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Public-Private Partnerships in Portugal: practical case studies
Rui S. Monteiro (Parpública SA)
• Why procuring PPPs? Can you get what you want?• Minimum requirements for PPP procurement• The “Fertagus” and the “Metro Sul do Tejo” cases• PPPs and institutional change
Why procuring PPPs?
• Effectiveness (performance-based contracts)
• Efficiency (whole-life-costing approach)
• Rapid delivery of infrastructure
• Quality of service
Can you get what you want?
• It will depend on good contract design
• And also on good tender design and
procurement
• But, more critically, on good contract
management
PPPs are an effective tool for infrastructure
delivery ─ but they may be also an engine for
budgetary efficiency and accountabilityor for
budgetary mismanagement
Minimum requirementsfor PPP procurement
• Political willingness to procure PPPs
• A PPP-focussed procurement unit, able to
steer and control government know-how and
external consultants
• A scheme for the assessment of budgetary
risks
• Public authorities aware of the need to hire and
train people in order to manage PPP contracts
efficiently
Fertagus (1)
Cross-Tagus suburban train service
Fertagus (2)
€40m investment
18 double-decker
trains
1210-passenger
each
Central government sponsored the contract
Fertagus (3)
Contract provided for no payments by
government
Effectiveness and quality:
Two years after starting operations,• the service was the best in the country• users were very satisfied• it helped decongesting the bridges (and the
city)
But demand level was 1/3 of the one expected
Fertagus (4)
Contract renegotiated in 2004:
• most guarantees scrapped (incl. traffic
guarantee)
• higher-than-expected revenue-sharing
introduced
• rail service was extended (using the same
trains)
• trains removed from contract (sale-and-lease-
back)
• term reduced (from 30+15, to 7 yrs with 9 additional yrs dependent on financial equilibrium without subsidy)
• government subsidises low-demand circulations
Fertagus (5)
Currently,
• reliable service, 143 circulations/day, 6
trains/hour
• 80 000 passengers/day use Fertagus trains
• (note: 156 000 vehicles/day cross the bridge)
• very high user appraisals, demand increasing
• government is paying subsidy but the benefits from the revenue-sharing mechanism are increasing
Fertagus (6)
Lessons:
• private provider can be reliable and efficient
• public authorities need to avoid “optimism
bias”
• a revenue-sharing contract could be better than a full transfer of demand-risk to the private partner
• you may procure medium-term concessions using leasing contracts for rolling stock
Metro Sul do Tejo (1)
• tram system for municipalities on Tagus’ left bank
• 19 km, €320m greenfield investment (€75m EU
grant)
• project sponsored by the central government, with initial high level of support by local councils
Metro Sul do Tejo (2)
• the 30-yr contract was signed by the central government in 2002 without licensing granted; the environmental authority blocked the project for a few months; then one local authority blocked works in a few critical stretches, requiring some large underground parking facilities as “compensation” for use of land
• project completion was delayed until central government accepted paying for €72m parking facilities
• the system is now operating but still not completed, so demand is low (public partner will pay compensation)
Metro Sul do Tejo (3)
Lessons:
• prior licensing (urban and environmental) is critical
• local authority support must be granted from the inception
• local community disturbances should be evaluated from the inception, including compensation costs in the expected cost of the project
• contract managers need to prevent/face problems, avoiding deadlocks that delay project completion
PPPs and institutional change
• Political willingness and careful steering of
procurement units and external consultants can
deliver draft contracts and tender procedures
• But, in order to get efficiency, public authorities
need to design new institutions for:
project assessment: budgetary risks +
sustainability
contract management
Procurement of efficient PPPs
• PPPs lock governments and private partners in
long-term relationships; so, governments need to
avoid being “trapped” in the wrong kind of
contract
• They need to balance PPP promotion (by
procurement departments) and screening for
budgetary risks (by efficiency-focussed
departments)
• And they need to design PPP contracts able to
face inevitable changes: technological,
demographic, political,...
PPP contract management
The long-term characteristics of PPP contracts
require a different kind of contract management:
• more focussed on the prevention and mitigation
of budgetary risks (instead of managing project
risks);
• able to develop cooperation between partners;
• but also able to prevent or counterbalance
harmful strategic behaviour by private partners
A new view on infrastructure
• PPPs are not just one way of procuring
infrastructure;
• PPPs create a new focus on outputs, outcomes,
and performance, inducing institutional reforms for
the benefit of users and taxpayers;
• And PPPs require also some institutional reforms
in order to select adequate projects, design
efficient PPP schemes, and manage contracts
efficiently
Thank you for your attention.
Questions?
Rui Sousa Monteiro
Parpública SARua Laura Alves, 4, 8º, 1050-138 Lisboa, Portugaltel: (351) 217 950 507, (351) 969 845 042fax: (351) 217 817 170e-mail: rui.monteiro@parpublica.pt
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