PPP-AN OVERVIEW

Public-Private Partnerships (P3 or PPP) are characterized by a public entity

transferring or sharing ownership, financing responsibility, or operations of
1 a public facility or asset with a private company. The private company
commits to a combination of constructing, financing, or operating
responsibilities in relation to the public facility of asset, eliminating or
reducing the responsibility of the public sector.

In exchange for incurring the responsibility of construction / financing

2 / operating the asset, the private sector partner collects fees or other
revenues that would otherwise go to the public treasury.

In theory, the private sector benefits by earning a profit on the capital

3 improvement and/or operation of the asset, while the public sector benefits
from avoidance of upfront capital and/or operational costs, as well as
efficiencies in construction and service delivery

The P3 arrangement is typically governed through a formal partnership

4 agreement that stipulates how the costs, risks and rewards of the transaction
are shared, what each party must guarantee, and what remedies can be used in
the event of nonperformance or default
 PPP-PRINCIPLE STRUCTURE

Fees
Government End Users

Risk Transfer
Asset Transfer Service Delivery /
Operating Development Product
Duties Transfer
Collaborative Arrangement
(contractual or institutional)
consolidating
Public & Private Interests
Capital Investment
Knowledge Transfer
Operating responsibility

Private Company

Fee
s
 PPP-THREE ELEMENTS

Public Private
Partnership

• Provider of public • Finance

• Cooperation
services • Design
• Ownership of assets • Risk Sharing • Build
• Pays for services • Operate
• Facilitator • Skills, efficiencies

So, any transaction structure involving both private and public parties
working together towards a common goal may be referred to as a P3
 PPP-VARIOUS LEVELS OF CHALLENGES
P3 can mean a formal joint-venture structured between the Public and Private sectors (institutional
arrangement), or simply having the private sector engage (on reciprocal contract) to maximize
utilization of public assets

Complex

Joint Ventures, Build-Operate-Transfer arrangements

Development Right Sharing, Ground Lease Participation

Concessions

Outsourcing operations, Operating and Maintenance contracts

Simple
 PPP P3 always face increased scrutiny for the
COMMON following reasons:
CHALLENGE
S
P3 are not
The private P3 are long-
• Source of “free”
sector has a term relatively
money higher cost of inflexible
• Way of financing finance; structures;
unaffordable
projects
• Means of The procurement P3 imply a loss of
implementing non- can be lengthy management
bankable projects and costly; control by the
public sector
 PPP-KEY SUCCESS FACTORS

• Large-scale investment

• Private partner has the expertise to design and

implement complex projects

• Public sector capable of defining its service needs

• Good understanding of long-term lifetime cost of assets

• Risk allocation among public and private sectors

• Technological aspects of the project reasonably stable

 PPP-ISSUES IN RAISING COMMERCIAL FINANCING

 Key requirements for bankability vary by market and

industry
Bankability  Not all capital costs involved in a project can be financed by
private sector unless supplemental commercial revenue/ upside is
involved

 Projects tend to be over-designed and over-capacity, which

represents a serious threat to ultimate viability
Affordability  Demand may not be sufficient to support efficient capacity and
design
 Projects are subject to political/social pressures and
unpredictable change of tariffs (revenue base)

 Government Guarantee

Government support Viability Gap Funding
 Availability Payments or Demand Guarantee (minimum
revenue guarantee)

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 SAMPLED PPP CASE STUDIES
1. New Cairo Wastewater Plant
2. Berhampur Solid Waste Management (not operative)
 New Cairo wastewater plant (Egypt)
• Project description: The project consisted of the design, finance,
construction, operation, and maintenance of a new wastewater
treatment plant with a capacity of 250,000m3 per day in New Cairo
City, a satellite town of greater Cairo. The city is being promoted as
a new destination to alleviate overcrowding in the center of Cairo.
New Cairo’s population of 550,000 is expected to
increase to approximately three million by 2029.
• Private sector partner(s): Consortium of Egyptian firm Orascom
Construction Industries (OCI) and Spanish firm Aqualia.
• Public sector contracting party: New Urban Communities Authority
• Delivery structure: DBFMOT. Orasqualia, as the consortium is
known, is responsible for the transfer of the ownership
back to government at the concession expiry date (20
years term).
• Investment size: The deal mobilized US$150 to US$200 million in
private investment.
• Funding structure: Orasqualia financed the project fully; they are investors
themselves with 30 percent equity and 70 percent debt. They also have the
building and maintenance contract with its member companies. A total of four
banks are lenders to the project. The government is to pay a sewage treatment
charge that includes a fixed portion to recover the investor’s fixed costs
(including debt service and return on equity) and a variable portion based on
the actual volume of treated sewage, to cover the investor’s
operating costs. In addition, electricity costs will be paid by the
New Urban Communities Authority (the off-taker) as a pass-
through item. The credit of the New Urban Communities Authority is
underpinned by the Ministry of Finance.

• IFIs involvement: The transaction structuring was supported by IFC. The project was also
implemented with the financial support of DevCo, a multi-donor facility affiliated with
the Private Infrastructure Development Group (PIDG).
• Status: The consortium was awarded the contract in 2009. The new plant, completed in
March 2012, is now operational.
• Comments: This was the first successful transaction under the government’s PPP
program and a model for
 Berhampur Solid Waste Management (India) – Transaction Fell Through
• Project description: With little to no primary waste collection in about half of
Berhampur city, many citizens, mainly in low-income areas, are exposed to
health risks resulting from pollution, water contamination, and untreated
solid waste. Seeking an affordable solution for delivering
improved solid waste management services to its citizens, Indian
authorities turned to the World Bank Group to help structure a PPP
transaction and attract a private operator to improve the efficiency
and management of the system.
• Private sector partner(s): UPL Environmental Engineers Limited, one of
India’s
leading environmental engineering companies.
• Public sector contracting party: The Department of Housing and Urban
Development (H&UDD) of the Government of the Indian state of Odisha
and the Berhampur Municipal Corporation (BMC).
• Delivery structure: BOT. 20-year concession in which UPL will be responsible
for collection and transportation of waste, development of a
segregation line and composting facility, a greenfield sanitary
landfill and the decommissioning of the existing dumpsite.
• Investment size: The project will attract investments of $10.3 million.
• Funding structure: To ensure the financial viability of the project, a capital grant and
concessional loan were introduced during construction. The grant and concessional loan
were provided by the Odisha Urban Infrastructure Development Fund (OUIDF), a
specialized fund financed by the German State-owned KfW. The tipping fee was fixed at
an affordable level for the municipality. The concessional loan was fixed at 25 percent
of the initial project cost. The project was bid out on the basis of the amount of grant
required by the private sector to make the project viable with a cap at 25 percent of the
initial project costs. To minimize the payment risk from the municipality, the team
introduced an escrow account mechanism with a three-month reserve and an automatic
release of funds upon receipt of the invoices on a monthly basis. The municipality’s
payment obligations were backed by a comfort letter from H&UDD.
• IFIs involvement: The World Bank Group (IFC) served as lead transaction advisor to
BMC for the project.
• Status: The concession agreement was signed in 2013 and the project was scheduled to be
operational in
2015. Unfortunately, UPL withdrew from the project, apparently due to public
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