Tanzania DPG

1. Tanzania DPG Public Private Partnerships 16 January, 2013

2. What are Public-Private Partnerships? A long-term (5 to 30 year) contract between a public entity and a private company to provide a public service: design; finance; build; maintain; and/or operate Output orientation A form of fair and transparent procurement process 2

3. What are PPPs (cont) ? Revenues from: public partner upon delivery of services, to a specified standard (eg payment from public utility or Government department); and/or users fees, paid by the consumers of the service (e.g. utility tariffs, toll road charges, etc.) 3

4. What are PPPs (cont) ? • PPPs are fundamentally different than traditional government public procurement programs involving civil works contracts • Selection of type of contract will depend on sector, country, project or benefits that Government is seeking from the PPP • Variety of sectors ‘PPP space’ Source: PPP in Infrastructure Resource Center www.worldbank.org/pppirc

5. Variety of PPP arrangements Divestiture Management contract, Franchising, O&M Lease contract, Affermage Concession, Outsourcing Private Service contracts, Performance contract BOT, BOOT DBFO, DCMF IPP, BOO Joint venture Mixed Management of service provider Public authority Cooperative, Twinning Public Public Mixed Private Control of Assets Source: adapted from Private Sector Investment in Infrastructure, Delmon, 2009 5

6. The Rationale for PPPs CostOverruns No payments until facility ready $ $ Estimated Capital Estimated running costs Cost Payment based on usage Time overruns 5 Payment based on availability Running cost overruns Construct. phase 5 10 10 15 15 20 20 Years Years phase Construction Operation and maintenance phase Operation and maintenance phase Typical payment profile for an ordinary public procurement of infrastructure Deferred maintenance Typical payment profile for a PPP project finance (BOT or concession) transaction • Payment against services • Maintenance/life cycle 1. Delivers affordable infrastructure services – sources/types of finance 6

7. The Rationale for PPP (cont) Source: National Audit Office-UK Parliament- Expenditure Auditor 2. On time and on budget 7

8. The Rationale for PPP (cont) • Due diligence - better risk assessment. • Greater innovation in design and financing structures. • Risk management/mitigation • Incentives to improve maintenance, operation and performance. • Value for money – on balance, gives Government more benefit than public procurement or privatization. Risks Scope Value for Money Private Finance 3. Long term perspective 8

9. Private participation is a key source of funding for infrastructure globally but is cyclical and uneven across sectors and countries 2 1 Global PPP market of 351 projects reaching financial close in 2011, worth over $87 billion of investment in 2011 alone (almost $2 billion in SS Africa) 3 Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org)

10. Risks of PPP Capture - political, Govt to Govt or business to business Cost - time and money to prepare projects well

11. Recipe for success

12. Tanzania PPP • Process: • PPP Policy 2009, PPP Act 2010, PPP Regulations 2011, PPP Finance Regulations planned for 2013, Operating guidelines prepared but not approved, PPP Unit guidelines under preparation • People: • PPP Units in MoF and TIC; PPP coordinators in line Ministries • Pipeline: • Power – SongoSongo and a mess • Transport – ports, airports, rail, DART • Roads, SEZs, • Partners: • World Bank – Operating guidelines, capacity building, PRSC, TSSP, BRT, PER [SAGCOT, Energy DPO, ESCAP, Ruhuji, Singida] • PPIAF – pipeline, finance regs, TAA • AfDB – PPPFU PPP Guidebook, capacity building • Trademark – Dar port • EAC – Proposal presented to create a PPP platform in EADB – to be addressed by Heads of State in March.

13. Tanzania Work Program • Policy (PMO, POPC, MoF) • Keep focus, selection, avoid diversion, coordination • Capacity building • Projects (MoT, TPA, TAA, MoW, TanRoads, MEM, Tanesco, EPZA …) • Feasibility studies • Transaction advisers • Public part of financing/guarantees • Central PPP Units (PPPFU/CU, PPRA, BoT, EWURA, SUMATRA, CMA …) • Knowledge – experts, best practices, processes • People – staff, resident experts • Leverage – coordination, incentives, teeth

14. Thank You

15. Sample of PPP Units/ Agencies - Functions 15 # Public-Private Partnership Agencies: A Global Perspective, 2008 Christine Farrugia, Tim Reynolds, Ryan J. Orr

16. The Classification Model Source: Delmon, "Understanding Options for Public Private Partnerships in Infrastructure: Sorting out the forest from the trees - BOT, DBFO, DCMF, concession, lease . . .” (World Bank Working Paper 2010).

17. Steps towards Building successful PPPs Lack of basic building blocks for implementation of PPPs leads to delays in decision making and implementation and possible break-down of deals.

18. Creating an enabling environment through sound PPP policy framework From Toolkit on PPP in Highways

19. Government Inputs

20. Standardizing contracts/procurement and integrated planning Private investment commitments to infrastructure projects in India, by sector, 1990–2009 Sustainability of scale up ? Expansion National Highways Act 1995: BOTs on toll or annuity bases Source: World Bank and PPIAF, PPI Project Database *Adjusted by the US Consumer Price Index

21. Nam Theun 2 Independent Power Producer (IPP) • NamTheun 2 hydropower project (2005) exporting 995 MW with 75 MW for domestic use (cost of $ 1.25bn). • EGATPower Purchase Agreement for up to 995 MW and 5,636 GWh per year at an agreed tariff on a take-or-pay basis for 25 years. • EDLPower Purchase Agreement for up to 75 MW and 200 GWh per year at an agreed tariff on a take-or-pay basis for 25 years. Lessons: Importance of offtakercredit risk, and use of contingent mechanisms to reduce risk Country risk mitigation from multiple IFI and Government contributions.

22. Mozambique-South Africa natural gas development and pipeline project • Natural gas was first discovered in Mozambique in 1956 in the Temane field, followed by the discovery in 1961 of the Pande field. Proven reserve capacity of 2.6 trillion cubic feet (tcf). Years of regional conflict, civil war and political turmoil in both South Africa and Mozambique prevented the gas from being utilized for the benefit of the region. • The construction of the 865km pipeline to transport the gas to Sasol’s Secunda plant in Mpumulanga, South Africa, the “pipeline project.” • Gas is transported along an 865km route through a 660mm high-pressure steel transmission pipeline to Sasol’s petrochemical complex at Secunda.

23. Lesotho Hospital • New 425-bed hospital and adjacent gateway clinic, the renovation of three strategic filter clinics, and the management of facilities, equipment, and delivery of all clinical care services for 18 years. • Capital value of over $100 million. The private is responsible for delivery of all clinical services, including recruitment of health professionals, provision of all medical equipment and the new facility, which will operate as the national referral hospital as well as the district hospital for the greater Maseru area. Lessons: Carefully defining Government needs – in particular clinical services. Ensuring the private partner could deliver and integrated service – not just about the cheapest bid. Careful preparation is key, including a detailed baseline survey.

24. St Petersburg Pulkovo Airport • Staff reduction required to make airport more profitable • Limited experience of Russia in PPP • Project reached financial close in 2010, in the middle of the international financial crisis attracting more than Euro 1.2 billion of private investment • Project elected “PPP transaction of the year” by Infrastructure Investors in 2011. Considered one of the first international PPP project in Russia and the first for St Petersburg Lessons: 1. Experienced international advisers, 2. A strong project team, senior officialsand a strategic adviser (World Bank) 3. Practical approach in selecting the PPP model - flexibility

25. Examples in Water Egypt: New Cairo Wastewater (2009) • Sanitation services in New Cairo, part of Greater Cairo, and accommodate population growth. The PPP will result in a new plant that will treat 250,000m of water per day and also serve as an example for other projects. Morocco: Guerdane Irrigation (2004) • 300km water irrigation system for Guerdane, where 50 percent of citrus crops are grown. • Due to overexploitation of the aquifer, almost 25% of the farmland was non-productive. • 30-year concession for the construction, co-financing and management of an irrigation network, with costs estimated at $85 million, benefitting over 1,900 farmers and safeguarded the citrus industry.

26. A progressive approach: the example of Armenia Water Sector • Lease • Management Contract • Municipal Companies • Villages ADB - Armenia WSSS Project - PPP Options Review

27. PPP Failures • RailtrackUK – rail concession regime, with the track asset company starved of capital for refurbishment and new investment, had to be taken over by the Government. • Dar water concession – well thought through structure, but selected an inexperienced concessionaire that did not see the key risks in the project during the bid process. The operating company was taken over by the Government, as is still managed by a publicly appointed team, though still on a commercial basis. • Dhabol IPP – where the cost of generation proved ruinous, and contingent liabilities of the Maharashtra Government unsustainable.