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Public-Private Partnerships (PPPs) in eGovernment: Definition, Rationale, and Regulatory Frameworks

Public-Private Partnerships (PPPs) in eGovernment: Definition, Rationale, and Regulatory Frameworks. Ned White Monday, March 28, 2011. Session Overview. Definition: “ Just what ARE PPPs in eGovt. and ICT? ” Rationale for PPPs & the Role of eGovt PPPs within Public Services Sector Reform

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Public-Private Partnerships (PPPs) in eGovernment: Definition, Rationale, and Regulatory Frameworks

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  1. Public-Private Partnerships (PPPs) in eGovernment: Definition, Rationale, and Regulatory Frameworks Ned White Monday, March 28, 2011 World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  2. Session Overview • Definition: “Just what ARE PPPs in eGovt. and ICT?” • Rationale for PPPs & the Role of eGovt PPPs within Public Services Sector Reform • Key Elements of eGovt PPP Policy, Legal, & Institutional Frameworks • Looking Ahead: Key Challenges for eGovt. PPP Frameworks Going Forward & Case Examples World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  3. 1.1- What ARE PPPs? • Definition: Public-Private Partnerships (PPPs) are contracts between the public sector and private sector, which requires new investments by the private partner (money, or technology, or expertise/time, or reputation, etc.), which transfers some key risks to the private sector (design/technology, construction/installation, availability, demand, etc.), in which payments are made in exchange for performance, for the purpose of delivering a service traditionally provided by the public sector. World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  4. 1.2-Range of PPP Structuring Options: World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  5. 1.3-Legal vs. Practical Definitions of PPP • A growing number of recent, new “PPP Laws” give legal definitions of PPPs that only apply to projects for which the private partner provides the long-term financing (ie new BOT/BOO & Concessions). • While non-capital investment contracts (leases and management contracts) still apply the same practical PPP principles (transfering demand risks, etc. & pursuing better value for the public’s money), they are not legally “PPPs.” Their implementation, therefore, would not have to follow the same process of preparation, review, and approval as “official PPPs” do. World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  6. 1.4-Govt of Kenya’s PPP Policy Statement of 2009 defines PPP as: “A contractual arrangement between a public body and private party in which the private party and Government enter into a long term agreement, up to 30 years, to build a new infrastructure facility or to rehabilitate an existing one for the purpose of undertaking a public service on behalf of Government… The private party is required under the terms of the project agreement to take responsibility to mobilize finance– equity as well as debt – in order to complete the facility according to agreed specifications and schedule.” World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  7. 1.5 – Jordan Education Initiative (JEI): A “PPP” or Not? • 2003 World Economic Forum-led team of 30 int’l & local ICT corporations (including Microsoft, Intel, Cisco Systems, et al) donated$11 million the Jordan Education Initiative (JEI). • Scope: install high-speed internet access, provide electronic curricula & teacher training, and support services to 102 public “Discovery Schools” (50,000 students + 2,300 teachers). • The GoJ bound itself to providing specific support and contributions to the project, (especially active support and involvement of the King and Queen of Jordan) • The private firms were willing to make this donation and ongoing support services primarily because they had: • Basically an enforceable agreement with the GoJ, • Clear Govt. contributions & highest level support (no interference), • Project had clear, measurable outputs (Program Management Office) • Context of $380 million Education Reform for the Knowledge Economy (ErfKE) Program($120 million from WB) World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  8. 1.6-JEI: Types & Sources of Contributions Source: McKinsey & Company’s “Building Effective PPPs: Lessons Learned from the JEI” World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  9. 1.7-JEI: Perform. Indicators (Draft) World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  10. 2.1-Rationale for PPPs in eGovt & ICT: • Delivering Better Value for the Public’s Money (VfM): Improved Price & Risk/Quality in the provision of public services. However, VfM models be subject to manipulation & not relevant when a public ICT solution does not exist. • Technology Transfer: Most eGovt technologies & capabilities are not available by the public sector alone. “Knowledge-Based Economy” Policies. • Additionality: More public services & consumer welfare benefits available with the PPP project than without. • Contracted Outputs & Improved Transparency: Resistance to new removing discretion from some public stakeholders • Avoided Public Financing/Borrowing: A priority for many Governments (especially in current public financial climate), but risks entering into long-term PPPs that are unaffordable or require imprudent assumption of risks by Govt. over long-term World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  11. 2.2-PPPs are just one component of an Overall Public Services Reform Strategy World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  12. 2.3-eGovt PPPs in Isolation Rarely Work • Without these complementary, long-term sector reforms: • eGovt PPP contracts alone often have limited success, are not sustainable (cancelled) or affordable. • Not possible to independently and transparently compare public sector performance vs. PPP performance (which offers better value?) • Private partner will not be willing to bear many “commercial risks” (ie they will require more public financial supports & risk-sharing) if there is not a clear, fair market or “level playing-field” • PPPs can add new electronic service delivery mechanisms, but they often simply appear more expensive and may still rely on inefficient public monopolies to distribute public services to end-users. World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  13. 2.4 “Value for the Public’s Money” is a combination of PRICE AND RISK PPP Option #3 The Private Sector’s Price-Risk Offer Curve Average PPP Tariff PPP Option #2 PPP Option #1 P’ P’’ Public “Utility” Curves P’’’ High Low Level of Sector RISK Bourne by Government Thus, “The Lowest-priced bid is often not the best bid” for long-term (5-10 yr.) service delivery contracts. World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  14. 2.5-Optimal vs. Minimal Public Risk-Sharing Minimal Public Support, But Low VfM Moderate Public Support, => Optimal VfM High PPP Price High VfM Private Sector’s Price-Risk Offer Curve PPP Price (Cost/ Output Unit) Public’s Value For Money Public VfM Utility Curves VfM Low PPP Price Low VfM Political Risk Land Acq. Market/ Demand Risk Technology/ Eq. Install. Risk Operating/ Avail. Risk High Pub. Risk Public Support Low Pub. Risk World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  15. 2.6-Illustration of PSC & VfM Analysis World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  16. 3.1-Key Elements of PPP Frameworks: • Clear PPP Policy Statement • Multi-Sector PPP/Concession Law or Regulations • PPP Units: Central PPP Unit + Sector PPP Nodes • PPP Project Development/Preparation Facilities (PDF) • PPP Manuals & Guidelines (Standardised Procedures) • PPP Procurement Regulations (Price & Non-Price Criteria) • Treatment of Unsolicited Proposals: Especially for ICT & eGovt Projects • Specific/limited Public Credit Enhancements Allowed • PPP & Infrastructure Investment Fund Established • Systematic PPP Training & Capacity-building • PPP Contract Performance Monitoring Capacity World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  17. 3.2-Emerging Market PPP Frameworks World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  18. 3.3-Example:South Africa’sPPP Manual & Project Cycle: World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  19. 3.4-Key Characteristics of Effective PPP Toolkits & Manuals: • Clearly Distinguish between “Required PPP Procedures” vs. “Optional Suggestions/Recommended Good Practices” • Function as a Reference Volume, Using Instructional-Based Writing Rather than Traditional Analytical-style Writing • Provide Ready-to-Use PPP Templates or Models • Provide Practical (Not just Theoretical), eGovt.-specific Guidance (ie “Common Practical Pitfalls to Avoid”) • Support PPP Capacity Building: able to be read, discussed, and followed as part of any PPP training program. • Institutionally-Relevant in Explaining specifically who Performs each specific PPP Review, Procedure & Approval. • Contribute to a Proven Track-Record of Completed PPP transactions, (not just a “nicely-looking PPP framework on paper”) World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  20. 3.5-Selected Countries with PPP Guideline Manuals, Standardised Procedures & Toolkits: • United Kingdom • Victoria, Australia • South Africa • India • Ireland • Philippines • Mauritius • Egypt • Saudi Arabia World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  21. 3.6-Drivers of Success for PPP Frameworks • Standardisation: PPP Models & Documentation that can be easily replicated (PPP Feasibility Analyses & Business Cases, Risk Allocations, Tender Documents, PPP Contracts, etc.) • Dealflow: • Quantity: Sufficient scale to justify a PPP Strategy • Quality: Determine which candidates are appropriate as PPPs; Projects must be clear & “bankable” • Leverage: Create more opportunities to attract new finance using credit enhancements • Capacity Building: PPP won’t work unless the public sector understands its Governance and oversight responsibilities from beginning-to-end. World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  22. STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5 SUBSECTOR- WIDE Sub Sector List of PPP Projects from Initial Screening with MVA Tendering Negotiation Contract Management Conduct Feasibility Study* Non PPP Contracting Authority Priority sector PPP Priority sub-sector PPP SECTOR- WIDE Sector List of PPP Projects from Sector-wide Screening with MVA Ministry proposes Sector PPP Projects Non PPP Line Ministry & P3 Node See Figure 3 for more detail Ministry P3 Node Need more project preparation NATION- WIDE National List of PPP Projects from Nation-wide Screening with MCA GS is not needed Preliminary consultation on Projects under processing PPPS PPP RC GS is not available now GS is needed NOTES: MOF: Ministry of Finance OBC: Outline Business Case RMU: Risk Management Unit PPPS: Public Private Partnership Secretariat PPPSC: PPP Steering Committee MCA: multi-criteria analysis GS: government support  major route;  optional route Budget Review (subject to MOF approval) MOF & RMU GS is available Report to the Ministry OBC is developed and approval is sought by PPPSC List of Public Sector Projects GS is considered not suitable for this project * For a project that likely needs GS then the Pre-FS shall be updated to a full FS. Version 4 –Sept 2010 4.1-Key Issues Facing eGovt & ICT PPPs Today • Approvals Process: Many new PPP Frameworks are becoming “over-bureaucratized.” Too many, lengthy reviews & approvals make PPP less attractive to private developers & public agencies. World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  23. 4.2-Key Issues Facing eGovt & ICT PPPs Today • Public Capacity: Limited capacity of Governments to identify new eGovt solutions for public services & develop clear eGovt output performance standards. Especially limited PPP performance monitoring & contract management capacity. • Market & Demand Risk Transfer: Growing Govt. preference to transfer to full commercial & demand risks (& profit incentives) to private eGovt service providers. Taxpayer/Rate-Payer Concerns about Fairness & Transparency. • Should Private Providers of Traffic Speeding Cameras receive fixed “availability payments” (including their profits) or a fixed-fee per transaction/violation? World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  24. 4.3-Case Example: NAFITH, Aqaba, Jordan • NAFITH: National Freight Information & Transport. Hub • Port of Aqaba, Aqaba Special Econ. Zone Authority (ASEZA): Growing problem of truck congestion around port • Scope: 2006 electronic Truck Control System/logistics on a PPP contract. Controls truck traffic between 32 key sites within Port’s Special Economic Zone • 176 registered trucking companies in Jordan. 13,700 total truck population. 3,000 trucks serviced daily by NAFITH • 10-year Concession Contract • Each truck pays a 2 dinar ($3.00) fee for a permit to enter/exit port. • Each trucking company & dispatcher had to have a computer to participate in system. • 15% of revenues remitted to ASEZA, 85% retained by NAFITH World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  25. 4.4-Case Example: NAFITH, Aqaba, Jordan Aqaba Truck Marshalling Yard Entry & Exit Points • Aqaba Special Economic Zone World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  26. 4.5-NAFITH PPP, Aqaba, Jordan – Results: • Clear Benefits in: • Much less congestion • Lower fuel consumption & pollution • Improved Efficiency: • Cost of freight from Aqaba has fallen 20% • Container cargo has increased 25% while number of trucks has remained the same • Increase in “double moves” by trucks (carrying full loads both in to and out of Aqaba) from 6% to 25% • Accurate and transport data & planning • Significant improvements in truck safety (steep descent into Aqaba had killed 2 drivers per month, rushing to get to the Port) • Eliminated informal payments to gain access to port sites • PPP Issues: • ASEZA has expressed interest in collecting more revenues • Growth of a “secondary market” for permits, by market makers who resell desired permits to truckers and dispatchers at a premium NAFITH World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  27. 4.6-Key Issues Facing eGovt & ICT PPPs Today • Growing Govt. Preference for Simply Avoiding Public Borrowing: More Govts. Are pursuing PPPs across sectors simply to avoid public borrowing instead of delivering long term value for money. • Limited Relevance of PSC Models and VfM Analyses in eGovt & ICT Sectors: More difficult to estimate Public Sector Costs (PSC) & conduct VfM Analysis for eGovt & ICT PPPs. Public sector options rarely exist. World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  28. 4.7-Key Issues Facing eGovt & ICT PPPs Today • Technology & Performance Risk: Many IT and eGovt projects don’t work. In 2003 UK’s Treasury discontinued Private Finance Initiative (PFI) projects in Information Technology following several “failures”: • £230m 10-year deal to automate the Passport Office • £150m automation of National Insurance • Criminal Records Office • State benefit payments • Only 22% of the UK’s IT PFI projects delivered 80-100% of defined programme benefits. For non-IT projects the figure was 73%. World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  29. 4.8-Key Issues Facing eGovt & ICT PPPs Today • PPP Project Pipeline: Biggest current constraint to PPPs in eGovt & ICT is not inadequate legal frameworks, but the limited number of candidate PPP projects being identified and prepared. Govts. should focus on building the PPP project pipeline. • Public Sector Risk-Sharing in PPPs: During past 10 years private ICT project developers (and lenders) are requiring more and clearer forms of public sector support, risk-sharing, and contingent liabilities than before. Govt PPP Frameworks must be ready to manage these requests. World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  30. eGovt PPP Example: Partnerships Victoria (Australia) Mobile Data Network PPP World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  31. Mobile Data Network PPP • Description: To provide a mobile data network (MDN) to Victoria’s Police, Ambulance & Emergency Services vehicles in Melbourne area. Includes access in vehicles and outside to relevant databases, maps, emergency information & locator functions at a guaranteed operational reliability of 99.9%: • Allow important information about the emergency and the people involved to be sent directly to the vehicles involved; • Use Satellite technology to track vehicle location, allowing the closest vehicles to be sent to an emergency; • Give mobile access to databases such as vehicle registrations and drivers licenses; and • Allow police to submit paperwork via computer while still in the field. World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  32. 98th percentile Message delivery time 19 seconds or less More than 19 seconds, less than or equal to 40 seconds More than 40 seconds, less than or equal to 60 seconds More than 60 seconds Percentage abatement of daily Service Payment per day 0% 5% 7.5% 10% PPP Payments & Performance Standards If the Service Provider has not remedied a failure under within the time set out in the remediation plan or within any further period allowed by the Contract Manager, the State may reduce the Service Payments which would otherwise be payable to the Service Provider in accordance with the following: ECV CAD End to End Performance Standards World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  33. Mobile Data Network PPP • PPP Contractor: Motorola Australia Pty Ltd. • Govt. Client: Victoria Police & Ambulance Services • Contract Term: 5 year contract, beginning June 2003, 2 year contract extension option • Cost of PPP Contract: $138 million in total PPP Payments over term of contract, equals $85 million NPV using State’s discount rate of 8.65% • Estimated Value for Money Savings of PPP = 11% (A$10.5 million = U.S. $7.8 million) • Lessons Learned: As one of the first eGovt PPPs in Australia, the procurement took a long time (3 yrs.) due to need to revise & re-clarify the contracts output standards. Especially difficult to estimate Public Sector Costs (PSC) when it was difficult for the public sector to provide the new technology required on its own World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

  34. QUESTIONS? Edward (“Ned”) White Ewhite4379@aol.com World Bank, ICT Days, Washington, DC, March 28-April 1, 2011

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