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PPP TOOLKIT for Improving PPP
Decision-Making Processes
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Sector: State Highway  |  Module 1: PPP Background

PPP supporting environment

Public sector PPP capacity and experience

PPPs create requirements on the public sector for the management of the whole PPP process. In order to enjoy the potential cost savings from a PPP the PPP process needs to be carried out efficiently and effectively.

The PPP development and management process entails costs of its own that are additional to the cost of traditional public sector procurement. These include the time of staff within the Sponsoring Authority as well as the use of advisors. International experience suggests these costs can be in the order of 1-3% of project cost. If they are not carefully contained the benefits of PPP procurement will be diluted.

The efficiency of the public sector capacity to manage the PPP process is improved when:

  • There are clear, streamlined and appropriate procedures for the preparation, review and clearance / approval of a PPP
  • Responsibility for the management of the process is clearly allocated
  • The Sponsoring Authority has access to the skills required to procure PPPs, specifically legal, technical and financial expertise
  • Staff within the Sponsoring Authority is experienced with the steps in the PPP process or have access to guidance
  • Sponsoring Authorities have access to supporting resources, including advice and manuals
  • A PPP focal point has been established that can provide advice and assistance on developing and managing PPPs. The focal point can take various forms such as a PPP Cell, Project Development Agency, line ministry team etc.
  • Activities and functions that are common to PPPs (for example, across sectors) are centralised and streamlined so that wasteful duplication is avoided
  • Availability of supporting infrastructure, including the required land and necessary clearances, have been ensured
  • A single window clearance is available to speed up the clearance process
  • The Sponsoring Authority has a clear plan for managing the PPP during the operation phase

Previous experience is considered to include PPP projects that have progressed to at least tendering with all project documents concluded and approved and, ideally, where contracts have been successfully concluded. Another critical aspect is whether the Sponsor has experience with monitoring and enforcing a PPP contract during its operating life. This means monitoring the performance of the private partner against the requirements of the contract and enforcing the standards set forth in the contract, including any penalty and reward clauses.

Sponsoring agencies that have implemented PPPs in the past will naturally be better placed to implement a new one. However, PPPs are still possible for Sponsors with limited or no previous experience providing they have access to a range of assistance and advisors. In this way Sponsors will develop experience and capability in PPPs.

Institutional framework

An institutional framework for PPPs should be in place. This framework will define the roles, responsibilities and decision-making authorities in the PPP process. The key institutional components of the framework often include:

  • Sponsoring Authorities - Nodal departments located within the sponsoring agencies (State or municipal-level line departments, parastatal agencies and other administrative bodies empowered to implement PPPs in their activity area).
  • A central PPP agency, a PPP Cell, located in the finance department (or sometimes Planning) of the State government. The key functions of a PPP Cell include:
    • Creating coordinated, efficient machinery for PPPs whereby viable transactions are tendered to the market and, by bringing economies of scale to the process, lowering the costs of each transaction
    • Identifying, conceptualising and creating a shelf of projects and recommending approval of suitable projects for implementation as PPPs
    • Ensuring rigorous adherence to managing effective and transparent tendering processes
    • Developing internal evaluation guidelines in consultation with the respective Departments to evaluate and assess the projects
    • Inspecting, visiting, reviewing and monitoring any PPP Project under implementation
    • Conducting/recommending exposure visits and training programmes on PPPs
  • A Project Development Authority (PDA) / Project Management Unit (PMU) may be created to support the sponsoring agency with assistance and funding through the project development steps and contract management during operations stage.
  • Funding initiatives such as Project Development Funds, Viability Gap Funds or Infrastructure Funds. Coordination with these funds is usually via the PPP Cell.
  • Approving Authorities, usually consisting of a high-level final-approval committee and a lower-level clearance committee. Other associated entities  may provide comments to these committees.
Clearance / approval processes

The clearance / approval process provides important oversight to the PPP process. Clearances and approvals should be required at several stages of the PPP development process and at different decision-making levels depending on the stage, value and type of project. The process should ensure that there are sufficient checks on the use of public resources in developing PPP projects and on the projects that are selected, while imposing as little additional cost on the PPP development process as possible (costs are incurred in preparing submissions and in time spent waiting for decisions).

A single clearance window can be provided to streamline and speed up the clearance process. The case studies provide examples of PPPs that were delayed because they required multiple or complex clearances (see for example the Delhi Gurgaon Expressway case study or the Timarpur Okhla Integrated MSW Project). These cases provide examples of where a single clearance window, if one had been available, might have improved the efficiency of the PPP development process. The Alandur Sewerage Project provides positive example of where coordinated assistance was provided for obtaining clearances.

 

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