Basics of Public-Private Partnerships
(PPP)
Organised by Civil Service College, Dhaka
Nazrul Islam
Executive Director and CEO
Infrastructure Investment Facilitation Center
11 February 2012
1
THE OVERVIEW
 PART A: PPP Concepts
• Introduction
• Type of PPP’s
• PPP History in Bangladesh
 PART B: Commercial Aspects & PPP
Models
 PART C: Transactions
2
PART A:
PPP Concepts
3
What is Public-Private Partnership
(PPP)
PPP can be defined as a
“long term business partnership
between the public and private
sector through a contract or license,
for providing infrastructure
services”
Examples: Power stations (IPPs), toll roads and
elevated expressways, container terminals
Infrastructure and Non-Infrastructure
Compared

TYPE
NonInfrastructure
Public
Sector

Private
Sector

PPP
by shares
Non-Infrastructure (competitive)
 Investors free to take up project
anytime
 No Bidding necessary
 Infrastructure (Govt. monopoly)
 Investors not free to take up project
Infrastruc-  Majority Projects Solicited
ture
 Bidding necessary
 Government gives right to do

business
x
by contract
5
By default, all infrastructure
belongs to the Public Sector
PPP as a Contractual Framework





Medium to long term relationship between the public and
private Sector
Enable Government to work with private sectors to provide
infrastructure
Involves sharing and transferring of risks and rewards
between public and private Sector
Attempts to utilise multi-sectoral and multi-disciplinary
expertise to structure, finance and deliver desired policy
outcomes
Clear governance structures established to manage the
partnerships
More critically…

Achieving improved value by
• utilising the private sector’s innovative capabilities
and skills to deliver economy, efficiency and
effectiveness

Leveraging private sector capital
•

to obtain efficiency gains in service delivery and asset
creation
Life-cycle responsibility, value for money, output
specification, risk transfer fundamentals
Types of PPP Contracts
 Service Contracts
 Management Contracts
 Lease Arrangements
 Concessions
•
•
•
•
•
•
•
•
BOT (Build-Operate-Transfer)
BOO (Build-Own-Operate)
BOOT (Build-Own-Operate-Transfer))
BT (Build-Transfer)
BTO (Build-Transfer-Operate)
ROT (Refurbish-Operate-Transfer)
ROM (Refurbish-Operate-Maintain)
SOT (Supply-Operate-Transfer)
8
Forms of PPP
100 % non-public
ownership
Enabler/ Regulator
Divestitures
BOO
Concessions
BOT
Government’s
Role
Leases
Management
contracts
100 % Public
ownership
Service
contracts
Provider
Duration (yrs)
Increasing level of delegation, risk & irreversibility
5
10
15
20
9
25
30
PPP Development Phases
in Bangladesh
First Generation
PPPs: Started with
Independent Power
Producers (IPPs)
after Government
approved the 1996
Private Sector
Power Generation
Policy of
Bangladesh
Second Generation
PPPs: PPP in multiple
sectors carried out after
the Government
approved the
Bangladesh Private
Sector Infrastructure
Guidelines (PSIG) in
2004
Third Generation
PPPs: The
Government
approved the PPP
Budget in 2009. The
third generation PPP
policy & starategy
with guidelines have
recently been
approved by
Government in Aug.
2010
10
PART B:
Commercial
Aspects and PPP
Models
11
PPP Models
PPP projects can be broadly categorized
as follows
 Model A: Users Pay Fully
 Model B: Viability Gap Funding (VGF)
 Model C: Direct Payments
Model A: Users Pay Fully





Project Viability: The project needs to be viable
Demand Risk: Investor bears the risk
Tariff: Tariff is fixed by the contract
Bidding Parameter: Highest fixed or variable royalty
Implications to Budget: No need for allocating budget
Model B: Viability Gap Funding





Project Viability: The project need not be fully viable
Demand Risk: Investor bears the risk
Tariff: Tariff is fixed by the contract
Bidding Parameter: Lowest VGF payment
Implications to Budget: Budget needs to be allocated
Model C: Direct Payments





Project Viability: Not relevant
Demand Risk: Not assumed by the investor
Tariff: Bidding parameter determines the tariff
Bidding Parameter: Lowest annuity or levelized cost
Implications to Budget: Budget needs to be allocated
Overview of Contractual
Framework
Lenders/
Institutional
Investors
Equity
Investors
Debt Service (Principal + Interest)
Borrower /
Concessionaire
Concession
Agreement
Executing
Agency
Annuity Payments
Performance
Guarantee
Government
of
Bangladesh
Toll Payments
Project
Construction,
Operations and
Maintenance
Revenues/Cash Flows
Revenue
Toll Rate/
Fare Collection
16
PART C:
PPP Transactions
17
Procurement of PPP Investors


Procurement Types
• Solicited Projects
• Unsolicited Projects
Both need engagement of Transaction Advisers
 Conduct commercial feasibility study to satisfy the



requirements of the executing agency, approving
authorities, private sponsors and potential lenders
Prepare the contract documents (PPA, CA etc)
Prepare necessary bidding documents and assist in
bid evaluations
Assist the implementing agency in contract
negotiations and contract finalisation.
18
PPP Contractual Framework
Power
Authority
Fuel
Supplier
Fuel Supply
Agreement
Constructio
n Contractor
Power Purchase
Agreement
Government
Implementation
Agreement
EPC Contract
Loan Agreement
O&M Agreement
O&M
Operator
Insurance
Companies
Insurance
Agreement
Shareholders
Agreement
Shareholders
19
Sub-ord Loan
Agreement
Senior
Lenders
Sub-Debt
Role of the Transaction Advisor
Conducting Pre-Feasibility/Feasibility
Study Focusing on Commercial Aspects
Developing Framework for Bid Process
and Bid Criterion
Preparing of Bid Document
Managing the Bidding Process
Assisting in Executing the PPP
Concession Agreement with Investor
20