Presentation of the “SIGMA Workshop on PPP characteristics, models & sectors”, held in Ankara on 11-12 April 2018. Presentation made by Mr. Mario Turkovic, SIGMA.

1. © OECD
PPP characteristics, models
and sectors
Mario Turković
OECD/SIGMA
Ankara 11/12 April 2018

2. Structure
1. PPP – term and definition
2. Main PPP features
3. PPP models and sectors
4. Typical PPP structure
5. PPP (dis)advantages

3. Definition
Classic
public
contracts
PPPs
Concessions
Management Contracts
Joint Ventures
Part-Privatization
DBF BOT PFI DBFM
Privatization
More private – less public control
Source: IFS / PWC

4. Public-Private Partnership is a contractual
agreement between
PUBLIC
PRIVATE
PARTNERSHIP
Owner of assets and service
provider
Skills, experience and finance
Co-operation and risk sharing
Definition

5.  Public sector gives a right to a private sector to
exploit public assets and/or right to provide a
certain service that is under usual competences
of public sector.
 More than one obligation is passed to private
sector - to design, finance, built, operate and
maintain and/or to provide the (public) service
to the end users.
 Long term contract - provision of a new or
existing service over a pre-determined time
(often a longer period of time – 20 to 30 years -
than is customary in public contracts) - whole life
costs of a project (!)
Definition

6. Definition
 Payment of a periodic charge to the private
partner by a public entity and/or, possibly,
payments by the public directly as user if the
PPP is a works/services concession.
 No obligation of the public entity to pay until
the asset is being used in the provision of the
service
 The scope, price, quality, time scale, means
of service delivery etc. are regulated by the
public entity
 All risks been indentified and allocated
between partners - risk share is crucial

7. Definition
Risks share
PUBLIC PARTNER
Risk undertaking
Permits
Institutional
framework (taxes,
city planning etc.)
Political Risks
PRIVATE PARTNER
Risk transferRisk
Transfer / Undertaking
Design
Construction
Operation
Financing
Technology
Inflation
demand (use /
volume)
force majeure facts
Source: IFS / PWC

8. Definition
On the EU level:
 It is used as an “umbrella” term that describes
only a specific situation when public
authorities and private entities cooperate in
order to meet a general interest (NO directive
on PPP)
 PPP is being addressed by communications
 In legal terms it can be either a public (work or
service) contract or a (work and service)
concession, depending on the case (EU
directives 2014/23, 24 and 25)
 In both cases MS has to follow EU rules in
private partner selection procedure

9. Key features
1.Technical:
• output, not input specifications
• whole life approach to design, build and
operation
• defined standards of services
• payments related to service delivery – payment
mechanism
2. Financial:
• private sector funding (equity + loan)
• project financing structure (SPV)
• risks identification, calculation and allocation
• PSC calculations – WfM test

10. Key features
3. Legal:
• complex tender documentation and PP
procedure
• complex PPP (and other) contracts
• monitoring of implementation
4. Other:
• strategic approach – political (and public)
support
• flexibility during implementation
• off balance sheet treatment of projects

11. Models and sectors
Taking into account how private partner makes a
return of its investment) :
1. Availability based projects (PFI): public partner
pays availability fee to the private partner
under certain conditions.
2. Service based projects (BOT, “concession”
type): private partner gets renumerated by the
end users payments (“free standing PPPs”).
3. Mixed PPPs (combination of two mentioned
models)

12. Models and sectors
PPP in terms of EU Directives
 Availability based PPP projects legally realized as public
contracts for works/services in the sense of Directives
2014/24/EU (Public Sector Directive) or 2014/25/EU
(Utilities Directive)
 Demand based PPP projects legally realized as
concessions for works/services in the sense of Directive
2014/23/EU (Concessions Directive)
PPP contracts, therefore, in the sense of the EU Directives
could be (subject to the applicable PPP definition) either
public (works/services) contracts or concessions (for
works/services).
11

13. Models and sectors
Concessions
In the sense of Directive 2014/23/EU ‘Concessions
Directive’):
• A works concession is a contract of the same type as a
public works contract except for the fact that the
consideration for the works to be carried out consists
either solely in the right to exploit the works or in this right
together with payment.
• A service concession is a contract of the same type as a
public service contract except for the fact that the
consideration for the provision of services consists either
solely in the right to exploit the service or in this right
together with payment. 12

14. Models and sectors
Concessions
Transfer of an operating risk is a core element of concessions:
“The award of a works or services concession shall involve the
transfer to the concessionaire of an operating risk in exploiting
those works or services encompassing demand or supply risk or
both.
The concessionaire shall be deemed to assume operating risk
where, under normal operating conditions, it is not guaranteed
to recoup the investments made or the costs incurred in
operating the works or the services which are the subject-matter
of the concession. The part of the risk transferred to the
concessionaire shall involve real exposure to the vagaries of the
market, such that any potential estimated loss incurred by the
concessionaire shall not be merely nominal or negligible”
13

15. Models and sectors
Taking into account the structure of private partner
participation into the project) :
1. Contractual model (the most common): private
partner creates a SPV and all obligations
between public and private partner are
regulated within the contract between public
partner and SPV
2. Institutionalized model: Public and private
partner creates a joint company that is
responsible for delivery of a project. Private
partner has to participate actively in project
implementation (it is not enough that private
partner only participates via its financial
contribution).

16. Models and sectors
Taking into account the legal nature of
contract:
1. Public (works or services ) contract
2. Concession (works or services ) contracts
Taking into account the nature of
infrastructure:
1. Social infrastructure PPP projects
2. Economic infrastructure PPP projects

17. Models and sectors
PPPs are being used in following sectors:
• water supply/wastewater treatment,
• solid waste management,
• energy,
• telecommunications,
• transportation (rail, metro, roads, traffic
management, ports),
• urban development (including social housing),
• schools, hospitals/health care,
• office accommodation, leisure facilities,
• defense,
• street lighting,
• IT services,
• criminal justice (prisons, courts), etc

18. PPP Structure
Construction
Contractor
Maintenance
Contractor
Project
Funding
Soft FM
Contractor
Maintenance
Contract
Construction
Contract
“Soft FM” Contract (e.g.
cleaning, catering, security)
Project contract
Sub-Contracts
Funders
Public
AuthoritySponsors
Project
Company (SPV)
User
services
Fees / tolls
(if PPP is a
concession)
Project-
Finance DebtEquity
Availability
payments /
“shadow-tolls
(if PPP is a PFI)

19. PPP Structure
 Public entity awards contract to private sector partner
 Private sector partner creates an ad hoc company
(Special Purpose Vehicle) to operate the contract
 The partner finances the transaction by its own equity
and also borrowing the majority of funds from third party
sources (off balance sheet)
 The SPV sub-contracts the construction and maintenance
of asset and operation of the service
 The private partner’s fee is paid either by the users or by
public entity through periodic (availability) payments
 The private sector partner uses this income to repay its
loan and pay dividends to its shareholders

20. Advantages
Financing of more projects without impact on the
public finances
Financing projects which can’t be done through
publicly funded capital program
Continuity in capital investment
Potential for improved services, lower costs,
improved income collection – better value for
money
Promotion of the development of the national
economy as well of the employment rate through
the encouragement of private investments

21. Disadvantages
 Cost of preparation and procurement
(transaction costs)
 Cost of termination and role of lenders
 Loss of service delivery capability
 Paying for specific riskss
 Negative public image

22. Summary
PPPs are complex, long term, high value transactions
which deliver public infrastructure through procuring
services rather than capital assets.
 Public sector defines service requirement
 Private sector designs, finances, builds,
operates the asset
 Full or partial financing of the projects by the
private sector
 providing effective risk allocation between the
partners
 aiming to deliver better value for money
PPPs can be successful tool, BUT it is important to have
strong political support, to set up appropriate legal and
institutional frame and to strengthen the public sector
capability in preparation and implementation of PPPs