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Iraq Finance 2012Public Private Partnerships
Abraham AkkawiSeptember 18, 2012
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Content
► PPP Defined► PPP Advantages► PPP Types► Public Sectors Readiness► Concluding thoughts
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PPP Defined
PPPs are “legal agreements” between government and private sector entities for the purpose of providing public infrastructure, community
facilities, and related services.Typically the partners share risk, reward and responsibility – for a
shared investment
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PPP Advantages
► Cost savings► Speed & Timing► Risk Transfer► Improved Service Levels► Ability to Bundle
• design, build, finance, operate► Life Cycle Investment
• upfront investment minimizing ongoing cost• ongoing requirement to continue investing in the
facility► Handback and reversion► Real Estate & Development Opportunities
• land for development or redevelopment
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PPP Advantages (cont.)
► Access to Financing (on or off balance sheet)/Leveraging
► Innovation and specialized skills ► Revenue risk sharing► Job Creation► Construction Industry faster growth
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PPP Types
PPP Types Avg. Terms (yrs)
Examples
Operating & Maintenance Contract (Outsourcing)
5-10 Parking,Highway Maintenance
Build-Operate-Transfer (BOT)
20-40 Airports
Design-Build-Finance-Operate-Transfer (DBFOT)
20-25 Recreational Facilities,Hospitals, Metros
Build, Own & Operate (BOO)
Over 20 years
Housing, Power plants
Concessions 25+ Toll Highways
Public
Private
Risk Transfer
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Why are PPPs Taking Front Stage in MENA ?
► A need for rapid delivery of large scale and complex projects to respond to urgent requirements.
► Significant capital needs remain in infrastructure, education, housing and health care, for development and for competitiveness –constraints on public budgets.
► Availability of private capital also constrained: investors generally more risk-aware than previously and less willing to take risks in emerging markets.
► Efficient gains from private sector involvement are believed to be considerable.
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Empirical Evidence
Improved Project Delivery
Study Non PPP Procurement
PPPProcurement
Cost Overrun UK 73% 22%
Australia 35.3% 22%
Time Overrun UK 70% 24%
Australia* 25.6% 13.2%
*Value-weighted Time Overrun Source :UK Study :NAO Report of 2003 –UK’s national Audit Office Report on PPPsAustralia study ; Allen Consulting Group (University of Melbourne)- 2000-2007
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But Beware of Challenges of PPPs
► Increased complexity► High transaction costs:
► Large tendering and contracting costs •For some projects ,total tendering costs can equal around
3%of total project costs as opposed to around 1%for conventional procurement.
► Significant legal costs in contract negotiation ► Skill deficit for administration ► Appropriate allocation of risks ► Public perception that “critical "public assets are
controlled by private sector (privatization)► Good advice to structure sustainable PPPs
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Public Sector Readiness
► Government Needs and Pressures► Organizational Issues & Governance► Change Management & Responsiveness► Stakeholders► Project Advocate► Legal and risk Parameters► Service Provider Community► Viability and Deliverability of the Project
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Conclusion – PPPs as Innovations Instruments
From the government perspective:
• PPP creates a space outside government machinery for innovation
• PPP helps inject broader sets of skills, talent, and work culture
• PPP assists in binging new financial resources and business capital (social networks)
• PPP supports in creating new industry clusters
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Conclusion – PPPs as Innovations Instruments
From the private sector perspective:
• PPP reduces the risk of investment in new innovations for existing services and solutions
• PPP may also serve as drivers of innovation for the development of new services and solutions that do not exist yet.
• PPP allows private companies engage in large scale projects
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Conclusion – How can Iraq take advantage of PPPs
► Need significant government backing (payment guarantees and maybe funding guarantees).
► Organize and incentivize local lending institutions to participate
► Focus on real needs and not wish list of projects► Power and Utilities sector seems to be the most
mature to involve private sector participation given that governments act as offtakers
► Transportation sector is very promising, but watch rosy business case that have derailed many PPP projects
► Social Infrastructure (housing, education and health) present real needs but need to find innovative ideas, mat not be enough to provide free land to make projects viable
► Start with something small to medium► Learn from what is happening around you► Be patient
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Abraham AkkawiHead of Infrastructure and PPP Advisory – Middle East and
North [email protected]
