Lifecycle of Public Private Partnership (PPP) Projects
In the previous articles, we have undertaken careful consideration of how public-private partnership (PPP) projects work. A lot of details have been provided about the execution stage of PPP projects. However, little is known about how these huge infrastructure projects come into being in the first place. In this article, we will have a closer look at the screening and identification process, which is followed by different countries in order to identify and evaluate PPP projects.
It needs to be understood that the criteria for selection and even application in most countries may vary wildly. However, the structure of the underlying process remains the same. This structure will be discussed in this article.
Step #1: Identifying Potential PPP Projects
Identifying potential PPP projects is a difficult task since it involves many complex variables. However, since PPP projects are so vital to the economy, governments all over the world have created procedures to aid in the identification of such projects. The onus of identification of PPP projects usually lies on a special team of government officials who work full time in identifying such projects. In many cases, the process can be driven by private companies also. There are many countries in the world that solicit PPP proposals from private companies who have experience in executing such projects. Governments all over the world publish a list of the socio-economic problems that they intend to provide solutions for in the short run. The government officials and the private bodies are then advised to look for opportunities that would help the government achieve its objectives with minimum outlay.
It needs to be understood that the process of identification of PPP projects focuses on creating as many proposals as possible. Whether or not those proposals will be implemented is regulated by the screening process. The identification process is all about creating maximum alternatives.
Step #2: Screening the PPP Projects
Once the list of possible projects is created, governments then prioritize them based on their internal criteria. Some governments choose to make these criteria public, whereas some others choose to keep these criteria private. The potential projects are first screened to check whether they are capable of delivering positive net present value. Later, they are screened to check whether better value can be delivered by using the public, private partnership route to implementing the project.
Different countries screen for PPP projects at different stages of the process. For instance, a PPP project may be selected at the feasibility analysis stage. In other countries, it may be selected during the budget allocation stage.
Each country has its own set of parameters against which it evaluates potential PPP projects during the screening process. The parameters are more or less similar in almost all cases. For instance, the market size and appetite for infrastructure projects are considered by most countries while evaluating a possible PPP opportunity. However, some countries have pre-decided limitations when it comes to financing infrastructure projects. They need the project to be of a certain size and have clear specifications of the output that the project is likely to achieve.
Also, in many countries, PPP projects are only undertaken if they add additional value. This means that the private sector should bring in some sort of competence which the public sector does not have. Alternatively, the private sector can undertake a fair share of risks in order to deserve profits. If the government is capable of executing a project via traditional public procurement means, there is no reason why the PPP model should be used, and the private sector should be given some of the benefits.
Step #3: Deciding the Project Pipeline
After the projects have been found to be suitable and aligned with the needs of the government, it is time to create a project pipeline. This means that the projects must be arranged in a particular order. This order must be decided based on the pipeline which the government has decided for itself.
Commonly projects which have a higher chance of success are prioritized. This is because such projects are likely to receive high amounts of private funding. As a result, public funding required to complete these projects is going to be low. This enables the government to initiate more projects even though the sum of money available at hand is the same. Also, projects which enable private sector businesses to become more competitive as compared to their international counterparts are given more importance. Projects which have been executed by the same company at a different location are also given priority. This is because the experience in the implementation of a similar project leads to a considerable reduction in the risk.
Finally, after the list of projects is decided, the government requests the private sector to provide quotations and proposals. The remainder of the process has already been covered in other articles in the module.
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- Different Types of Contracts for Infrastructure Projects
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- Risks Faced By Infrastructure Projects in Emerging Markets
- Bank Loans vs. Bonds: Debt Financing In Infrastructure Projects
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- Parties Involved in Infrastructure Debt Issuance
- External Credit Enhancement in Infrastructure Financing
- Revenue Bonds and the Cash Trap Mechanism
- Managing Revenue Risks in an Infrastructure Project
- Cost Overruns in Infrastructure Projects
- Causes for Cost Overruns in Infrastructure Projects
- Third-Party Risks in an Infrastructure Project
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- Securitization in Infrastructure Finance
- Leasing in Infrastructure Finance
- Strategic Use of Land in Infrastructure Financing
- Usage of Collateralized Debt Obligations (CDO) in Infrastructure Finance
- Infrastructure Investments in Renewable Energy
- Should the Government be an Equity Partner in Infrastructure Projects?
- Lifecycle of Public Private Partnership (PPP) Projects
- Payment Mechanisms in Public-Private Partnerships
- Adjustment Mechanisms in Publich-Private Partnership (PPP) Contracts
- Early Termination of a Public Private Partnership