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Public Private PartnershipsPublic Private Partnerships

What are They? Theory and PracticeWhat are They? Theory and Practice

Carlo Cottarelli

Deputy Director, Fiscal Affairs Department , IMF

February 2008

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Part I: What are PPPs and how to Part I: What are PPPs and how to implement themimplement them

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What are PPPs?What are PPPs?

Public-Private Public-Private Cooperation / Cooperation / Dimension of Dimension of ChangeChange

Private RolePrivate Role Risk Sharing / Risk Sharing / TransferTransferFinancingFinancing Investing Investing

in Infrast. in Infrast. AssetsAssets

Service Service ProvisionProvision

IMFIMF √√ √ √ √ √ √ √ √√OECDOECD √√ √ √ √√EIBEIB √√ √√ √√ √√UKUK √√ √√ √√ √√NZTNZT √√ √√ √√ √√

Non essential: SPV, user fees, price regulation.Non essential: SPV, user fees, price regulation.

A form of procurement of public assets with private involvement. Specific characteristics:

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Fiscal Sustainability Perspective of PPPsFiscal Sustainability Perspective of PPPs

Fiscal sustainability perspective is key: Fiscal sustainability perspective is key: gather under the same label of PPP all gather under the same label of PPP all arrangements that have two common arrangements that have two common denominators denominators provision by private sector of a public service provision by private sector of a public service

through a contract that backloads the through a contract that backloads the cash cash flowflow payment for the government arising from payment for the government arising from the provision of the service; and the provision of the service; and

Sharing of riskSharing of risk between public and private between public and private sector that is sector that is innovativeinnovative with respect to with respect to traditional forms of risk sharing. traditional forms of risk sharing.

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Risk DistributionRisk Distribution

Source: E. Farquharson, PartnershipsUKSource: E. Farquharson, PartnershipsUK

Pri

vate

Sect

or Design & construction

Service provision

Maintenance & renewal

Quality of service

Volume

Force majeure

Obsolescence

Residual value

Regulation/policy

Design & construction

Service provision

Maintenance & renewal

Quality of service

Volume

Public Procurement PPP

Govern

men

t

Force majeure

Obsolescence

Residual value

Regulation/policy

Types of PPP arrangements vary depending on degree of Types of PPP arrangements vary depending on degree of involvement (and risk sharing) of private sectorinvolvement (and risk sharing) of private sector

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Part II: PPPs in PracticePart II: PPPs in Practice

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Empirical Evidence on PPPsEmpirical Evidence on PPPs

Growing interest in PPPs in many countriesGrowing interest in PPPs in many countriesCovering a broad range of activitiesCovering a broad range of activitiesIn this presentation empirical evidence only on In this presentation empirical evidence only on economic infrastructure economic infrastructure Experience also in social infrastructure, although Experience also in social infrastructure, although successful implementation is more challenging: successful implementation is more challenging: technological change, need measurable and technological change, need measurable and monitorable indicators of output/service monitorable indicators of output/service provisionprovision Data sources: IMF country work, World Bank Data sources: IMF country work, World Bank PPI database, EIBPPI database, EIB

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PPPs around the WorldPPPs around the WorldPPPs are becoming popular with many low and PPPs are becoming popular with many low and middle income countriesmiddle income countries

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PPPs in timePPPs in timeA lot of talk about PPPs now, but they have been A lot of talk about PPPs now, but they have been around for a whilearound for a while

Still, they represent a low share of public Still, they represent a low share of public investment flows. But trend is increasinginvestment flows. But trend is increasing

Projects per Year

0

20

40

60

80

100

120

140

160

180

Source: World Bank, private participation in infrastructure (PPI) database

3-yr moving average

1010

PPPs by SectorPPPs by SectorMore prevalent in roads, but important in other More prevalent in roads, but important in other areas. Electricity higher measured by investmentareas. Electricity higher measured by investmentActivity in social infrastructure less frequent but Activity in social infrastructure less frequent but expandingexpandingLimited information on PPP activityLimited information on PPP activityRole for national registriesRole for national registries

PPPs by Sector (1990-2006)

050

100150200250300350400450500

0102030405060708090

Number of Projects (left axis) Investment (US$ bn)

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Improving country practices for PPPsImproving country practices for PPPs

Increasing interest in PPPs evident from Fund Increasing interest in PPPs evident from Fund interaction with member countriesinteraction with member countries

Countries moving to strengthen institutional Countries moving to strengthen institutional frameworks:frameworks: Introducing specialized legal frameworks (Brazil, Introducing specialized legal frameworks (Brazil,

Cameroon, Czech Rep., Nigeria, Peru)Cameroon, Czech Rep., Nigeria, Peru) Setting up PPP units (Egypt, Chile) as knowledge Setting up PPP units (Egypt, Chile) as knowledge

centers and sometimes as project gateways (Peru, centers and sometimes as project gateways (Peru, South Africa)South Africa)

Establishing adequate accounting rules (UK, Establishing adequate accounting rules (UK, Australia)Australia)

Strengthening measurement and reporting in budget Strengthening measurement and reporting in budget annexes, DSAs (Brazil, Chile, Colombia)annexes, DSAs (Brazil, Chile, Colombia)

Establishing fiscal rules (caps on PPP flows/stocks, Establishing fiscal rules (caps on PPP flows/stocks, stock of contingent liabilities)stock of contingent liabilities)

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Improving country practices for PPPsImproving country practices for PPPs

However implementation is not uniform across However implementation is not uniform across countries, good practices should pay attention tocountries, good practices should pay attention to greater integration of PPPs with public investment greater integration of PPPs with public investment

plans and medium term frameworksplans and medium term frameworks strengthening public investment processes, including strengthening public investment processes, including

PPPs PPPs doing PPPs for the right reasons (VfM, affordability, doing PPPs for the right reasons (VfM, affordability,

CBA, public sector comparators)CBA, public sector comparators) putting in place sound legal and institutional putting in place sound legal and institutional

frameworksframeworks appropriate accounting and reporting proceduresappropriate accounting and reporting procedures

Importance of OECD countries in continued Importance of OECD countries in continued dissemination of good PPP practices in their role dissemination of good PPP practices in their role as donors in the developing worldas donors in the developing world

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IMF Work on PPPsIMF Work on PPPsBoard papers & books: Papers in 2004 “Papers in 2004 “Public Private Public Private Partnerships;” Partnerships;” paper in 2005 summarizing 8 pilot country case paper in 2005 summarizing 8 pilot country case studies on public investment & fiscal policy (including PPPs); paper studies on public investment & fiscal policy (including PPPs); paper in 2005 on “Gin 2005 on “Government Guarantees & Fiscal Risk;” overnment Guarantees & Fiscal Risk;” book in 2006 book in 2006 on on “Public-Private Partnerships, Government Guarantees, and “Public-Private Partnerships, Government Guarantees, and Fiscal Risks,” paper in 2007 on Public-Private Partnerships and Fiscal Risks,” paper in 2007 on Public-Private Partnerships and Fiscal Risks”Fiscal Risks”Technical assistance: On managing fiscal risks from PPPs, in EU On managing fiscal risks from PPPs, in EU member and African countries. About 10 missions in the last 3 yearsmember and African countries. About 10 missions in the last 3 yearsSurveillance: Several Art. IV consultations discussed FRLs, legal Several Art. IV consultations discussed FRLs, legal frameworks, accounting issues, and inclusion in DSAframeworks, accounting issues, and inclusion in DSAResearch: (ongoing) on fiscal risks and PPPs.(ongoing) on fiscal risks and PPPs.Outreach seminars: On public investment and PPPs in South On public investment and PPPs in South America (Brazil, Apr/05), Asia (Korea, Nov/05), Africa (South Africa, America (Brazil, Apr/05), Asia (Korea, Nov/05), Africa (South Africa, May/05), Europe (Hungary, Mar/07)May/05), Europe (Hungary, Mar/07)

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SummarySummaryThere is an increased interest in PPPs as a There is an increased interest in PPPs as a method for procuring public assets across the method for procuring public assets across the worldworldBut actual use of PPPs remains limitedBut actual use of PPPs remains limitedAdequate management of fiscal risks from PPPs Adequate management of fiscal risks from PPPs is a key challengeis a key challengeDo them for the right reason and do them rightDo them for the right reason and do them right PPPs should lead to better value for moneyPPPs should lead to better value for money Provide an appropriate enabling environment (public Provide an appropriate enabling environment (public

investment planning, laws, and institutions)investment planning, laws, and institutions)

Progress being made but continued need for Progress being made but continued need for capacity building in many countriescapacity building in many countries

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Thank you!Thank you!