“Bridging the gaps”
Implementation challenges for
transport PPPs in OIC member
states
March 28, 2013
Vanesa Sanchez, Senior Analyst
Economist Intelligence Unit
PPPs in the OIC member states
Introduction to the study – Bridging the gaps
Developing transport in OIC member countries is a priority area for COMCEC
This is part of a broader mandate to enhance economic and commercial cooperation among the
OIC member states
PPPs have been identified as one key way to finance and deliver vital transport projects
In the interest of enabling OIC member countries to better understand, implement and cooperate
on PPPs in transport, COMCEC commissioned the Economist Intelligence Unit to prepare a study
on PPPs in OIC member states
All 57 member states were included and examined in the process
PPPs are defined as in the previous session
Existing research and reports; EIU proprietary data and country analysis; interviews with
government officials and sector experts; international project databases
The EIU has experience evaluating and comparing 57
countries worldwide
The EIU’s Infrascope index assesses country-level capacity
to develop and implement public-private partnerships
Evaluates 3 sectors: water and sanitation, transportation and energy
Focusing on laws, regulations, institutions and practices that affect the
environment for PPPs
Looks at the amount and quality of PPP projects in the Asia, Latin
America and Eastern European regions
EIU PPP expertise
Asia 2011
EECA 2013
LAC 2009, 2010,
2012
EIU’s main toolkit includes:
Thematic reports: based on country-level analysis and
expert views, best practice
Learning tools: for country self assessment, allowing to
produce “what if” scenarios given changing conditions or
frameworks
Benchmarking: the possibility to learn from other countries’
successes and mistakes, to better inform best and worst
practice
Economic forecasting models: these allow for
measurements of country wealth, budgetary position, credit
risk, and user affordability
Objectives
It is difficult to implement transport PPPs projects well and progress can
be accelerated with effective use of existing knowledge. Furthermore,
best practice thinking (as well as challenges) keeps evolving over time.
1. Highlight global trends
and best practice
frameworks
As obstacles are overcome, it is important for countries to develop
strategic plans for improvement or expansion.
2. Identify country
characteristics in terms of
legal frameworks and
experience and establish
similarities
3. Discuss challenges for
implementation and
indicate pathways for
improvement/expansion
An essential part of a country’s learning process in PPP implementation
is an assessment of existing conditions and reforms in place.
International comparisons and experiences are useful as practical
guidance.
Scope: 57 OIC countries
Afghanistan, Bahrain, Brunei, Egypt,
Iran, Iraq, Jordan, Kuwait, Lebanon,
Oman, Palestine, Qatar, Saudi Arabia,
Syria, Turkey, United Arab Emirates,
Bangladesh, Indonesia, Malaysia,
Maldives, Pakistan
Albania, Azerbaijan, Kazakhstan,
Kyrgyz Republic, Tajikistan,
Turkmenistan, Uzbekistan
Guyana, Suriname
Algeria, Benin, Burkina Faso, Cameroon,
Chad, Comoros, Djibouti, Gabon, Gambia,
Guinea, Guinea-Bissau, Ivory Coast, Mali,
Mauritania, Morocco, Mozambique, Niger,
Nigeria, Libya, Senegal, Somalia, Sudan,
Togo, Tunisia, Uganda, Yemen, Sierra
Leone
Country groupings
Group 4
Countries with a PPP framework that
have implemented at least one
transport PPP
Group 3
Countries without a PPP framework
that have implemented at least one
transport PPP
Group 1
Countries without a PPP framework
and no transport PPP experience
Group 2
Countries with a PPP framework and
no transport PPP experience
Framework development
Experience
Group 1 Group 2 Group 3 Group 4
Countries without a PPP
framework and no
transport PPP experience
Countries with a PPP
framework and no
transport PPP experience
Countries without a PPP
framework that have
implemented at least one
transport PPP
Countries with a PPP
framework that have
implemented at least one
transport PPP
Afghanistan Bangladesh Algeria Albania Azerbaijan Kuwait Benin Egypt
Bahrain Kyrgyz Republic Burkina Faso Indonesia
Brunei Cameroon Ivory Coast
Chad Comoros Kazakhstan
Gambia Djibouti Malaysia
Guinea-Bissau Gabon Morocco
Iran Guinea Nigeria
Libya Guyana Pakistan
Mauritania Iraq Sierra Leone
Niger Jordan Tunisia
Oman Lebanon
Palestine Maldives
Somalia Mali Tajikistan Mozambique
Turkmenistan Qatar Uzbekistan Saudi Arabia
Senegal
Sudan
Suriname
Syria
Togo
Turkey
Uganda
United Arab Emirates
Yemen
Country groupings
Data for country
groupings was taken
from the World Bank
PPIAF database, which
spans 1990-2011
The “concessions” and
“greenfield” categories
were used to filter
country results
Group 1
Countries without a PPP
framework and no
transport PPP experience
Afghanistan Azerbaijan
Bahrain
Brunei
Chad
Gambia
Guinea-Bissau
Iran
Libya
Mauritania
Niger
Oman
Palestine
Somalia Tajikistan
Turkmenistan
Uzbekistan
Country groupings
Countries in group 1 span several regions, across Sub-Saharan Africa, the Middle East,
North Africa, Central and East Asia
Many of these countries struggle with overall country and economic competitiveness
Many are found in the bottom 95 of the World Economic Forum
rankings, or not included
Exceptions are Azerbaijan, Brunei, Bahrain, Oman and Iran
Sub-Saharan African countries have low per capita GDP
Additional highlights:
Azerbaijan is the largest economy in central Asia; Iran is the largest of
all group 1
Small countries – Bahrain, Oman and Brunei – have the highest WEF
competitiveness positions
Group 1 overview
Issue 1:
Planning approach
Issue 2:
Pricing infrastructure
Issue 3:
Contracts and competitiveness
Challenges group 1
-Change decision-making
criteria (from politics-based
to) strategy and market-
based)
-Long vs short-term
-Project bankruptcy or
renegotiation or distress
-User affordability and
willingness are low
(population is unused to
tolls)
-Without good contract
enforcement, private sector
interest will be low
-Unstable economies. Low
employment, inflation, etc.
lower user affordability
Challenges group 1, cont’d
Issue 4:
Human resources
Issue 5:
Country instability
Issue 6:
Local financial markets
-Need understanding of PPP
procurement, implementation
and oversight process
-Difficult to get the right
people; also costly
-Regulatory , institutional and
legal risks deter investors
-Financial and economic risks
deter investors
-Underdeveloped markets
mean high dependency on
IFIs, international banks and
state-run development
institutions
-Ultimately means higher
financial risk
Overview of countries without a framework
Group 3
Countries without a PPP
framework that have
implemented at least one
transport PPP
Algeria
Benin
Burkina Faso
Cameroon
Comoros
Djibouti
Gabon
Guinea
Guyana
Iraq
Jordan
Lebanon
Maldives
Mali
Mozambique
Qatar
Saudi Arabia
Senegal
Sudan
Suriname
Syria
Togo
Turkey
Uganda
United Arab Emirates
Yemen
These countries all do span every region in COMCEC; however only Turkey and
Mozambique have implemented more than 3 projects since 1990.
This speaks to the difficulty of implementing such projects continuously
and successfully without adequate laws, regulations and institutions in
place
Like group 1, many of these countries struggle with overall country and economic
competitiveness, as well as political and economic stability
However countries such as Turkey, Qatar, Saudi Arabia, Gabon, Cameroon and the
UAE stand out thanks to strong macroeconomic indicators.
Group 3 overview
Issue 1:
Inadequate legal framework
Issue 2:
Bidding and procurement rules
Issue 3:
Inadequate institutional framework
Challenges group 3
-Not all concession forms possible
-Over-dependence on concessions
and sea ports and air ports
-Risk identification and allocation not
required
-Reduced competition and
transparency
-Incorrect selection criteria
-Delays to bid, low transparency
means poor feasibility studies and
private interest
-Makes the process costly, reduces
value for money
-No lifecycle oversight; no
development of institutionalised
expertise
-Low project buy-in; competition for
resources, fragments project pipeline
-Bypass Ministry of Finance
Issue 4:
Risk allocation
Issue 5:
Feasibility studies
Issue 6:
Broader development issues
-Inadequate legal framework
means there is little experience
-Since most projects allocate as
much risk as possible on private
sector, countries will likely struggle
when trying to implement more
complex forms
-Feasibility studies, because they
are not subject to consistent
standards, preparation or oversight,
vary in quality
-Also there is an optimism bias in
terms of willingness to pay and
traffic estimation. This increases
demand risk especially
-Similar to group 1, countries in
group 3 need to enhance economic
indicators, human capital, financial
markets and explore risk
guarantees for political and
economic instability
Challenges group 3
Group 2 Group 4
Countries with a PPP
framework and no
transport PPP experience
Countries with a PPP
framework that have
implemented at least one
transport PPP
Bangladesh Albania
Kuwait Egypt
Kyrgyz Republic Indonesia
Ivory Coast
Kazakhstan
Malaysia
Morocco
Nigeria
Pakistan
Sierra Leone
Tunisia
Country groupings: Groups 2 and 4
There are far fewer of these countries than groups 1 and 3
However their project volumes are much higher on
average
Despite a much smaller group size (11 compared
with 26), the total investment amount is 3.5 times
higher : US$45.1bn versus US$12.8bn
Groups 2 and 4 overview
Issue 1:
Lack of expertise
Issue 2:
Long-term oversight
Issue 3:
Incremental improvements
Challenges groups 2 and 4
-PPP units are in place, but
expertise still needs to be
developed
-Need to spread knowledge
to sector ministries and other
key stakeholders
-Project monitoring for contract
compliance and quality
standards is a lower focus
relative to other project phases
-This also includes dispute
resolution mechanisms
-Legal frameworks
-Coordination
-Quality of feasibility studies
-Stronger institutional design
To address the issues raised, country or project-specific interventions can occur
Interventions can also occur across countries
Options
• Risk identification and
risk matrix construction (p.
69 of report)
• Institutional design
• Legal and regulatory
design
• Feasibility studies
• Application of the risk
matrix
• Stakeholder consultation
• Institutional reform
• Legal and regulatory
reform
• IFI support
• On the job training
• Developing private sector
• Learning to engage
external consultants
•Training on project
accounting and planning
for Ministries of Finance
•Training on financial
instruments and guarantee
methods
Project or country-specific Can be shared by countries
Legislative and regulatory reform In several OIC countries, the existing laws may need to be modified to allow for successful
infrastructure PPP projects, such as enabling the granting of step-in rights to lenders and
requiring open and fair procurement processes. These modifications may be embodied in sector-
specific law or in the case of procurement or competition law.
OIC members should also consider disclosing concession agreements:
a) It provides a further check on corruption, which may strengthen private sector’s legitimacy
when involved in sensitive sectors.
b) It provides consumes with a clearer sense of rights and obligations and can facilitate
public monitoring of concessionaires performance.
Groups 1 and 3: Have the most pressing challenge of developing their
legal, institutional and regulatory frameworks. Laying the foundations for
competitive processes is fundamental.
Groups 2 and 4: Consistency of the legal framework is fundamental, but
structuring effective procurement processes is paramount. Increasing
transparency and competitiveness, as well as post-bid regulations, should
be the main focus.
Improving implementation
Group-specific recommendations
Institutional support and institutional building
In-house training, on-the-job
Countries with sufficient staff skilled in PPPs at line and core ministries have been more capable of
implementing successful PPP projects. Specific training sessions, can be used to build or enhance
local capacity.
Twinning arrangements
Certification
Training in the financial assessment of PPP projects
Training on competitive selection of the private partner
Improving implementation
Groups 1 and 3: Should develop planning capacity, crucial aspects such
as land acquisition. Particular attention to public sector capacity in the
transport sector and to project prioritisation.
Groups 2 and 4: While PPP unit have been established mainly within
Ministry of Finance, the capacity of line ministries should be strengthened.
Group-specific recommendations
Capacity building through:
Technical assistance
Resident advisors
Short-term experts
Terms of reference and other resources
TOR for a PPP feasibility study
Improving implementation
Groups 1 and 3: Technical assistance is key to develop frameworks and
expertise in group 1. Group 3 should aim to improve selection processes
and feasibility studies.
Groups 2 and 4: Technical assistance should be considered for
institutional development as well as any areas for improvement at planning
and evaluation
Group-specific recommendations
Bridging capacity gaps by contracting for technical assistance
Technical assistance can help provide expertise and know-how in areas which are often lacking. This
is a quick solution to a longer-term problem.
Improving implementation
Investment climate and private sector development Even relatively experienced local contractors may require some help to bid satisfactorily, win and
implement a PPP project in a OIC member state as a concession, as opposed to a traditional
construction or maintenance contract. This is because it involves longer-term planning and future-
project cost estimates that local contractors may not be used to. More targeted support should be
defined through a survey and interviews with the local contactors and government officials.
Strategies for private sector strengthening:
Groups 1 and 3: While important, a pipeline should first be developed to
maximise full gains. Of such efforts.
Groups 2 and 4: Building the confidence of the private sector, for PPP
investments, requires increased political and regulatory stability.
Group-specific recommendations
Direct advisory services and training on project management models
Support through financial instruments, such as loans and partial risk guarantees
Association with more experienced outside bidders, for example forming a joint-
venture, or initially, as a sub-contractor
Improving implementation
Risk sharing The Risk Matrix should be updated and refined as project
preparation evolves. It is usually prepared with the support of
transaction experts and in consultation with potential bidders.
Ultimately, risk allocation determines a PPP project’s financeability.
Good practice in preparing risk matrices is to adopt the following
structure for each stage of the project:
-Description of the risk
-Proposed allocation of the risk (usually two columns: grantor and
concessionaire)
-Comments
A typical risk matrix for a transport PPP
project includes the following types of risks
a)Design risks
b)Site risks
c)Construction risks
d)Force-Majeure risks
e)Revenue risks
f)Operation and maintenance
g)Performance risks
h)Other market risks
i)Political risks
j)Default risks
k)Strategic risks
Groups 1 and 3: Should aim at developing capacity for effective
risk allocation. Groups 2 and 4: Clear and equitable risk
allocation is key to success, and this requires full specification in
the legal framework. Affordability should be considered as a
central aspect for full assessment of budgetary risks and
contingencies.
Group-specific recommendations
Improving implementation
Financial instruments Risk mitigation instruments are financial instruments that transfer
certain defined risks from project financiers to creditworthy third
parties who have a better capacity to accept such risks. The
advantages of these instruments include:
a)The public sector is able to mobilise domestic and international
private capital to build infrastructure, supplementing limited public
resources.
b)Private-sector lenders and investors will finance commercially viable
projects when risk-mitigation instruments cover those risks that they
perceive as excessive or beyond their control.
c)Governments can share the risk of developing infrastructure by
using their limited fiscal resources more efficiently and by attracting
private investors.
Instruments commonly used to
mitigate risk include guarantees and
event/political insurance products.
Groups 1 ,2, 3 and 4: Countries across groups
should explore options to mitigate political and
financial risk, as well as strategies to overcome the
constraints of underdeveloped financial markets.
Group-specific recommendations
A commitment by the government to repay the project’s
debt, under certain circumstances, is called a government
guarantee. Mechanisms include:
a)Equity and debt guarantees
b)Political risk guarantees
c)Shadow toll
d)Availability fee or annuity
e)Minimum traffic or revenue guarantees
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