it The principal obstacle the unsuitability of the public accounts





Principal sources of the socio-economic benefit

saving of time brought to the user. It based the tolling

acceleration of the delivery of the infrastructures and/or the public utility

additional economic growth resulting from the project

additional effectiveness/productivity

additional budgetary savings

nevertheless to take into account negative aspects of the project disutility - (pollution, social costs, etc)

The socio-economic benefit are mainly collected through the taxation, direct and indirect, national or local




Socio-economic benefit (II)

Add-back of a part of the socio-economic benefit in the financing of the project

the most rustic form: the subsidy A new approach of the role of the State: an economic actor producing commercial public goods This new approach opens the door with:

a new public financial engineering transposing the methods of the private sector in the choice and the financing of the investments

a significant development of the Public-Private Partnership




Require a deep reform of the public GAAP and the revision of the traditional budgetary principles of:

budgetary annuity

non assignment of the receipts to the expenditure

methods of determination of the deficits and national debt




First lessons of the experiment of the Public-Private Partnership The PPP has a very important field of application:

infrastructures of transport (road, rail, ports, airports, channels, etc) ;

Schools and Universities building ;

Prisons, Police and fire stations, etc.




SECTOR IN RUSSIASECTOR IN RUSSIARequire a major change of the governmental culture of the States

To ask third party to do rather to do by itself. Becomes a regulator and not an actor.

To think in terms of delivered services and not in terms of production of physical equipment

Research of the long-term optimum within a global framework (design, construction, operation and maintenance)

Another approach of the national indebtedness: fundamental difference between:

financial commitments associated the investment in productive infrastructures

debts subscribed for the operation running of the State or the social welfare




A new division of the rolesA new division of the roles

Public action Private action

Census of the needs Research of the total effectiveness in the long run (design, construction, etc.)

Definitions of the functionalities Allows to avoid on over or under investments

Determination of the performances to be reached

Obligation of quality and effectiveness of the delivered service





Regulation of the sector, choices of the tariff policies

Development of a culture of project to optimize the tripod cost/quality/effectiveness

Evaluation of the utilities and the negative externalities

Permanent partnership dialog with the Public Bodies

Control of public financial engineering and budgetary regulation

Seek optimum division of risks

Set up of the framework legislative, lawful, tax, etc

Mechanism of sharing profits with the public person





Project control and final mastering of the project

Cross fertilization coming from foreign experiences

Contribution of the users to the financing trough the toll fare justified by direct benefits they withdrawn from the project

Incentive to perform

Justification of the rationality of the decisions with respect to the users, taxpayers




SECTOR IN RUSSIASECTOR IN RUSSIAConditions of success

Cultural changes and adoption of a new institutional framework adapted to

the Public-Private PartnershipNeed for a careful preparation of the project right from the start

creation of steering committees with participation of the whole of the parties concerned, while taking care of competition fairness

together engineering departments, operational agents and

financial staff, etc. staff representatives representatives of the users

validation of the principle of the project and the procedure of Public-

Private Partnership





adoption of a policy of communication allowing to decrease

concerns

To use well fitted procurement methods for complex projects: the competitive dialog

To avoid entering into too complicated calculations: the hyper rationality does not increase the chances of success

Not to retain allowance of the risks based on purely mechanical criteria

To approach the procedure without ideological a priori





Cardinal importance of the preliminary training of all categories of public actors concerned

A new approach of the role of the State: a producing economic actor of commercial public goods

Perennial add-back of the economic social benefit in the financing of the project

establishing public-private partnerships in transport sector in russia

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