Stakeholder Briefing

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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_at_rebelgroup.com
• 31 612506624

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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
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1. Foreword

• An internationally competitive economy needs
  internationally competitive infrastructure
• Effective infrastructure investment and service
  delivery is critical for managing rapid
  urbanization

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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 ?
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Traditional Procurement vs PPP

• 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

• 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

• 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

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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

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PPP Value Drivers
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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

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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

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PPP Models
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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

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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

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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

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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

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Physical Infrastructure PPPs

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

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Social Infrastructure PPPs

• Such as education, health, welfare systems,
  social housing, etc.

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Strategic Infrastructure PPPs

• Such as prisons, military, policies, border
  management, etc.

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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 !

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Some PPP Units and What they Do
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What Government and Business Address
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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

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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

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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

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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

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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