Guidelines for urban PPP projects

Transcription

1 Guidelines for urban PPP projects 17 November,

2 Outline of the presentation Introduction Towards a useful definition Selection, incentives and risk Governance and institutions Applications to smart city projects Conclusions

3 Introduction An open preliminary guide, combining academic and practitioners perspectives. Objective: provide experts, practitioners and stakeholders in Smart and Sustainable Cities with a basic tool to approach the study of Public Private Partnerships (PPP) in urban areas in their respective working fields. This introduction to the topic aims at being useful to assist advising and training activities in the field of PPPs for cities.

4 Introduction Challenges Accelerating urbanization Need to increase productivity in the provision of public services. Need to take advantage of new technologies and digitalization, and make them work to the benefit of societal objectives

5 Towards a useful definition There is no commonly accepted definition of PPPs. The concept implicitly acknowledges that in some projects inputs from both the public and private sectors are useful. The academic literature focuses on infrastructure PPPs. Infrastructure PPPs are very long term agreements, where there is some degree of contractual bundling of tasks.

6 Towards a useful definition The document reviews the definitions by Iossa and Martimort (2008), Engel et al.(2013), Grout (2003). Maskin and Tirole (2007): long term development and service contract between government and a private partner. The government typically engages its partner both to develop the project and to operate and service it. The partner may bear substantial risk and even raise private finance. Its revenue derives from some combination of government payments and user fees. To be applicable to urban projects not limited to infrastructure, we have to accommodate shorter durations and more flexible financing mechanisms.

7 Towards a useful definition PPPs are intermediate forms of service provision between public and private ownership Agreed by medium to long term contracts Where the focus is on governments buying services or structuring the purchase of services by citizens, leaving broad discretion to the private operator to organize inputs.

8 Towards a useful definition The government is in charge of Selection of project and operator Regulation and enforcement The private operator is in charge of Operation of the service There are different modalities depending on ownership, financing (BOT, BOOT, etc.)

9 Towards a useful definition Each modality of PPP varies in: Degree of risk transfer to the private sector Investmentby each party Control and ownership of assets. In the UK, PFI emphasizes private financing, direct payment by government at some later point.

10 Selection, Incentives, Risk Key dimensions in PPPs: Selection Incentives Risk Selection decisions include Project selection Degree and type of private sector involvement Choice of private sector operator

11 Selection of operator Ideally, the selection of operator should be by competitive bidding (Chadwick, Demsetz). But these are often complex projects with few potential bidders. This is why methods that are closer to restricted and negotiated options are also available. One of them is what is called competitive dialogue.

12 Selection of operator in a competitive dialogue Limit number of bidders: The number of bidders may be limited to no less than three in accordance with criteria specified in contract notice. Discussions during process: A dialogue with the bidders is permitted on all aspects (similar to negotiated procedure, including further shortlisting). When the dialogue is concluded, final complete bids must be requested based on the solution(s) presented during the dialogue phase. Discussions after final bid is submitted: Only permitted to clarify, finetune or specify a bid. No changes are permitted to the basic features. Basis for award: Most economically advantageous tender. Source: EPEC(2014)

13 Incentives Bundling of complementary dimensions to internalize externalities between tasks may be useful. But quality dimensions must be controlled. Contract duration should adjust to the duration of investments. The longer the contract, the more incomplete. Contract duration may be variable (PVR), until some revenue is achieved (good to prevent renegotiation, bad for incentives).

14 Financing and Risk Specific risks should be allocated to those parties that are better able to influence or manage them (for example, demand risk). In the absence of private sector risk, it is difficult to argue that private incentives help to improve public service provision. Risk exists if there is a possibility of revenues not coinciding with costs.

15 Financing and Risk Revenues can be a combination of user fees and public subsidies, and also other mechanisms (publicity, urban requalification). When possible revenue streams are not made transparent, this may be a source of renegotiation and/or public opinion baclash. Project finance and specific financial vehicles are adapted to the nature and timing of revenues.

16 Governance and Institutions Institutions are important in economics in general Contract incompleteness (due to contract duration) makes institutions and governance especially important in PPPs. Risk of government and firm opportunism. Two important dimensions to reduce the risk of government opportunism: Stakeholder engagement Features of specific institutions: number, structure, independence

17 Stakeholder engagement Importance of process (behavioural political economy). Public opinion has a concern for transparency and equity, and a distrust of large corporations (although they enjoy their products). Transparency, stakeholder engagement, realistic anticipation of problems are key dimensions.

18 Features of specific institutions The ambitious proposal by Engel et al. (2013) They propose four different independent agencies: planning agency which should design, evaluate and select projects before awarding contract; external board should review the cost benefit evaluations; PPP superintendency, which should ensure compliance with the contract, monitor performance standards and service quality, and provide information to users and the public once contract is awarded; panel of experts should review contract renegotiations and adjudicate conflicts. They have to avoid incentives for the private firms to behave opportunistically. They also should inform what motivated renegotiations.

19 Applications to smart city projects Absence of academic literature on this specific field. Knowledge is dispersed and conclusions not well settled. Examples: sensors, open government, better transportation and information systems Specific important dimensions: Participation Interaction with collaborative businesses and mission oriented organizations (eg NGOs). Equity to alleviate digital divide

20 Conclusions PPPs in general and in smart and sustainable cities in particular present opportunities and challenges. Accelerated urbanization and digitalization increase the demand for partnerships between public and private sector organizations to deliver projects adapted to the new realities. Beyond the well recognized concerns for a careful selection of projects and operators and a good contract design to allocate risks in an optimal way, PPPs in smart and sustainable cities require special attention to governance issues (tailored to local circumstances) and stakeholder engagement so that they can be part of a shared vision.

21 Thanks for your attention PPP for Cities, an International platform of collaboration between públic and private sector in cities arena Sponsored by: Av. Pearson, 21 Phone: