PPPs: PREREQUISITES FOR PRIME PERFOMANCE
Evaluation of PPP projects Financed by the European Investment Bank
Campbell Thomson
Conseiller/Adviser
Operations Evaluation, EIB
Presentation Scheme
• Brief Introduction to Operations Evaluation at the EIB • Risks • Impact of PPP mechanism - on Projects • Impact of PPP mechanism - on the EIB • Performance of Underlying Project • Summary and Conclusions
What is EV’s role in the EIB?
• To evaluate the EIB’s investments, on a thematic basis, against the ECG/OECD criteria. • The core criteria are Relevance/Efficacy, Efficiency and Sustainability • Other criteria depending on the nature of the individual evaluations. • Self-learning • www.eib.org
PPP Evaluation
• Desk review of 15 projects • In-depth review of 10 projects • Internal presentation of findings • Publication – Near Future • Confidentiality issues
PPPs: Risks
• Completion Risk • O&M Risk • Market / Revenue Risk • Termination Risk • Funding Risk
PPPs: The Impact on Projects 1
• Why use a PPP: Is there a next best solution?
PPPs: The Impact on Projects 1a
In v e s to r s
E IB
G u a ra n te e
C o m m e r c ia l banks
E q u it y
P r o je c t F in a n c e D e b t
C o n tra c to r
F u n d in g
T u rn k e y c o n s t r u c t io n c o n tra c t
P r iv a te -S e c to r P r o v id e r
P u b lic -S e c to r P ro m o te r
P P P c o n tr a c t
M a jo r m a in t e n a n c e
T o ll p a y m e n ts
O p e r a tin g c o n tra c t
R o a d u s e rs
O p e ra to r
Better than
PPPs: The Impact on Projects 1b
This Capital budget Promoter Contractor EIB
“The project”
?
PPPs: The Impact on Projects 1
• Why use a PPP: Is there a next best solution? • Rationale for choosing a PPP • Contractual complexity • Mitigation • On-time and On-Budget?
PPPs: The Impact on Projects 2
• Long Term: Risk Sharing and Sustainability? • Tax / Innovation / Skills Transfer / Discipline • PPPs vs Public Procurement?
PPPs: The Impact on the EIB
• Policy Framework • Project Relationships • Organisational Issues
EIB Value-Added
• Availability of funding / loan maturity • Funding advantage • Other benefits of EIB involvement: – Project validation – Catalytic effect / market development – Skills transfer – Long-term commitment – Political effects
Performance of Underlying Project
• Relevance / Efficacy: All Positive • Efficiency: Some weakness - Low traffic levels • Sustainability: Almost all positive - Financial: Potential problems with some tolls projects –Technical, Environmental : Good
Main Conclusions
• Notwithstanding the desirability of PSC and VfM analyses, the alternative to the projects evaluated was no project – not public procurement. • Key indicators of success are the level of competition and the clarity and permanence of the project’s specification.
Prerequisites for Prime Performance
• Remember Ockham’s razor • Clear boundaries / specifications / definitions • Maximise competition • Use PPP advantages • Private partner must be strong enough to carry the risks.