Digital Economy – Framework for Public-Private-Partnerships Thilan Wijesinghe Chairman National Agency for Public Private Partnership 1
PPP: Definition A PPP is a special contractual arrangement between a public sector Ministry, corporation or authority and a private company for providing a public infrastructure asset or service, in which there is an appropriate transfer of risk to the private party and where the private party bears investment and management responsibility on a long-term basis In a PPP, the private partner is typically tasked with the design, construction, financing, operation and management of a capital asset to deliver a service to the government or directly to private end users. The private partner will receive either a stream of payments from the government or through charges levied directly on the private end users, or both, for its efforts in undertaking the investment and risks associated with such investment. 2
What is not a PPP Any project where the GOSL provides a direct sovereign guarantee to the lending institution of the private partner’s debt. The GOSL or any of its institutions finances by itself (either through public funds, loans, grants, gifts, donations, contributions or similar receipts) the procurement of a good or service Outright sale of the freehold title or long- term lease of any GOSL asset on CV’s valuation Projects where the GOSL retains whole-of-life asset risk. In a PPP, whole-of-life asset risk is retained with the private partner Projects where there are no ongoing post construction performance standards to be met by the private partner; 3
Role of Finance Ministry and National Agency for Public Private Partnership (NAPPP) Project risk assessment and the equitable allocation of risk between the public entity and the private entity is a responsibility of the NAPPP Oversight of the Ministry of Finance is essential to ensure fiscal cost and fiscal risk and recourse to the to the national capital budget if any is optimized. 4
Why is a central agency for PPPs Necessary? ▪ The third source of financial resources to stimulate capital formation ▪ PPPs are complex transactions and requires specialized skills that can be consolidated within one organization ▪ Standardization of approach ▪ Line Ministries and Private sector requires single facilitation point ▪ Tapping into Technical Assistance funds for feasibility studies etc How would these tasks be carried out by the NAPPP ? ▪ Updated guidelines for PPPs ▪ Effective board ▪ Eventually new NAPPP legal structure 5
Viability Gap Funding and Blended Finance Blended Finance is a viable and cost effective way to scale sustainable infrastructure investments in developing countries Blended Finance Leverage: Use of development finance and philanthropic funds to attract private capital and enhance affordability Impact: Investments that drive social, environmental and economic progress Returns: Financial returns for private investors in line with market expectations Blended Finance Participants: AFD, Bill & Melinda Gates Foundation, Guggenheim Foundation, Governments of UK, Canada, Norway, Denmark, AIIB, World Bank, FMO, JICA, European Investment Bank, selected Pension Funds 6
Critical Skill-set for Successful Implementation of PPPs Pre-feasibility to ensure BANKABILITY • Risk allocation and assessment • Financial structuring and evaluation • Research and public policy articulation • Effective Working Groups, PC’s and CANCs (Inter- • Ministry/agency coordination) Communication, PR & stakeholder engagement • Effective documentation • NEGOTIATION • Legal structuring and documentation • Legal coordination (when to bring in AG and External Lawyers) • 7
PPPs vs Public Investment – Myths and Realities • Preservation of fiscal space for public investment • Purchasing a service and not an asset (e.g. power) • Capital cost benefits (highway, port, power) • Sector efficiencies (port) • Public investment or donor funding is cheaper (e.g. SAGT) • Takes a longer time to implement and much harder • Deprives the state of revenue (telecom, port) 8
Institutional History 1994: Secretariat for Infrastructure Development & Investment (SIDI) 1996: Bureau of Infrastructure Investment of the Board of Investment 2017 January: Establishment of Public Private Partnership Division/Unit 2017 July : Winding up of the PPP Unit and set up of National Agency for Public Private Partnership: • A Division of the Finance Ministry is inadequate • Need for Agency with adequate legal, administrative and financial authority • Lack of consistency and necessity to establish standards • Prepare guidelines in association with NPC • Collaborate and facilitate relevant line ministries 9
Net FDI as percentage of GDP as FDI Net Inflows, 1995-2015 Avg . 20 computed by Prof. Ricardo 15 Haussman % of GDP 10 Sri Lanka has seen suboptimal 5 levels of FDI over the last 20 years . 0 No sustained increase in net FDI as Source: WDI FDI Net Inflows, Sri Lanka percentage of GDP after the conflict. 3 2.5 1998-99 period peak is due to 2 % of GDP implementation of PPPs and 1.5 divestiture 1 .5 1999 GDP growth – 6.9% (highest 2010 2015 1995 2005 2000 10 during conflict years) Year Source: WDI
Projects that contributed to FDI in 1998 -1999 • South Asia Gateway Terminal (SAGT): $200 mn • Lanka Bell: ($80 mn) • Suntel ($70 mn) • Power sector PPPs ($200 mn) • Shell Terminal ($ 65 mn) • Manufacturing & services(YKK, Textured Jersey, 10 projects by MAST, Aman Resorts etc $150mn) Bureau of Infrastructure Investments (15 persons) produced around 40% of FDI 11
Sri Lanka has a successful track record implementing PPPs – no failed transactions Over US$ 5 billion in PPP transactions financially closed in last 20 years and operating successfully (around 70% after conflict) Only 3 PPP transactions over $500 mn 12
Brief History of PPPs and SOE Divestiture in Sri Lanka Telecom…commencing 1990s Five mobile operators…Axiata, Etisalat, Airtel, Hutchinson and Sri Lanka Telecom Divestiture of Sri Lanka Telecom and introduction of competition in fixed telephony with PPP investments (Lanka Bell and Suntel) Result: Most competitive and efficient telecommunications services in South Asia Mobile penetration 127% Fixed line penetration 21.3% Data among the cheapest in the world A catalyst in growth in ICT exports by around 20% compound annual per year over last 20 years to reach around $1 billion per annum 13
Brief History of PPPs Ports…commencing late 1990s First country in South Asia to structure BOT in Port Sector, resulting in significant efficiency gains and growth in transshipment volumes. Competition to Sri Lanka Ports Authority terminals in Colombo: • SAGT (1998): P&O, John Keells Holdings, Maersk • CICT (2013): China Merchant Holdings • East Terminal: PPP proposed in 2018 • SLPA minority shareholder on every terminal operated by private sector Largest ever PPP in Sri Lanka: Hambantota Port 2017 $1.1 billion initial investment with $600 mn additional investments proposed 14 14
Brief History of PPPs Power Sector → IPP program commenced in 1997 → Currently thermal, hydro, waste to energy, wind and solar IPP plants → Today 30% of total thermal power installed are IPPs → Today 20% of hydro power installed are IPPs including 100% of small scale hydro Renewables and LNG to make up 50% of capacity additions. IPPs will lead the way on migration to LNG and renewables. Sources: CEB Long Term Generation Expansion Plan 2018 – 37 15
Brief History of PPPs PPPs in real estate 1990s • Affordable housing (Millennium City, Nivasie Pura) • Hospitals • IT Park 2000s • Colombo Port City • Industrial zones (planned) 16
Types of PPP Projects and their Role in Generating Economic Efficiency Divestiture vs PPP – what’s the difference New business model vs New capital formation Dead assets of the State (e.g. land) PPPs as tool of SOE reform PPPs as a SOLUTION to GOSL’s fiscal constraints PPP is the ART of mobilizing private capital and viability gap funding to generate economic activity 17
PPP Project Pipeline – Parties Short-listed or selected Infrastructure Elevated Highway NKB to Rajagiriya Marine drive extension LNG FSRU LNG Power Plant 2 x 500 MW Kerawalapitiya 300 MW Multi-Fuel Combined Cycle Power Plant - Kerawalapitiya LEGAL Guhagoda Waste to Energy Weliwita Water Project IFC LRTs Education Biyagama University with Berkeley University Minerals Mineral Sands Manthai Salt Services 18 Domestic Airline service
PPP Project Pipeline – Pending soliciting investors via EOI/RFP Digital Infrastructure Transit Smart Card Power Renewable Energy Park (Wind 350 MW and 250 MW Solar) – Pooneryn Barge-mounted Power Plant HFO (Heavy Fuel Oil) (100 MW) 4 x 24 MW HFO - Monaragala, Kappalthurai, Pallekele, Horana Tourism Dedduwa integrated Tourism development Colombo Port Cruise Terminal 19
PPP Project Pipeline – Social Infrastructure and Services Real Estate Kandy Mahaiyawe Urban Housing Project Pettah Multimodal Hub Recreational Beach - Colpetty / Dehiwala Ekala Aero City Project Convention Centre Port City Medical Complex Port City School at Port City 20
Divestiture of Non-Strategic SOEs and SOE Restructuring Current Project Pipeline Divestiture • Sri Lankan Airlines • Hyatt • Hilton SOE Restructuring 21
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