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PPP TOOLKIT for Improving PPP
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Sector: State Highway  |  Module 2: Work through the PPP process

Phase 2 - Full feasibility, preparation and Clearance

The goal of Phase 2 is to carry out a detailed study of the project’s feasibility, prepare the project for procurement, and seek In-principle Clearance to proceed to the procurement phase.

The PPP process

Phase 2 is the start of the PPP development pipeline. The ‘pipeline’ is made up individual projects that have successfully passed the Phase 1 PPP suitability checks and been given internal clearance to proceed for development as a PPP. These projects have been specifically chosen for development as PPPs.

Projects that are in the PPP development pipeline undergo a much more detailed analysis than in Phase 1. This requires more resources in the form of people, time and money. This is why projects must pass the Phase 1 checks before they can enter the pipeline.

The plans for PPP project management should be reviewed at the start and the Project Team expanded if necessary. The heart of Phase 2 is a full feasibility study. Preparation for the procurement process also begins in this Phase, including selection of the best procurement method and first drafts of the bidding documents. The final step in phase 2 is an application for In-principle Clearance by the Appraisal / Clearance Authority.

Projects that are granted In-principle Clearance can move to the Procurement phase of the PPP development pipeline in Phase 3. After receiving final approval the contracts can be signed and Phase 4, the contract management and monitoring phase that continues throughout the life of the PPP, can then begin.

It is important to remember that projects in the PPP pipeline are being developed as PPPs. This does not mean that they have final approval to become PPPs – this does not happen until all the analysis, preparation and approvals are complete at the end of Phase 3.

Responsibility for Phase 2 will be with the Sponsoring Authority (eg ministry(s) (Central-level projects), sponsoring department(s), or statutory or public sector corporate entity, as appropriate to the case). Support to the project development might be provided by dedicated PPP agencies, such as a PPP Cell or Project Development Agency.

Phase 2 involves the following analytical and procedural steps for an individual project:
  • Planning and preparing for PPP project management
  • Carrying out a detailed feasibility study including PPP due diligence of the project, including:
    • Updating the Financial Viability Indicator model and using it to reassess the impact of changing parts of the project design and verify the feasibility study model results
    • Using the VFM Indicator Tool to test the likelihood of achieving Value for Money, based on the results of the feasibility study and the experience and knowledge of the analytical team
  • Deciding on the best-suited procurement method for the project
  • Preparing first drafts of the key project documents
  • Carrying out Readiness Check 2, using the Readiness Filter, to check that the project is ready to proceed to the clearance stage
  • Applying for In-principle Clearance from the appropriate Appraisal / Clearance Authority. If In-principle Clearance is granted then the project is able to proceed to PPP procurement, which is covered in Phase 3 of the toolkit.

A set of tools has been developed to assist the analysis and decision making. These tools are:

  • PPP Financial Viability Indicator model, to analyse the key questions of financial viability and test these using ‘what-if?’ scenarios
  • VFM Indicator tool, to help check how likely the project is to provide value-for-money to the public sector (the use of this tool requires supporting data to be available)
  • Readiness Filter, to check that all the important steps in the process have been followed and that the project is ready to proceed to the next step

The results of the Full Feasibility Study and VFM analysis would be important inputs to the application for In-principle Clearance to procure the project as a PPP.

The steps in Phase 2 and the links with the tools are shown in the Process Map below

The Process Map is interactive and accessible from all parts of the toolkit. By clicking on the map the user can go directly to that part of the toolkit or to a tool.

Drill-down Process Map for Phase 2

The thoroughness of Phase 2 of the PPP process will help prepare the ground for the success and smoothness of the procurement stage in Phase 3 and project implementation in Phase 4. The importance of sufficient preparation is one of the key lessons from the case studies.

Case study examples
The Gangavaram Port case study illustrates the difficulties and delays that can be encountered during procurement as a result of failure to carry out thorough preparation at the project appraisal and development stage.

By contrast, the Timarpur Integrated solid waste management project showcases how efforts made on project preparation prior to the launch of the bid process helped ensure that the actual project development phase experienced as few hurdles as possible.

The first step in Phase 2 is to make sure there is a plan put in place by the public sector to manage the PPP development process. The detailed project analysis then takes place in the full feasibility study.

 

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