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Kick Starting a PPP project

Presentation by :

Mrs. Audrey Mwala

Director of Project Finance & Risk Analysis

The Public Private Partnership Commission,Malawi

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Session 3- Outline•PPP Project life Cycle:

•Egypt•Mauritius•Kenya

•Knowledge, skill, attitudes for PPP delivery•The readiness of state institutions•Reorienting the public sector•Working with the private sector•Initiation and planning of PPP programme•Importance of legal, Institutional, financial, fiducially framework for capacity building•Project Finance and financial Modeling•Risk Management

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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What it is a PPP project Life Cycle

• Logical sequence of activities to achieve project’s objectives. • All projects go through a series of stages. • Lifecycles differ across:

– countries, – sectors and – by the chosen implementation method

• A life cycle is used to: – Control progress through a project; – Provides review points– Project’s likelihood of success is validated – Decision to move to the next phase made.

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Key Life Cycle Stages

1. Project Identification

1.1 Project selection and definition

Identification Output specifications

1.2 Assessment of the PPP option

Affordability Risk allocation Bankability Value for money

2. Detailed Preparation

2.1 Getting organised

Project team Advisory team Plan and timetable

2.2 Before launching the tender

Further studies Detailed PPP design Procurement method Bid evaluation criteria Draft PPP contract

3. Procurement

3.1 Bidding process

Notice and prequalification

Invitation to tender Interaction with bidders Contract award

3.2 PPP contract and financial close

Final PPP contract Financing agreements Financial close

4. Project Implementation

4.1 Contract management

Management responsibilities

Monitoring service outputs

Changes to the PPP contract

Dispute resolution PPP contract

termination 4.2 Ex post evaluation

4.2 Ex post evaluation Institutional framework Analytical framework

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Mauritius

• PPP Act of November 2004.• Amended in June 2008 to:

– provided set up of a PPP Committee and – provided for unsolicited bids

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Key Institutions/ Parties• Contracting Authority-

– Identify, appraise, develop and monitor a projects

– Carry out feasibility studies– Submit results to the PPP Committee– Prepares RFP on the approval of the

study

• Central Procurement Board– Examine and evaluate bids– Recommend to CA to negotiate with

preferred bidder– Approve the award of the project

A PPP Unit •Set up in July 2002 •Drafted the legislation•Produced PPP guidelines Manual•Reports to the PPP Committee•Works with CAs to select PPP projects•Deals with matters referred by PPP Committee•Source of PPP information•Develop PPP awareness.

PPP Committee•Assessments projects, recommends to CA•Develop PPP best practice guidelines•Formulate PPP policy in relation

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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PPP Cycle – Govt. initiated PPPs

Feasibility Study- • To assess if a project may be implemented under PPP.• The feasibility study must demonstrate:• comparative advantage for implementation under a PPP

– Affordability, VFM, Risk transfer• Show contracting authority’s capacity to effectively:

– enforce agreement, Monitor implementation and performance • The extent to which functions can lawfully and effectively be

performed by a private party • The most appropriate form of PPP

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Procurement

Pre-selection• The CA obtains approval of CPB conduct pre-selection.• The pre-selection documents are approved by CPB.Request for Proposal• The CA submits the RFP to the CPB for approval.Evaluation and award of bids• The CPB is responsible for the evaluation of bids -but

may set up an evaluation committee.• The award of the contract is approved by the CPB.

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Procurement unsolicited Proposal

• Private party submits project concept & feasibility study cost to CA.

• CA examines project in line with sector strategies & investment programme and if its suitable for PPP.

• CA submits it to the PPP Committee within 15 days. • The PPP Committee may approve or reject the project concept. • If the CA within 5 working days requests the proponent to

submit:– details of technical, commercial, managerial and financial

capabilities;– a feasibility study– the nature of information which is proprietary.

• No price proposal at this stage.

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Unsolicited bid’s Cont1’• The PPP Committee assesses the feasibility study and evaluates the

technical proposal. – (a) If its accepted, the PPP Committee requests CA to proceed with an

Invitation to bid. – (b) If its rejected, the process ends. No compensation for feasibility study

costs.• CA prepares RFP based on information in the technical proposal. • The RFP is approved by the CPB before bids are invited.• The proponent is requested to submit only a financial proposal. • The other bidders submit both technical and financial proposals.

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Unsolicited bid’s Cont2’

• The RFP indicates that: • (a)the project has emanated from a proponent whose

technical proposal was accepted• (b)the proponent will be awarded the project if their price

is within 10 % of the price of the preferred bidder; and• (c) If the original proponent is not successful, the CA will

compensate the cost of the feasibility study which will be claimed from the successful bidder.

• The CPB evaluates the bids gives and approval of the successful bidder.

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Egypt

• PPP Law (Law 67/2010), Partnership with Private Sector for Infrastructure Projects & Public Utilities

• Regulations 2011• Policy

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Key Institutions• Line Ministry

– (CA)- identifies projects• Minister of Finance• Satellite Units in Line Ministries

(Nodal Agencies)A PPP Central Unit•Promote the national PPP initiative• Facilitate solutions to legal and institutional obstacles for PPPs•Develop PPP best practices, models•Validate and develop PPP proposals •Shepherd pilot procurements of PPPs •Build capacity in the Public sector•Assist in selection of advisors, Investors

PPP Supreme Committee•Approve projects•Appoints advisors •Prepare Contract Award Requirements

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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The Cycle

– Line Ministry Submits Project Proposal to

– PPP Central Unit for Screening/ modification

– PPP Central Unit submits to

– PPP Ministerial Committee for Approval

Project Pre

paration

Approval by Supre

me Com

mittee

Tendering

Implementa

tion& Post Contra

ct Monitoring

Project initiation

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Competitive Dialogue

– with the qualified bidders

– with each bidder separately

– to obtain explanations for the contents of the technical and financial elements

– basis of equality amongst the qualified Investors

Challenge of disqualification•Disqualified Investors can object to the Prequalification Committee’s decision.•An objection shall besubmitted to the PPP Central Unit to study and issue its binding decision.

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Approval of draft contracts

– Line Ministry has the right to :• approve third part

contracts to be entered by the Project company for the delivery of the project works & services

• Object such appointments

Challenge of disqualification•Disqualified Investors can object to the Prequalification Committee’s decision.•An objection shall besubmitted to the PPP Central Unit to study and issue its binding decision.

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Kenya“A center of

PPP Expertise”

• PPP Policy November 2011• PPP Act 2012• A Project Facilitation Fund to provide an avenue for

government support to PPP projects.

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Project Implementation Structures

• PPP Nodes– responsible for the development

and management of PPP projects; • The PPP Unit

– domiciled at the State Department responsible for Finance,

– a national centre for PPP expertise; – develop and distribute PPP

Operating Guidelines and Manuals

• PPP Committee -responsible for developing and implementing PPP policy initiatives;

• Cabinet-Final approval but delegate to PPP Committee

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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The Cycle• Project Identification, Selection and Prioritization

technical profile, operations, service delivery targets, and future income and costs (Scooping)

• Project Preparation and Appraisal: a full investment appraisal

• Project Tendering• Project Negotiation• Project Monitoring and evaluation- The CA to establish

clear procedures for monitoring. The PPP Unit and the PPP Committee has an oversight role

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Competitive dialogue

• A contracting authority may, hold a competitive dialogue with each bidder to define technical or financial aspects of the project

• may require a bidder to submit to the authority a technical and financial non-binding proposal for discussion

• held with each bidder on the basis of equality and transparency.

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Privately Initiated Investment Proposals

• Limited to projects that demonstrate:– genuine innovation and/or – use of proprietary technology, – economic viability and – satisfy the principles of public interest

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Privately Initiated Investment Proposals

• A contracting authority, before negotiations:– prescribes a criteria against which the outcome of

negotiations shall be evaluated; – submits the proposal to the PPP unit for consideration

and recommendation – apply for approval from the Committee to negotiate the

contract – conduct the negotiations and award the tender

• Key issues: VFM, Affordability, Risk transfer

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Knowledge skills & Altitudes for PPP project delivery

• Project Development skills- – Privately financed infrastructure project structuring skills– Go to Market with a Solid Transaction Structure

• Economic and financial appraisal skills– Evaluating traditional vs. PPP

• Communication skills: with general public• Procurement/ evaluation

– Sensitivity to the objectives, political environment, public• Technical skills- understand the technical details

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Knowledge skills & Altitudes for PPP project delivery

• Negotiations -to finalise agreements• Contract management skills

– Reporting- on matter of general policy and projects – Dispute resolution

• PPP transaction/ process management skills – Approvals, what stages, whom.

• Monitoring -Implementation and compliance• Legal & regulatory skills• Experience in dealing with the private sector • Market sounding: check with lenders to understand

their perspectives of their own market challenges

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Monitoring skill…• Monitor, transparency and accountability of PPP

unit work / State Authority / PPP partner– Audit of PPP procurement processes– Audit of PPP project performance – independent

reviews, Director of Audit• Effectiveness / performance audit

– to see if projections regarding PPP procurement against traditional procurement were realised

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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The state of readiness of state Institutions

• Establish PPP policy and Legal frame work– Need for clear mandate for state institutions– Draft PPP contract

• Strong National Political Backing – Clear Public Sector Commitment

• A realist pipeline of bankable projects – Sound understanding of the needs of a particular sector– be Bankable for Private Sector financing i.e. large, attractive size

• Establish clear ownership ( risks resistance by CAs)• Adequate capacity for the PPP unit and the Nodal agencies

– To carry out rigorous project feasibility– Risk-allocation structure must be clear

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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The state of readiness of state Institutions

• Access to local and international financing institutions• Affordability by Govt.

– Creditworthiness to make unitary payments • Project development fund ( revolving fund)• Viability Gap fund• Communication with stakeholders• Professional and effective monitoring of the private

party • Proper advisory support

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Reorienting the Public sector• Capacity Building, PPP training• Targeted seminars• Role of advisors• Political will• Political Champion• Public awareness• Low hanging fruits

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Working with the private sector• Project preparation- project scooping• Procurement

– Technical specifications– VFM– evaluation

• Negotiation • Implementation/ construction phase

– Reporting– Technical issues/ standards- Payments

- Post implementation monitoring• Contract Compliance

– Legal• Streamline process - speed

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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PPP Programme initiation and Planning

• Legal framework (Law and Policy)• PPP guidelines• Institutional framework• PPP sector nodes• Personnel Capacity;• PPP expertise, legal, finance, economic, ‘sector specialists”• PPP advisors• Institutional roles & approvals• Financial resources for:

– administration, – project development & – monitoring

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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PPP Project preparation• Project pipeline Selection

– Potential candidates for further analyze– Not too small, clear private sector interest – conceptual stage – limited information– Project Desirability (public interest)

• APPRAISAL -structured, prepared, Ranking & Concept Paper– Project Achievability/ deliverable output– Project Ability (Policy and Program): Is the it a priority– Project Viability (Financing)– investment size and useful life– Sequencing- low hanging fruits first

• APPROVAL – final approval to proceed to implementation i.e. Developing a Business Case

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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PPP unit• Many countries with a successful

PPP programme have created a dedicated PPP unit.

• Roles of PPP Units include:– Regulating the PPP process– Promoting PPPs within Govt.– Helping agencies to implement PPPs– Providing channels to investors– Help in monitoring

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Business case Development

• Assess if the project:• Meets government’s policy sector objectives• Is ‘feasible’: technically, financially, economically,

environmentally, • Is ‘deliverable’- output standards; • Is ‘affordable’ to the public authority • Is ‘bankable’ to the private investors & lenders• Management & Contract enforcement capability.

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Plan

• for:• Procurement• Implementation• Post construction • Contract expiration

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Success factors• Stable macro economic environment• Willingness of the Public Client to accept innovative solutions • A detailed contract• Professional and effective monitoring of the private contractor• Selection of appropriate project candidates • Good detailed preparation:

– Clear business cases, – clear output specifications, – A PPP project procurement team

• Proper advisory support• A well structured, transparent, competitive PPP procurement process. • A clear and consistent methodology for evaluating FVM• Proper monitoring of the entire operational phase. • A determination by all parties and stakeholders to make the PPP work• Management of contingent liabilities

05/03/2023 Presented by: Mrs Audrey Mwala, Director Project Finance and Risk Analysis, The PPPC, Malawi

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Importance of legal, institution; fiduciary, financial framework in

Capacity building• legal

– Sets Objectives to build capacity– Sets Institutions for targeted capacity

building– Gives legal mandate of the institutions– Gives investors confidence to predict the

process– transparent, and competitive procurement

• Institution – Allows for building of a team of

professionals – Capacity building to include the private

sector to understand PPP framework before they invest.

•Fiduciary• Reporting provides accountability

excellence• Approvals provide national will• Audits provide confidence and due

respect of the process•Financial

• Allows capacity building to happen• Public awareness programmes• Allows project preparation• Allows PPP payment & investment