This note, "Implementing a Frame work for Managing Fiscal Commitments from Public Private Partnerships," provides guidance on managing fiscal risks from Public-Private Partnerships (PPPs) during approval and implementation. The note provides practical advice on how to: consistently identify and assess fiscal commitments arising from PPPs during project preparation and implementation; incorporate these into the project approval process, including budgeting for these appropriately; and strengthen the monitoring and reporting of fiscal commitments over the lifetime of the project. The note explains the fiscal commitments that can arise from PPP projects; why governments may find it difficult to assess and manage these fiscal commitments and incorporate them into project selection; and the key components of an institutional framework to manage fiscal commitments at both the development and implementation stages of a project, including the roles, responsibilities, and processes for managing PPP fiscal commitments. Finally, the note summarizes the key messages for Task Team Leaders when tackling this agenda, and it provides a subset of main readings on the topic. The framework is largely based on the World Bank Study (January 2013): An Operational Framework for Managing Fiscal Commitments from Public-Private Partnerships: The Case of Ghana.1 In outlining the concepts and providing more detailed references, the note also draws on the PPP Reference Guide (World Bank Institute and Public-Private Infrastructure Advisory Facility)2. There is already a relatively well-developed body of literature describing PPP project identification and approval and institutional structures within government such as specialized PPP agencies. This note expands on this literature by outlining an operational framework that will integrate PPPs in the wider assessment and management of fiscal commitments.
It is critical to manage PPP fiscal commitments if governments are to make good choices about which projects to do as PPPs. Although there is no universal definition of a PPP, it is defined here as a long-term contract between a private party and a government agency for providing a public asset or service, in which the private party bears significant risk and management responsibility. Governments should undertake PPPs where this route offers "value-for-money," for example, through efficiency gains and better project governance achieved by bundling the financing, design, construction, operation, and maintenance of infrastructure (a key cost-saving in PPPs) and by following fair, competitive, and transparent procurement processes.
Improper assessment of fiscal commitments can bias project selection and project prioritization and can produce fiscally and operationally unsustainable PPPs that lead to contract renegotiation-to settle disputes, resolve unforeseen problems, or compensate the concessionaire for changes in project specifications-jeopardizing expected benefits from the PPPs.
The primary audiences for this paper are Task Team Leaders/Project Leaders/Transaction Leaders in the World Bank Group working on PPP projects and transactions. Team Leaders need to ensure that the project due diligence and structuring work incorporates the analysis needed to assess the project fiscal commitments, and that on the basis of this analysis, input from the Ministry of Finance (or equivalent) is sought on the fiscal affordability of the project. Additionally, it is important to advise on structures that need to be put in place to monitor the project's fiscal obligations over the duration of the contract. While this note outlines a general and generic framework for managing fiscal commitments from PPPs, each government will need to adapt the concepts in this note to its own systems and institutional structure in developing its own PPP fiscal commitment framework.
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1 http://elibrary.worldbank.org/content/book/9780821398685.
2 http://wbi.worldbank.org/wbi/document/public-private-partnerships-reference-guide-version-10.