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Appraising PPP Projects

419 Planning Ahead

The next phases of the PPP process can be as demanding and challenging as the Appraisal Phase. They are multidisciplinary and profoundly interactive, and the natural interests surrounding large infrastructure projects tend to create a difficult decision environment. Thus, as the Appraisal Phase ends and the project enters the Structuring Phase, there must be sound planning for the future challenges of the project.

The importance of proper project management planning and governance has been introduced in chapter 3 (section 2.10). Ideally, a project management plan has been preliminarily designed at the end of Screening Phase, and a project governance strategy has been set out before appraisal started so as to manage the Appraisal Phase.

At the end of appraisal, the management plan has to be updated and/or expanded to prepare for the governance and management of subsequent phases. This includes matters to be revisited or prepared for the first time such as the following:

Updating the time schedule. At this stage the project plan, developed earlier in the PPP process, must be revisited. Specifically, the project schedule must be rechecked for inconsistencies. Much of the information provided during the appraisal contributes to a more precise time schedule (for example, the estimate of a timeline for environmental approvals and legal due diligence). This information should be used to produce a more realistic project schedule which should also include all the foreseeable stages of the procurement process.

It is important to adopt a realistic approach and avoid the optimism bias with respect to project timelines. This allows the decision-maker to consider the time factor as a driver for the green light decision, which marks the end of the Appraisal Phase.

Reviewing the resources available. The Structuring Phase is likely to demand a highly experienced team working in a multidisciplinary context with a complex and large infrastructure project. This demands considerable resources, either from within or outside the government. The identification of the expertise required (legal, environmental, technical, financial, and so on) is then a fundamental activity. It should be kept in mind, as the need for expertise is mapped, that the Structuring Phase will lead the project all the way to the start of the procurement process. Thus, failures due to a lack of expertise in the Structuring Phase can cause undesirable delays which can in turn cause the project to fail to deliver the best VfM or to fail altogether.

If the proper expertise cannot be found inside the government, the engagement of transaction advisers and industry experts is highly recommended and the preparation for hiring advisers should begin as early as possible. The engagement of experienced advisers during the Structuring Phase is commonly used even in the most experienced governmental teams. External advisers can help to introduce innovative solutions for the contract structure and can offer industry specific knowledge of the contract and procurement rules.

As explained in chapter 3, the team involved in the Appraisal Phase can be engaged further in the structuring or a team could be hired on a standalone basis just for the appraisal. In the case of the former, the incentives to continue to work on the project after the Appraisal Phase should not interfere with impartiality of the recommendation for the green light decision at the end of the Appraisal Phase. In other words, if the project team is to be kept the same, governance mechanisms should be in place to avoid over-optimistic assumptions.

Whatever the composition of the project team that will conduct the Structuring Phase, at its inception the project team must be fully engaged, and advisers hired as needed.

Enlisting government support and identifying responsibilities. Up until the Appraisal Phase, there might be a mixed involvement of several governmental agencies in the project. As the structuring begins, there is a need to clarify roles (such as the contracting agency, the quality assurance body, the auditing institution, and so on), in case it has not already happened. There is also the need to specify, as clearly as possible, the decision-making roles such as the body (or group of bodies) responsible for the green light decision, as well as for the approvals of the final drafts of the documents and other strategic aspects of the project. The operational or decision-making roles of each governmental body might be defined in the institutional environment of a specific country, such as the PPP law or policy documents. In this case, extreme care should be taken to enlist government support of the agencies prescribed in the law or policy.

When the institutional environment does not provide the final list of bodies to be involved, it is best to aggregate the main stakeholders (especially the agencies with agenda enforcement capabilities or those bodies in a position to enforce their preferences) so as to incorporate their concerns, as far as possible, into the project governance structure.

In any case, a governance framework must be developed for the project, clearly articulating the roles and detailing the decision-making mechanisms. Good practice suggests that a formal guideline of who decides what and how, can be a very important tool for reducing waste of precious resources during the project preparation, especially when those issues are not dealt with in the regulatory framework. Even when aspects of this governance structure are defined in the PPP framework, there is usually space to detail aspects at the project level. In any case, a proposed governance structure to guide decision and processes during structuring should be recommended at the end of the Appraisal Phase.

Other stakeholder identification and communication strategy. As presented in chapter 3 (section 2.11), the identification and management of stakeholders is essential to the success of PPP projects. At the end of the Appraisal Phase, the mapping of stakeholders as well as their concerns and interests needs to be updated because the environment might have changed and the groups affected by decisions during appraisal need to be incorporated. This exercise will also lead to the definition of communication strategies that indicate the types of audiences targeted and the channels to be used in order to establish or maintain relationships. These relationships will promote the project and contribute to a successful development of the Structuring Phase.

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