Towards Effective Partnerships Between the Public and Private Sectors in Bahrain

1. Towards Effective Partnerships Between the Public and Private Sectors in Bahrain RebelGroup Advisory Netherlands. 12.10.2008 Stakeholder Briefing International Experience with PPPs and Meeting the MDGs Rolf Dauskardt 12 October 2008 rolf.dauskardt@rebelgroup.com +31 612506624

2. Contents 1. Foreword 2. Role of PPPs Internationally in Reaching MDGs 3. Use of PPPs in Different Sectors 4. How Some Countries have Promoted PPPs 5. Promoting PPPs in Bahrain

3. 1. Foreword “An internationally competitive economy needs internationally competitive infrastructure …“ “Effective infrastructure investment and service delivery is critical for managing rapid urbanization…”

4. 2. Role of PPPs Internationally and for MDGs • Major global shift toward use of PPPs – seen in all regions: North America, Europe, Australasia, Middle East, Asia, Latin America, Africa • New source of investment for infrastructure (limited public budgets) • More efficiency / effectiveness in services (poor public performance record) • Realize more value from public assets (value creation and capture) It is no longer a question of ‘if PPPs’ ?, but rather ‘when and how PPPs’ ?

5. Traditional Procurement vs PPP • Contribution of private sector limited to construction • Frequent construction cost overruns, delays • Poor operation and maintenance of services by governments • Simple tendering based on cheapest price offered to do the job • The public and private sectors have always worked together… • Companies have paid taxes • Companies have supplied governments with goods • Companies have constructed projects for the government • Traditional infrastructure procurement • Gov designs / finances • Private company constructs • Government owns / operates / maintains • Example • Government designs a bridge joining 2 islands • Runs tender and gets cheapest construction company to build it • Government pays for the construction from the budget • When built the government operates and maintains the bridge • If anything goes wrong the government pays

6. PPPs are Fundamentally Different • Formal contract between public and private partner (over the years duration the service will be provided) – usually multiple years duration • Entered through competitive procurement – not just price, negotiated procurement • Using output specification – government specifies ‘what’, private sector can define ‘how’ • With suitable risk allocation between parties • Putting private investment at risk • With regulation or contract management of performance of the private partner Example • Government defines output = connection to let 1,000 vehicles p.d. travel between islands • Government tenders for best solution over 30 years – e.g. ferry, tunnel, bridge?? • After negotiated tender government enters 30-year contract with private company • Private company designs, builds, finances bridge, then operates and maintains it for 30-years • Private company receives payment if the bridge works and is available for traffic • Government checks on safety and availability • If the bridge is closed, or unsafe, the private company looses money

7. PPP Value Drivers

8. Value for Money • VfM = relationship between what is invested and the quality, coverage and price of services delivered • Well structured PPPs can deliver better VfM than public sector provision • Examples • N31 Road, 25km, DBFM, € 80m, 15 years • 21% better VfM • Finance Ministry Building, DBFMO, € 175m, 25 years • 15% better VfM • Delfuent Water Sanitation Plant, DBFMO, € 450m, 30 years • 17% better VfM

9. Why can PPPs Deliver Better Value for Money? • PPPs let Public Sector and Business do what they do Best! • Private • Innovation, use of technology • Professional management • Good project and lifecycle management • Efficiency • Technology • Maintenance practices • Financing • Public • Policy setting • National planning • Regulation • Looking after public interest

10. Full Privatisation Complete transfer to private • Duration: In perpetuity Private More Complex PPPs • DBFMO / Concession • Investments into new (DBFMO) or existing (concession) infrastructure made by private sector • full system operation by private sector • Ownership of infrastructure / facilities with private sector for duration of contract • Risk profile: Budget-based: revenue risk with government, Revenue-based: revenue risk with government. Technical, financial, operational risks fully with private sector • Duration: 20 – 50 years. approx. • Lease • Full responsibility for services • Operational investments • Ownership: remains with public sector • Risk profile: Revenue risk with private sector; major investments made by public sector, minor investments made by private sector • Duration: 10 – 30 yrs approx. Simpler PPPs Management • Mgt. Contract • Facility management • O & M, supply • Ownership: remains with public sector • Risk profile: private sector receives a fee, partially linked to performance. No / very limited capital investments by private sector. • Duration: 5 – 15 yrs. approx. • Service Contract • Maintenance of equipment • Ownership: remains with public sector • Risk profile: private sector receives a fee for their services • Duration: 1 - 5 years approx. Public Private Ownership / capital investment PPP Models

11. Two Important PPP Structures 1. “Off-Budget” PPPs • Traditional BOT model • Revenues collection from users given to private partner (e.g. tolls paid on a toll road) • Project is “off the budget” of government as revenues flow directly to private sector • Used only where there are substantial revenues that can be directly charged to users • ‘US model’ 2. “On-Budget” PPPs • DBFMO model • Revenues collection stays with government • Government pays private partner to make the service available (availability payments) • Project is “on the budget” of government as revenues flow through government • Can be used widely for services paid by users, or for those paid through taxes • ‘European model’

12. Tools for PPPs • Public Sector • Feasibility study • PPP options assessment • PPP Business Case – financial modeling • Public Private Comparator (PPC) Model • Public Sector Comparator (PSC) Model • Negotiated procurement strategies • Private Sector • Lifecycle financial modeling • Project finance structuring • Operational / technical tools • Public and Private Sector • PPP project structuring • Transaction strategy

13. Contribution to MDGs • Strengthen economy of Bahrain = jobs and tax revenues • Improve service coverage • Companies can apply MDG principles (e.g. gender promotion) in PPPs • PPPs can create opportunities for disadvantaged groups and unemployed • ‘Pro-poor add-ons’ can be included to PPPs • Human and financial resources of government are freed up to address welfare issues

14. 3. Use of PPPs in Different Sectors • If value drivers used properly and deal well structured PPPs can be applied almost anywhere… • Physical Infrastructure • Social Infrastructure • Strategic Infrastructure

15. Physical Infrastructure PPPs • Large capital investment, substantial revenue flows, long time frames • Such as roads, railways, bridges, tunnels, ports, airports, etc.

16. Social Infrastructure PPPs • Such as education, health, welfare systems, social housing, etc.

17. Strategic Infrastructure PPPs • Such as prisons, military, policies, border management, etc.

18. 4. How Some Countries have Promoted PPPs • UK – Private Finance Initiative • Netherlands – PPS programme • South Africa – National PPP Programme • Canada – P3 programme • Egypt – new PPP policy, PPP Unit and Pilot PPP Transactions !! • PPP Units now in many countries • And many, many more country experiences … These countries have found ways to strengthen the understanding and cooperation between the public and private sectors through partnerships !

19. Some PPP Units and What they Do

20. What Government and Business Address

21. Some PPP Projects in the Gulf and Middle East • Jordan / As-Samra Wastewater Treatment Plant– DBFMO on 25-year concession agreement with combined private, local government and donor financing (MIGA Guarantee) • Jordan / Queen Alia International Airport– BOT for maintenance, expansion, rehabilitation and modernization. $450m • Kuwait / Sulaibiya Wastewater Treatment Plant– 30-year BOT

22. PPP Projects in the Gulf and Middle East [2] • Jordan / Gas Transmission Pipeline – 30-year DBFMO concession for a natural gas pipeline from Aqaba to Amman and the Syria Border. Approx $500m structured debt / equity • Morocco / Guerdane Irrigation Project– 30-year concession for an irrigation network • Tunisia / Independent Power Producers– 20-year BOOT and 30 Mw gas plant

23. 5. Promoting PPPs in Bahrain • Vision / Strategy for PPPs in Bahrain • Role of PPPs in the competitive development of Bahrain • Forms of that PPPs Bahrain wants to establish • Key infrastructure and services where PPPs are wanted – e.g. transport, energy, water, education, social, etc. • Commitment of the government and the private sector to PPPs • This should be developed jointly by government and business • Institutional Arrangements for PPPs • Identify the champions for PPPs • Responsibility in government for structuring and tendering PPP projects • Public interest checks – value for money, procedural • Possible PPP Unit in Bahrain? • Tools for PPPs • How expertise needed by the public and private sectors to structure PPPs will be obtained • PPP Transactions / Deal Flow !!!!! • Identify priority projects for PPPs in key sectors • Conduct pilot PPP transaction with external support

24. Opportunities and Challenges for Government and Business in Bahrain • Major opportunities for government and business in infrastructure • PPPs are not “business as usual” • Means changes for • Public sector (from direct provider, to organiser and regulator) • Private sector (from simple construction, to integrated lifecycle projects) • Financial sector (short term corporate finance, to long term infrastructure project finance) New knowledge, skills, expertise and tools needed

25. Future of PPPs in Bahrain • An internationally competitive economy needs competitive infrastructure • PPPs for flagship infrastructure projects, and smaller scale (social) infrastructure • PPPs can help Bahrain to… • Build an internationally competitive economy • Fully reach the MDGs