PPP and PFI

Funding Infrastructure

by Public-Private Partnerships (PPP)

and Private Finance Initiatives (PFI):

Ghana

The Project Company (Ghana) Ltd

Tony Hagan BSc MSc CEng MICE

Contact: [email protected]

Issues Considered

• Public-Private Partnerships (PPP)• Ghana: Economic and Social Infrastructure• Ghana: PPP Opportunity Areas• The Benefits of PPP Schemes• The Differences between the Public and Private Sectors• Delivering Infrastructure Projects for Ghana• Financing PPP Schemes and Role of Banks• Keys to Successful PPP Schemes• The Project Company (Ghana) Ltd

Public-Private Partnerships (PPP)

What are PPPs?

Key feature of a PPP is that it involves a risk sharing relationship between Public and Private Promoters, based on a shared

commitment to achieve a desired public policy outcome

What are the aims of a PPP?

• PPPs aim to introduce Private Sector Resources and/or Expertise in order to help provide and deliver Public sector Assets and Services

• The term PPP is used to describe a wide variety of working arrangements from loose, informal and strategic partnerships, to design, build, finance and operate (DBFO) type service contracts and formal joint venture companies

How are PPPs Structured?

What are the steps?

Project Preparation

Service Provider Selection

Contract Management

1. Service Need

(Output specs over time)

2. Option Appraisal

(Report on options)

3. Business Case

(affrdblty./public interest)

4. Project Dev.

(team, PSC, plan)

5. Bid Preparation

(EOI/ Short listing, RFP)

6. Bid Evaluation

(prf. bidder, value for $)

7. Final Negotiation

(sign contract, finc. close)

8. Contract Mgmt.

(construction, commissioning,

monitoring,dispute settlement,

continuing communications

Project/ Funding Approval

Bid Doc Approval

Project Finalization Review

What are the Steps in PPPs?

What characteristics have PPPs got?

Characterised by the Public Sector:

• Entering into contracts to acquire services, rather than procuring an asset

• Specifying the service requirement on the basis of outputs, not inputs

• Linking payments to the private sector to the level and quality services actually delivered

• Often requiring a ‘whole life’ approach to the design, building and operation of project assets

• Seeking optimal risk transfer to the private sector

• Requiring private partner to be responsible for raising some, or all, of investment finance required

• Utilising diverse payment mechanisms, such as market revenue, shadow tolls, capacity availability payments and so on

What are the ingredients of a good PPP?

Contractual arrangement should be based on:

1. Substantial risk transfer– allocation of risks to parties best able to

manage them 2. Quality of service & output specification

– focus on services associated with procured assets

3. Performance-related rewards– payment only if performance standards met

4. M&E plan over life of contract– achievement of whole-life performance

PPPs and Value For Money (VFM)

• Key consideration in launching a PPP programme should be ensuring Value For Money (VFM)

• PPPs facilitate and create incentives for On-time and On-budget Projects

• Achieving optimal allocation of risk is the most important factor in structuring a PPP

What are the Pre-requisites?

Clear policy and legal frameworks– Rationale for use of PPPs & legal powers to contract out services– Dispute resolution procedures– Oversight of fiscal costs

Oversight procedures providing checks & balances1) Project preparation – business case & value-for-money2) Provider selection – guidelines for pre-qualification & tender3) Contract management – M&E, performance-linked payments/penalties

Support functions1) Information dissemination – data, networking, training2) Guidance – model contracts, tools, case studies3) Catalytic functions – political/advisory support, funding

Needed: Transparency, Competition, Monitoring, Empowered Public

PPPs Need:

• Appropriate selection of projects ( a PPP will never cure a weak project)

• A clear and stable legal framework

• Skilled and experienced people in the public sector

• Experienced and creditworthy private sector partners

What are the Benefits of PPPs?

• Risk transfer to private sector – Commercial know-how & managerial skills – Best-practice technologies & innovation

• Enhanced government accountability• Entrepreneurship & local enterprise development• Private finance

– Government payments can be leveraged by citizen user fees and/or government cost savings

Result: Faster deployment of better services

How have PPPs developed elsewhere?

• New investment in public infrastructure via PPPs has included:

- Airports- Railways- Roads- Bridges- Tunnels- Environmental facilities (waste incinerators and water

treatment plants)- Public Buildings (offices, schools, hospitals and prisons)

The PPP Outsourcing Path

Infrastructure Provision and ManagementInfrastructure Provision and Management

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Pattern of PPPs and Experience to Date

• PPPs sectorally concentrated – transport (road, rail, estuarial crossings) as well as Education and Health

• Other sectors (waste, environment, ports, energy and social housing) yet to reach ‘critical mass’ for competitive market to emerge

Experience to Date

• Most countries commence PPP in the transport sector but develop into other scetors as VFM is proven and PPP expertise established

• PPP structures demonstrate considerable national variations – PPP techniques succeed because they can be adaptable to specific financial, political and socio-economic priorities of each country

Ghana: Economic and Social Sector Infrastructure

Agriculture and Infrastructure: Priority Policies and Targets, 2007 – 2009…1

• Agriculture modernization: The aim is to go beyond subsistence agriculture and increase agricultural productivity

• Close the Infrastructure Gap:– Roads; The target is to have more than 55% of the entire

national road network in good condition by 2009 up from the current (2006) indicator level of 45%

– Energy; The target is (I) to install a total of about 300 Megawatts of additional capacity (approximately 17% of installed capacity) in 2007; (II) To develop and construct new power stations, (II) Explore alternative sources of energy

– ICT; Increase teledensity by at least 27% annually, and increase internet access by an annual rate of not less than 2%.

Education: Priority Policies and Targets, 2007 – 2009…2

• In Education the objectives are:– increase access to and participation in education and training at all

levels– bridge gender gaps in access to education in all districts– improve the quality of teaching and learning; – improve efficiency in the delivery of education services – promote science and technology education at all levels with

particular attention to increased participation of girls.

Consequently, the target is to: - achieve literacy rate (i.e. proportion of adult population able to read

and write) of about 68.20%; - Gross Enrolment Rate (GER) at the Primary level of 97.80%, JSS of

80.40% and SSS of 31% by 2009. - In doing this, effort will be made at achieving Gender Parity Index

(GPI) for gross enrolment of 1 at all levels (i.e. KG, Primary, JSS and SSS)

Health: Priority Policies and Targets, 2007 – 2009…3

• Health– Expand and sustain high coverage of quality interventions and

services, particularly malaria, infant & maternal mortality, HIV/AIDS etc

– Target for HIV/AIDS: 50% ARVs coverage from the current 3.2%; – HIV/AIDS prevalence reduced to 2.0% by 2009 from 3.2% now

• Water supply: The target is to increase access to above 60% by 2009.

• Good Governance: The focus will be on- Strengthening the process of decentralization - Improve existing institutional capacities including Parliament- Fostering greater civic responsibility

Challenges to the attainment of the Overall Objective of the Medium Term Development Framework (GPRS II)…1

• One of the key assumptions underlying the attainment of the minimum GDP growth of 8% and per capita GDP of US$686 over the medium term (by 2009) is increased investment in the key sectors of the economy, particularly in the area of infrastructure (i.e. energy, roads and railways, ICT, etc)

• The recent analysis of the investment needs for the key sectors of the economy indicates a total investment requirements of about US$10,555.5 million over the period 2007-2009, of which GOG revenue projections amounts to US$3,115.7 million (about 30% of the estimated requirement).

• This leaves an average financing gap of about US$3,518.5 million per annum.

Challenges to the attainment of the Overall Objective of the Medium Term Development Framework (GPRS II)…2

This gap is expected to be filled by:• Resource mobilization through grant finance and budget

support. • external loans on concessional terms with a minimum

grant element of 35%. • Non-concessional loans to be limited by specific projects

in any specific year.• The implication of this is that development partners have

to scale up resource support to Ghana which currently stands at about US$1,306.25 million per annum.

Global Partnership for Development...1

• Strengthening the partnership between Ghana and her Development Partners has been central to the formulation, implementation and monitoring of the GPRS.

• The principles of the partnership are based on the Paris Declaration and include:

• strengthening country’s ownership of the development process, • ensuring the alignment of development partner support on

national priority,• ensuring harmonisation of donor procedures and country

systems • and use information to improve decision making. • ensuring mutual accountability in relation to resource flow and

results achieved through the implementation of national strategy

Global Partnership for Development...2

• Within this framework GOG expect an increased in the current level of donor support over the next 3 years.

• The GOG expect more loans on concessional terms with a minimum grant element of 35% as against non-concessional loans.

• The GOG expects more budget support instead of projects loans which is difficult to coordinate and manage. This will allow for integration of aid flows into the planning, implementation, monitoring and evaluation phases of the budget cycle.

Conclusions

• Achieving an accelerated growth, with employment creation and poverty reduction, will require massive investment in priority sectors of the economy.

• The country has come far with the help of its Development Partners and fiscal prudence on the part of Government in the achievement of some remarkable progress which makes the future bright.

• There is the need to maintain the momentum of growth and the achievement of the Millennium Development Goals.

• To do this concerted efforts must be made towards investing in some key areas of the economy.

• This will require scaling up of resources on the part of Government and its Development Partners to make it feasible.

Ghana: Economic Sector

Economic Sector Overview...1

• Well endowed with Natural Resources (gold, timber, industrial diamonds, bauxite, manganese, fish, rubber, hydropower, petroleum, silver, salt and limestone)

• Ghana has roughly twice the per capita output of the poorest countries in West Africa

• Heavily dependent on international financial and technical assistance

• Gold and cocoa production, and individual remittances, are major sources of foreign exchange

• The domestic economy continues to revolve around agriculture, which accounts for about 35% of GDP and employs about 55% of the work force, mainly small landholders

• Ghana signed a Millennium Challenge Corporation (MCC) Compact in 2006, which aims to assist in transforming Ghana's agricultural sector


• Ghana opted for debt relief under the Heavily Indebted Poor Country (HIPC) program in 2002, and is also benefiting from the Multilateral Debt Relief Initiative that took effect in 2006

• Thematic priorities under its current Growth and Poverty Reduction Strategy (GPRS-II), which also provides the framework for development partner assistance, are:

- Macroeconomic stability; - Private sector competitiveness; - Human resource development;

- Good governance and civic responsibility • Sound macro-economic management along with high prices for gold

and cocoa helped sustain GDP growth in 2008


Industries:• Mining• Lumbering• Light Manufacturing• Aluminium Smelting• Food Processing• Cement• Small Commercial Ship-Building

Economic Sector Infrastructure

• Energy and Bio-Energies (Power Plants, Hydro-electric Plants, Networks and Renewable Energies)

• Environment (Water Networks, sewage Facilities, Sanitation and De-salination)

• Information and Communications Technologies (Backbones, Regional Inter-connections..)

• Transport (Roads, Highways, Railways, Ports and Airports)

Economic Sector Infrastructure: Energy and Bio-Energies

ELECTRICITYElectricity - production: 8.204 billion kWh (2006 est.)

Electricity - consumption: 6.76 billion kWh (2006 est.)

Electricity - exports: 755 million kWh (2006 est.)

Electricity - imports: 629 million kWh (2006 est.)

WHY EXPORT 755 TO THEN IMPORT 629??????????????

PARTICULARLY AS PRODUCING MORE THAN COMSUME

WHY ARE ELECTRICITY CUTS SO PREVALENT??????????


OIL

Oil - production: 7,571 bbl/day (2007 est.)

Oil - consumption: 49,300 bbl/day (2006 est.)

Oil - exports: 5,709 bbl/day (2005)

Oil - imports: 45,520 bbl/day (2005)

Oil - proved reserves: 15 million bbl (1 January 2008 est.)

CONSUME DAILY ABOUT 7 TIMES AS MUCH OIL AS PRODUCE DAILY AND HAVE TO IMPORT MASSIVE AMOUNTS YET HAVE OIL (PROVED

RESERVES) OF 15 MILLION BBL???????????


NATURAL GAS

Natural gas - production: 0 cu m (2007 est.)

Natural gas - consumption: 0 cu m (2007 est.)

Natural gas - exports: 0 cu m (2007 est.)

Natural gas - imports: 0 cu m (2007 est.)

Natural gas - proved reserves: 22.65 billion cu m (1 January 2008 est.)

MASSIVE AMOUNT OF NATURAL GAS RESERVES YET ZERO CONSUMPTION AND PRODUCTION????????


Comment

• Growth in electricity production averaged 4.2 percent a year between 1980 and 1996. In 1998 electricity production was 6.206 billion kilowatt-hours (kWh), 99.9 percent of which was from hydroelectric sources. In the same year, electricity consumption was 5.437 billion kWh and exports were 400 million kWh, while 65 kWh of electricity were imported. Hydroelectricity is generated at the Akasombo and Kpong power plants, which traditionally supply virtually all of the country's electricity needs, as well as provide exports to Benin and Togo.

• Total dependence on hydroelectricity makes Ghana vulnerable to variations in rainfall, and power shortages reached crisis-point in 1998. This has stiffened resolve to provide alternative sources of electric power, including a recently built oil-and gas-fired power station. There are also plans for a number of gas-fired plants, using imported gas and gas from the Tano fields. The Tama oil refinery was being expanded and prepared for privatization in 1997-99. The U.S. Export-Import Bank is to provide guarantees to cover drilling in the Tano off-shore natural gas fields and construction of pipelines, plus loan financing for operations and maintenance work.

Economic Sector Infrastructure: Environment

Environment - current issues:• recurrent drought in north severely affects agricultural

activities; • deforestation; • overgrazing; • soil erosion; • poaching and habitat destruction threatens wildlife

populations; • water pollution; • inadequate supplies of potable water

Economic Sector Infrastructure: Information and Communication Technologies

Telephones - main lines in use: 376,500 (2007)

Telephones - mobile cellular: 7.604 million (2007)

Telephone system:

general assessment:

• outdated and unreliable fixed-line infrastructure heavily concentrated in Accra; competition among multiple mobile-cellular providers has spurred growth with subscribership about 35 per 100 persons and rising

domestic:

• primarily microwave radio relay;

• wireless local loop has been installed

Economic Sector Infrastructure: Information and Communication Technologies

international: country code - 233;

• landing point for the SAT-3/WASC fibre-optic submarine cable that provides connectivity to Europe and Asia;

• satellite earth stations - 4 Intelsat (Atlantic Ocean);

• microwave radio relay link to Panaftel system connects Ghana to its neighbours (2007)

Radio broadcast stations: AM 0, FM 86, shortwave 3 (2007)

Television broadcast stations: 7 (2007)

Internet country code: .gh

Internet hosts: 24,018 (2008)

Economic Sector Infrastructure: Transport...1

Airports: 11 (2008)

Airports - with paved runways:

• total: 7 over 3,047 m: 1 2,438 to 3,047 m: 1 1,524 to 2,437 m: 3 914 to 1,523 m: 2 (2008)

Airports - with unpaved runways:

• total: 4 914 to 1,523 m: 3 under 914 m: 1 (2008)

Pipelines:

• oil 5 km; refined products 309 km (2008)

Economic Sector Infrastructure: Transport...2

Railways:• total: 953 km

narrow gauge: 953 km 1.067-m gauge (2006)

Roadways:• total: 62,221 km

paved: 9,955 km unpaved: 52,266 km (2006)

Waterways:• 1,293 km

note: 168 km for launches and lighters on Volta, Ankobra, and Tano rivers; 1,125 km of arterial and feeder waterways on Lake Volta (2008)

Merchant marine:• total: 4

by type: petroleum tanker 1, refrigerated cargo 3 foreign-owned: 1 (Brazil 1) (2008)

Ports and terminals:• Tema

Ghana National Transport Policy

Economic Sector Infrastructure: Transport

Comment

• There are 39,409 kilometres (24,490 miles) of roads, of which 11,653 kilometres (7,241 miles) were paved in 1997. In 1997 there was a 953-kilometer (592-mile) railway network (currently undergoing major rehabilitation) of narrow gauge. The railway connects Accra, Kumasi, and Takoradi, the major mining areas, to the sea ports. The railway network also provides passenger services from the interior of Ghana to the main sea ports at Tema (near Accra) and Takoradi.

• The main waterways include the Volta, Ankobra, and Tano Rivers, which provide 168 kilometers (104 miles) of year-round navigation, and Lake Volta, which provides 1,125 kilometres (699 miles) of arterial and feeder waterways. The main ports are at Takoradi and Tema. There were 12

airports in 1999, 6 of which had paved runways.

Ghana: Social Sector

Social Sector Infrastructure

• Health (Urban and Rural Hospitals)

• Education (Schools, High Schools and Universities, Cultural centres, Libraries..)

• Social Housing

• Leisure and Sport (Stadiums..)

Social Sector Infrastructure: Health

Social Sector Infrastructure: Education

Social Sector Infrastructure: Social Housing

Social Sector Infrastructure: Leisure and Sport

Ghana: Economic and Social Stimulus Plan...1

This plan is suggesting aims to stimulate employment, certain critical economic sectors, and government spending in Ghana •"You've got to look at the whole picture" •Focus stimulus spending on infrastructure development •Front-end investments for longer-term benefits•Job creation and tax cuts in the country•Stimulate vital sectors of the economy such as energy and health care•Make consumption easier/cheaper for everybody•Infrastructure investments could help make the economy and Ghanaian more competitive internationally.

Ghana: Economic and Social Stimulus Plan...2

The Implementation of the Stimulus Plan•The stimulus plan again would again boast the country's Infrastructure, including the highways; •Need to modernize government buildings and other public infrastructure; •Need to provide clean water, flood control, and other environmental investments; there would also be public transit and rail infrastructure improvement.•Local school districts would be increased to prevent educational service cutbacks and also to help modernize higher education programs•Need to transform the Ghanaian energy by pumping money into the sector to make it more efficient•Need to repair public housing and make it affordable for the low income earners

PPP Opportunity Areas

PPP Sector Highlights around the World

PPP Infrastructure Projects in Africa 1996-2006

Infrastructure Development in Africa…1

The Benefits of PPP Schemes

Opportunity Sectors in Ghana

PPP Opportunity Sectors in Ghana

•

Concessive and Non-Concessive PPPs

Ghana: Possible Infrastructure Sectors for PPP

Infrastructure Meets Business

Ghana: Possible Infrastructure Sectors for PPP

Asset Procurement Options under PPP

The Differences between

The Public and Private Sectors

Differences between the Public Sector and Private Sector

PPPs and PFI

Delivering Infrastructure Projects to Ghana

Selecting an Appropriate PPP / PFI Model

Government / Public Sector Authority and The Project Company (Ghana) Ltd

Parties Involved in PPP Projects

Key Phases of the PPP Project Process

Outline of the Procurement Process

Contractual Structure of The PPP

Contract Management Structure

Structure of Project Governance

Financing Infrastructure Projects

Stages of Project Selection

Financing PPP Schemes

Public versus Private Contract Costs

Public Sector Costs vs. Private Sector Costs

Breakdown of Total Costs

Different PFI Cost Structures

Comparing Costs of PPP and Government Debt Finance

Typical PPP / PFI Bidding Process Costs

Cashflows to Shareholders

Role of Banks in PPP....1

Role of Banks...2

Role of Banks...3

Role of Banks...4

Keys to Successful PPP Schemes

Key to Successful PPP Schemes...1

Key to Successful PPP Schemes...2


The Private Finance Initiative (PFI) Model

Decision Tree for PPP


PPP Structure


Services We Deliver

Our Company Aims

Our Business Profile

We Look Forward to Working with You


End of Presentation

Thank You

PPP and PFI

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