Public-Private Partnerships

Over the last decade or so, private-sector financing through public-private partnerships (PPPs) has become increasingly popular around the world as a way of procuring and maintaining public-sector infrastructure, in sectors such as transportation (roads, bridges, tunnels, railways, ports, airports), social infrastructure (hospitals, schools, prisons, social housing) public utilities (water supply, waste water treatment, waste disposal), government offices and other accommodation, and other specialised services (communications networks or defence equipment). This book, based on the author's practical experience on the public- and private-sector sides of the table, reviews the key policy issues which arise for the public sector in considering whether to adopt the PPP procurement route, and the specific application of this policy approach in PPP contracts, comparing international practices in this respect. It offers a systematic and integrated approach to financing PPPs within this public-policy framework, and explains the project-finance techniques used for this purpose. The book deals with both the Concession and PFI models of PPP, and provides a structured introduction for those who are new to the subject, whether in the academic, public-sector, investment, finance or contracting fields, as well as an aide memoire for those developing PPP policies or negotiating PPPs.

The author focuses on practical concepts, issues and techniques, and does not assume any prior knowledge of PPP policy issues or financing techniques. The book describes and explains:

• The different types of PPPs and how these have developed
• Why PPPs are attractive to governments
• General policy issues for the public sector in developing a PPP programme
• PPP procurement procedures and bid evaluation
• The use of project-finance techniques for PPPs
• Sources of funding
• Typical PPP contracts and sub-contracts, and their relationship with the project’s financial structure
• Risk assessment from the points of view of the public sector, investors, lenders and other project parties
• Structuring the investment and debt financing
• The key issues in negotiating a project-finance debt facility. In addition the book includes an extensive glossary, as well as cross-referencing.

*Reviews the PPP policy framework and development from an international perspective *Covers public- and private-sector financial analysis, structuring and investment in PPPs *No prior knowledge of project financing required

PPP and project financing specialists and consultants, public sector officials developing PPPs, private sector investors in PPP projects, MBA students studying project finance, other professionals involved in PPPs: construction and maintenance contractors, lawyers, accountants, engineers, transport economists.

Introduction

Chapter 1 What are Public-Private Partnerships? Introduction Public Infrastructure and the Private Sector Public-Private Partnerships Development and Structures PPPs and Public Infrastructure Types of PPP

Chapter 2 PPPs—For and Against Introduction New Public Management Privatisation and PPPs Budgetary Benefit Additionality Financing Cost and Risk Transfer Risk Transfer and Value for Money Economies of Scale Whole-Life Costing and Maintenance Private-Sector Skills Public-Sector Reform Complexity Flexibility PPPs and Politics

Chapter 3 PPPs Worldwide Introduction Developing PPP Programmes Legal Framework United Kingdom United States Australia France Korea Spain South Africa

Chapter 4 Cash Flow and Investment Analysis Introduction Net Present Value / Discounted Cash Flow Internal Rate of Return Problems with DCF and IRR Calculations Uses in PPPs

Chapter 5 The Public-Sector Investment Decision Introduction Economic Justification Value for Money and the Public-Sector Comparator Affordability Balance-Sheet Treatment

Chapter 6 Public-Sector Procurement and Contract Management Introduction Project Management Procurement Procedures Other Procurement Issues Due Diligence Contract Management External Advisers

Chapter 7 The Private-Sector Investor’s Perspective Introduction The Investment Pool The Investment Decision Bidding and Project Development Joint-Venture Issues The Project Company External Advisers

Chapter 8 Project Finance and PPPs Introduction Development of Project Finance Features of Project Finance The Project-Finance Market Why Use Project Finance for PPPs?

Chapter 9 Private-Sector Financing—Sources and Procedures Introduction The Rôle of the Financial Adviser Commercial Banks Bond Issues Loans versus Bonds Mezzanine Debt

Chapter 10 Financial Structuring Introduction The Financial Model Model Inputs and Outputs Financing Costs Debt Profile Cover Ratios Relationship between Cover Ratio, Leverage and Equity Return Accounting and Taxation Issues Recourse to the Sponsors

Chapter 11 Financial Hedging Introduction Interest-Rate Risk Inflation Issues

Chapter 12 Lenders’ Cash-flow Controls, Security and Enforcement Introduction Control of Cash Flow Security The Rôle of Insurance Events of Default Intercreditor issues

Chapter 13 Service-Fee Mechanism Introduction Contract Scope Payment Structure Usage-based Payments Availability-based Payments Mixed Usage and Availability Payments Third-Party and Secondary Revenues

Chapter 14 Risk Evaluation & Transfer Introduction Principles of Risk Transfer The Risk Matrix Political Risks Site Risks Construction Risks Completion Risks Operation-phase Risks

Chapter 15 Changes in Circumstances and Termination Introduction Compensation Events Relief Events Step-In and Substitution Early Termination: Default by the Project Company Optional Termination or Default by the Public Authority Early Termination: Force Majeure Early Termination: Corruption Termination and Subcontractors Tax Implications of a Termination-Sum Payment Final Maturity, Residual-Value Risk and Hand-Back

Chapter 16 Funding Competition, Debt Refinancing and Equity Sale Introduction Funding Competition Equity Competition Debt Refinancing Equity Sale

Chapter 17 Alternative Models Introduction Public-Sector Procurement Post-Construction Take-Out Public-Sector Debt Funding Joint-Venture PPPs Not-for-Profit Structures

Bibliography

Glossary and Abbreviations