6.1. Standard Regulations when Dealing with PPPs
As discussed in chapter 2 of the PPP Guide, most jurisdictions have a regulatory framework that is applicable to PPPs in general as well as PPP contracts for specific projects. The regulatory framework has a number of objectives, one of which is to permit the government to consider and make rational choices as to which projects to implement as PPPs.
As a rule, various tests or standards are set, mainly to ensure that the PPP is affordable to the country and the users. The second test would be to ensure that the execution of the works under the PPP provides greater Value for Money then if done under traditional procurement method. This standard will also ensure that risk transfer to the private partner is both substantial and appropriate.
In the Operations Phase of a project, the decisions to implement are already made and the focus of the regulatory framework must shift to the following areas:
- Making sure that the project meets the objectives of a net public benefit and Value for Money (VfM);
- Ensuring that risks are identified and managed;
- Ensuring that changes in the form of amendments and variations are implemented on the same basis as the original project — in other words, that they too offer Value for Money and risk transfer;
- Ensuring that reporting is transparent, timely and accurate; and
- Examples of specific regulatory requirements applicable to the Operations Phase are detailed below.
In 2010, Chile established a new normative framework for PPPs by sanctioning the Law on Concessions of Public Works (Ley de Concesiones de Obras Públicas), which modified the original legislation on concessions dating from 1996 (Ley de Concesiones, Decreto Ministerio de Obras Públicas no. 900). The Ministry of Public Works is the responsible authority, and contracts must be awarded through competitive procurement channels which are open to any firm, either national or foreign.
Institutionally, while the Ministry of Public Works leads, awards, and administers PPPs, the Ministry of Finance has an important counter balancing role in providing key approvals and monitoring of the PPP process, including bidding conditions, amendments to the concession contracts, dispute resolution settlements, and others. To provide reassurance that the PPP program fits within the governmental fiscal program, an officer from the Ministry of Finance sits within the Ministry of Public Works and has the authority to stop any project.
The Chilean PPP unit is located within the Ministry of Public Works and consists of approximately 300 staff with specialized knowledge. In addition, the 2010 modified Concession Law allows several changes (Vittor 2011).
- The Technical Panel established by the 2010 Concession Law creates a quasi-independent regulator capable of making recommendations on matters arising between the parties during the execution of the PPP contract;
- Bidding rules, pre-project documents, background studies, and other technical project documents, as well as side letters, changes to the tariff system, and changes to the contract must be made public by law; and
- Technical monitoring reports produced monthly by contract managers on performance assessment, and containing information on services, accidents, user feedback, among other things, are disclosed regularly for all projects. The private operators provide financial information periodically to the public authority.
The Ministry of Public Works supervises the construction and operation of the project and is allowed to fine, suspend, or even terminate the concession should the franchise holder fail to meet obligations. The law also establishes a dispute resolution mechanism to review conflicts between the government and private party.
In June 2010, a new entity, Infrastructure UK (IUK) was formed in the Treasury and the PPP program became known as PF2.
The core mandate of IUK is to provide greater clarity and coordination over the planning, prioritization, and enabling of investment in UK infrastructure and to improve delivery of such infrastructure through achieving greater Value for Money. It was established as a separate unit within the Treasury, providing advice to the Commercial Secretary to the Treasury who leads on infrastructure issues and reports to the Chancellor of the Exchequer.
HM Treasury is responsible for setting PPP policy for England, which is devolved in Northern Ireland, Scotland, and Wales. The Treasury publishes key policy, guidance, and statistics on PPP projects. It also provides advice to departments undertaking or wishing to undertake PPP projects. The Treasury’s focus is on ensuring that public sector asset and service investment programs maintain momentum, unlock Value for Money, sustain market confidence, and deliver improved project operational performance.
There is no formal mandate granted by legislation for the PPP program. As a result, there are no PPP specific approvals. Instead, all projects follow what is known as the ‘Gateway Approach’, whereby projects must have their feasibility (financial and economic) tested and reviewed by agencies (including the Treasury).
The change mechanism for UK projects is set out in Operational Taskforce Note 3: Variations Protocol for Operational Projects of 2008 and Standardization of Private Finance Initiative (PFI) Contracts 4 (SOPC4) of 2007. The objective thereof is to have well-developed change mechanisms written into the contract to achieve at least the following four outcomes.
- Clear process with clearly defined roles, responsibilities, and time scales;
- Quick and efficient procedures (appropriate to the scale and complexity of the change required), with transaction time and cost kept to a minimum;
- Transparent pricing; and
- Value for Money.
The UK has a strong disclosure framework with reporting to the authorities, as well as to the HM Treasury and Parliament. All PFI contracts are subject to audit by the National Audit Office (NAO). In addition, the NAO undertakes regular audits on matters such as the achievement of Value for Money across sectors and the overall PFI program.
South Africa has an elaborate and robust PPP legislative and regulatory framework. The legislative and policy framework for PPPs is described in the following documents:
- The Republic of South Africa Constitution Act, 1996;
- The Public Finance Management Act (PFMA) 1 of 1999 and Regulations issued in terms of the Act;
- Treasury Regulation 16;
- The National Treasury Regulation Practice Notes on PPP; and
- The PPP Standardized Terms of PPP Contract (“Standardization”).
At the national and provincial levels, legislation governing PPPs is contained in the PFMA and Treasury Regulation 16. These sections require the Accounting Authority to have an appropriate procurement and provisioning system in line with the constitutional principles that is fair, equitable, transparent, competitive, and cost-effective. Treasury Regulation 16 prescribes that all PPPs conform to the requirements of affordability, Value for Money, and adequate risk transfer from government to the private party.
Treasury Regulation 16 also prescribes the procedures and approvals required throughout the procurement phase. In particular, Clause 16.8 deals with amendments and variations to PPP contracts. Any material amendment due to renegotiations must meet the scrutiny and obtain the approval of the relevant treasury in terms of:
- Value for money
- Substantial technical, operational, and financial risk transfer to the private party.
The mechanisms to seek this approval are prescribed in Treasury Regulation 16. There is no specific regulatory framework for disclosure in South Africa. The Treasury requires reporting in the Estimates of National Expenditure every year for every PPP. These are then audited and presented to the National Parliament annually.