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PPP Introduction and Overview

1Introduction and Objectives

This chapter is designed to introduce the PPP Guide, the Body of Knowledge (BoK) that provides readers with a general overview of Public-Private Partnerships (PPPs). It will also introduce some of the basic features and characteristics of PPPs.

PPPs are one way to procure infrastructure and services. As explained later in this chapter, the PPP approach may provide significant benefits if and when a number of conditions are met.

As PPPs are useful in procuring both infrastructure and services, the PPP Guide is especially focused on better use of PPPs as a tool to deliver new or upgraded infrastructure. In this way, the greatest possible value from this procurement option can be extracted in order to help countries to fill the infrastructure gap by accessing more private capital and expertise in an efficient and programmatic manner; this is especially true for Emerging Market and Developing Economy (EMDE) countries.

The main objectives of this chapter are to introduce the PPP concept as an option to procure and manage infrastructure; to scope the term for the purpose of the PPP Guide, and to explain its main characteristics. This chapter also introduces those aspects of PPPs that will be explained further in the rest of the PPP Guide. These include the relevance and features of a proper PPP framework and the entire PPP process cycle, including a description of each of the phases that constitutes the process from a practical perspective. See box 1.1.

BOX 1.1: PPPs: Focus of the PPP Guide

PPPs are a way to procure both infrastructure and services which do not necessarily require private capital involvement. The PPP approach may be appropriate for procuring and managing services, or managing existing infrastructure assets. In addition, most if not all PPP benefits could be obtained under contract structures for new infrastructure developments in which finance is sourced directly by the public sector.

However, within the context of this PPP Guide there is a general and global acknowledgement of the need to solve the infrastructure gap in many countries. Furthermore, many countries (especially EMDE countries) need to rely on private resources as a way to accelerate infrastructure development (with all the caveats described in this chapter and in the PPP Guide).

For this reason, the PPP Guide will be focused on PPP as a tool to procure public infrastructure (including finance, construction, operations and maintenance) with private finance participation.

However, most of the knowledge, information, and descriptions of practices and approaches for managing PPP programs and projects are also valid for other forms of PPPs.

One additional objective of both the PPP Guide and this chapter is to help to create a common ground for terminology regarding PPPs and the PPP process. The PPP Guide acknowledges that there are multiple variations across the globe regarding the definition of a PPP, the main motivations for using them, and the main drivers for efficiency and Value for Money (VfM). There are also differences over what constitutes a PPP framework and the main components of it, as well as the characteristics of a proper process to identify, prepare, appraise, structure and execute a PPP agreement.

In this sense, the PPP Guide is advocating the preferential use of some specific terms. To this end, it provides a comprehensive glossary to help readers understand the PPP Guide and identify equivalencies with other terms and uses that may be more common in particular countries. For convenience, it also describes the PPP process and its sequence of phases and tasks in a specific manner. However, the structure should be considered with flexibility, since there is no intention to prescribe any particular organizational or management approach. Box 1.2 describes the learning objectives of this chapter.

BOX 1.2: Learning Objectives

This chapter will allow readers to understand more about PPPs and the PPP Guide, as follows:

 

Section 1. Introducing and scoping the PPP concept.

  • Definition of a PPP for the purpose of this PPP Guide.
  • The main characteristics of a PPP.

 

Section 2. Alternatives for infrastructure finance and procurement. What is and what is not a PPP?

  • The main conventional or publicly-financed procurement methods (for example, Build; Design and Build [DB]; Engineering, Procurement and Construction [EPC] contracts) and what differentiates them from PPPs.
  • Definition of a Design, Build, Finance, Operate and Maintain (DBFOM) project and how can it be funded (user-pays versus government-pays and variations).
  • How service and/or existing infrastructure management contracts may or may not be PPPs (service PPPs).
  • Understanding other private participation contexts and how they are neither PPPs nor procurement methods.
  • How PPPs are different from other methods of procuring infrastructure.

 

Section 3. Types of PPP and nomenclature issues.

  • How there may be different types of PPPs.
  • How the PPP concept may vary amongst countries/jurisdictions and other terminology applied to the PPP concept.

 

Section 4. Where PPPs are used: infrastructure sectors.

  • Understanding the concept of public infrastructure and how it influences the PPP mode of procurement.
  • Which sectors and projects are typically appropriate for PPPs.

 

Section 5. Motivations for using PPPs: caveats, concerns and introduction to the PPP process cycle.

  • The reasons or motivations usually cited for using PPPs.
  • The typical pitfalls and caveats to consider when using PPPs.
  • Why sound selection, preparation and transparent tender processes matter.
  • How the framework plays a role in promoting and protecting a successful PPP approach.
  • How and why some EMDE, especially the Least Developed Countries (LDC), may find difficulties in developing PPPs.

 

Section 6. Typical structure of a PPP.

  • The main elements of a PPP contract and the different roles of the various parties involved.
  • The structure of a PPP contract: upstream structure and downstream structure.
  • The “payment mechanism” and what it does.
  • How structuring the PPP matters and how the private partner needs to work to meet its obligations.
  • The main structures in terms of scope to be found in the most common PPP sectors.

 

Section 7. How PPPs are financed.

  • Typical sources of funds and types of PPPs depending on the origin of funding (including co-financed PPPs).
  • The role of Multilateral Development Banks (MDBs) and other development institutions such as Export Credit Agencies (ECAs).
  • Considerations for the procuring authority regarding financial aspects.
  • Potential pitfalls and concerns.

 

Section 8. Reasons for Project failure: the need for sound process management and preparation of projects.

  • What constitutes a successful project and why projects may fail.
  • What a private partner is looking for in terms of acceptable projects.

 

Section 9. Introduction to the PPP framework concept and initial framework consideration.

  • The need for a proper framework to succeed with PPPs as a programmatic or strategic tool. What a framework consists of.
  • Why a private partner cares about frameworks and PPP markets.

 

Section 10. An overview of the PPP process. Key phases in the PPP process cycle.

  • The PPP process cycle and the main phases (from identification to contract management).

 

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