Public -Private Partnership

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Public -Private Partnership
A
public–private partnership (PPP, 3P or P3) is a government service or private
business venture that is funded and operated through a partnership of
government and one or more private sector
companies. There is no one widely accepted definition of public-private
partnerships (PPP). The PPP may also be defined  as “a long-term contract between a
private party and a government entity, for providing a public asset or service,
in which the private party bears significant risk and management
responsibility, and remuneration is linked to performance”.
PPPs typically
do not include service contracts or turnkey construction contracts, which are
categorized as public procurement projects, or the privatization of utilities
where there is a limited ongoing role for the public sector. An increasing
number of countries are enshrining a definition of PPPs in their laws, each
tailoring the definition to their institutional and legal particularities.

PPP
involves a contract between a public sector authority
and a private party, in which the private party provides a public service or
project and assumes substantial financial, technical and operational risk in
the project. In some types of PPP, the cost of using the service is borne
exclusively by the users of the service and not by the taxpayer. In other types
(notably the private finance initiative), capital investment is made by
the private sector on the basis of a contract with government to provide agreed
services and the cost of providing the service is borne wholly or in part by
the government. Government contributions to a PPP may also be in kind (notably
the transfer of existing assets). In projects that are aimed at creating public goods like in
the infrastructure sector,
the government may provide a capital subsidy in the form of a one-time grant, so as to
make the project economically viable. In some other cases, the government may support
the project by providing revenue subsidies, including tax breaks or by guaranteed annual revenues for a fixed time period. In all
cases, the partnerships include a transfer of significant risks to the private
sector, generally in an integrated and holistic way, minimizing interfaces for
the public entity. An optimal risk allocation is the main value generator for
this model of delivering public service.
PPP EXECUTION: THE NIGERIAN APPROACH
The scope
of the Federal Government’s programme for PPP is the creation of new
infrastructure, and the expansion and refurbishment of existing assets such as:
Power generation plants and transmission/distribution networks; roads and
bridges; ports; airports; railways; inland container depots and logistics hubs;
gas and petroleum infrastructure, such as storage depots and distribution
pipelines etc; water supply, treatment and distribution systems; solid waste
management; educational facilities (eg schools, universities); urban transport
systems; housing; healthcare facilities, etc
In
addition, a number of State Governments are considering using PPP to develop
infrastructure. Although each State is responsible for its own investment
projects, many PPP projects within a State will be financed with the support of
a guarantee by the Federal Government. In providing any such guarantees, the
Government will have regard to best practice as exemplified by its own PPP
policy and guidelines.
KEY PRINCIPLES OF PPP
In
determining whether PPP is an appropriate procurement option for public
infrastructure and services the Government will apply the following key principles:
(A) Value for Money
Achieving
the best value for money outcome in public services is the key consideration at
all stages of a project’s development and procurement. The project
appraisal will take account not only of cost but also risks and service
quality. The Government will test value for money by comparing the costs
at net present value of PPP proposals against a value for money bench-mark
wherever possible. The benchmark will usually be an estimate of the
costs of providing an equivalent service through public finance. Bids
will only be invited when it is clear that there is scope for a private
proponent to deliver value for money and the cost of the service
payments are affordable to both government and users.
(B) Public interest
Consideration
of the public interest requires that:
*     
Public authorities should ensure adequate
consultation with end-users and other stakeholders prior to the initiation of an
infrastructure project;
*     
private sector participants in a PPP project will
contribute to strategies for communicating and consulting with the general
public, customers, affected communities, and corporate stakeholders, with a
view to developing mutual acceptance and understanding of the objectives of the
public and private parties;
*     
private sector contractors in the provision of vital
services to communities need to be mindful of the consequences of their actions
for those communities and work, together with the public authorities, to avoid
or mitigate socially unacceptable outcomes.
(C) Risk Allocation
The
principle that the Government will follow in allocating risks will be to
optimise, rather than maximise, the transfer of project risks to the private
contractor. This means that, in practice, risks will be allocated to the party
best able to manage them. The allocation of risk will therefore determine the
chosen method of private sector involvement and allocation of responsibilities,
which will in turn be based on an assessment of the public interest.
(D) Output Requirements
The formal
agreement between the public authority and the private contractor will be specified
in terms of verifiable service standards to be provided on the basis of output
or performance-based specifications. It will contain provisions regarding responsibilities
and allocations of risk in the case of unforeseen events.
(E) Transparency
Transparency
and openness are requirements of all government procurement, including PPP projects.
Fiscal discipline and transparency must be safeguarded and the potential public
finance implications of sharing responsibilities for infrastructure with the
private sector fully understood. A sound enabling environment for
infrastructure investment which implies high standards of public and corporate
governance, transparency and the rule of law, including protection of property
and contractual rights will be put in place to encourage the participation of
the private sector.
Public
authorities will take effective measures to ensure public and private sector
integrity and accountability and establish appropriate procedures to deter,
detect, and penalize corruption.
The
awarding of infrastructure contracts or concessions will be designed to
guarantee procedural fairness, non-discrimination, and transparency; Private
sector participants, their sub-contractors and representatives will not resort
to bribery and other irregular practices, gain control over assets to gain an
unfair advantage, or attempt to win favours. Nor should they be party to these
practices in the course of their infrastructure operations. They will observe
commonly agreed principles and standards of responsible business conduct. They
will participate in infrastructure projects in good faith and fulfil their
contracted commitments.
(F) Competition
The
benefits of private sector participation in infrastructure are increased by
effective competition and by ensuring that business activities are subject to
appropriate commercial pressures, dismantling unnecessary barriers to entry,
and implementing and enforcing adequate competition laws.
(G) Capacity to deliver
Authorities
responsible for privately operated infrastructure must have the capacity to
manage the commercial processes involved and to partner on an equal basis with
their private sector counterparts. Strategies for private sector participation
in infrastructure will be disseminated and objectives shared throughout all
levels of government and relevant parts of the public administration. Training
will be provided to transfer relevant skills and understanding to those involved
in projects, including decision makers.
(H) Engaging with the market
Projects
to be procured within this policy must have the formal approval of the Federal
Executive Council before the involvement of the private sector. Public
authorities will communicate clearly the objectives of infrastructure policies
and will put in place mechanisms for consultation between the public and
private partners regarding these objectives. They will disclose all project-relevant
information, including the condition of existing infrastructure, and the standards
of performance they require, together with proposed penalties for
non-compliance as part of the procurement process.
THE PPP PROCESS
The
following elements outlined below constitute the key processes of a PPP as
adopted in Nigeria:
(1)        Project development: outlined below are
the key aspects of project development
v  identification
of need;
v  a
systematic appraisal of technical solutions to the identified need;
v  preparation
of economic, social and environmental cost benefit analysis, and an
Environ-mental Impact Assessment, if required;
v  value for
money (VfM) and affordability testing of different procurement options;
v  preparation
of financial analysis – the pre-feasibility study;
(2)        Procurement
ü  creation
of a project team and management structure;
ü  preparation
of an Information Memorandum and bid documentation;
ü  market
consultation, if appropriate;
ü  a
competitive and transparent procurement process, with a clear audit trail for
the selection of bidders and the evaluation of bids;
ü  approval
of Full Business Case (FBC) before the decision to award a contract.
(3)        Implementation
o   monitoring
of design and construction, and subsequently operation and maintenance to ensure
compliance with the required service standards;
o   monitoring
of payments against services delivered and any contingent liabilities.
(4)        Maturity
Ø  inspection
and preparation for the handover of any public assets in accordance with the specified
requirements, if appropriate;
Ø  analysis
of future service delivery options and further procurement, if appropriate;
Ø  contract
close and recording of lessons learned.
PARTIES/STAKEHOLDERS AND THEIR ROLES IN THE PPP PROCESS: THE
NIGERIAN MODEL
The institutional
framework that the Government of the Federal Republic of Nigeria is creating to
implement its policy for PPP allocates specific roles and responsibilities to
various MDAs within the Federal Government for PPP project identification,
planning, approval, procurement, and implementation. The Government has issued
a Supplementary Note with this Policy Statement, which provides further details
on its proposed allocation of roles and responsibilities within this institutional
framework. Several sectors, such as power and transport, are going through a
process of reform and restructuring, within a new regulatory framework. The Supplementary
Note describes how sector regulators will interface with the MDAs responsible
for the delivery of public services in the transport, power and water sectors.
It also provides more detail on the role of the Infrastructure Concession
Regulatory Commission (ICRC), which the Government will use to coordinate
and lead the implementation of its policy on PPP. The working arrangements
between the various parts of the Government will continue to be streamlined to
avoid duplication and ensure that processes are not overly-bureaucratic. There
will need to be consistency and clear responsibility and accountability.
The ICRC
The Board
of ICRC has been appointed with a mandate to develop and issue guidelines on
PPP policies, processes and procedures (including those for concessions), and
to act as a national centre of expertise in PPP. It will work closely with
relevant MDAs to identify potential PPP projects, and will act as the interface
with the private sector to promote communication on national policies and
programmes. This communication will be continuous, clear, timely, and accurate.
ICRC will monitor the effectiveness of the Government’s policies and processes
and provide independent advice to the Federal Executive Council (FEC) on the
development of its national PPP policy. It will provide an opinion to FEC on
whether projects submitted for FEC approval meet the requirements of the
regulations.
ICRC will
also work closely with States that are developing their own PPP policies to
ensure consistency, best practice, and a coordinated approach to the private
sector supplier market.
Although
the management of PPP agreements will be for the relevant MDA, as the
contracting party on behalf of government, the Contract Monitoring Unit within
ICRC will monitor compliance with the contractual terms and conditions by both
parties. The ICRC will maintain a PPP project database and will retain custody
of all PPP agreements as required by the legislation.
The PPP
Resource Centre within ICRC will provide technical assistance to MDAs in the
develop-

ment and
procurement of PPP projects, and a Project Development Fund will be allocated
to the PPP Resource Centre to co-fund project preparation and procurement
costs, particularly the costs of external project advisers. The ICRC Board will
provide oversight and strategic direction to the PPP Resource Centre and the
Contract Monitoring Unit through its internal governance structures.


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