intro to ppp

7/28/2019 Intro to PPP

1/129

Department of the Environment and Local Government Introduction to Public Private Partnerships

Introduction to Public Private Partnerships

Public Private Partnership Guidance Note 1

14 April 2000

Guidance Note 1 14 April 2000


2/129


Contents

Section Page

I. INTRODUCTION................................................................................ ....................................................... 1

PURPOSE AND SCOPE OF GUIDANCENOTE .........................................................................................................1BACKGROUND TO PUBLIC PRIVATE PARTNERSHIPS............................................................................................1STRUCTURE OF GUIDANCENOTE........................................................................................................................2

II. PUBLIC PRIVATE PARTNERSHIPS.................................................................. ................................... 3

INTRODUCTION...................................................................................................................................................3BENEFITS OF PUBLIC PRIVATE PARTNERSHIPS ...................................................................................................3

III. INTERNATIONAL EXPERIENCE ........................................................ ................................................. 6

INTRODUCTION...................................................................................................................................................6INTERNATIONAL INTEREST IN PUBLIC PRIVATE PARTNERSHIPS .........................................................................6

FORMS OF PUBLIC PRIVATE PARTNERSHIP .........................................................................................................7INTERNATIONAL DEVELOPMENTS AND EXPERIENCE ..........................................................................................9

IV. PUBLIC PRIVATE PARTNERSHIPS IN IRELAND ......................................................... ................. 16

NATIONAL DEVELOPMENT PLAN......................................................................................................................16PUBLIC PRIVATE PARTNERSHIPS ......................................................................................................................17OBJECTIVES AND PROJECTS ..............................................................................................................................18

V. ROADS, WATER AND WASTE PROJECTS.......................... ............................................................. 19

PROJECT IDENTIFICATION.................................................................................................................................19PUBLIC PRIVATE PARTNERSHIP FORMS ............................................................................................................21

ROADS, WATER AND WASTE PROJECTS ...........................................................................................................23INITIAL MARKET SOUNDING.............................................................................................................................26

VI. PUBLIC PRIVATE PARTNERSHIPS POLICY FRAMEWORK....................... ............................... 28

INTRODUCTION.................................................................................................................................................28STAGES IN A TRADITIONAL PROJECT ................................................................................................................28STAGES IN A PUBLIC PRIVATE PARTNERSHIP PROJECT .....................................................................................30PUBLIC PRIVATE PARTNERSHIP ROUTE MAP ....................................................................................................31GUIDANCE ON PUBLIC PRIVATE PARTNERSHIPS ...............................................................................................34

PUBLIC PRIVATE PARTNERSHIPS POLICY FRAMEWORK....................................................................................38

VII. CONCLUSIONS AND RECOMMENDATIONS .................................................................... ......... 39

INTRODUCTION.................................................................................................................................................39ROLES OF THE PUBLIC AND PRIVATE SECTORS.................................................................................................39PILOT PROJECTS ...............................................................................................................................................39

MARKET SOUNDING .........................................................................................................................................40PUBLIC PRIVATE PARTNERSHIPS POLICY FRAMEWORK....................................................................................40

VIII. FURTHER INFORMATION.............................................................................. ................................ 42

PUBLIC PRIVATE PARTNERSHIP UNITS .............................................................................................................42

APPENDICES..................................................................................... ........................................................... ..... 43

A. STAGES IN TRADITIONAL ROADS, WATER AND WASTE PROJECTS................................................. ......... 43B. CONTACT DETAILS FORPPP UNITS ........................................................................................................45



3/129


I. Introduction

Purpose and Scope of Guidance Note

1.1 This Guidance Note is the first in a series of Guidance Notes that provide contextualinformation on Public Private Partnerships and procedural guidance for Central and

Contracting Authorities covering each stage in the development and implementation

of infrastructure projects using the Public Private Partnership approach.

1.2 The Guidance Note introduces the principles of Public Private Partnerships, describes

the development of Public Private Partnerships in other parts of the world and creates

a framework to support the implementation of Public Private Partnership projects in

the roads, water and waste sectors in Ireland.

1.3 The Guidance Notes are designed to be informative rather than prescriptive and the

aim is to reflect good practice. They are generic in that they provide guidance on theuse of Public Private Partnerships across a range of projects in the roads, water and

waste sectors. However, different projects will give rise to different issues and the

guidance provided will have to be reviewed in the context of each individual project.

For this reason it is important that Central and Contracting Authorities obtain expert

advice in order to help them to make best use of the Guidance Notes and to complete

a successful Public Private Partnership procurement.

Background to Public Private Partnerships

1.4 A Public Private Partnership is a partnership between the public sector and the private

sector for the purpose of delivering a project or a service traditionally provided by the

public sector. Public Private Partnerships are not new and in sectors such as transport,

roads and water they have been evolving for a number of years in Europe and the rest

of the world.

1.5 Within Ireland, informal Public Private Partnership arrangements have been used to

deliver a number of significant infrastructure projects. These include the East and

West Link toll bridges, the programme for decentralised government offices, a new

peat-fired power station (which is being designed, built, financed and operated by a

private sector contractor), and various other projects that have been designed and built

by the private sector.

1.6 However, it was only in 1998 that attention focused on the potential benefits of Public

Private Partnerships as a means of addressing infrastructure gaps in Ireland against a

backdrop of declining European Union funding. Accordingly, an inter-departmental

group and an informal advisory group with private sector participation were created to

examine the potential benefits that could be derived from adopting the Public Private

Partnership approach. The informal advisory group included representatives of the

Construction Industry Federation, the Irish Business and Employers Confederation

and the Irish Congress of Trade Unions.

Guidance Note 1 14 April 2000 1


4/129


1.7 In order to assist these groups in their work, the Department of Finance commissioned

a study on Public Private Partnerships (Report submitted to the Inter-Departmental

Group by Farrell Grant Sparks and Goodbody Economic Consultants in association

with Chesterton Consulting, entitledPublic Private Partnerships, July 1998). Acting

upon the recommendations contained within that report, the Government agreed to

adopt a Public Private Partnership approach to a number of public infrastructureprojects on a pilot basis.

1.8 Shortly thereafter, a Central Public Private Partnership Unit was established within

the Department of Finance to lead, drive and co-ordinate the use of Public Private

Partnerships in Ireland. Public Private Partnership Units have also been established

within the Department of the Environment and Local Government, the Department of

Public Enterprise, the National Roads Authority and the Department of Education and

Science.

1.9 On 1 June 1999, the Government announced its intention to deliver a number of key

projects in the roads, water and waste sectors using Public Private Partnerships. Thepurpose of the pilot projects is to develop best practice for Public Private Partnerships

and it is anticipated that the pilot projects in these sectors will be followed by other

similarly structured projects.

Structure of Guidance Note

1.10 Section Two of this Guidance Note commences by introducing the principles behind

Public Private Partnerships and then summarises the main benefits that Public Private

Partnerships offer Central Authorities, Contracting Authorities and taxpayers. Section

Three discusses the development of Public Private Partnerships in other countries anddescribes some international examples of Public Private Partnership projects in the

roads, water and waste sectors.

1.11 Section Four of this Guidance Note examines the potential to develop Public Private

Partnerships in Ireland in the context of the National Development Plan 2000-2006

and Section Five considers the specific application of the Public Private Partnership

approach to projects in the roads, water and waste sectors.

1.12 Section Six of this Guidance Note sets out the implications for the traditional process

of project development and implementation of adopting a Public Private Partnership

approach. It identifies the principal stages in the development and implementation ofa Public Private Partnership project and discusses the responsibilities for undertaking

the key activities within each stage.

1.13 Section Seven provides a summary of the main issues and recommendations that are

identified and discussed within this Guidance Note.



5/129


II. Public Private Partnerships

Introduction

2.1 A Public Private Partnership is a partnership between the public sector and the privatesector for the purpose of delivering a project or a service traditionally provided by the

public sector.

2.2 Public Private Partnerships recognise that both the public sector and the private sector

have certain advantages relative to the other in the performance of specific tasks. By

allowing each sector to do what it does best, public services and infrastructure can be

provided in the most economically efficient manner.

2.3 The overall aim of Public Private Partnerships is therefore to structure the relationship

between the public sector and the private sector, so that risks are borne by those best

able to control them and increased value is achieved for public services through theexploitation of private sector skills and competencies.

Benefits of Public Private Partnerships

2.4 In order to work successfully with the private sector, central government and local

government agencies need to be clear about the fundamental principles and objectives

behind Public Private Partnerships.

2.5 Under Public Private Partnership arrangements, private sector contractors become

long term providers of services rather than simply upfront asset builders, combiningthe responsibilities of designing, building, operating and possibly financing assets in

order to deliver the services needed by the public sector. As a result, central and local

government agencies become increasingly involved as regulators and focus resources

on service planning, performance monitoring and contract management rather than on

the direct management and delivery of services.

2.6 Designed appropriately, Public Private Partnerships can generate substantial benefits

for consumers and taxpayers. The scope of potential benefit will, however, depend on

the type of project being undertaken and the exact terms of the contract governing the

Public Private Partnership. Experience elsewhere in the world suggests that the more

significant potential benefits include:

Acceleration of infrastructure provision - Public Private Partnerships provide

an opportunity for the public sector to translate upfront capital expenditure

into a flow of ongoing service payments. This enables the public sector to

proceed with projects at times when the availability of public capital may be

constrained, thus bringing forward much needed investment.

Faster implementation - the allocation of design and construction risk to the

private sector, combined with payments linked to the availability of a service,

provides significant incentives for the private sector to deliver capital projects

within short construction timeframes. This is highly relevant in the context oftheNational Development Plan 2000-2006.



6/129


Cobequid Pass Toll Highway in Nova Scotia

The Cobequid Pass Toll Highway in Nova Scotia was the first road project in

Canada to involve private financing. 50 per cent of the $113 million cost ofconstruction was funded by toll revenue bonds underwritten by the privatesector. Efficient project management allowed the road to be completed inless than 20 months and the average usage per day has been 70 per centhigher than originally estimated.

Reduced whole life costs - Public Private Partnership projects often require

the private sector to be responsible not only for constructing the asset, but also

for maintaining and operating it over time. This provides the private sector

with a strong incentive to ensure that it minimises cost over the whole life of a

project, something that is inherently difficult to achieve within the constraints

of traditional public sector budgeting.

Better allocation of risk- a core principle of any Public Private Partnership is

the allocation of risk to the party best able to manage it at least cost. The aim

is to optimise rather than maximise risk transfer, to ensure that best value is

achieved. The ability to secure cost effective risk transfer is dependent on the

scope of the services provided by the private sector and it is most likely where

the private sector has clear ownership, responsibility and control of relevant

risks. If the public sector seeks to retain many of the controls that go hand in

hand with ownership and yet still seeks to transfer risk, then the private sectorwill simply increase its price and value for money will reduce or the project

will become undeliverable. The basic principle of allocating risk to the party

best able to manage it leads to more consideration and better control of the

complete range of project risks across the whole life of the project.

Better incentives to perform - the allocation of project risk should incentivise

a private sector contractor to improve its management and performance on any

given project. Under most Public Private Partnership projects, full payment to

the private sector contractor will only occur if the required service standards

are being met on an ongoing basis.

Improved quality of service - international experience suggests that the quality

of service achieved under a Public Private Partnership is often better than that

achieved by traditional procurement. This may reflect the better integration of

services with supporting assets, improved economies of scale, the introduction

of innovation in service delivery, or the performance incentives and penalties

typically included within a Public Private Partnership contract.

Generation of additional revenues - the private sector may be able to generate

additional revenues from third parties, thereby reducing the cost of any public

sector subvention required. Additional revenue may be generated through the

use of spare capacity or the disposal of surplus assets.



7/129


Enhanced public management - by transferring responsibility for providing

public services to the private sector, government officials will act as regulators

and will focus upon service planning and performance monitoring instead of

the management of the day to day delivery of public services. In addition, by

exposing public services to competition Public Private Partnerships enable the

cost of public services to be benchmarked against market standards to ensurethat the very best value for money is being achieved.

2.7 A recent review of Public Private Partnership projects within the United Kingdom,

conducted by Arthur Andersen for the Treasury Taskforce, identified six key sources

of value for money in Public Private Partnership deals. The sources identified were:

risk transfer, the long term nature of contracts (including whole life costing), the use

of output specifications, performance measurement and incentivisation, private sector

management skills, and competition.

2.8 The review also confirmed that Public Private Partnerships are well established as a

procurement method in the United Kingdom and that large and small projects have

been successfully procured across a wide range of industry sectors. The long term

operational benefits and hence value for money of these projects will take more time

to establish, and will depend both on how well the private sector manages the risks

transferred to it and on the success of the public sector in managing the contracts over

time. However, the initial findings of the review suggest that better value for money

can be obtained through the development of Public Private Partnerships.

2.9 It is important to note that central and local government agencies have a critical role

to play in the management and regulation of Public Private Partnerships during their

design, construction and operation. Public Private Partnerships also require effectivecontract monitoring procedures to ensure that contractual obligations continue to be

met in terms of both quality and timing.

2.10 While increased private sector participation in providing services and infrastructure

may lead to tangible benefits in certain circumstances, Public Private Partnerships are

not a panacea or the only option that should be considered in the effort to provide high

quality public services at the lowest possible cost.

2.11 Under no circumstances should Public Private Partnerships be seen as a substitute for

strong, accountable and effective governance. Ensuring that services are provided in

a manner that is fair, affordable, safe and environmentally sustainable remains theexclusive responsibility of central and local government.



8/129


III. International Experience

Introduction

3.1 Public Private Partnerships are increasingly being seen as an attractive approach to theprovision of infrastructure projects and services across Europe and the rest of the

world. An ever increasing number of countries are embarking upon Public Private

Partnership programmes that will lead to a significant redefinition in the role of the

public sector in the financing and provision of public services. This section of the

Guidance Note introduces the main forms of Public Private Partnership and describes

the extent to which they are evident in international markets.

International Interest in Public Private Partnerships

3.2 International interest in Public Private Partnerships is attributable generally to three

main drivers:

Investment in infrastructure - economic growth is highly dependent on the

development and enhancement of infrastructure, particularly in utilities (such

as power, water and telecommunications) and transport systems. Furthermore,

in many countries there is an urgent need for new social infrastructure such as

hospitals and healthcare equipment, prisons, education facilities and housing.

For many governments this is seen as the most pressing area for private sector

involvement.

Greater efficiency in the use of resources - the experience of privatisation hasshown that many activities, even those traditionally undertaken by the public

sector, can be undertaken more cost effectively with the application of private

sector management disciplines and competencies.

Generating commercial value from public sector assets - significant amounts

of public resources are invested in the development of assets such as defence

technology and leading edge information systems that are then often used for a

narrow range of applications within the public sector. Engaging private sector

expertise to exploit these assets in a wider range of applications can lead to the

realisation of substantial incremental value for the public sector.

3.3 The experience of privatisation has shown that the freedom to invest combined with

private sector management skills are key drivers behind improved efficiency, either in

terms of reduced cost or improved service quality. At the same time, privatisation can

in certain cases lead to a perceived lack of public accountability and the development

of monopolies.

3.4 On the other hand, Public Private Partnerships offer a long term, sustainable approach

to improving infrastructure, enhancing the value derived from government assets and

making better use of public money, while at the same time retaining control of core

areas of responsibility in the public sector. As a result, Public Private Partnerships are

becoming increasingly attractive across a wide range of public sector activity.



9/129


Forms of Public Private Partnership

3.5 Public Private Partnerships are not well defined within international markets, and in

their widest sense Public Private Partnerships embrace a variety of relationships. A

simple definition is that they exist wherever the public sector and private sector work

closely together with a common purpose. In terms of international experience to date,this commonly breaks down into the following areas:

contracts to supply services to the public sector;

contracts to sell services or assets from the public sector; and

joint ventures to do either of these activities.

Contractual Forms

3.6 A wide range of contractual forms may be adopted by the public sector in establishing

partnerships with the private sector, ranging from those where there is a great deal of

public sector involvement to those where there is very little involvement. Generally,

the spectrum of contractual options ranges from input based service and outsourcing

contracts to output based Design, Build, Operate and Finance contracts or Concession

contracts. The broad spectrum of contractual options is illustrated in the diagram

below and discussed in the paragraphs that follow.

Figure 1: Contractual Forms of Public Private Partnerships

Less Risk

Transfer

More Risk

Transfer

Outsourcing or

Service Contracts

Design &

Build contracts

Design, Build

Operate & Finance

contracts

Design, Build &

Operate

contracts

3.7 Outsourcing and Service Contracts are contractual relationships between public

sector bodies and private sector contractors for the provision of one or more functions

or services. Traditional service contracts involve the contracting out of activities such

as catering and cleaning to achieve cost savings. More complex outsourcing contracts

are associated with complex business functions or processes such as accounting and

information systems. Outsourcing is characterised by the transfer of assets (facilities,

staff and equipment) and a level of risk to the private sector contractor and in recent

years outsourcing contracts have increasingly included the provision of capital assets.

In the Irish context, these types of contract would be considered as a form of Public

Private Partnership where they have a term of at least five years.



10/129


3.8 Design and Buildcontracts are contractual relationships between public sector bodies

and private sector contractors for the design and construction of public facilities or

infrastructure. The private sector contractor designs and builds the facility to meet the

performance requirements specified by the public sector. The work is usually carried

out for a fixed price so that the risk of construction cost overruns is transferred to the

contractor. In return, the private sector contractor is able to utilise the constructiontechniques it wishes provided that it meets the specified performance standards. The

public sector retains all of the risks associated with financing, operating and owning

the facility.

3.9 Design, Build and Operate contracts are contractual relationships between public

sector bodies and private sector contractors for the design, construction and operation

of public facilities or infrastructure. The private sector contractor designs and builds

the facility to meet public sector performance requirements (as in a Design and Build

contract) and is also then responsible for operating and maintaining the facility for a

predefined period, at the end of which it is transferred back to the public sector. The

construction of the facility is financed by the public sector and it remains in publicownership throughout the term of the contract.

3.10 Design, Build, Operate and Finance contracts are contractual relationships between

the public sector and private sector contractors for the design, construction, operation

and financing of public facilities or infrastructure. The private sector contractor is

responsible for designing, building, operating and financing the facility and recovers

its costs solely out of payments from the public sector. At the end of the term of the

contract, ownership of the facility commonly transfers to the public sector. This type

of Public Private Partnership arrangement is well established in France, Italy, Spain,

Portugal and the United Kingdom. Concessioncontracts are similar to Design, Build,

Operate and Finance arrangements, except that the private sector contractor recovers

its costs either through direct user charges or through a mixture of user charging and

public subventions.

3.11 A number of other approaches to the allocation of risk between the public sector and

the private sector have also emerged in recent years and these approaches have given

rise to a wide range of other contractual forms within the Public Private Partnership

spectrum. Some of the other contractual forms include:

Build, Operate and Transfer schemes - a private sector contractor builds a

facility in accordance with a design prepared by the public sector. The privatesector contractor finances the construction of the facility, but the facility is

owned by the public sector. The private sector contractor operates the facility

for a predetermined period and at the end of that period the facility is handed

back to the public sector.

Build, Own, Operate and Transfer schemes - the private sector contractor

builds a facility in accordance with a design prepared by the public sector.

The private sector contractor finances the construction of the facility and legal

ownership of the facility rests with the contractor until the end of the contract

term. The private sector contractor is responsible for operating the facility for

the contract term and at the end of that period the facility is handed back to thepublic sector.



11/129


Build, Own and Operate schemes - a private sector contractor builds a facility

in accordance with a design prepared by the public sector. The private sector

contractor finances the construction of the facility and is responsible for the

operation of the facility in perpetuity. Ownership of the facility also rests with

the private sector contractor in perpetuity.

Joint Ventures

3.12 Joint ventures are established where the public sector and private sector wish to share

in the risks and rewards associated with a particular commercial enterprise, with each

party undertaking the specific roles for which it has particular skill and expertise. The

parties share in the risks and rewards of the enterprise either in accordance with their

respective shareholdings or through other contractual arrangements.

3.13 Across the world, joint ventures between the public sector and the private sector are

increasingly being used to help exploit the commercial potential of many public sector

assets. Examples include activities such as patenting and the licensing of research and

technology developed by public sector bodies.

3.14 Joint ventures are also becoming a popular way of advancing economic development

and regeneration initiatives. They are increasingly used to help realise the potential in

assets (particularly land) and are often related to particular economic or social policy

objectives. Public and private sector partners contribute assets or finance and then

share in the risks and rewards associated with the project. The public sector partner is

likely to control project management and monitoring whilst private sector inputs will

include technical and commercial skills and project financing.

International Developments and Experience

Overview

3.15 Public Private Partnership initiatives in other parts of the world have in general started

with a preparation phase involving changes in legislation to facilitate the development

of Public Private Partnerships, the establishment of public sector advisory groups and

the creation of special taskforces within key departments or ministries. For example,

in Japan and Italy new legislation has recently been passed to enable the development

of Public Private Partnerships, while in Holland, Finland, South Africa and the United

Kingdom dedicated Public Private Partnership teams have been created in a number

of important government departments.

3.16 This preparation phase is usually followed by an initial project phase in which a small

number of pilot Public Private Partnership projects are developed and procured. The

pilot projects undertaken are very often in the transport sector and it is only once these

projects have been completed successfully that the application of the Public Private

Partnership approach is extended to other areas of pubic sector activity. For example,

in Australia, Belgium, Canada, Finland, France, South Africa and Spain the initial

Public Private Partnership projects undertaken all involved the construction of major

new toll road schemes, while in Portugal and the United Kingdom the initial projectsinvolved the construction of new shadow toll road schemes.



12/129


3.17 Today there is a growing acceptance around the world that Public Private Partnerships

can be utilised to meet public sector investment needs not just in the transport sector,

but in a wide range of other sectors, in a way that clearly offers better value for money

for the taxpayer. An indication of the extent to which the Public Private Partnership

approach has been adopted in other parts of the world is presented in the table below.

Table 1: International Development of Public Private Partnerships

Nos.OfDeals

Roads

Rail

Water

Waste

Power

Healthcare

Education

Prisons

Offices

Regeneration

Sports

Australia 10-20 4 4 4 4 4

Belgium 5-10 4 4 4 4 4

Canada >100 4 4 4 4 4

Finland 0-5 4 4 4

France >100 4 4 4

Germany 0-5

Greece 0-5

Holland 0-5 4

Ireland 5-10 4 4 4 4 4

Italy 0-5 4 4

Japan 0-5

Portugal 5-10 4 4

South Africa 5-10 4 4

Spain 0-5 4 4 4

Sweden 0-5 4

UK >100 4 4 4 4 4 4 4 4 4 4

4 Deals closed Deals contemplated

3.18 The table set out above is not comprehensive and is predicated upon data published as

at January 2000. As there is not a generally accepted definition of a Public Private

Partnership the analysis only includes those projects where the private sector has been

involved in the construction or operation of a facility. It does not include more simple

forms of private sector financing such as simple borrowing, finance leases or sale and

leaseback transactions. The analysis also focuses on those countries that are currently

most actively considering Public Private Partnerships and excludes a number of other

countries that have only one or two projects in development or procurement.



13/129


3.19 Overall, the table demonstrates clearly that the Public Private Partnership approach is

being examined and deployed in a large variety of sectors and countries throughout

the world.

Initial Projects

3.20 The Public Private Partnership approach is not new and within the transport sector it

has been used for a number of years. However, it is only in recent years that the use

of Public Private Partnerships has expanded into other aspects of public sector activity

such as prisons, healthcare facilities and educational establishments. The reasons for

the gradual evolution of the Public Private Partnership approach vary from country to

country, but some of the most common barriers to a more rapid implementation of the

approach are summarised below:

Structural barriers - many countries devolve a significant amount of public

sector responsibility to regional and local government. Establishing the right

organisational structures within which to develop Public Private Partnerships

has therefore taken some time and has required significant intervention and

support on the part of central government. Public sector reform to facilitate

the wider use of Public Private Partnerships is only really starting in mainland

Europe, although some examples of Public Private Partnerships are beginning

to emerge at a regional level. For example, the Portuguese and Spanish roads

projects, and the new privately financed hospital in Valencia.

Legislative barriers - the legislative frameworks governing responsibility for

the delivery of public services are usually complex and restrictive. As a result,

many countries have had to introduce new legislation in order to facilitate thedevelopment of Public Private Partnerships. For example, legislative changes

have already taken place in the United Kingdom, Italy and Japan.

Political barriers - the utilisation of the Public Private Partnership approach in

the transport sector has been politically acceptable for some time, but there is

much greater sensitivity, regardless of any structural or legal difficulties, about

the role of the private sector in the delivery of other public services. As Public

Private Partnership forms develop, there is increasing evidence, supported by

independent scrutiny, that Public Private Partnerships can provide better value

for money if properly structured. This has renewed interest in the application

of the Public Private Partnership approach to many aspects of public serviceprovision, but political sensitivities still remain.

3.21 Once a decision has been taken to examine the Public Private Partnership approach in

detail, the first schemes procured by a government usually tend to be pilot projects.

The purpose of these pilot projects is to determine the ground rules and best practices

for particular forms of Public Private Partnership and to provide a firm basis for future

development.



14/129


3.22 The ultimate success of a pilot project is influenced by a range of factors including the

experience of a Contracting Authority and its advisers, the ability of the private sector

to deliver better value for money and the willingness of the private sector to accept an

appropriate degree of risk transfer without the need for public sector guarantees. In

some instances, however, pilot projects are not properly structured and as a result they

fail to deliver the optimum amount of value for money and risk transfer.

3.23 For example, a number of the early projects procured in the United Kingdom focused

too much on the achievement of an off balance sheet accounting treatment rather than

upon the delivery of a value for money solution. Equally, a number of early projects

in other parts of the world were driven only by the desire to use private sector finance

and not by the desire to secure a cost-effective allocation of risk.

Wijker Road Tunnel in Holland

Completed in 1993, the Wijker Tunnel was one of the first Public Private Partnershipprojects undertaken in Holland. However, the amount of risk allocated to the privatesector contractor was limited by a government guarantee in relation to traffic flows.As a result, the public sector provided much greater funding than anticipated and theproject is regarded as a failure as it did not deliver value for money.

Following the more recent success of Public Private Partnerships in other Europeancountries, the Dutch Government has re-examined the potential benefits of PublicPrivate Partnerships. As a consequence, the Betuwelijn and the High-Speed Linkrail projects are now being advanced using a Public Private Partnership approach.

3.24 The most common issues or problems that can be encountered during the procurement

and development of a pilot Public Private Partnership project are summarised in the

diagram below. If these issues emerge they can result in poorly structured contracts,

lengthy and costly procurements, high bidding costs and reduced value for money.



15/129


Common Pilot Project Issues

Inappropriate levels of risk transfer (either too little or too much);

Inappropriate legal codes;

Poorly defined procurement methodologies and a lack of standardisation;

Poor co-ordination between government departments and agencies;

Reluctance to make appropriate use of professional advisers;

Lack of public sector commitment to Public Private Partnerships;

Continued focus on input specifications rather than output specifications; and

Over-optimism with regard to third party revenues.

3.25 However, despite the failures of a number of pilot projects, more recent Public Private

Partnership experience has shown that, by bringing private sector management skills

together with private finance, Public Private Partnerships can deliver improved value

for money across a wide range of public sector activity.

Roads Experience

3.26 The Public Private Partnership approach is well established in the international roads

sector and with it the idea that the user pays for access to good quality road networks.

Countries that have completed Public Private Partnership transactions within the roads

sector include Australia, Belgium, Canada, Finland, France, Holland, Iceland, Ireland,Portugal and Spain.

3.27 Private sector finance became an important element in road projects during the 1980's

and its use was often underwritten by government guarantees. However, as markets

have developed and the scope for risk transfer increases, it is becoming more usual to

combine private finance with fixed subsidy to meet the overall financing requirement.

The approach is now commonplace and has been used to finance a significant number

of toll roads and bridges around the world. Early examples include the second Tagus

Bridge in Lisbon, the Queen Elizabeth Bridge in London, the N1 toll road in South

Africa and the M2, M4 and M5 Tollways in Australia.

Australian Bui ld , Own, Operate and Transfer Schemes

During the last decade in Australia, a number of major urban arterial roads havebeen constructed using Build, Own, Operate and Transfer (BOOT) arrangements. InSydney, the projects include the Sydney Harbour Tunnel and the M2, M4 and M5Tollways. The largest BOOT project in Australia is the City Link in Melbourne andthe total capital value of these projects is around $3.5 billion.

Under the arrangements, private sector contractors have been awarded concessionsto construct and operate roads for a defined period of time. Included in the contracts



16/129


is the right to charge the users of the road a toll in order to recoup the costs ofconstruction, maintenance and operation. At the end of the concession period theinfrastructure assets are transferred to the public sector, typically at zero cost.

Waste Experience

3.28 More recently, the use of Public Private Partnerships has been stimulated in sectors

where there has been a significant increase in the burden of traditional public sector

responsibilities and this is particularly true with regard to the disposal of municipal

waste. Increasingly, for economic and environmental reasons, public authorities are

reducing their reliance on landfill which has been the traditional means of disposing

of waste. New methods of waste disposal such as waste to energy schemes and

recycling plants require substantial investment and specialised technical know-how.

3.29 The private sector has developed a specialised capability to meet these requirements

and Public Private Partnerships are now emerging in earnest in the waste sector with

the private sector taking over responsibility for the development and operation of new

waste disposal facilities. Such schemes are being taken forward in many countries in

Europe (for example, in Belgium, Germany and the United Kingdom) and the rest of

the world (for example, in Canada and Japan).

Herefordshire and Worcestershire Integrated Waste Management

On 23 December 1998 Herefordshire and Worcestershire County Councils awardeda 500 million Public Private Partnership contract to Mercia Waste ManagementLimited. The objective of the project is to create an integrated waste managementsystem capable of achieving the targets specified by the European Commission forthe recycling of waste and the recovery of value from waste. The contract has aterm of 25 years and under it the Councils retain responsibility for the collection ofhousehold waste while the contractor takes delivery of all such waste for treatment.

Mercia Waste Management Limited is paid a fee per tonne of waste received underthe contract, together with a fee for managing the household waste sites, plus asupplement per tonne of waste recycled or recovered. To protect the contractor

from changes in household waste quantity, the fee per tonne varies and is inverselyproportional to the volume of waste received. As well as payments from theCouncils, the contractor will gain additional revenues from the disposal ofcommercial waste and is expected to enter into a power purchase agreement for theelectricity produced by the waste to energy plant once it is operational.



17/129


Water Experience

3.30 Public Private Partnerships have existed in the international water sector for a number

of years. For example, private sector concessions for the development and operation

of water supply and treatment plants have been common place in France for at least

forty years, leading to the growth of the large and diversified French private sectorutility companies such as Vivendi andSuez Lyonnaise des Eaux.

3.31 The European Union Drinking Water Directive and the Urban Waste Water Directive

have resulted in a quantum change in public sector responsibility within the water

industry. In order to meet the requirements of the Directives, many countries will

have to invest substantial amounts of capital in new water supply and waste water

treatment facilities. As a result, countries that have not yet involved the private sector

in water supply or waste water treatment, are now considering the potential to make

use of private sector skills and finance to satisfy the requirements of the Directives.

Almond Valley Waste Water Treatment Works

In March 1999, the East of Scotland Water Authority awarded a 100 million PublicPrivate Partnership contract to Stirling Water for thirty years. The objective of theproject is to improve water quality in the River Almond, the Firth of Forth and the EskValley areas. The project provides an alternative to sewage sludge disposal at seaand will enable the achievement of the standards set by the European Commission.The project incorporates six different treatment works and the payment mechanismis based on flow measurement with payment bands related to price and volume.



18/129


IV. Public Private Partnerships In Ireland

National Development Plan

4.1 The economic progress made by Ireland during the last five years has significantlyexceeded the targets set in the lastNational Development Plan, with the annual rate of

growth in Gross National Product averaging 7.5 per cent in real terms compared with

a planned annual rate of growth of 3.5 per cent. The newNational Development Plan

2000-2006suggests that the Irish economy can continue to sustain an average annual

rate of growth of around 5 per cent in the medium term. Significantly, however, this

view assumes that existing infrastructure bottlenecks and labour shortages are tackled

in order that the competitiveness of the Irish economy can be sustained.

4.2 TheNational Development Plan 2000-2006highlights that much of the infrastructure

within Ireland is inadequate to meet existing needs and that it is increasingly coming

under strain as a result of the rapid growth in the Irish economy. The level of pressurevaries, but is especially a feature of the more densely populated urban areas and the

main national arteries.

4.3 The roads network remains unable to meet user needs and serious congestion is now a

feature of many parts of the network especially in and around urban areas. The water

and waste sectors are also in need of significant capital investment in order to meet

the obligations arising from recent European Directives.

4.4 In order to address the infrastructure deficit that has developed during the last decade,

theNational Development Plan 2000-2006contains a total investment of some 40.6

billion, of which 17.6 billion is allocated to the Economic and Social Infrastructure

Programme. A breakdown of the anticipated investment in the Economic and Social

Infrastructure Programme by sector is set out in the table below.

Table 2: Investment in Economic and Social Infrastructure Programme

Sector Total Allocation

m

National roads

Public transportWater and waste water

Coastal protection

Energy

Social and affordable housing

Health capital

4,700

2,2342,495

35

146

6,000

2,000

Total 17,610

Source: National Development Plan 2000-2006



19/129


Public Private Partnerships

4.5 Public Private Partnerships are expected to play an important role in addressing the

infrastructure needs of Ireland. Factors such as rapid economic growth, reductions in

European funding, new European legislation and the increasingly competitive global

economy, all mean that the country must find faster ways of developing infrastructure,with greater efficiency and at optimum value for money.

4.6 Public Private Partnerships are a significant component within the capital investment

planned under the National Development Plan 2000-2006, particularly in relation to

the Economic and Social Infrastructure Programme. A total of1.85 billion of Public

Private Partnership projects using private sector finance are included in the National

Development Plan 2000-2006, of which 1.40 billion is earmarked for the Economic

and Social Infrastructure Programme and 0.45 billion for waste management in the

Regional Programmes. These are very much minimum targets and the objective of

the Government is to maximise the use of Public Private Partnerships consistent with

the principles of efficiency and best value for money.

4.7 An indicative analysis of privately funded Public Private Partnerships across each of

the main sectors is set out in the table below.

Table 3: Indicative Public Private Partnership Funding Targets

Sector PPP

Investment

m

PPP Investment

As % Of Total

Investment

National roads

Public transport

Water and waste water

Waste management

1,000

300

100

450

23%

60%

9%

69%

Total 1,850 28%

Note: The percentage for water and waste water represents the Public

Private Partnership funding as a percentage of the estimated water

supply component of overall investment in water and waste waterservices under the Economic and Social Infrastructure Operational

Programme.

Source: National Development Plan 2000-2006

4.8 It is important to note that the overall level of investment presented in the table above

does not reflect the total level of Public Private Partnership activity anticipated within

Ireland. A number of arrangements for Public Private Partnerships without a private

capital investment element will also be pursued. For example, the majority of the

700 million investment required under the Urban Waste Water Treatment Directive

is expected to be delivered through Design, Build and Operate contracts.



20/129


Objectives and Projects

4.9 There is a clear political commitment to using the Public Private Partnership approach

to deliver a step change in the quality of infrastructure provision within Ireland. As a

result, the following objectives have been set for the future development of the Public

Private Partnership approach.

Objectives

To achieve increased value for money in the provision of infrastructure throughthe delivery of more buildable and innovative designs, lower capital and operatingcosts, and higher operational standards.

To promote the faster delivery of the public capital programme in order that moreinfrastructure projects can be carried out within a defined period of time.

To support the long-term growth potential of the economy by relieving bottlenecksand improving overall efficiencies.

To maximise usage of Public Private Partnerships consistent with the principles ofefficiency and best value for money.

To transfer risk to the party that can manage it best and at least cost.

4.10 The Government has also decided to adopt a Public Private Partnership approach on a

pilot basis to a number of infrastructure schemes. The purpose of the pilot projects isto determine the ground rules and best practices for particular types of Public Private

Partnership project and to provide a sound basis for future development.

4.11 The initial priority for the pilot Public Private Partnership projects is the roads sector

and theNational Development Plan 2000-2006indicates that the pilot projects will all

be developed within the period covered by the Plan. The pilot road projects include

the Western River Crossing in Limerick, the Waterford Bypass and the Second West

Link Bridge on the M50. In addition, the potential for a Public Private Partnership

approach to the development of the Kilcock to Kinnegad section of the N4 is being

explored.

4.12 The National Development Plan 2000-2006indicates that some of the pilot projects

are expected to go to tender within the first year of the Plan. The rest are expected to

go to tender in the second year of the Plan, subject to the satisfactory and speedy

completion of the necessary statutory procedures and any negotiations.

4.13 Approval has recently been given by the Department of the Environment and Local

Government for the appointment of advisers to prepare tender documents on the basis

of the Public Private Partnership approach for water supply projects in Limerick and

Dublin. In addition, Pilot Public Private Partnership projects in the education and

waste management sectors are also likely to be announced shortly following a period

of further consultation.



21/129


V. Roads, Water and Waste Projects

Project Identification

5.1 New infrastructure projects in the roads, water and waste sectors in Ireland are firstidentified in National Development Plans, needs studies or other strategic studies and

plans. The new projects are then included within operational programmes or annual

investment programmes and it is these programmes that determine the list of projects

to be funded.

5.2 It is also at this early stage in the life of a new project that the potential to procure the

project using the Public Private Partnership approach is first assessed by the Central

Authority and this assessment will focus on two key issues:

the desirability of procuring the project as a Public Private Partnership; and

the suitability of the project for procurement as a Public Private Partnership.

Desirability

5.3 In assessing the desirability of procuring a new infrastructure project using the Public

Private Partnership approach consideration should be given to a wide range of factors,

including:

Nature of the project- infrastructure projects involving the construction and

operation of water, waste water and waste treatment facilities increasingly

involve innovative processes and state of the art technology and the skills andexpertise required to design, build and operate these facilities is not available

in the public sector. By transferring responsibility for the design, construction

and operation of such facilities to a private sector contractor, the public sector

can transfer operating risk whilst making use of the best technology available.

Risks inherent in the project- infrastructure projects may incorporate levels

of risk that the public sector is either unwilling to take or is unable to manage

effectively. Under such circumstances, the Central Authority may decide that,

wherever practicable, all such projects should be delivered by a private sector

through a Public Private Partnership.

Status of the project - certain infrastructure projects may involve the public

sector in the provision of services that are not considered to be central or core

public sector responsibilities. Accordingly, the Central Authority may decide

that, wherever practicable, all such services should be delivered by a private

sector through a Public Private Partnership.

Speed of implementation - the transfer of design and construction risk to the

private sector as part of a Public Private Partnership will provide significant

incentives for the private sector to deliver infrastructure projects within shorter

construction timeframes. This is highly relevant in the context of the deliveryof theNational Development Plan 2000-2006.



22/129


Application of user charges - certain projects (such as projects in the waste

sector) may provide an opportunity for the public sector to apply user charges

in accordance with policies such as the Polluter Pays principle. Within a

Public Private Partnership, user charges may be collected by the private sector

and used to offset the annual charge to the Contracting Authority.

Project portfolio - a Central Authority is likely in practice to undertake a mix

of Public Private Partnership procurements and more traditional procurements.

As a result, it may select a number of infrastructure projects for development

as Public Private Partnerships and the selection of these projects will be based

on an evaluation of their suitability to the Public Private Partnership approach

as compared with other projects in the operational or investment programmes.

Alternatively, a Central Authority may simply specify the minimum value of

projects to be procured using the Public Private Partnership approach.

5.4 A number of other significant political and economic factors should also be taken into

account when assessing the desirability of procuring a project using the Public Private

Partnership approach and it is important to note that there is no simple fixed formula

upon which the decision can be based. A pragmatic approach should be adopted and

it is equally important to note that there is no requirement to test every infrastructure

project for suitability as a Public Private Partnership.

Suitability

5.5 In assessing the suitability of procuring a new infrastructure project using the Public

Private Partnership approach consideration should be given to a wide range of factors

and again there is no simple fixed formula or pass or fail test upon which the decisioncan be based. However, the following key success factors should be used to provide

an initial indication as to whether or not an infrastructure project has the potential to

be procured successfully as a Public Private Partnership:

the project has clear boundaries and measurable performance in output terms;

the project is of a scale and value to be of interest to private sector contractors;

the project has a significant element of service or operating content;

scope exists for the cost effective allocation of risk to the private sector;

scope exists for innovation in the method by which the services are delivered;

scope exists for the generation of additional third party revenue; and

a competitive market exists for the provision of the service.

5.6 Infrastructure projects that meet all or some of these criteria are likely to be suitable

for procurement using the Public Private Partnership approach. The specific form of

Public Private Partnership adopted will, however, depend upon a comparative analysis

of the potential value for money and pattern of risk allocation associated with eachPublic Private Partnership form.



23/129


5.7 In addition, it is important to note that the scale of project that will be of interest to the

private sector will vary between the roads, water and waste sectors and will depend on

the form of Public Private Partnership used. In this context, the Farrell Grant Sparks

Reportsuggests a minimum threshold of 30 million for civil engineering projects.

Public Private Partnership Forms

5.8 The main forms of Public Private Partnership that are likely to be most applicable to

infrastructure projects in the roads, water and waste sectors in Ireland are described in

the paragraphs below:

Design and Build- contractual relationship between a public sector body and

a private sector contractor for the design and construction of a public facility.

The construction of the facility is financed by the public sector and the facility

is subsequently owned and operated by the public sector.

Design, Build and Operate - contractual relationship between a public sector

body and a private sector contractor for the design, construction and operation

of a public facility. The construction of the facility is financed by the public

sector, but responsibility for the operation of the facility rests with the private

sector for a defined period of time. Ownership of the facility remains with the

public sector throughout.

Design, Build, Operate and Finance - a contractual relationship between a

public sector body and a private sector contractor for the design, construction,

operation and financing of a public facility. The private sector contractor is

responsible for designing, building, operating and financing the facility andrecovers its costs solely out of payments from the public sector. At the end of

the term of the contract, ownership of the facility commonly transfers back to

the public sector.

Concession - similar to a Design, Build, Operate and Finance contract, except

that the private sector contractor recovers its costs either through direct user

charges or through a mixture of user charging and public subvention. In this

context it is important to note that Public Private Partnership concessions will

not always meet the strict definition of concessions under the EC Procurement

Directives, as this will depend on the level of exploitation of the asset. Further

detail in relation to the EC Procurement Directives is provided in the separate

Guidance Note entitledProcurement Procedure Selection.

Outsourcing - in the context of Public Private Partnerships within Ireland,

outsourcing refers to operational and service contracts involving some level of

risk transfer to the private sector for a term of at least five years.

5.9 The selection of the form of Public Private Partnership most applicable to a particular

project in the roads, water or waste sectors must be undertaken at an early stage and to

help inform this decision the main features of each of the Public Private Partnership

forms set out above are summarised in the table overleaf.



24/129


5.10 In this context it is important to note thatoutsourcingis not a priority of the Public

Private Partnership programme in Ireland. Outsourcing focuses upon the operational

phases of projects, whereas the priorities of the Public Private Partnership programme

are the construction of new infrastructure and the acceleration of the public capital

programme

5.11 Equally, the formation ofjoint venture entities with shared public and private sector

ownership is not likely to be applicable immediately to projects in the roads, water

and waste sectors as further legislative backing is required before this form of Public

Private Partnership can be developed to its full extent in Ireland. In addition, there are

a large number of accountability and competition issues that will need to be addressed

before this form of Public Private Partnership can develop.



25/129

Department of the Environment and Local Government I

Table 4: Characteristics of the Main Forms of Public Private Partnerships

Partnership Form Features Potential Application Advantages

Design & Build

(DB)

Contract with a private sectorcontractor to design and build apublic facility.

The facility is financed, ownedand operated by the public sector.

Key driver is the transfer of design

and construction risk.

Suited to capital projects withsmall operating requirement.

Suited to capital projects wherethe public sector wishes to retainoperating responsibility.

Transfer of design andconstruction risk.

Potential to accelerate construc

programme.

Design, Build &

Operate(DBO)

Contract with a private sector

contractor to design, build andoperate a public facility for adefined period, after which thefacility is handed back to thepublic sector.

The facility is financed by thepublic sector and remains in publicownership throughout the term ofthe contract.

Key driver is the transfer of

operating risk in addition to designand construction risk.

Suited to projects that involve a

significant operating content.Particularly suited to water and

waste projects.

Transfer of design, constructio

and operating risk.Potential to accelerate construc

programme.

Risk transfer provides incentivfor private sector contractor toadopt a whole life costingapproach to design.

Promotes private sector innovaand improved value for money

Improved quality of operation

maintenance.

Contracts can be structured toaddress most concerns.

Government able to focus on cpublic sector responsibilities.



26/129


27/129

Department of the Environment and Local Government Introduction To Public Private Partnerships

Roads, Water and Waste Projects

5.12 The appropriateness of the forms of Public Private Partnership described above to the

development and implementation of new infrastructure projects in the roads, water

and waste sectors will depend upon a range of factors. Some of the most significant

factors are introduced in the paragraphs that follow, but it is important to note that theviews set out are first impressions only. More detailed examination of the suitability

of the various forms of Public Private Partnership should be undertaken on a project

by project basis prior to procurement commencement.

Roads Projects

5.13 Some of the most important issues that will influence the selection of a preferred form

of Public Private Partnership for projects in the roads sector are the size and scope of

the project, the ability to apply user tolls and the extent of risk transfer required.

5.14 Major and minor roads schemes are suited to Design and Build contracts, as operating

costs in a typical scheme are low when compared to the capital costs of construction.

Design and Build contracts are essentially an extension of the existing conventional

approach, endeavouring to transfer design and construction risk to the private sector

through fixed price contracts. In such instances responsibility for maintaining the

road at the end of the construction period will remain with the Contracting Authority.

5.15 In some instances, the construction of a major road scheme may be funded in part or

in whole by user tolls. For example, bridges and tunnels are particularly suited to user

tolling where there is a clear benefit to be gained from choosing the tolled route over a

different alternative route. In such circumstances, the Central Authority must decidewhether to transfer responsibility for financing the project and collecting tolls to the

private sector contractor.

5.16 Concession contracts are suitable where the private sector contractor will finance a

major road scheme, collect user tolls and bear the risk associated with traffic demand.

Design, Build and Operate contracts are more suitable where the private sector will

collect user tolls on behalf of the public sector, but the public sector will finance the

project and accept the risk associated with traffic demand.

5.17 Design, Build, Operate and Finance contracts are likely to be more suitable where the

private sector contractor will accept some of the risk associated with traffic demand,but user tolls are not applied. A number of major roads projects have been undertaken

in England, Scotland and Portugal on this basis and the private sector contractors are

paid on the basis ofShadow Tolls. However, there are also a range of disadvantages

associated with this approach including the greater level of demand risk retained by

the Contracting Authority and the fact that as motorists do not pay for the economic

cost of infrastructure provision, infrastructure investment is not rationally allocated.

5.18 Minor roads projects are more suited to Design and Build contracts and are not likely

to be suitable for other forms of Public Private Partnership unless bundled together

into a larger contract with a significant operating element.



28/129


Melbourne City L ink

This 720m project is the largest roads project in Australian history. It comprises

22 kilometres of road works, an elevated six-lane bridge and 2 three lane tunnels.The project takes the form of a Build, Own, Operate, Transfer scheme and theprivate sector concessionaire, with an estimated annual income of some 80m by2001, is one of the top 100 companies in Australia.

The project includes the largest electronic tolling system in the world, with frequenttravellers using a tagging device to deduct tolls from a pre-paid account. Lessfrequent travellers are able to buy day passes at garages and other retail outlets.Tolls for cars are less than 50 pence for the shortest journey and are capped at1.50 for a single continuous journey irrespective of length.

There are no government operating or debt subsidies and the concessionaire hasaccepted demand risk in full. However, there are guarantees that the state will not

build a competing road system.

Water Projects

5.19 The considerations that will shape the selection of a preferred form of Public Private

Partnership for projects in the water sector are similar to those in the roads sector and

include the size and scope of the project (including its operational content), the ability

to apply user charging and the extent of risk transfer required.

5.20 The construction of water supply or waste waternetworks in Ireland is unlikely to be

suited to the Public Private Partnership approach due to the poor level of information

on the extent, composition and performance of existing networks. The construction,

upgrading or ongoing maintenance of networks are likely to give rise to a significant

amount of risk due to the lack of basic data and as a result this risk is likely to be best

retained by the public sector at this time. A limited form of Design and Build project,

with performance targets, may be possible and indeed has been tested as part of the

Water Conservation Investment Programme.

5.21 On the other hand, water supply and waste waterfacilities are likely to be very suited

to DBO and DBOF contracts. They may also be suited to Concession contracts where

there is an opportunity to introduce user charging. However, water supply and waste

water facilities are considered to be less suited to Design and Build contracts as the

public sector would retain the risks associated with operating increasingly complex

treatment processes, without having had a role in the design of those processes.

Waste Projects

5.22 The considerations that will shape the selection of a preferred form of Public Private

Partnership for projects in the waste sector are similar to those for the roads and water

sectors and include the size and scope of the project (including operational content),the ability to apply user charging and the extent of risk transfer required.



29/129


5.23 Historically, the provision of waste management infrastructure has been restricted to

collection and landfill disposal services. However, the Waste Management Act 1996

and ensuing government policy has created a need for significant investment in high

technology solutions to waste minimisation, separation, recycling, reduction through

thermal treatment and disposal of residual waste to landfill sites.

5.24 As a result of the legislation, projects in the waste sector are not likely to be suited to

Design and Build contracts. The public sector would retain all of the risks associated

with operating increasingly complex treatment processes, without having had a role in

the detailed design of those processes and without having experience of the operation

of such processes.

5.25 Projects in the waste sector are, however, likely to be very suited to the other forms of

Public Private Partnership. Under these forms a significant amount of operating risk

can be transferred to the private sector. In addition, under a Concession contract, the

private sector can be asked to finance the project, collect user charges (in accordance

with the Polluter Pays principle) and accept the risk associated with waste volumes.

Summary

5.26 The selection of a preferred form of Public Private Partnership for an infrastructure

project in the roads, water or waste sectors is a complex task involving a detailed

consideration of a range of issues. The discussion set out above is intended to provide

an introduction to some of the main issues and is not intended to be a comprehensive

analysis. The selection of the preferred form of Public Private Partnership for a

particular project can only be undertaken on a project by project basis.

5.27 To provide an indication of the potential suitability of the different forms of Public

Private Partnership to projects in the roads, water and waste sector, the above

discussion has been summarised in tabular form below.

Table 7: Suitability of Public Private Partnership Forms

Sector DB DBO DBOF Concession

Roads (major) H H H H

Roads (minor) H L L N/A

Water & waste water networks M L L N/A

Water & waste water facilities M H H M

Waste facilities L H H H

Key: H = HighM = MediumL = Low

Note: The use of the Concession form of Public Private Partnership

for water and waste water facilities is limited because of the current

legal restrictions on domestic user charging.



30/129


31/129


5.34 Experience in other countries would suggest that a range of factors will influence the

success of the pilot Public Private Partnership projects in Ireland. These include the

experience of the Contracting Authority (and its appointed advisers), the maturity of

the market, and the willingness of the private sector to accept significant levels of risk

without public sector guarantees.

Sydney Harbour Tunnel

The Sydney Harbour Tunnel is a 4 lane carriageway extending 2 kilometres betweenthe northern and southern sides of Sydney Harbour. The tunnel was built between1988 and 1992 by a joint venture company, which has a concession to operate thetunnel until 2022 when ownership will revert to the government of New South Wales.

The joint venture company receives the toll revenue collected from both the tunneland Sydney Harbour Bridge less toll collection costs. The Road and Traffic Authority(RTA) guarantees the revenue stream of the joint venture company and is obliged to

make top-up payments if inflation rates or traffic volumes are lower than projected.

The project has been criticised by the Auditor General because the RTA retainsmuch of the project risk as a result of the guaranteed revenue stream. The RTA alsocarries the primary financing risks because, although finance for the project wasraised by issuing bonds fully underwritten by the private sector, the responsibility forthose bonds rests with the State.

5.35 It is important to recognise that the public and private sectors in Ireland are relatively

inexperienced in relation to Public Private Partnership projects that involve the privatesector in the operation and maintenance of public infrastructure. Informal Public

Private Partnerships have been used to progress a number of public infrastructure

projects including the programme for decentralised government offices, the East and

West Link toll bridges and a new peat-fired power station (which is being designed,

built, financed and operated by a private sector contractor). However, the pilot

projects will represent an important learning process for both Central and Contracting

Authorities and private sector contractors in relation to the structuring and

procurement of Public Private Partnership contracts.

5.36 The structure of the pilot projects will to some extent reflect the inexperience of the

public and private sectors in Ireland in relation to Public Private Partnership projects.The public sector will seek the optimum risk allocation that the market will accept,

but this will inevitably change as the market matures.



32/129


VI. Public Private Partnerships Policy Framework

Introduction

6.1 A Public Private Partnership is a partnership between the public sector and the privatesector for the purpose of delivering a project or a service traditionally provided by the

public sector.

6.2 Under Public Private Partnership arrangements, private sector contractors become

long term providers of services rather than simply upfront asset builders, combining

the responsibilities of designing, building, operating and possibly financing assets in

order to deliver the services needed by the public sector. As a result, central and local

government agencies become increasingly involved as regulators and focus resources

on service planning, performance monitoring and contract management rather than on

the direct management and delivery of services.

6.3 The use of Public Private Partnerships represents a significant change in the way in

which the public sector procures infrastructure projects and accordingly the adoption

of the Public Private Partnership approach will have a significant impact upon the

processes through which infrastructure projects are developed and implemented.

6.4 This section of the Guidance Note sets out the implications for project development

and implementation of the adoption of a Public Private Partnership approach. It then

describes the Public Private Partnership Policy Framework that has been developed

to provide guidance to both Central and Contracting Authorities in the development

and implementation of infrastructure projects using just such an approach.

6.5 It is important to note that the general approach to Public Private Partnerships adopted

in the Policy Frameworkis to focus at least initially upon contractual forms of Public

Private Partnership that involve the delivery of specified services following a public

procurement exercise. Public Private Partnerships involving the formation of joint

venture entities with shared public and private ownership are likely to require specific

legislative backing before they can be developed further in Ireland.

Stages in a Traditional Project

6.6 The development and implementation of an infrastructure project in the roads, wateror waste sector comprises a series of activities through which the project is identified,

appraised, procured, constructed and operated. Although there are differences in the

detail of the development and implementation activities associated with infrastructure

projects in each of the sectors, the key activities undertaken can be grouped under the

common stages or headings presented in the diagram overleaf.

6.7 In addition, the principal activities undertaken in each stage of the traditional process

of project development and implementation are set out in more detail in Appendix A

to this Guidance Note.



33/129


34/129


Stages in a Public Private Partnership Project

6.8 The process of project development and implementation changes significantly when a

project is taken forward as a Public Private Partnership. The principal changes to the

traditional process of project development and implementation in the roads, water and

waste sectors are set out in diagram below.

Figure 3: Stages in a Public Private Partnership Project

Changes To Stage Outcome

The Project Identification stage will now include an initialassessment of the suitability of a project for procurement as

a Public Private Partnership. The suitability of a project forprocurement as a Public Private Partnership will be assessed

by comparing the characteristics of the project with those of

successful Public Private Partnership projects.

The Option Appraisal stage comprises the traditional projectappraisal process, together with a Public Private PartnershipAssessment, Statutory Process Assessment and ProcurementProcedure Selection. The project appraisal process remains

unchanged unless statutory process risk is to be allocated tothe private sector contractor.

The Public Private Partnership Assessment is a thoroughassessment of the potential for a Public Private Partnershipto deliver improved value for money when compared withtraditional procurement. It includes the selection of the most

appropriate form of Public Private Partnership. It involves adetailed value for money assessment, a preliminary riskassessment, a bankability assessment and a legal viabilityassessment. Further details are presented in the separateGuidance Note Public Private Partnership Assessment.

The Statutory Process Assessment is an assessm

intro to ppp

Documents