The international framework for public private partnerships provides a proven analog for the development of a robust PPP sector in the United States. Key to the development and successful sustainability of a meaningful PPP sector in the US will be a transparent and predictable regulatory environment. This environment is still at the earliest stages of development today, and while the ultimate regulatory regime must reflect the unique features of the US market, many features can be reasonably expected to evolve in ways similar to what we already find in the international environment. Specifically, a scan of the existing international experience framework finds that:
- Over 200 regulatory agencies for PPP's internationally rely on UK type regulatory processes adjusted for local legal, social, political and economic requirements. The wealth of experience represented by such a broad application provides a framework for policy, project and procurement design.
- Government financial models are fairly simple and founded on the principle of appropriate risk weighted return. While this has been true to date, there has been a gradual evolution towards models that better allocate risk and measure the financial effects of uncertainty.
- Most regulatory regimes recognize the change that occurs in key financial variables over time and provide for renegotiation on a structured or triggered basis to keep private sector rates of return within a reasonable risk weighted range. Key in regulatory design is the definition and measurement associated with potential triggers and the basis for any subsequent renegotiation.
- The importance of consideration at each step in concession life cycle of access and affordability by different classes of users. Socio-economic factors warrant government attention and are key aspects in public acceptance of PPP projects.
LESSON LEARNED Create a climate for sustained use of the PPP model - project pipeline and sector profile - political support beyond pilot project stage - complexity and cost of procurement process - valuation/appropriateness of risk transfer - availability of appropriate funding a. short, long term b. equity, non-recourse debt - openness of market to non-domestic competition - political will to overcome the opposition of public sector employees
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This scan of the international experience framework also finds many common features in the design of international PPP regulatory models including:
- Models are built for either outright sale of government assets or privately financed concessions; the opportunity for tax exempt financing through special purpose vehicles does not exist and is a unique and powerful tool for US infrastructure development
- Models take a longer term view than a traditional project specific financial model and explicitly consider (and model) available regulatory instruments. Asset value added is specifically considered in the post concession period and is a key factor in determining appropriate concession period length.
- Models are used to monitor financial sustainability of concession operation (downside/bankruptcy risk) as well as projected returns to concessionaire (social perceptions of excessive returns). Specific bankruptcy scoring has been evaluated for use. A robust and "living" business risk management framework is important to both the Regulator and Concessionaire.