Czech-French PPP meeting
Ministry of finance
of the Czech Republic
march 5, 2010
Jean-Yves GACON
Project director
French MoF PPP taskforce
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French experience : a longstanding Public-Private
cooperation in Infrastructures
•
XVIth-XVIIth C.
Construction of Canals & Bridges
•
XIXth C.
Railways,…
•
XXth C.(H2)
Last decade:
Motorways,…
Tramways, airports,…
•
=> This experience gave birth to the concept of Concession , and its operating
variant Affermage, which took its legal form in the early 19th century
a public service is transferred (« delegated ») to a private company,
to be implemented, financed and operated over a long period of time,
under the control of the administration,
the company being paid back by end-users through tolls or fees.
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The new PPP
From concessions to PPP
• In 2002-3, sector-specific bills for justice, police,
hospitals, defence projects (mostly centred on real
estate) +setting-up of dedicated procurement units
(health, justice, defence)
• In June 2004, general legislation on “contrats de
partenariat” (CP) followed in 2005 by creation of the
MoF PPP taskforce (MAPPP)
• => legal base now in place to develop PPPs
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A comparative analysis
Procurement
contract/Public Tender
Partnership contracts
Concessions/BOT
Short term
One object (=>multiple
contracts)
No financing
Successive tenders
Service provided to
administration
Payment by administration
Long term
Multiple object (=>1 global
contract)
Long term
Multiple object(=>1 global
contract)
Financing
Design/build/operatemaintain
Service provided to users
Payment by users
Construction risk
Construction risk
Performance risk
Pre-financing
Design/build/operate-maintain
Service provided to administr.
Payment (mostly) by
administration but toll
possible (on behalf of admin)
Construction risk
Performance risk
Demand/traffic risk
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Main differences between concession and
Partnership contract ?
Financing of equipment
and risk sharing
 Concession: Private sector finances at risk the
equipment, without recourse on the public sector (once the
initial subsidy paid).
Contrat de partenariat: Private sector pre-finances the
equipment and is repaid by the public partner over the
duration of the contract.
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The partnership contract: a tool for better
risk sharing
•
Risk analysis is at the heart of the CP approach.
Neither in MOP nor DSP, allocation of risks is
finely tuned. The risk is (in theory) entirely borne
by the public or by the dealer.
In MOP, the risks are hidden. In PPP, risks are
transferred to the private partner according to
the following rule :
The risks are borne by the partner best able to
bear them on technical, economic and financial
point of view (optimal allocation).
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PPPs and other methods of public purchasing
• The partnership contract (PC): between Traditional
Procurement & Concession
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Developping a tool for modelling risks
Objective: to define an appropriate methodology to take
into account the risk assessment within the
preliminary evaluation
Incorporate risk value in the financial model for
calculating net present values
methodological difficulties:
- identify for each risk a relevant statistical distribution
law, while the databases are insufficiently available
- to reflect the correlation of risks is difficult
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Developping a tool for modelling risks
The method involves:
- list the relevant risks of the project, and assign each
to one of the actors (public or private) – it is the "risk
matrix";
- quantify each of these risks, taking into account a
probability of occurrence and value of impact ;
integrate the result in the calculated costs of the
project.
• The allocation of each risk and its quantification
will be different, depending on the chosen
procedure (classic purchase or PPP).
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Developing a tool for modeling risk
- Practical difficulties:
The aim is to target the evaluation as close as the offers
done by the candidates for the partnership contract.
But It is not obvious that quantification of these offers
obeys the laws chosen for modeling.
The private groups can, for example:
Pooling risks on several projects, with a consequent cost
of its supply less than the forecast ;
100% provision a risk which transfer to private partner
was agreed, with a consequent cost offer higher than
forecast.
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Relative and absolute affordability
• Relative affordability :
• Affordability of PPP compared to that of traditional
procurement
• Assessed by mandatory preliminary evaluation, including
risk evaluation ;
• Absolute affordability :
• Can the project (delivered either through a PPP or
traditional procurement) be accomodated within the
budget without violating the budget constrain ?
• Assessed by the Ministry of budget, agreement of which
is mandatory for state projects.
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Eurostat approach : based mainly on
appreciation of construction, availability and
demand risks
•
Construction risk :
– Covers events related to the initial state of the involved asset(s).
– In practice it is related to events such as late delivery, non-respect of specified
standards, significant additional costs, technical deficiency, and external negative
effects (including environmental risk) triggering compensation payment to third
parties
•
Availability risk :
– It covers cases where, during the operation of the asset, the responsibiliy of the
partner is called upon, because of insufficient management, resulting in a volume
of services lower than what was contractually agreed, or in services not meeting
the quality standards specified in the contract.
•
Demand risk :
– It covers the vairability of demand (higher or lower than expected when the
contract was signed) irrespective of the performance of the private partner.
– In other words, a shift of demand cannot be directly linked to an inadequate
quality of the services provided by the partner. Instead, it should result from
others factors, such as the business cycle, new market trends, a change in final
users’ preferences, or technological obsolescence. This is part of a usual
« econommic risk » born by private entities in a market economy.
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Eurostat approach
QUESTION 1 - Does
the private partner bear the majority of
construction risk?
ANNEX criteria
Final allocation of assets
YES
NO
QUESTION 2 -
Does the private partner bear
the majority of availability risk?
Subsidies from general government
Partnership with an ad hoc entity
YES
NO
QUESTION 3 - Does the private partner bear the majority of
demand risk?
YES
NO
PPP contract is off balance-sheet
PPP contract is on balance-sheet
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French Government’s accountancy
rules (februray 2008)
• Guidance : control criteria
• Cumulative conditions :
– Grantor controls the asset ;
– And grantor controls the demand risk.
Otherwise, the contrat is considered as a
leasing…
Two restrictions :
– Public and private accounting approachs
– « Substance over form »
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Thank you for your attention
Mission d’Appui aux PPP
6 rue Louise Weiss
F-75703 Paris CEDEX 13
Tel: 33 (0) 1 44 97 33 39
Fax: 33 (0) 1 44 97 33 88
E-mail: Jean-Yves [email protected]
Web: http://www.ppp.minefi.gouv.fr/
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