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Body of Knowledge:
PPP Introduction and Overview
The preceding sections explained how the PPP option may be a significant source of incremental efficiency and provide other benefits for better infrastructure management. It may also have weak points and other issues that make it inappropriate for some of projects.
Governments need to protect and...
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Body of Knowledge:
PPP Introduction and Overview
a) The Challenge of the Availability of Long-Term Finance
Private finance PPPs require long-term finance, the majority of which should be in the form of debt so as to maximize financial efficiency through gearing[51] (see section 7).
A sound financial structure requires that the debt is denominated...
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Body of Knowledge:
PPP Introduction and Overview
Box 1.20 provides a summary of the main recommendations regarding PPPs as potential options to procure public Infrastructure.
BOX 1.20: Dos and Don’ts
Do
Don’t
EMDEs, LDCs: Adapt the PPP strategy to your political, social and economic context under principles of realism and prudence...
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Body of Knowledge:
PPP Introduction and Overview
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Body of Knowledge:
PPP Introduction and Overview
This section explains further the basic structure of a private finance PPP, assuming the form (or the scope) of a DBFOM that was first introduced in section 4.
Figure 1.10 illustrates the basic structure of a common PPP (in which all of the equity in the SPV is provided by the private sector). This...
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Body of Knowledge:
PPP Introduction and Overview
The PPP contract structure (upstream) is defined by the public authority.
As chapter 5 explains in detail, the structuring of the contract has a number of aspects: scope and responsibilities, financial structure, and risk structure. It defines the commercial terms of the contract, fundamentally...
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Body of Knowledge:
PPP Introduction and Overview
The contract scope and therefore the structure may vary significantly within projects related to the same sector. The following illustrates the main variations in three sectors which are paradigmatic in this sense;
Rail: The PPP scope may include the following:
Only the infrastructure (the...
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Body of Knowledge:
PPP Introduction and Overview
BOX 1.22: An Initial Clarification: Funding versus Financing
Financing is defined in this PPP Certification Guide as the source of money required up-front to meet the costs of constructing infrastructure. Financing is typically sourced by the government through surpluses or government...
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Body of Knowledge:
PPP Introduction and Overview
As a private-financed procurement method, all (or most) of the resources for financing the capital investment comes from the private sector.
The PPP structure assigns to a private agent, through a contract, the development and business operation or exploitation of a public asset (under certain...
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Body of Knowledge:
PPP Introduction and Overview
7.2.1. Sources of Funds
The two main types of funds raised by a project company, as in any corporate finance structure, are debt and equity.
Debt may be in the form of loans or bonds. Equity may be take the form of pure equity or capital shares, and quasi-equity products (junior or subordinated...
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Body of Knowledge:
PPP Introduction and Overview
The government may seek to financially support a project when it is an economically viable user-pays project, but the projected revenue on the basis of use is not enough for the project to be commercially viable. Another reason is to keep the price of services provided by the assets at a level...
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Body of Knowledge:
PPP Introduction and Overview
Grant financing (or pure co-financing) is not the only way to increase affordability and/or the commercial feasibility and bankability in PPP projects. There are other instruments (revolving, such as public loans or “co-lending”) and techniques (which may be referred to as de-risking or as credit...
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Body of Knowledge:
PPP Introduction and Overview
In addition to basic concerns about ‘bankability’, governments have other points of concern regarding the private financial package that will influence the project contract structure. These have specific implications in the tender process regulations (RFP) and more especially in the contract...
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Body of Knowledge:
PPP Introduction and Overview
Section 4 (Motivations for using PPPs) described the features and value drivers of a PPP, that is, those characteristics that allow the government and the taxpayer to benefit from incremental efficiency when procuring suitable projects as PPPs. But the section also signals some conditions necessary...
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Body of Knowledge:
PPP Introduction and Overview
For a PPP to be successful, the government must protect and maximize VfM throughout the preparation and implementation process and the life of the contract. A failure to achieve the expected VfM constitutes a project failure.
Success in managing the PPP process is achieved by avoiding project...
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Body of Knowledge:
PPP Introduction and Overview
A project may fail for many reasons. A good number of them are naturally related to the PPP characteristics and even to the essence of the project itself. Many risks which can affect a project are unavoidable (typically force majeure, and a broader category sometimes known as unforeseen...
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Body of Knowledge:
PPP Introduction and Overview
8.3.1. Arising during Pre-Tender and Tender Phases
The following are common examples of poor management during the pre-signature phase of the project process that reflect errors and risks of project failure (to be regarded as a non-exhaustive list).
The appraisal may conclude that the project...
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Body of Knowledge:
PPP Introduction and Overview
PPPs require the existence of private agents willing to enter into a long-term contract assuming significant risks, as well as financial investors willing to invest equity (and sometimes debt) in the projects, and banks willing to lend to those projects.
The projects have to be commercially...
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Body of Knowledge:
PPP Introduction and Overview
A framework is defined by the Oxford English Dictionary as “a basic structure underlying a system, concept or text”.
The Spanish dictionary defines framework as “limits or circumstances that surround an issue or a period of story”.
PPPs involve complex process management on a number of fronts (...
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Body of Knowledge:
PPP Introduction and Overview
This section describes the overview of the PPP project process which is then developed in detail — phase by phase — in chapters 3 to 8 of this PPP Guide.
The intention of this description is to give the reader a general view of the whole process, providing a preliminary description of its main...
