Public-Private Partnerships

Public-Private Partnerships

Principles of Policy and Finance

1st Edition - March 20, 2007

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  • Author: E. R. Yescombe
  • eBook ISBN: 9780080489575

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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.

Key Features

*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.

Table of Contents

  • 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
    New Public Management
    Privatisation and PPPs
    Budgetary Benefit
    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
    PPPs and Politics

    Chapter 3 PPPs Worldwide
    Developing PPP Programmes
    Legal Framework
    United Kingdom
    United States
    South Africa

    Chapter 4 Cash Flow and Investment Analysis
    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
    Project Management
    Procurement Procedures
    Other Procurement Issues
    Due Diligence
    Contract Management
    External Advisers

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

    Chapter 8 Project Finance and PPPs
    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
    The Rôle of the Financial Adviser
    Commercial Banks
    Bond Issues
    Loans versus Bonds
    Mezzanine Debt

    Chapter 10 Financial Structuring
    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
    Interest-Rate Risk
    Inflation Issues

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

    Chapter 13 Service-Fee Mechanism
    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
    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
    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
    Funding Competition
    Equity Competition
    Debt Refinancing
    Equity Sale

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


    Glossary and Abbreviations

Product details

  • No. of pages: 368
  • Language: English
  • Copyright: © Butterworth-Heinemann 2007
  • Published: March 20, 2007
  • Imprint: Butterworth-Heinemann
  • eBook ISBN: 9780080489575

About the Author

E. R. Yescombe

E.R. Yescombe is an independent consultant on project finance and public-private partnerships (PPPs), advising investors on financing for power, infrastructure and PPP projects, as well as public-sector entities on PPP policy issues, project procurement and contracting.

Affiliations and Expertise

YCL Consulting, London UK

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