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					Public Private Partnership…                                                      2008

                                                              2008

Briefing Document on Public Private Partnership in Sindh…….




                                                              Khalid M. Shaikh




                                                              Khalid M. Shaikh
                                                              Finance Department, Government of Sind.
                                                              Finance Department, Government of Sindh
                                                              Finance Department, Government of Sindh
Public Private Partnership…                                                                         2008

          Briefing Paper- Managing Public-Private Partnerships (PPPs)


     1.       Purpose of this Briefing Paper
          The purpose of this briefing paper is to propose the establishment of a Public-Private Partnership
          Unit (PPP Unit) and an institutional structure within Government of Sindh with responsibility for
          managing and overseeing the execution of Public-Private Partnership (PPP) arrangements to a
          consistently high standard and in a manner that ensures the safeguard of public interest
          throughout the project development process.

     2.       Resource and Staffing Implications
          The Finance Department does not have spare capacity within its current resource levels to
          undertake the functions of a PPP Unit. If a PPP Unit is to be established, there will be a
          requirement to recruit up to four new staff, either from elsewhere within the civil service with an
          associated transfer of salary funding, or from the private sector with new funding provided
          through the Budget process. It is estimated that the proposed unit will initially require the
          following staff:
                        Director General;
                        Director, Tender structuring and financial analysis;
                        Director, Commercial contracting and Legal
                        Director, Corporate Services;
                        Director Market Development; and
                        Support staff - secretarial support
          Position descriptions and selection criteria are set out in Attachment 5. In addition, there will be
          a need for private sector transaction advisers, on a project-by-project basis, with the following
          backgrounds:
                        Financial analysis
                        Risk management
                        Legal advice
                        Sectoral/ technical experts
          The PPP Unit would contract in specialist private sector advisors on a case-by-case basis to assist
          in analysing proposals, structuring tenders, evaluating tenders and drafting legal contracts. The
          make-up of the advisory team would depend on the characteristics of the particular proposal.
          There would thus need to be budget provided for the engagement of specialist consultants,
          utilities, consumables, rent and office fit-out. It is also suggested that the PPP Unit should be
          accommodated outside the Secretariat and closer to the financial and business houses of Karachi.
          Included in Attachment 2 is a draft budget for the PPP Unit.




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     3.            Background to PPPs
          In general, it can be expected that, where the profit incentive mechanism is enabled, the private
          sector will be a superior manager of assets and deliver goods and services more efficiently and
          effectively than the public sector.
          Given that the profit incentive mechanism cannot be introduced into the public service without
          radical reforms in respect of tenure of employment and use of performance based remuneration,
          the more expedient approach to improving the delivery of public goods and services is through
          PPP structures wherever possible and appropriate.
          Furthermore, given that the Government of Sindh has very limited powers to utilise debt funding
          to not only fund large construction projects, but to manage variability in its cashflows, the
          private sector can be much more effective at building and constructing infrastructure in a timely
          and cost efficient manner. The major task of government is to identify a politically acceptable
          trade-off whereby the private sector can receive cashflows generated by the output of the
          infrastructure and/or services provided over an extended period to compensate for the
          construction of the infrastructure and cost of providing the output. This may involve a periodic
          subsidy payment from government where, say, a full cost recovery charge is not politically
          acceptable, or it may be that no subsidy is required from government.
          PPPs provide an approach whereby business and government enter into mutually beneficial
          contractual agreements for the provision of public goods and/or services. A PPP structure is
          intended to:
                     Generate improvements in the efficiency and effectiveness of delivery of public goods
                   and services when compared to the traditional method of delivery through public sector
                   employees;
                     Mobilise the use of private sector capital to generate economic development; and
                      Develop infrastructure projects including roads, hospitals and schools, etc without
                   recourse to the limited capital of the public sector and utilising superior cash and project
                   management capacity of the private sector.

          4.          Vision & Mission of Government of Sindh

          Sindh Government endeavours to work towards rapid economic growth in order to address
          poverty issues in the province. One of the priority areas of interest of the government is to create
          favourable investment environment with a view to improving efficiency in Government's service
          delivery system.

          Sindh Government also wishes to promote its Wider Market Initiative (WMI) to encourage more
          intensive use of the Province's inherent assets, particularly through development of new delivery
          mechanisms for goods and services. It includes more efficient use of public assets to increase
          productivity, improve the skill base and introduce mechanisms to enable goods and services to
          be delivered on a commercial basis, with all the incentivizing pressure points that this entails
          with respect to efficiency and quality of service.



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       5.     Caveats to PPPs

       PPPs will only be effective in meeting government's needs if certain conditions are met. PPPs
       are not a panacea. Issues such as political leadership (or lack thereof), bureaucratic resistance to
       change and corruption often create disinterest and disillusion in the private sector.
       Beginning with the lack of commitment of some civil servants and ending with the frequent
       transfers of competent and committed officers, the private sector often affords a high degree of
       suspicion and skepticism to requests by the public sector to participate with it in a partnership.
       A proposal for a PPP tender often involves private sector applying significant resources and
       dedication to prepare its bid. Where political or bureaucratic corruption of an otherwise
       transparent process results in losses to the private sector, then the private sector will be loathe to
       participate in a bidding process, which can result in second or third-rate solutions being offered
       at premium prices.
       This low regard of the public sector may result in a poor response to any request by government
       for the private sector to submit bids in respect of a project that may never reach fruition, if only
       for a lack of public service capacity and commitment.
       Also, land disputes, political agitation and disruptions create an unfavourable climate for the
       private sector to commit significant resources in order to participate with government in respect
       of long-term projects.
       Abundant examples exist of PPP tenders that have failed due to inexperience and lack of
       technical knowledge on the part of the bureaucrats to design an appropriate PPP process,
       political interference, a poorly designed tender evaluation methodology or failure to negotiate a
       commercial rigorous contracting structure.
       A further problem that occurs in an under-developed institutional framework is where a PPP
       proposal may involve crosscutting issues involving multiple government agencies, which fail to
       coordinate or agree on the nature of the PPP intervention. A balance must be struck between the
       commercial realities on the ground and the bureaucrats’ natural desire to impose regulatory and
       institutional frameworks that might otherwise "kill" a deal.

       Many obstacles stand in the way of effective engagement with the private sector in a PPP
       arrangement. Establishing a quality PPP institutional structure will assist in overcoming some of
       these obstacles.

       6.     PPP Successes and Failures

       There are many examples of PPP projects that have failed to deliver expected results. The root
       causes of the failure of a PPP process or project can generally be traced to one or more of the
       following:

       – A poorly structured tender document, which may be a result of:
           lack of prior analysis in respect of project feasibility and risk allocation;
           lack of stakeholder consultation;
           bureaucratic inexperience and lack of quality expert advisers;

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              bureaucratic corruption (which should only be possible if procurement procedures are
                deficient or extensive collusion exists);
              political interference or corruption (which should only be possible if procurement
                procedures are deficient or extensive collusion exists);
       –   A poorly developed bid evaluation methodology, which may be a result of:
              lack of prior analysis in respect of project feasibility and risk allocation;
              lack of stakeholder consultation;
              bureaucratic inexperience coupled with a lack of quality expert advice;
              Bureaucratic corruption (which should only be possible if procurement procedures are
                deficient or extensive collusion exists);
              Political interference or corruption (which should only be possible if procurement
                procedures are deficient or extensive collusion exists);
       –   Poorly negotiated contractual arrangements, which may be a result of:
              Lack of commercial realism by the bureaucracy;
              Miscalculation of project risks by the private sector;
              Corruption or incompetence;
              Political interference;
       –   Political ineptitude and/or interference, leading to a lack of commitment and eventual
           abandonment or restructuring to reabsorb into the public sector;
       –   Civil protest, which may be a result of;
              Lack of stakeholder consultation when designing the project structure;
              Lack of appreciation of the political situation by bureaucrats when structuring the
                environmental/commercial/cost recovery aspects of the project.
       –   Poor contract management/ongoing monitoring, usually caused by:
              Lack of experience within government;
              Lack of resources applied to contract management;
              Lack of formal structure within government to monitor PPP contracts.

       Before a proposal is issued, the public sector should have done its due diligence via a feasibility
       study/preliminary risk analysis/market assessment. Such an assessment should estimate the types
       of risks the public sector could potentially bear and what risks should be allocated to the private
       sector.
       Likewise, the private sector bidder should be capable of demonstrating in its response that
       preliminary risks associated with the proposed PPP arrangement have been clearly identified and
       management solutions offered. Financial/debt sustainability should be a critical part of the risk
       assessment procedure.
       Many failed PPPs are a result of the selection of the wrong partner by the public sector. This can
       be a result of an oversight in respect of the assessment of the financial strengths and weaknesses
       of the bidders. This oversight may be deliberate, such as in the case of preference given to
       certain bidders due to shareholding ownership, rather than ability to meet all obligations over the
       life of the arrangement or it may be a miss-specified evaluation process that overlooks some
       aspect of project and tender risk.
       Attachment 3 identifies a number of PPP arrangements executed in a range of jurisdictions and
       also identifies a number of successful and unsuccessful PPPs.

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       7.        The Legal Framework


       A report prepared for the OECD1, titled "Successful Examples of Public-Private Partnerships and
       Private Sector Involvement in Transport Infrastructure Development", by David Stambrook
       concluded the following:
       "Some of the lessons for a successful PPP legal framework are:
             – Stability and consistency adapted to the project, based on analysis of directly applicable
               legal aspects (which may demand an ad hoc legal approach) and the indirect regulatory
               environment;
             – Public authority decisions under straightforward, transparent and unambiguous
               procedures, with independent jurisdictional control;
             – Formal PPP contract built around an equilibrium between the contracting party
               (government), the investor-operator (private) and the user (the “public”) – especially with
               regard to sensitive clauses: financing, private obligations, background/meeting/reporting,
               property ownership, and accounting/taxation;
             – Public authority PPP regulatory mechanisms to guarantee neutrality/fairness for the
               private party, and to enable the public authority to ensure that public policy objectives and
               conditions are met by the private operator."
       There is a myriad of structures in which governments operate, execute and implement PPPs.
       Some governments have enacted legislation specific to PPPs (e.g., the Philippines) while others
       rely on guidelines, administrative frameworks and existing commercial law and specific
       procurement legislation applicable to the public sector (e.g., The United Kingdom, Australia).
       Some governments rely on a devolved framework, where administrative departments (more
       generally called "public authorities" or "government agencies" in some places) are responsible
       for identification, execution and administration of PPPs (e.g., South Africa), while others require
       all project execution to be coordinated from a central office, usually located in the
       Ministry/Department of Finance/Treasury/Economic Management (e.g., Greece, Ireland and
       Pakistan). In between, some jurisdictions have a coordinating framework involving multiple
       departments and committee structures (e.g., the PUK).

       8.        Organisational Structure

       The organisational management framework adopted in respect of PPP identification, execution
       and implementation will be influenced by a number of factors including:
             Government's, and more specifically departmental, access to financial resources (more
              resources imply greater ability to devolve to departments);
             Skill level and depth across government agencies (greater skill levels and depth across
              departments implies greater ability to devolve to departments);
             Extent of rent seeking activities within government (higher the corruption index, the more
              appropriate to centralise in order to facilitate monitoring);
       1
           Organisation for Economic Cooperation and Development.
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          Degree of willingness of government departments to follow guidelines issued by central
           agencies, as opposed to being required to do certain things by enacted legislation (less likely
           they are to follow guidelines, the stronger the argument for centralisation and specific
           legislation);
          Degree of devolution of financial management planning to departments (more devolved the
           financial management and planning responsibilities, the more applicable is devolution);
          Degree of devolution of infrastructure planning activities to departments (more devolved is
           planning in departments, the more devolved can be PPP planning); and
          Quality of sectoral planning within departments (the higher the quality of planning within
           departments, the more likely they will be able to manage PPPs).
       Furthermore, it is appropriate to separate the regulatory function of a department from the
       commercial delivery of goods and services. It can therefore be useful for a centralised PPP Unit
       to manage transaction execution to ensure the commercial integrity of PPP contracts, while the
       department responsible for regulating and monitoring delivery of goods and services in
       accordance with legislation and the performance clauses of PPP contracts remain responsible for
       overseeing implementation.
       An appropriate legal framework is an essential ingredient if Sindh is to attract high quality
       private sector operators into its PPP framework. While the basic commercial legal structure
       exists in Pakistan, with the Public Procurement Regulatory Agency (PPRA) providing an
       additional framework in the public sector for the tender process and its associated evaluation of
       bids, the consistent application of the law in a fair and transparent manner by the judicial system
       is problematic. This problem is unlikely to be solved by any amount of legislation, and is not
       likely to be resolved in the short term.
       The only practical strategy for providing an attractive legal framework to potential partnerships
       is to ensure that PPP contractual documentation is rigorous, comprehensive, tightly defined and
       enforceable from the outset.
       For this reason, it is again suggested that a PPP Unit would be best placed to ensure that PPP
       contractual documentation is developed consistently, to the highest standards and that its
       provisions accurately reflect the intended financial and risk sharing between counterparties.
       The PPP Unit would contract-in private sector commercial lawyers, who would work with the
       PPP Unit's financial and risk management experts to ensure that the PPP structure properly
       reflects the government's intentions and protects its interests.

       Recommendations
       The recommendation is that Government of Sindh should:
                  1. Utilise the existing regulatory framework and issue guidelines setting out the
                     administrative arrangements applicable for managing PPPs;
                  2. Engage a commercial legal firm to review the existing legal framework to ensure
                     that there do not exist legal obstacles to the execution of public-private
                     partnerships across the whole-of-government;
                  3. Establish a PPP Unit within the Finance Department, centralising the management
                     of PPPs during the transaction stage;

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                  4. Administrative departments should have primary responsibility for ensuring the
                     quality of the service delivery and ongoing monitoring of compliance with
                     contractual documentation over the life of the PPP.

       9.     Operational Issues

       10.    Supplementing the Public Sector Skill Set

       Structuring and executing a PPP is a complex process that requires different skill sets and
       experience mixes compared to traditional public sector roles, including complex legal contracts,
       sophisticated financial analysis and risk management.
       Globally, governments engage specialist advisers from the private sector on a case-by-case basis
       to advise on the PPP transaction and execution process. These advisers meet rigorous standards
       of competence with strong technical backgrounds and experience and assist with feasibility
       studies, risk analysis, legal and tax advice and supervise other consultants’ inputs. The advisers'
       inputs span the entire PPP project life cycle, and his/her job is to provide advice and assistance to
       ensure that the process runs smoothly, on time, within budget and according to all contractual
       obligations on both sides.
       The public sector has limited experience in drafting commercial contracts with appropriate
       financial and risk management clauses. It is not a core competence of public sector legal experts,
       who are mainly concerned with drafting rules, regulations and legislation rather than engaging in
       commercial transactions.
       In order to facilitate the development of an appropriate PPP contractual arrangements that protect
       the Province's interests within a commercial arrangement, there will be a need to establish PPP
       management structures that makes use of the particular strengths of the private sector law
       fraternity.
       It is proposed to establish a PPP Unit based on a centralised management and execution
       structure, similar to those established in the Partnership UK (PUK) model, the Irish Republic
       model, the Greek approach and/ or the Chilean model with an Advisory Board on the top to
       oversee the performance of the said unit and should also provide policy guidelines, strategies and
       framework to that unit.
       In this approach, the PPP Unit is composed of staff with strong technical backgrounds in
       economics, finance, law and commercial contracting. However, for particular PPP proposals,
       specialist advisers are also engaged from the legal sector, the financial advisory sector, the
       engineering/ job specific sector, etc, as required. The Unit shall ensure appropriate project
       appraisal and prioritization.
       Departmental staff has prime responsibility for ensuring that PPP counterparties comply with
       contractual agreements that specify performance and risk management safeguards related to the
       private sector entity's delivery of the contracted output.
       One of the important tasks of the PPP Unit is to appoint a project officer/ project manager etc
       who coordinates transaction execution and manages the process of engaging transaction advisors
       and interfacing with the various government departments and stakeholders to ensure proper
       approvals and authorities are obtained. In the Sindh PPP model, these are internal adjustments,
       which can be decided at the Advisory Board or PPP Unit level. The Director General or a
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       specific Director may undertake this responsibility. Alternatively, any senior officer from the
       Administrative Department can be assigned this task.
       Depending upon the nature of the project, the project officer assembles a multidisciplinary team
       of individuals with expertise in fields such as economics, tax, financial analysis, law,
       engineering, human resources, communications, accounting, and specialist knowledge in the
       particular sector (such as hydrologists, electrical engineers, etc).

       Recommendation
       That the PPP Unit be a focal point for the management of the engagement of technical specialists
       in respect of PPP transactions on a case-by-case basis, while PPP Nodes established in line
       departments have responsibility of conceiving the PPP interventions and supervising and
       executing for on-going contract management.
       With a highly competent analytical team working for the government, the private sector is likely
       to be more confident that a commercially realistic PPP can be structured within an appropriate
       risk-sharing framework. However, there are other environmental aspects that will impact on the
       vibrancy of the PPP market, including the political environment and the legal environment with
       particular reference to the quality of governance.

       11.    Political Commitment and Commercial Certainty

       In setting the institutional framework for PPP management, attention must be given to
       demonstrating political commitment and good governance, which are considered pre-requisites
       for success. Private partners are concerned that politicians are committed to private investment
       and that the legal framework and its enforcement will be consistent, fair and transparent.
       In case there is uncertainty about the political and legal commitment, the private sector will be
       less willing to enter into long-term business relationships with the public sector and, therefore,
       the cost of PPPs to government will be higher.
       It is important to establish a clear channel of responsibility and accountability for government
       involvement in PPPs. Incessant reports of corruption could be a serious obstacle to successful
       PPPs in the same way that it has prevented successful privatization in many cases in Pakistan (as
       happened in the case of the privatization of KESC).
       For this reason, it is more appropriate to establish a centralised PPP Unit, which can ensure a
       consistent approach to the PPP tender process, tender assessment and contractual arrangements.
       A centralised approach will promote PPPs and ensure that market integrity is not compromised.
       It is for this reason that it is proposed that an overarching PPP supervisory body (the "Advisory
       Board") be appointed by Government that consists of highly respected private sector experts in
       their fields. This supervisory body would oversee the operations of a centralised, specialist PPP
       Unit within the Finance Department, which would be responsible and held accountable for the
       delivery of high quality PPP transactions.
       With an overarching supervisory body (the Advisory Board) including highly respected private
       sector persons, Sindh's PPP process can be formulated along the lines of best practice corporate
       governance model.


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       Recommendation
       That an Advisory Body be established, chaired by the Chief Minister, consisting of 6-7 high
       profile, widely respected mix of public-private sector professionals, whose responsibility will be
       to supervise the PPP transaction execution process undertaken by the PPP Unit.

       12.    Public sector’s capacity to contract and regulate

       PPPs will often involve the payment by government of a fee in order to subsidise a price to
       enable a good or service to be delivered to the maximum number of people, where affordability
       may be an issue. However, governments do not have good record with respect to prompt
       payment, and with limited ability to borrow funds from the market, cash management difficulties
       may result in delays in release of funds by Finance Department.
       With large PPP projects, delays in payments of such subsidies may create severe financial stress
       for the private partner. A lack of confidence by the private sector with respect to the timeliness
       with which Finance Department may be able to release funds can be overcome substantially by
       the establishment of a funding mechanism outside the government budget process (the "Viability
       Gap Fund"). This fund could receive a number of payments ahead of schedule so that it is
       outside the Finance Department's release of funds process. The number of months ahead of
       scheduled payment dates for which the Viability Gap Fund (VGF) may be required to hold
       monies in trust would be set out in project documents.

       Recommendation
       That an accounting structure be developed to enable funds to be held in cash investments outside
       the budget process and made available on demand to meet PPP contractual commitments. This
       would be called the Viability Gap Fund (VGF). A schematic representation is set out below:



                                          Finance Department
                                         Budget allocations from
                                           Consolidated Fund
                                                                                        PPP notional funds
                                                                                        flows (expenditure)
                                               Consolidated
                              Investment               Fund
       State Bank of             flows
                                                 Viability
         Pakistan /                              Gap Fund                                        Departmental
      Authorised debt
        instruments                                                                                Accounts
                                                 PPP Unit
                                               manages fund
                                                day to day




                         PPP contracted funds flows
                                                                                  PPP notional funds
                                                                                  flows (expenditure)
                                                   Project
                                                  payments for Development
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       13.    Issues and Opportunities in Training

       13.A   Capacity gaps and the role of the PPP Unit

       There exist inherent and visible capacity gaps in all sorts of institutions/implementing agencies
       wishing to undertake PPPs. Capacity gaps hamper seamless PPP interactions and create obstacles
       to project execution. These gaps can, however, be bridged overtime, and PPP Unit members may
       assist various stakeholders to fully appreciate the processes and procedures involved in PPP
       identification and execution. To fulfill this function effectively, it will be necessary for PPP Unit
       staff to be trained and familiarised with PPP organisational structures operating in other
       jurisdictions, with issues surrounding the allocation and assumption or risk, structuring of
       financial products, legal methods for risk management, contract management issues and
       procedures for project execution.

       Recommendation
       It is recommended that establishment staff of the PPP Unit undertake a study tour of actively
       operating PPP Units instituted in more advanced jurisdictions, such as the UK, Greece and
       Ireland. This study tour should be undertaken after a short familiarisation period of, say, 4-8
       weeks within the PPP Unit. It is further suggested that the Asian Development Bank (ADB) be
       approached to support such a study tour.

       13.B   Identification and initiation of infrastructure service delivery projects

       It is expected that implementing agencies (departments) and local governments responsible for
       policy with respect to various economic and social sectors for which they are responsible will
       identify and initiate infrastructure service delivery projects with the PPP Unit.
       The PPP Unit would provide support to administrative departments, District and Tehsil
       governments to promote PPP arrangements wherever feasible.
       In order to create an understanding of PPP intervention styles and modes, a series of seminars
       and workshops would be facilitated by the PPP Unit to all levels of government for a practical
       and useful understanding of PPPs.

       13.C   Ownership must be demand driven

       Without a sense of ownership in PPP oriented projects, there is unlikely to be any remarkable
       progress. Highest level of commitment is essential in devising and envisioning the whole project
       with a strong sense of ownership. The ownership must come from the stakeholders and
       assistance to be provided to them must also be seen to be demand driven. It is of utmost
       importance that all the sectoral components of provincial and local government policy should be
       embedded with the political vision and the latter should set up futuristic goals and objectives.
       During PPP feasibility studies and devising transaction structures, the PPP Unit and its advisers
       must undertake extensive consultation in the community, including with potential private sector
       partners, end-consumers, affected departments and political stakeholders.

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             13.D      A unison in the policy

             There is a need to create uniformity in how PPPs are approached in terms of procurement
             process and risk profile. Until the proposed PPP Unit is installed and begins functioning
             comprehensively, complete guidance and assistance may be sought from Islamabad's
             Infrastructure Project Development Facility (IPDF) and the experiences from best models of PPP
             being practiced elsewhere.

             Recommendation
             The PPP Unit be mandated to facilitate an ongoing education and information dissemination
             program throughout the public sector and also in conjunction with the private sector.

             14.       Proposed Institutional Structure for PPP Process Management

              In a nutshell, the establishment of a solid institutional framework will underpin success of the
             PPP initiative with a well-developed procedure for identifying, evaluating and undertaking the
             tender of projects. Based on the analysis in the previous section, the following institutional
             framework would appear to be the appropriate form and management framework for PPP
             transaction analysis and execution.
                                                     Chairman
               Administrative Group                  3 members from public sector
                                                     preferably one or two from
                  VGF mechanism                     political side whereas, two            Internal and external
                  Steering committees               from finance and P&DD.
                  Project groups                                                                   audit
                                                     3 members from private sector
                  SIPDF/ SIAFF                      with specialties in, say,
                                                     economics, finance, business,
                                                     law, project management held
                                                     in high regard
                                                     Member, PPP Unit head



 Budget
allocation     Sindh Infrastructure Advisory            Internal operating policies
paid into      Facility Fund (SIAFF)                         and procedures
fund at        •   Funding facility for
                   payment of transaction
start of           advisers and cost of PPP
  year             Unit and AB.
                                                                   PPP Unit
                                                    Core Unit
                                                    • Director General                      Transaction Advisers
                                                    • Director, Tender structuring and      • Financial analysis
                                                      financial analysis                    • Risk management
                                                    • Director, Commercial contracting      • Legal advice
                                                    • Assistant Director, Corporate         • Sectoral/technical experts
                        PPP Nodes                     Services (accounts and
                       AD and P&DD                    administration systems)
                                                    • Support staff as required




                                                                 VGF



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       15.    Description of Model Components

       Advisory Board (AB):
       The Advisory Board is proposed to be a highly technically proficient supervisory body,
       overseeing the performance of the proposed PPP Unit. The AB shall comprise the Chief Minister
       as Chairman and approximately 6-7 highly regarded mix of public-private sector specialists
       drawn from fields such as banking, legal, professional and academia. The AB shall devise
       appropriate reporting and board management systems to ensure high quality governance and
       oversight of the transaction process as undertaken through the PPP Unit. A description of the
       AB role and responsibilities is contained in Attachment 1.
       PPP Unit:
       Will provide technical assistance to Provincial and Local Governments to improve the
       commercial structure and rigour of projects and facilitate the promotion of the overall
       infrastructure development program through utilisation of PPPs.
       Whenever the number of transactions in the pipeline justify, PPP Unit will assist agencies to
       establish PPP nodes in departments. Thus, over time, there will be a web of PPP nodes across the
       Province that will provide synergy to the overall PPP program.
       The PPP Unit shall also design strategies to accelerate provision of infrastructure, provide
       technical support, cross sector coordination, project assessment and set standard procedures.
       Administrative Departments / Local Governments:
       These agencies shall assist in identifying PPP opportunities by defining and specifying high
       priority projects and by critically examining the existing services that could attract PPP
       investment.
       After opportunities are identified, the same shall be forwarded to PPP Unit and after their
       appraisal, tender and execution, the responsibility for monitoring the performance of these
       schemes shall also lie with these governments. These institutions will be consulted continuously
       during the transaction execution phases to ensure that the PPP structure is appropriate.
       Administrative Group (AG):
       Will interact with the AB and PPP network on an ad hoc basis. The group shall bring in political
       and bureaucratic feedback by coordinating with AB and PPP Nodes, which will gain feedback on
       potential projects, policy on sectoral issues, governmental approval on fiscal side and other
       issues that require consensus.
       Finance Department:
       The PPP Unit, unless and until it becomes a semi-autonomous body, shall rest under the Finance
       Department umbrella. Finance Department will channel government support to certain
       infrastructure projects through the Viability Gap Fund to be allocated in the Budget. Finance
       Department will also provide funds under Sindh Infrastructure Advisory Facility Fund (SIAFF)
       for recruitment of transaction advisors under the PPP Unit. These funds shall ensure that funds
       are available in a timely manner with which to pay advisers for transaction advice.


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Public Private Partnership…                                                                     2008

       Network of PPP Nodes:
       In order to structure a comprehensive infrastructure program, GoS should facilitate an intra-
       governmental network of line departments and local governments who may approach the PPP
       Unit to undertake potential infrastructure projects.
       PPP nodes may be established in departments on a case-by-case basis, where the department has
       capacity to assist in undertaking feasibility analysis of projects and assist PPP Unit to design a
       PPP project tender document. The PPP nodes shall also devise their own sector strategy,
       identification, procurement and execution of the projects and ensure transparent and efficient
       project monitoring.
       Sindh Infrastructure Advisory Facility Fund (SIAFF):
       The Infrastructure Advisory Facility will receive an annual budgetary allocation of funds at the
       commencement of the financial year. These funds will be available to meet transaction
       expenditures including the engagement of legal, financial and sector advisors necessary to
       successfully complete a PPP transaction. The logic for establishment of the SIAFF is similar to
       that of the VGF. It is to ensure that transactions run smoothly and that advisers are paid in a
       timely manner so that unecessary delays in project execution are not incurred. Funds would be
       invested in the money markets until they are required to be utilised to pay for transaction
       advisory services.
       Viability Gap Fund (VGF):
       The VGF is proposed to be a fund that is topped up by Finance Department, in accordance with
       PPP contractual arrangements, to give comfort to private sector partners that funds will be
       available on time and in accordance with contractual arrangements.
       While cash stands to the credit of the VGF, it will be maintained in highly liquid, relatively risk
       free interest bearing cash investments that can be liquidated in favour of PPP counterparties as
       and when needed.




                                                Partnership for Development                            14
Public Private Partnership…                                                                    2008

       Attachment 1 - Role and Functions of Advisory Board and PPP Unit
       Role of the Advisory Board: To ensure the integrity of the PPP analytical and project execution
       process and give confidence to the government that all project risks, costs and benefits have been
       appropriately distributed across stakeholders, reflect in rigorously specified and structured
       contractual documentation.

       Functions:

          1. Advise the Chief Minister, Minister for Finance and Cabinet on PPP project assessment
              and execution;
          2. To release reports on the performance of ongoing PPP projects, their efficiency level and
              to set future course of action in developing PPP policies.
          3. Recommend to the Government those PPP projects that should be pursued.
          4. On behalf of government, ensure that projects are executed efficiently, effectively and
              objectively to improve the welfare of the population of Sindh in general.
       Duties:

           1. Hold monthly board meetings
           2. Oversee the work of the PPP Unit, including:
              – Internal operating procedures and processes;
              – Delegation of powers to the head of the Unit and circumscribe the extent of
                  operational autonomy;
              – Final approvals for the engagement of consultants or appointment of consultants to
                  expert panels, on the recommendation of the PPP Unit Head;
              – Approvals related to specific activities/actions considered critical to Unit
                  performance, including budgets, software procurement (above a Rs. threshold), on the
                  recommendation of the PPP Unit Head;
              – Operational risk management policies and procedures (prepared by the Head of Unit);
              – Compliance of Unit with audit.
              – Production of annual accounts;
              – Production of annual report.
           3. Review briefing documents provided by the Head of the PPP Unit, including those
              related to:
              – PPP proposals provided from departments and/or the private sector;
              – Critical project documents prepared during project feasibility and evaluation;
              – Tender documents and structures prepared by the Unit (with expert assistance where
                  appropriate) in relation to each project proposal;
              – Tender assessments carried out by the PPP Unit
              – Final (pre-execution) PPP project documents;
              – Internal operating procedures and risk management policies;
              – Accounts;
              – Progress and performance reports on project execution;
              – Monthly performance reports on the internal operations of the Unit.
           4. The Advisory Board would, on the recommendation of the PPP Unit Head, either
              recommend to Government or reject a proposal to enter into a particular PPP proposal.

                                               Partnership for Development                            15
Public Private Partnership…                                                               2008


       Duties of the PPP Unit Head

           1. To receive PPP proposals from:
              – The private sector;
              – The public sector.
           2. To analyse proposals received for:
              – Economic;
              – Financial; and
              – Social issues.
           3. To coordinate with public sector stakeholders in respect of issues and opportunities
              surrounding particular sectoral proposals submitted by the private sector.
           4. To develop PPP Policy and Guidelines and promote Sindh as a destination for private
              investors.
           5. To develop Board papers providing briefings in relation to:
                  – Day-to-day operations of the Unit (on a monthly basis);
                  – PPP proposals for which an in-depth project appraisal is to be conducted
                     (monthly);
                  – Specific project documents prepared to facilitate project execution, including:
                           i. Tender structure and documents;
                          ii. Contractual documents;
                         iii. Tender assessment procedures;
                         iv. Tender assessment outcomes;
                          v. Risk management;
                         vi. Etc

           6. Prepare budgets for the Unit;
           7. Prepare annual accounts for the Unit;
           8. Prepare annual report for the Unit;
           9. Prepare annual corporate plan for the Unit;
           10. Oversee procurement for the Unit;
           11. Delegate operational powers to section heads;
           12. Hold monthly management meetings
           13. Develop internal operating procedures;
           14. Develop organisational risk management policies and procedures;
           15. Implement staff management strategies, policies and procedures.




                                              Partnership for Development                       16
Public Private Partnership…                                                                                           2008

       Attachment 2 - PPP Unit Draft Budget

       Table 1
       Item                                        Budget year 1      Budget year 2         Budget year 3         Budget year 4
       (all estimates are in 2008 prices)          Rs. million        Rs. million           Rs. million           Rs. million
            Head, PPP Unit (400,000 per month)                 4.8                    4.8                   4.8                   4.8
        Director, Tender Structure and Financial               2.4                    2.4                   2.4                   2.4
                   Analysis (200,000 per month)
                 Director, Tender Evaluation and                2.4                   2.4                   2.4                   2.4
                       Legal(200,000 per month)
        Director, Corporate Services(200,000 per                2.4                   2.4                   2.4                   2.4
                                          month)
         Director, Market Development(200,000                   0.0                   0.0                   2.4                   2.4
                                      per month)
          Secretarial support (50,000 per month)                0.6                   0.6                   1.2                   1.2
       Total Salaries*                                  12.6               12.6                  15.6                  15.6
                            Accommodation                       1.8                   1.8                 1.8                   1.8
                               Consumables                      0.2                   0.2                0.25                  0.25
                                       Utilities                1.0                   1.0                 1.1                   1.1
                Training, seminars, library                     3.0                   3.0                 3.0                   3.0
                                    Transport                   2.0                   2.0                 2.2                   2.2
                                  - Domestic
                              - International
                         Capital purchases                      3.0                   1.0                   0.5                   1.2
                                - Computers
                                   - Software
                    - Furniture and fixtures
                                     - Printers
                               - Photocopier
                             - Filing system
         Maintenance, contract cleaning, etc                    0.2                0.2                    0.2                   0.2
             Board fees (allow 15 per year)                     1.7                1.7                    1.7                   1.7
                                 Consultants                   61.2               61.2                   76.0                  76.0
                                      (SIPDF)
       Total non-salaries                               74.1               72.1                  86.75                 87.45
       TOTAL                                            86.7               84.7                 102.35                103.05

       * Salary estimates are inclusive of all remuneration. It is proposed that there will be no non-monetary remuneration
       and that all benefits will be encashed within the amount listed here against each position. Pension contributions are
       to be deducted from the salary package.




                                                          Partnership for Development                                         17
Public Private Partnership…                                                                            2008


       Attachment 3 - Examples of Good and Bad PPP Execution
       Some examples

       Australia
        Brisbane Airtrain
        Independent Power Producer tender Queensland 1996
        Southbank Education and Training Precinct, Brisbane
        Adelaide-Darwin Railway
        Airport Link, Sydney
        Cross City Tunnel, Sydney
        Eastern Distributor, Sydney
        Lane Cove Tunnel, Sydney
        Sydney Harbour Tunnel, Sydney
        M2 Hills Motorway, Sydney
        M4 Western Motorway, Sydney
        M5 South Western Motorway, Sydney
        Westlink M7, Sydney
        CityLink, Melbourne
        EastLink, Melbourne
        Newcastle Mater Hospital Redeveloment, Newcastle, NSW
        Southern Cross Station, Melbourne
        Headquarters Joint Operations Command (HQJOC)construction and maintenance of a major
          Defence facility. Queanbeyan and Bungendore, [NSW]

       Canada
        The 407 ETR toll road north of Toronto, Ontario
        The Royal Ottawa Mental Health Centre in Ottawa, Ontario
        The William Osler Health Centre in Brampton, Ontario
        The Viva bus rapid transit network in York Region, Ontario
        Confederation Bridge construction in Prince Edward Island
        Canada Line automated rapid transit service in Greater Vancouver, British Columbia.
        MaRS Discovery District a partnership, in Toronto, to commercialize publicly funded medical
          research with the help of private enterprises.
        The western portion of the Highway 30 project west of Montreal, Quebec

       India
        NISG, Hyderabad

       Ireland
       PPPs are being increasingly used in Ireland to deliver both major and minor infrastructural projects.

          National Maritime College of Ireland
          West-Link bridge on M50 motorway in Dublin


                                                   Partnership for Development                                 18
Public Private Partnership…                                                                            2008

       United Kingdom
        Blueprint (General Partner) Ltd
        NHS under Private Finance Initiative (PFI)
        The maintenance of London Underground: Metronet and Tube Lines (since 2003)
        National Air Traffic Services (since 2001)
        Some National Health Service (NHS) hospitals and other agencies
        Williamwood High School
        Beath High School, Cowdenbeath
        Queen Anne High School, Dunfermline
        Stirling High School and various schools in the Stirling area
        Stranraer Academy
        Grosvenor Grammar School, Belfast

       United States
        California Fuel Cell Partnership (CaFCP)
        State Route 125, San Diego, California
        Central Park, New York City
        Chicago Skyway Bridge, Chicago, Illinois
        Dulles Greenway, suburban Washington, DC
        Indiana East-West Toll Road, (Interstate 80/Interstate 90), Northern Indiana
        Las Vegas Monorail, Nevada
        Southern Indiana Toll Road, (Interstate 69, proposed), Martinsville to Evansville, Indiana
        The redevelopment of downtown Chattanooga, Tennessee from the mid-1980s to present.
        Pocahontas Parkway, suburban Richmond, Virginia
        Riverside County Library System, Riverside, California
        Silver Line (Washington Metro), suburban Washington, DC
        HOT (High Occupancy or Toll) Lanes on the Capitol Beltway, suburban Washington, DC, [2]
        Water Taxi Beach, Hunters Point, Queens, New York
        InfraGard [3]
        Federal Reserve


       Case Studies-Successful PPPs

       1. Brisbane's Airtrain

       Initiative: Private sector proposal (Macquarie Infrastructure) in 1997.
       Financing: Infrastructure Investment Bonds and bank financing
       Proposal: Construction of an overhead train line (Airtrain) spur from Eagle Junction linking the State
       Owned Queensland rail network with the Brisbane International Airport and the Brisbane Domestic
       Airport (approx 12km). A light rapid transit train was proposed to run across both tracks from the airport
       down to the Gold Coast. Government would facilitate the purchase of land and use of State land to be
       paid for by the project.




                                                   Partnership for Development                                19
Public Private Partnership…                                                                             2008

       Negotiation changes: QRail (the State owned railway corporation) objected to the use of alternative
       carriages to their existing configuration. Final agreement was that the private consortium would use
       QRail trains on a fee basis.

       The track is to be handed back to government after a concession period of 25 years.

       The State contributes no funds to the project.

       Project performance: The spur became operational in 2000 and became cashflow positive in 2008. The
       recent rapid increase in fuel costs may impact favourably on future profitability of the project.

       2. Queensland Tender for Provision of Power to the National Grid

       In 1996, the Queensland Government conducted a tender for the provision of power generation
       capacity into the State grid (part of the national grid). Approximately twelve conforming proposals were
       received and, ultimately, three generation proposals were selected in three different locations. One was
       a peak loading gas powered plant utilising jet engine technology to be located in the north of the State
       and two others were base load, coal fired stations in the mid-north and southern half of the State.
       An availability fee and a generation fee were negotiated. Approximately 850 megawatts of capacity
       were added to the State grid.

       3. Eastern Link Toll Road System, Melbourne Victoria

       The proposal to build CityLink was first announced in May 1992 and received the State Government's
       formal approval in mid-1994. The contract was awarded to Transurban, a partnership between
       Australia's Transfield Services and Japan's Obayashi Corporation in 1995. The total value of the project
       was estimated in 1996 at about $1.8 billion, and the 34-year concession to operate the road expires in
       2035.

       CityLink was built between 1996 and 2000 and was eight times larger any other road project in
       Melbourne to that time. Toll plazas for manual tolling were impractical, and delays associated with plaza
       operations would have decreased the advantages of using the new road. The decision to use only
       electronic toll collection was made in 1992, when there was no real experience in the field. The first of
       the sections opened to traffic in August 1999, with tolling commencing on January 3, 2000 before final
       completion occurred on December 28, 2000 with tolling commencing the same year.

       The Exhibition Street Extension was not part of the initial project, as the project had been promoted as a
       bypass that would keep cars out of the CBD. Under a contract announced in April 1998, Transurban
       would operate the road and collect tolls from road users, with the road being opened in October 1999.

       It has been hailed by many Melbournians as a great improvement to city traffic flow and accessibility.

       Issues

          Some nearby roads were altered to restrict "rat-runs"; to stop people using neighbourhood back
           streets as short cuts to avoid the toll. Some people have viewed this as local councils 'forcing' people
           to use CityLink.


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Public Private Partnership…                                                                                    2008

            CityLink account holders can, if they make multiple trips in a day, pay more to use the road than a
             casual user. A 24-hour Pass, for example, is charged at a flat rate, but an account holder pays per-
             trip. If an account holder makes multiple trips in a single day, they may pay more than a pass
             customer would. However, CityLink recognises this and account customers can remove their e-TAG
             device and buy a pass for the day - just like casual customers. However there is a limit to the number
             of passes that can be bought each 12 months.

            The contract between the Government and CityLink's owner Transurban has protections for both
             parties. One of these is the ability for Transurban to make a claim against the State Government if
             the State Government does something that reduces the number of cars that could use CityLink. In
             2001 Transurban commenced legal proceedings against the State of Victoria over the construction
             of Wurundjeri Way through the Melbourne Docklands. It was alleged that this 'free' road was
             competing with CityLink and causing it to earn less revenue. This can potentially also be applied if
             the capacity of other roads or rail routes parallel to CityLink are expanded.

            CityLink received negative media coverage when it was wrongly claimed that CityLink account
             holders' credit card details were stored on Transurban's public webserver and that someone had
             hacked into the system and stolen tens of thousands of customers details. Customer details were
             stolen, not by a hacker via the web, but by a former employee who had misused access to the
             secure IT systems.

            The two CityLink tunnels have regularly featured as discussion points on talkback radio, firstly for air
             quality. In the early days of operation, the air quality in the tunnels appeared smoggy. CityLink
             worked a way around the problem by adjusting the venting system, which improved quality and
             dispersed exhaust fumes more effectively. The second issue was regarding the use of massive
             quantities of fresh drinking water pumped into the system to stabilise the tunnel environs. After
             some time, CityLink sought and obtained approval from the State Government to build a water
             recycling plant, which meant they could rely primarily on recycled, and not drinking, water.

       4. Tajikistan Pamir Power Project2

       The Pamir Private Power project worked to restore a reliable electricity supply to the poor and isolated
       inhabitants of Eastern Tajikistan. Under the Soviet Union, 60 percent of Tajikistan’s energy was provided
       by diesel-generated machinery running on imported fuel. Citizens did not have reliable electricity and
       power failures were widespread.
       The Pamir Project was designed to contribute to Tajikistan’s poverty reduction strategy by providing
       basic services, as well as supporting economic growth.
       Financing
       The agreement for the ownership structure was a concession agreement in which the government
       remains the principal owner of all physical assets. Pamir Private Power is responsible for all existing
       electricity generation, transmission and distribution facilities through a privately owned special purpose


       2
        The text here was sourced from, 6th Global Conference on Business and Economics, Boston Massachusetts,
       "Public Private Partnerships: Risks to the Public and Private Sector.", Najja Bracey and Sonia Moldovan, The Louis
       Berger Group, Inc.
                                                       Partnership for Development                                     21
Public Private Partnership…                                                                             2008

       company operating under a 25-year concession agreement. The total cost of the project was $26 million,
       of which $2 million was interest during construction.
       The financing mix was 45 percent through equity and 55 percent debt, which was provided by the
       International Finance Corporation (IFC) and the International Development Association (IDA). IFC
       provided $3.5 million in equity financing; the remainder, $8.2 million was provided by the Aga Khan
       Fund for Economic Development (AKFED), the principal private sector partner in the venture.
       The Pamir Power Project was a success because risks were assessed initially and mitigated before the
       project was implemented. The IFC and IDA provided needed equity as well as the regulatory and legal
       framework. The government agreed to share some of the risks and the Swiss government and World
       Bank provided the remaining funds to cover social protection risks.

       5. Czech Republic model… a replicable solution for Sindh

       During the decentralisation process that was undertaken from 1990 to 2003, the Czech Republic faced
       many similar problems, as do the towns in Sindh, with decentralization resulting in devolved
       responsibilities without adequate financial resources. The municipalities solved this problem first by
       selling the municipal property and raising loans, but these options are limited in Sindh and, in any case,
       are only short-term solutions. In the Czech Republic, the local self-government bodies are looking to the
       private sector to create functional cooperating structures.
       Municipalities started their cooperation with the private sector by the provision of the basic public
       needs such as a waste collection, public lighting, public green areas regeneration, parking areas and
       other technical services. In addition to these classical projects the local governments are now
       cooperating with the private sector more intensively in different types of development projects like
       brownfields regeneration, social and health infrastructure.
       One of the first successful examples of PPP projects in rural areas was the revitalisation of brown fields
       in a small village in the West of the Republic called Zadní Chodov. The local administration entered into
       a PPP for building revitalisation that permitted retention of ownership of property in the public sector
       but enables the Municipality to influence the functional use of the building with positive impacts to the
       local environment.

       Problem PPPs

       1. Mexican highway concessions
       Originally tendered and won largely by large construction companies who had bid for the projects more
       for construction content rather than their long-term revenue flow components as toll roads. This lack of
       understanding and misconception of the risk profile by the construction companies led to future
       problems. These construction companies were not suited to owning projects with large equity
       investments locked into long-term projects. Working capital was tied up and the their normal business
       suffered as a consequence.
       Ultimately, combined with the 1994 peso crisis, the Mexican highway concessions had to go through
       massive restructuring.




                                                    Partnership for Development                                 22
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       2. Hungary3
       When PPPs run into trouble during the life of a long-term project, renegotiations of the risk sharing
       arrangement sometimes fail to get the project back on track in a way that both parties maximize their
       benefits. The M1/M15 road project in Hungary that took place in the early 1990s is a good example of
       what happens in such a case. When the need for a road link between Budapest and the Austrian border
       became evident the Hungarian government issued a competitive international tender for a private
       concession to extend the M1 motorway. In 1991, it created an office within the Ministry of Transport to
       administer the concession and conduct the selection process. There were four international consortia
       that proposed to build the road. Two groups participated in initial negotiations, and one group’s
       finalized proposal was selected. The selected consortium engaged in final negotiations with the
       government and the concession agreement was finally signed in 1993.
       The two parties agreed that the private sector would take on traffic and construction risk. The condition
       for taking on traffic risk was that the concessionaire would be free to set the toll rates.
       Soon after the M1 was completed and the toll road was in the operational phase, it became clear that
       the project was in jeopardy because traffic and use of the toll road was only half the amount that was
       forecast by investors, lenders, and the government. This low demand was caused by a number of
       factors:
                     –   The existence of a parallel road without tolls.
                     –   An over-optimistic toll forecast: assessments were based on no-toll levels of demand
                         and assumed high growth rates throughout the operation period.
                     –   Lower than expected willingness to pay tolls on the behalf of users.
                     –   Inefficient allocation of risks during the initial negotiations.
                     –   Political instability caused by a change of government to one that was not favorable to
                         PPPs.
       In addition, there were complaints that the tolls were too high, and the provider consortium faced
       litigation. It ultimately lost its private funding during this time. To worsen things, the project’s financial
       backer, the EBRD, suspended funding.
       The new government that came into office at this time was opposed to PPPs and private sector funding
       of public projects in general. The EBRD had assumed that its concession contract left room for
       terminating the contract, and therefore, forcing a renegotiation, and renationalized the project.
       However, with the new government’s opposition to PPPs in general, this proved difficult to do in
       practice, and through a series of negotiations with the EBRD, the M1 project was renationalized. This
       constituted a victory in the eyes of the Ministry of Transport, because it was able to bring back total
       control of the project to the government at favorable financial conditions, although it can also be
       considered as just taking back all of the risk.
       In another case in a successor project, a PPP arrangement was made between a Central/Eastern
       European concessionaire and the Hungarian government to build the M5 highway from Budapest to
       Serbia. This time, investors did not trust traffic forecasts, and refused to provide funding unless the
       government agreed to guarantee any difference between the actual and expected return on investment.
       Once again, the EBRD was involved, along with commercial lenders. As predicted, traffic fell far below
       predicted numbers, and the PPP had to be renegotiated. Upon renegotiation, risk allocation changed

       3
           Ibid
                                                      Partnership for Development                                   23
Public Private Partnership…                                                                             2008

       and the arrangement was that toll rates would be subsidized by transfers from the government to the
       concessionaire. This is clearly a case where the private sector renegotiated the terms of the deal by
       pushing the traffic risk back to the government and securing a guaranteed rate of return on its
       investment for itself.
       Conclusion-Why did these PPPs fail?
          Accurate assessment of demand is critical to the successful outcome of a project. Traffic risk can only
           be mitigated through setting toll rates, or requiring the government to make transfers covering the
           difference to make up for lost revenues due to low traffic.
          PPP arrangements for tolled highways that run parallel to toll free roads are not optimal. In such
           cases, it is common for the government to be the party that takes on additional risks not initially
           allocated to it at the beginning of the project. These cases also demonstrate the idea that in
           emerging economies where the government has a desire to improve the business environment to
           attract foreign investment, it often finds it is the weaker party at the renegotiation table.
          Unstable and frequently changing governments with opposing priorities and opinions on PPPs make
           renegotiations difficult, if not impossible.
          In the M1 case, the government lost foreign income and went from a position of not contributing
           financially to a public good, to having to pay for that public good out of its own pocket. Hence, some
           of the economic benefits associated with this public good were lost after the project was
           renationalized.
          The presence of international donors/multilaterals may ease investors’ concerns, but do not
           guarantee that the project will not fail, or will not enter renegotiation.
       3. London Underground
       One performance contract (Tubelines) managed with program/asset management
       (infrastructure/vehicles) and maintenance priorities, and is doing well
       •Two others (Metronet) prioritized buying/selling equipment & station upgrade materials (areas of
       business of consortium members), not consistent with PPP performance contract. Conflicts of interest
       influenced cash flow issues, jeopardized station upgrade program, causing insolvency.
       •LU forced to assume assets, refinanced at $1.2 billion
       In this project, services were split between three companies. While one company remained profitable
       and operating (maintenance/program manager), two others eventually became bankrupt, primarily as
       they focused on that part of the business most closely related to their core business before becoming
       rail operators.
       The main issue is that the partners failed to operate in accordance with their contractual obligations.
       This emphasizes the importance of ongoing monitoring of the PPP contractual obligations by the line
       department.
       4. The Euro Tunnel
       The original channel tunnel became almost bankrupt because it relied for its financial forecast on a high-
       risk strategy that assumed continuing high inflation. Long-term debt (50 years) was locked in at fixed
       interest rates under this assumption, instead of allowing debt costs to track market rates. The
       consequence was near bankruptcy.


                                                   Partnership for Development                                   24
Public Private Partnership…                                                                          2008

       This emphasizes the need to understand the financing model and ensure its integrity. Part of the bid
       evaluation and contract negotiation phases.




                                                  Partnership for Development                                 25
Public Private Partnership…                                                             2008

       Attachment 4 - PPP Contractual Clauses

       The Contractual Provisions in a PPP

       The contractual provisions in all PPP contracts are complex and include, among others, the
       following:
            Requirement for performance bonds,
            Insurance requirements,
            Delay provisions,
            Force majeure,
            Governmental action,
            Government warranties,
            Private sector warranties,
            Change in the law,
            Variations,
            Termination,
            Indemnification,
            Intellectual property,
            Claims,
            Financial security,
            Dispute resolution,
            Partnership management,
            Compliance with all laws,
            Personnel, and
            Conditions precedent.




                                             Partnership for Development                      26
Public Private Partnership…                                                                    2008


       Attachment 5 - Position Descriptions and Selection Criteria for PPP Unit Staff


            Head, PPP Unit
            Duties:
           1. To manage the PPP Unit and the implementation of relevant government policy
               efficiently and effectively.
           2. To promote the dissemination of information with respect to Private Sector Investment
               policy amongst the community at the grass roots level and within the business
               community.
           3. To receive PPP proposals from:
               – The private sector;
               – The public sector.
           4. To allocate to Unit staff for analysis of the proposals that the Unit receives.
           5. To coordinate with relevant stakeholders in respect of issues and opportunities
               surrounding particular sectoral proposals submitted for consideration.
           6. To oversee the development of PPP Policy and Guidelines.
           7. To develop Board papers providing briefings in relation to:
                   – Day-to-day operations of the Unit (on a monthly basis);
                   – PPP proposals for which an in-depth project appraisal is to be conducted
                       (monthly);
                   – Specific project documents prepared to facilitate project execution, including:
                            i. Tender structure and documents;
                           ii. Contractual documents;
                          iii. Tender assessment procedures;
                          iv. Tender assessment outcomes;
                           v. Risk management;
                          vi. Etc
           8. Present monthly, quarterly and annual reports of PPP Unit operations to the Advisory
               Board;
           9. Delegate operational powers to section heads;
           10. Hold monthly management meetings
           11. Develop internal operating procedures;
           12. Develop organisational risk management policies and procedures;
           13. Implement staff management strategies, policies and procedures.
            Qualifications:
          1. Educational qualification in finance, economics, accounting or law
          2. At least 5 years experience as the head of management of a major organization with
             special emphasis on risk management and financial planning.
          3. At least 10 years experience in the financial sector of government or the private sector
          4. Has carried out some sort of public-private, private-private or public-public project as a
             successful model.


                                               Partnership for Development                              27
Public Private Partnership…                                                                    2008

          5. Unblemished record



            Director, Tender structuring and financial analysis
            Duties:
           1. Analyse proposals as potential PPP arrangements with respect to:
               – Economic;
               – Financial; and
               – Social issues.
           2. To coordinate with public sector stakeholders in respect of issues and opportunities
               surrounding particular sectoral proposals submitted by the private sector.
           3. To develop PPP Policy and Guidelines and promote Sindh as a destination for private
               investors.
           4. To develop tender documentation and evaluation methodologies;
           5. To identify consulting needs and coordinate the engagement of consultants to execute
               PPP transactions;
           6. To negotiate PPP contracts with private sector entities and incorporate risk management
               initiatives in favour of the people of Sindh, through government;
           7. To develop Board papers providing briefings in relation to:
                    – Day-to-day operations of the Unit (on a monthly basis);
                    – PPP proposals for which an in-depth project appraisal is to be conducted
                        (monthly);
                    – Specific project documents prepared to facilitate project execution, including:
                             i. Tender structure and documents;
                            ii. Contractual documents;
                           iii. Tender assessment procedures;
                           iv. Tender assessment outcomes;
                            v. Risk management;
                           vi. Etc
           8. Assist in preparing budgets for the Unit;
           9. Assist in preparing annual report for the Unit;
           10. Assist in preparing annual corporate plan for the Unit;
           11. Participate in monthly management meetings;
           12. Assist to develop internal operating procedures;
           13. Assist to develop organisational risk management policies and procedures;
           14. Implement staff management strategies, policies and procedures; and
           15. Any other duties assigned by the Head of the Unit.
            Qualifications
          1. Qualifications in finance, economics, accounting or law.
          2. At least 5 years experience at a senior management level in the finance sector.
          3. Experience in undertaking tendering exercises and developing evaluation methodologies.


                                               Partnership for Development                        28
Public Private Partnership…                                                                    2008

          4. Understanding of risk analysis and management, preferably in an operational
             environment.


            Director, Commercial contracting and Legal
            Duties:
           1. Analyse proposals as potential PPP arrangements with respect to:
               – Economic;
               – Financial; and
               – Social issues.
           2. To coordinate with public sector stakeholders in respect of issues and opportunities
               surrounding particular sectoral proposals submitted by the private sector.
           3. To develop PPP Policy and Guidelines and promote Sindh as a destination for private
               investors.
           4. To develop PPP documentation including PPP contracts;
           5. To identify consulting needs and coordinate the engagement of consultants to execute
               PPP transactions;
           6. To negotiate PPP contractual documents in favour of the people of Sindh, through
               government;
           7. To assist in the preparation of legal contracts, with particular reference to incorporation
               of risk management initiatives in respect of particular PPP transactions;
           8. To develop Board papers providing briefings in relation to:
                   – Day-to-day operations of the Unit (on a monthly basis);
                   – PPP proposals for which an in-depth project appraisal is to be conducted
                       (monthly);
                   – Specific project documents prepared to facilitate project execution, including:
                            i. Tender structure and documents;
                           ii. Contractual documents;
                          iii. Tender assessment procedures;
                          iv. Tender assessment outcomes;
                           v. Risk management;
                          vi. Etc
           9. Assist in preparing budgets for the Unit;
           10. Assist in preparing annual report for the Unit;
           11. Assist in preparing annual corporate plan for the Unit;
           12. Participate in monthly management meetings;
           13. Assist to develop internal operating procedures;
           14. Assist to develop organisational risk management policies and procedures;
           15. Implement staff management strategies, policies and procedures; and
           16. Any other duties assigned by the Head of the Unit.
            Qualifications
           1. Qualifications in finance, economics, accounting or law.
           2. At least 5 years experience at a senior management level in the finance and/or legal
              sector.

                                                Partnership for Development                           29
Public Private Partnership…                                                                   2008

           3. Experience in negotiation of legal contracts.
           4. Understanding of risk analysis and management, preferably in an operational
              environment and incorporating risk management clauses into legal contracts.
           5. Preferably, experience in developing tender documents and developing evaluation
              methodologies.


            Director, Corporate Services
            Duties:
           1. To undertake the accounting functions of the PPP Unit;
           2. To oversee the implementation and management of the recording keeping systems of the
               Unit, including filing (physical and electronic), accounting and library;
           3. Take responsibility for coordinating the preparation of budgets for the Unit;
           4. Take responsibility for coordinating the preparation of the annual report for the Unit;
           5. Take responsibility for coordinating the preparation of the annual corporate plan for the
               Unit;
           6. Assist with the analysis of proposals as potential PPP arrangements with respect to:
               – Economic;
               – Financial; and
               – Social issues.
           7. To coordinate with public sector stakeholders in respect of issues and opportunities
               surrounding particular sectoral proposals submitted by the private sector.
           8. To develop PPP Policy and Guidelines and promote Sindh as a destination for private
               investors.
           9. To develop tender documentation and evaluation methodolgies;
           10. To identify consulting needs and coordinate the engagement of consultants to execute
               PPP transactions;
           11. To negotiate PPP contracts with private sector entities and incorporate risk management
               initiatives in favour of the people of Sindh, through government;
           12. To develop Board papers providing briefings in relation to:
                    – Day-to-day operations of the Unit (on a monthly basis);
                    – PPP proposals for which an in-depth project appraisal is to be conducted
                        (monthly);
                    – Specific project documents prepared to facilitate project execution, including:
                             i. Tender structure and documents;
                            ii. Contractual documents;
                           iii. Tender assessment procedures;
                           iv. Tender assessment outcomes;
                            v. Risk management;
                           vi. Etc
           13. Participate in monthly management meetings;
           14. Assist to develop internal operating procedures;
           15. Assist to develop organisational risk management policies and procedures;
           16. Implement staff management strategies, policies and procedures; and
           17. Any other duties assigned by the Head of the Unit.
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Public Private Partnership…                                                                      2008

            Qualifications
          1. Qualifications in accounting.
          2. At least 5 years experience at a senior management level in the finance sector.
          3. Understanding of risk analysis and management, preferably in an operational
             environment.
          4. Preferably, experience in double entry accounting.


            Support staff - secretarial support
            Duties:
            Providing typing, filing and clerical support to the senior staff of the PPP Unit.


            Qualifications
            Typing at 40 words per minute or better
            Shorthand at 60 words per minute or better
            Preferably, experience in managing a filing system
            At least 5 years work experience in a secretarial role.
            Experience in a legal firm would be highly regarded.




                                                  Partnership for Development                       31
Public Private Partnership…                                                                       2008

       Attachment 5 - PPP Opportunities/ Sectoral Policy of Government of Sindh

       Human Resource Sector

       An assessment should be made of the existing training facilities and the future requirement of
       skilled manpower in the province and measures should be taken to meet the gap between the
       requirement and the actual availability. The State will provide incentives to increase the
       presently available specialties in the training institutions, both in the private and government
       sector. Efforts will be made to involve the private sector and the owners of existing industrial
       units to set up new technical institutions. For this purpose, in addition to concessional land, other
       necessary assistance will also be provided.

       IT policy

       The Government of Sindh’s IT policy aims to leverage the potential of Information Technology
       for rapid social and economic development to significantly improve the quality of life for its
       citizens. It also aims to establish Sindh as the leading destination of choice for IT Investment and
       promote the growth of local IT industry in the state. The key initiative taken by the government
       is to encourage public-private-partnership policy for e-Governance

       The Sindh Government is also taking steps to promote IT in various aspects of governance.
       These include:

              Linking treasuries and sub-treasury offices in the province.
              Provided and providing land at concessional rates to all universities imparting IT
              education
              Computerizing land records.

       Industrial Policy

       An industrial policy can be devised by incentivize and promote private sector participation for
       creation of industrial infrastructure in the province.

       Directed incentives may be provided for industrial investment in the State in the form of interest
       subsidy, infrastructure development / capital investment subsidy, exemption from electricity
       duty, exemption from stamp duty, exemption from entry tax, allotment of plots at concessional
       premium in industrial areas, reimbursement of project reports expenses, quality certification
       subsidy, technology patent subsidy, interest subsidy for technology up gradation etc.

       Private sector participation in infrastructure building will be encouraged, particularly in basic
       infrastructure like roads, power, water supply, housing; industrial infrastructure such as
       development of industrial areas and parks, cluster development; logistics infrastructure like air-
       cargo complex, inland container depot, warehousing, logistics hub; and social infrastructure like
       health, education, tourism etc.


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Public Private Partnership…                                                                     2008

       An action plan will be prepared for promotion of export-oriented units to be implemented by
       availing of the benefit of various export promotion schemes of other countries. Initiatives will be
       taken for creation of infrastructure necessary for promotion of exports. Assessment of
       government's export potential will be undertaken through a national level institute / agency.

       Road Sector Policy

           An efficient road network is necessary both for national integration as well as for socio-
           economic development.




                                                Partnership for Development                            33

				
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