Public-Private-Partnerships

What are the characteristics of Public-Private Partnership (PPP)?

The relationship involves intensive cooperation between the public partner and private partners on different aspects of the project

Long duration of the relationship (up to 30 years)

It can implement alternative methods of financing the project

The important role of the economic operator

Public partner concentrates primarily on public interest

Risk-sharing between public and private partners

What are other the definitions of PPP?

Partnership in a broad economic sense, is seen as cooperation, in the relation between the public authorities, NGOs, business entities and business environment organizations.

The European Commission defines Public-Private Partnership (PPP) broadly, as any form of cooperation

What happened after I and II WW? And when it came back?

The economy stopped the development of PPP; in the early 80s of the 20th century

Where does PPP originate from?

13th century in Italy, and England but also in 16th century France

The idea of private sector financial participation in developing public infrastructure was developed by

United Kingdom's Private Finance Institute programme from the early 1990s

What countries fall within particular PPP legislation?

United Kingdom, Germany, Slovakia, Austria, Australia

What countries fall within legislation that has been proposed?

Italy, Lithuania, Estonia, Hungary

What countries have comprehensive legislation or sector-specific legislation?

France, Czech Republic, Latvia, Poland

What is infrastructure?

It is the basic facilities and systems serving a country, city, or area, such as transportation, power plants, and schools.

What is real estate?

It is the land and any permanent structures, like a home, or improvements attached to the land, whether natural or man-made.

Technical sector of infrastructure and real estate investment

Communication; Energy; Water and sewage

Social sector of infrastructure and real estate investment

Education, Health care; Entertainment

Administration and public order sector of infrastructure and real estate investment

Justice; Safety

Business environment support sector of infrastructure and real estate investment

Science parks, technology parks, innovation centres, incubators or trade promotion, fairs

What in real estate are GREENFIELDS?

Sites have never been built on and can be found in the countryside or rural areas

What in real estate are BROWNFIELDS?

Sites that are typically located in urban areas because they've previously been built upon

What in real estate are HOUSINGS?

Any property used for residential purposes, e.g.: personal or for renting

What in real estate is COMMERCIAL?

Property used for business purposes rather than as a living space, e.g.: trade, offices, warehouses

What in real estate is INDUSTRIAL?

It’s an umbrella term for manufacturing, production, research and development, storage and distribution facilities

What in real estate is SPECIAL?

They are designed and built for a specific, often unique purpose, and their design or layout makes them suitable for only certain types of uses, e.g.: cemeteries, bridges, and churches

How is PPP organised?

In the case of PPP, the infrastructure and real estate depend on the supply and delivery of the goods.

When can infrastructure be ATTRACTIVE?

It needs to check out a few remarks:

• Presented by the most stable demand as it could be

• Lack of public finance = financed by itself

• Meet the growing needs of customers

What are the benefits of PPP?

Not only they can be selected based on the type (commercial, social or mixed) but also they incorporate both - private and public sector

What does it mean that PPP has an infrastructure or real estate gap?

This means that the strategies provided by the government must provide higher effectiveness of public resources management, reorient to the most important development needs, and understand partners' motives.

It has been defined as the difference between the demand for infrastructure investments and the resources available to the public sector

How does it change based on a quantitative perspective?

The infrastructure gap is the difference between the actual number of existing infrastructure and the demands of the public

How does the infrastructure gap change based on a qualitative perspective?

The existence of an infrastructure gap indicates insufficient quality of existing facilities

What are the main drivers of PPP?

Infrastructure/real estate gap (and financing gap);

“Value for money”;

“Risk transfer”

What are the benefits of the public sector?

Accelerated infrastructure development; Improved service quality; Increased service innovation; Enhanced operational efficiency; Lifespan consideration; reduced total project costs and efficient public money use; Better understanding of investment and O&M costs; Greater value for money

What are the benefits of the private sector?

Stable, long-term contract; Flexible specifications; Performance incentives; Additional third-party revenue; Commercial innovation opportunities

What are the sources of Value For Money?

Whole life costing; Synergy;

Knowledge;

Robust planning;

Flexibility;

Risk transfer

What are other PPP developments?

The constantly changing environment;

Increase the competitiveness among cities;

Growing demand;

Growing public debt;

Policy of Public Finance;

Consolidation

What are practical consequences of PPP?

Public-private partnerships have emerged as a popular strategy for infrastructure development worldwide.

Public-private partnership investment projects are growing in size globally as governments cannot afford to finance all essential investment.

What are the partners of PPP in public sector? And what are their tasks?

The main partners fall into the statutory bodies under public law

The tasks of it are:

• Definition of the scope of services

• Determination of priorities

• Determination of goals and results

What are the partners of PPP in the private sector? And what are their tasks?

The main partners are contractors, operators, concessionaires and banks.

The tasks of it are:

• Design, construction, operation, etc.

• Financing function

• Supply of value for money to the public sector

How do private partners allocate risks?

Planning; Completion; Technological; Operation and management; Financial; Market; Force Majeure

How do public sector allocate risks?

Planning (permits, authorizations); Geological; Inflation; Force Majeure

What influences the selection of the preferred form of PPP?

The size and scope of the project,

The ability to apply user tolls/fees;

The extent of risk transfer required.

What are the main features of a DB (design-build) contract?

The facility is financed & owned by the public sector

The key driver is the transfer of design and construction risk

What are the main features of a DBFO (design-build-finance-operate) contract?

The facility is owned by the private sector for the contract period and it recovers costs through public subvention

The key driver is the utilisation of private finance and transfer of design, construction & operating risk

What are the main features of a BOT (build-operate-transfer) contract?

The facility is financed by the public sector and remains in public ownership throughout the contract

The key driver is the transfer of operating risk in addition to design and construction risk

What are the main features of a CONCESSION contract?

As for DBFO except private party recovers costs from user charges

The key driver is private finance and transferring design, construction and operating risk

What are the applications of a DB (design-build) contract?

Suited to capital projects with small operating requirements

Suited to capital projects where the public sector wishes to retain operating responsibility

What are the applications of a DBFO (design-build-finance-operate) contract?

The same as in the BOT

What are the applications of a BOT (build-operate-transfer) contract?

Suited to projects that involve significant operating content

Particularly suited to water and waste projects

What are the applications of a CONCESSION contract?

Suited to projects that provide an opportunity for the introduction of user charging

Particularly suited to roads, water (nondomestic) and waste projects.

What are the strengths of a DB (design-build) contract?

Transfer of design and construction risk

Potential to accelerate the construction programme

What are the strengths of a DBFO (design-build-finance-operate) contract?

Attracts private sector finance

Attracts debt finance discipline

What are the strengths of a BOT (build-operate-transfer) contract?

Transfer of design, construction and operating risk

Potential to accelerate construction

What are the strength of a CONCESSION contract?

Increases level of demand risk transfer and encourages the generation of third party revenue

What are the weaknesses of a DB (design-build) contract?

May increase operational risk

The commissioning stage is critical

Does not attract private finance

What are the weaknesses of a DBFO (design-build-finance-operate) contract?

Possible conflict between planning and environmental considerations

Contracts are more complex and tendering process can take longer than BOT

What are the weaknesses of a BOT (build-operate-transfer) contract?

Possible conflict between planning and environmental considerations

Contracts are more complex and tendering process can take longer

What are the weaknesses of a CONCESSION contract?

May not be politically acceptable

Requires effective management of alternatives/substitute s, eg alternative transport routes, alternative waste disposal options)

What are the criteria for investors to choose the most adventageou offer of PPP?

Division of tasks and risks related to the project between the Public Entity and Private Partner

Evaluation of urban and architectural concepts of buildings on the scale of 1: 200

The amount of cash payment to the Public Entity

The deadline for the investment phase of the Venture

What is the traditional infrastructure financing / supply?

Supply is based on only public sector.

Financing is then based on three fundamental principles:

• financial responsibility,

• decentralisation,

• microeconomic optimisation.

What are the principles of project finance?

Cash flow-based;

Debt-driven;

Contract-based;

Special Purpose Vehicle

What is the description of cash flow-based financing?

The project finance structure involves reliance on project cashflows, without full recourse to project sponsors.

It relies to some extent on project future assets

What is the description of debt-driven financing?

A typical project financing structure involves even approximately 90% debt and only 10% equity

What is the description of contract-based financing?

The relationships between the parties to a project are largely governed by a series of financial, operational and concession agreements

What is the description of a special purpose vehicle?

It can be organizational, economic, legal

Public sector investment activity has a different character than only financial and differs from private sector investment according to [BLANK]

social and community benefits

What is EFFECTIVENESS?

Compares what has been done with what was originally planned (objectives/aims); it compares actual with expected or estimated outputs, results, and/or impacts.

What is EFFICIENCY?

Looks at the ratio between the outputs, results, and/or impacts and the inputs (particularly financial resources) used to achieve them

What are the dimensions of private-public cooperation?

Public-private partnership is based on contracts strongly influenced by different historical legal traditions.

Some of them fall under civil law, especially private and company law.

The agreements are based on a simple "design-build" (DB) contract for a public utility, but may take several variations.

Although financial profitability is a leading criterion for a major part of private investors, in the times when principles of sustainable development have to be accepted and applied, extra-financial criteria, relate to [BLANK]

environmental, social, and governance (ESG) factors

From the public sector's point of view (municipality, population), the rationalisation of investment should undoubtedly take into consideration [BLANK]

effectiveness and efficiency

In the conditions of a limited public budget, the government restricts itself to [BLANK]

essential services and infrastructure projects

Public-private partnership investment projects are growing in size globally as governments [BLANK]

seek innovative funding solutions

Among others, it is a well-prepared PPP law, that is advantageous to better-structured deals and may contribute to [BLANK]

successful project outcomes

Partnership in a broad economic sense, seen as [BLANK]

collaborative efforts between the public and private sectors

The nature of PPP is that benefits [BLANK] proportionately to their [BLANK]

are shared ; contributions and risks

In this way, public services and infrastructure are provided [BLANK]

most efficiently and cost-effectively manner

Public-private partnership should therefore lead to a [BLANK]

mutually beneficial outcome