Public Private Partnerships Opportunities and Challenges Key - - PowerPoint PPT Presentation

Public Private Partnerships

Opportunities and Challenges

Key Lessons From the UK Experience of PPP

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Tim Steadman Partner PPP Group Clifford Chance LLP London

Clifford Chance Credentials

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• Rated 1st by deal number and value - Public

Private Finance survey 2004

• Well over 100 signed PPP deals
• PFI Team of the Year 2004 - PPF Magazine
• Involved since inception of PPP, in UK and

internationally

• Role includes policy shaping and deals

Scale of UK PPP - A Reminder

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• Some 300 projects signed since 1992, worth

around £40 billion

• Scale of PPP projected to remain roughly

constant

• Composition of UK PPP may change - eg less

mega-projects and more initiatives such as NHS LIFT and BSF

• Key lesson: PPP benefits accrue cumulatively
• nce dealflow is achieved

Politics of UK PPP in 2005

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A broad political consensus which places PPP:

• Among a range of procurement options (see eg

2004 budget speech)

• Squarely on the ideological foundation of value for

money (see recent Treasury Guidance)

• On many voters' and MPs' doorsteps
• And which has consistently placed workforce

issues near the top of the political and contractual agenda

Politics of UK PPP - Key Lessons

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• A clear and respectable rationale for PPP must be

articulated at the outset

• That alone won't be sufficient to win widespread

support for the policy - completed schools, hospitals etc. do that job more effectively

• The private sector understands workforce issues

and can be flexible in accommodating them - eg the ROE model and pensions concordat

LIFT and BSF/PfS

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• Pressure to accelerate PPP and diversify supply

chain

• Both programmes based on partnering/framework

concepts

• Corporate as well as contractual tri-partite

"partnership" created

• Some key differences in theory and practice
• Key lesson: PPP never stands still

Credit Guarantee Finance

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• Treasury initiative in 2003, now successfully

piloted

• Lowers cost of senior debt to overall public

purse

• And rebuts a traditional criticism of PFI

CGF - Key Features:

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• Government provides senior debt to the project

company, potentially eliminating:

• The incremental base cost of interbank funds over

government gilts

• The risk spread
• The cost of hedging interest and/or inflation risk
• Credit rated private sector guarantor unconditionally

guarantees to the Government repayment of interest and principal (for a fee less than the above saving)

• Key lesson: PPP is dynamic and the private sector

does not hold a monopoly on innovation

Sharing of Insurance Risks

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• Uninsurability: SOPC 3 proposes test based on

deemed standards of governance, not actual cessation of trading

• Premium riskshare: updated guidance based on

percentage banded system now in consultation - some issues remain

• IMD: a clash between regulatory expansion and

PPP contractual structure – at least partially resolved

• Key lesson: standardisation, whether of terms or

policies, will never be perfect; it does not need to be for the PPP sector to function adequately.

Jarvis

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• Projects restructured with minimum disturbance

to public sector - single point responsibility confirmed

• Reality of risk transfer underlined
• Key lesson: whether by necessity or conviction,

PPP really does tend to put service delivery ahead of profit.

"Hot" PPP Sectors in UK

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• Waste and water
• Aquatrine
• Alpha
• Enhanced European waste diversion targets
• Highway maintenance:
• Portsmouth paves the way?
• Medical equipment:
• Multi sourcing and independent financing - but how

much ringfencing?

Conclusion

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• PPP is a mature and uncontroversial feature of

UK procurement

• Adoption of PPP elsewhere (eg Western Europe)

accelerating

• Deep reservoirs of private sector capital, expertise

and resource are available for the benefit of any government with a credible and sustainable PPP strategy

Contact details

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Tim Steadman Clifford Chance LLP 10 Upper Bank Street London E14 5JJ tim.steadman@cliffordchance.com www.cliffordchance.com

Further Reading and Research

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www.pppforum.com www.partnershipsuk.org.uk www.nao.org.uk www.hm-

treasury.gov.uk/documents/public_private_partnerships

www.ippr.org.uk