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Establishing a PPP Framework

21.7.6 The Roles and Benefits of PPP Units

Many governments with successful PPP programs have created a dedicated unit (either as a separate entity, or within an existing department) tasked with implementing, facilitating, or advising on PPPs. (see box 2.15 for example) These are referred to as PPP units. Their roles often include the following.[106]

  • Control and oversight of the PPP process: As described in section 1.6, this includes ensuring that the right steps are taken in developing a PPP, so that the required analysis shows the project is consistent with appraisal criteria, and that all required approvals have been obtained. The PPP unit may also act as an approving body, as is the case in a number of European countries. For example, Croatia’s PPP unit approves the eligibility of projects and any contract renegotiations. France’s PPP unit approves the eligibility of projects and any final contracts;[107]
  • Development of the PPP framework: Management of evolution (but not creation) of the PPP framework, including developing and keeping updated the process guidelines;
  • Promoting PPPs within the government: For example, reminding implementing agencies that it may be desirable to do large new projects as PPPs;
  • Advising and supporting agencies to implement PPPs: Offering experience and specialist skills acquired because of their focus on PPPs and involvement in numerous projects, as described in section 4.6.2;
  • Acting as a knowledge centre: Collating and disseminating knowledge and information about PPPs, thus ensuring that knowledge is shared across procuring authorities and made available to the public;
  • Providing communication channels to investors: Helping bidders and financiers, who may otherwise be unsure who to ask, with information about the program and upcoming opportunities; and
  • Monitoring and support after financial close: Assisting the procuring authority with contract management, and ensuring critical information is communicated to relevant central agencies that need to be aware of changes in the PPP’s risk status in order to monitor the project’s contingent liabilities.

 

BOX 2.16: The Evolution of the UK’s PPP and Infrastructure Units

The United Kingdom’s Treasury Taskforce (TTF) was established in 1997 within HM Treasury as a central coordination unit for the rollout of the Private Finance Initiative (PFI). It was designed to assist public sector bodies to improve the delivery of PPPs. It standardized the procurement process and trained staff, particularly those in private finance units of government departments, in the PFI process. It contained independent projects and policy sections. The projects section undertook the day-to-day implementation of the PFI and any variations.

In 2000, the TTF evolved into Partnerships UK (PUK), a 49 percent public and 51 percent private entity charged with the further development and delivery of the PFI program. This has led to around 750 signed contracts in various sectors (including health, education, housing, prisons, transport, and waste management), for an accumulated value of more than £68 billion (US4 10 billion equivalent).

In 2009, Her Majesty’s Treasury established Infrastructure UK (IUK) by bringing together the program and project delivery capability of PUK, the lending capability of the Treasury Infrastructure Funding Unit (TIFU), and the policy development capability of the Treasury PPP policy team. IUK advises the UK government on the long-term infrastructure needs of the UK, provides commercial expertise to support major projects and programs, and identifies and addresses cross-cutting issues. IUK is the government’s primary strategic resource for the long-term planning, prioritization, financing, and delivery of infrastructure in the UK, including sectors such as social infrastructure, energy and waste, water, telecommunications, and transport. IUK is not just a PPP unit; it is the UK’s infrastructure unit.

Source: HM Treasury (2013). Public Private Partnerships. Available at: http://webarchive.nationalarchives.gov.uk/20130107105354/http://www.hm-treasury.gov.uk/infrastructure_public_private_partnerships.htm

The design of a PPP unit should reflect its functions.[108] For instance, units that focus on regulating and controlling the PPP process should generally be located in finance ministries or planning agencies. If a PPP unit is undertaking multiple functions, it needs to be designed to avoid potential conflicts of interest. If a unit is guiding, advising, and approving PPPs, then it needs to ensure there are internal firewalls, that it involves other entities involved in approvals, or that it brings in additional scrutiny by audit or other oversight agencies.[109]

Typical choices in the creation of a PPP unit will include the following.

  • Unit location: Does it sit within an existing department or is it independent of other government agencies? PPP units may be allocated in a line ministry or department, a central agency such as the ministry of finance (or within a national financial agency or national development bank), the ministry of planning, or the prime minister’s office. More than one PPP unit may coexist, each with different roles and scope of responsibilities (see table 2.7);
  • Functions to be undertaken: As outlined at the start of this section, does it undertake regulation, control and oversight, promotion, advice, communication channels, and/or monitoring and support roles?;
  • Resourcing: How will it attract and retain the right talent to a public sector organization? Specifically, how can it attract legal and financial skills when equivalent positions in the private sector can be significantly better paid? Staffing PPP units may in turn have an impact on how they are structured and governed; and
  • Funding mechanism: How can it promote the right incentives and behaviours? How is the PPP unit funded to enable it to meet its operating costs? Does it receive a budget allocation, or does it charge procuring authorities for its services? This choice affects the incentives and behaviours of both the procuring authorities (if they have to pay, they might be less willing to involve the PPP unit) and the PPP unit (if it relies on procuring authorities for its revenue, it may be more proactive in trying to get involved, but may have a conflict of interest in exercising its control and oversight functions).

The role of the PPP unit will need to change as the PPP program matures and government agencies build up expertise and start developing their own PPP units. At the outset of a program the PPP unit will likely carry out multiple roles, but over time it may move towards the regulatory and supervision role.

The location of PPP units, and their mix of functions performed is a matter of design, history, and local context, as illustrated in table 2.8.

TABLE 2.8: PPP unit Examples

Parent Entity

Examples and Functions

Finance Ministry or Treasury

· In the UK, the Treasury Taskforce (100 percent public PPP policy unit), Partnerships UK (a 51 percent private and 49 percent public PPP delivery unit), and Infrastructure UK (a 100 percent public infrastructure policy, planning and delivery unit) have been essential to the success of the UK's PPP program. They were connected to HM Treasury. For more information see box 2.15.

· The PPP units Victoria and New South Wales (Australia) have played an important role in promoting PPPs as an implementation method. These units were attached to the state departments of treasury and finance.

· In South Africa, the PPP unit moved from the Treasury Budget Office to the Treasury's Government Technical Advisory Centre in 2014. This represented a shift in focus from controlling the process of developing PPP projects and contingent government liabilities resulting from fiscally risky PPPs, to advisory and project management support, particularly around the funding and management of feasibility studies for PPPs.[110] Responsibility for regulating the process of developing PPPs and guarding against contingent liabilities remained behind in the Budget Office.[111]

· In 2009, New Zealand created a unit in the Treasury, naming it the National Infrastructure Unit in recognition of its function of promoting more effective investment in infrastructure. Its focus is therefore on promoting the best options for infrastructure investment, rather than just PPPs.

Planning Agency

· Colombia has a PPP unit within the National Planning Department[112]. This unit is responsible for developing and implementing PPP related policies and co-ordinating the PPP procurement process and project transactions, such as managing transaction advisors.[113]

Investment Promotion Agency

· In Uruguay under Law 18786 (2011), the CND – a state owned investment promotion agency, acts as a PPP unit in many respects. It helps structure projects, gives advice and produces guidance materials for implementing agencies. The procuring authority and CND may sometimes agree to have the CND implement the PPP project. A separate PPP unit in the Ministry of Finance approves financial and budgetary aspects of projects, and monitors implementation of the PPP. The PPP unit is also responsible for approving any contract adjustments during implementation.[114]

· Similarly in Peru, Legislative Decree No. 1012 (2008) enables PROINVERSION (the investment promotion agency) to select the type of PPP, design it, and draft the contract. Ministry of Finance approval is needed if the project requires subsidies.[115]

· In the State of São Paulo, Brazil, Centro do Professorado Paulista (CPP) was established in 2004 as an investment promotion agency that helps to develop and structure PPPs. CPP also manages a trust fund that provides guarantees to PPP projects.[116]

Development Bank

· In Jamaica, the National Investment Bank of Jamaica, and its successor the Development Bank of Jamaica, have long functioned as the government’s privatization and PPP agency. In recognition of the fiscal risk Jamaica took on in many of its previous PPPs, the government created a new PPP framework in 2011 with a stronger role for the Ministry of Finance, but it has retained the Development Bank as lead PPP agency.[117]

· Puerto Rico’s PPP law (2009) created an effective PPP unit within its Development Bank.[118]

· In Mexico, FONADIN, part of the national development bank Banobras, functions like a PPP unit for some PPPs. FONADIN’s Rules of Operation (2011) assign responsibilities to various secretariats (finance, communications and transport, tourism)[119] and to different units within FONADIN (a technical committee, business units, an evaluation sub-committee, and monitoring unit) for developing and approving PPPs.[120]

Prime Minister’s Office

· In Bangladesh, the PPP office was established as a separate, autonomous office under the Prime Minister's Office. Its purpose is to support sector line ministries to facilitate identification, development, and tendering of PPP projects to international standards. This office is in addition to the PPP unit that sits within the Ministry of Finance to control the fiscal responsibility and sustainability in PPP projects.[121]

· Malaysia’s PPP unit was established under the Prime Minister's Department in April 2009. This unit is the central agency tasked with the responsibility to plan, evaluate, co-ordinate, negotiate, and monitor the implementation of PPP projects. This unit also manages and evaluates projects that require funding from the Facilitation Fund, a fund specially established to stimulate private sector investment and bridge the viability gap of projects that have strategic impact.[122]

PPP units may bring risks and pitfalls to the project and program management if they are not properly designed. Firstly, if there is a lack of clarity in the unit’s role, it may end up as another entity worsening, not improving, coordination. Similarly, the unit may become a bottleneck for approvals if it has insufficient resources to undertake appraisals. Finally, when various entities want to control the PPP unit, it may lead to conflict in its design, leading in turn to delays in the creation of the PPP framework and delivery of the PPP program.

Also, PPP units cannot perform miracles. PPP units will probably not help much where high-level political commitment to a quality PPP program is lacking. PPP units also need to be integrated into the mainstream project approval and budgeting process in the government if they are to be successful. For example, the fact that the BOT Centre in the Philippines did not have strong institutional links to either the Department of Finance or the Planning Agency posed limitations in project preparation for many years.

Although PPP units are not always required, and will not always succeed in creating successful PPP programs[123], well structured PPP units have worked well in many countries, as the above examples show.

 

 

[106] As described in Public Private Infrastructure Advisory Facility (2007) Public Private Partnership Units: Lessons for their Design and Use in Infrastructure. World Bank.

[107] The European PPP Expertise Centre (EPEC) (2014) Establishing and Reforming PPP Units: Analysis of EPEC Member PPP Units and Lessons Learnt.

[108] Public Private Infrastructure Advisory Facility (2007) Public Private Partnership Units: Lessons for their Design and Use in Infrastructure. World Bank.

[109]Dutz, Harris, Dhingra & Shugart (2006) Public Private Partnership Units: What Are They, and What Do They Do? World Bank Public Policy for the Private Sector.

[110] Market players interpreted this move as a response to the fact that the heavy regulation of PPP development had virtually shut down the pipeline of projects. PPPs at the municipal level stopped completely. (Personal communication with James Leigland, Technical Assistance Facility (TAF), Private Infrastructure Development Group (PIDG), South Africa).

[111] South Africa National Treasury PPP Unit (2007) Municipal Service Delivery and PPP Guidelines.

[112] Colombia also has two other PPP Units. One is located in the Ministry of Finance and is responsible for the fiscal aspects of PPP projects. The other unit is housed in the Ministry of Transport, which is responsible for PPP projects related to highways and roads.

[113] Congress of Colombia (2011) Law 1508 ("PPP Law").

[114] Parliament of Uruguay (2011) Law 18786 ("PPP Law"),  Articles 9-13, 23, 38.

[115]President of Peru (2008) Legislative Decree No. 1012, Article 9.

[116]Legislative Assembly of the State of Sao Paulo, Brazil (2004) Law 11688 ("PPP Law"). Article 12-18.

[117] Government of Jamaica (2011) Government of Jamaica Policy Framework and Procedures Manual for Privatization of Government Assets – Draft.

[118] Legislative Assembly of the State of Sao Paulo, Brazil (2004) Law 11688 ("PPP Law") pp.1.

[119]BANOBRAS (2000) FONADIN Reglas de Operacion (Rules of Operations) Title One, Chapter IV, Rule 5.13, Title Two, Chapter II, Rule 8.6, Title Three, Chapter IV Rule 18).

[120]  BANOBRAS (2000) FONADIN Reglas de Operacion (Rules of Operations) Title One, Chapter IV, Rule 5.13, Title Two, Chapter II, Rule 8.6, Title Seven, Chapters I-VI, Rules 37-56.

[121] Public Private Partnership Office Bangladesh: Prime Minister’s Office (2015). Welcome to PPP Bangladesh. Available at http://www.pppo.gov.bd/

[122] Official Portal of Public Private Partnership Unit (2015). Message From Director General. Available at http://www.ukas.gov.my/en/perutusan-ketua-pengarah

[123] Public Private Infrastructure Advisory Facility (2007) Public-Private Partnership Units: Lessons for their Design and Use in Infrastructure. World Bank.

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