At some point in the process of identifying priority public investments, or sector reform options, projects may be screened for their potential to be implemented as a PPP. The objective of this screening is to identify-based on the available information-whether the project may provide better value if implemented as a PPP.
In practice, different governments do this PPP screening at different stages, as described in Box 3.1: PPP Selection in the Public Investment Planning Process below. Some may screen all projects, as part of a comprehensive 'procurement options analysis', as described in [#39, pages 47-50]. Others may consider PPP only for certain project types-as may be established in the PPP Policy [see Section 2.1.2: PPP Program Scope]. In many countries, the initial impetus to develop a project as a PPP is left to the discretion of the implementing agency.
Box 3.1: PPP Selection in the Public Investment Planning Process The PPP process can be seen as a 'branch' of the broader public investment management process-that is, at some point a project is selected as a potential PPP, and thereafter follows a PPP-specific process. However, this 'branching' can occur at different points in the public investment process. For example, this could be: After budgeting as a public investment project, as is the case in Australia and the Netherlands, where procurement options (including PPP) are assessed only once a project has been approved and budgeted for as a public investment project. If the project is subsequently implemented as a PPP then budget allocations are adjusted accordingly After project appraisal and approval as a public investment. For example, in Chile all public investment projects undergo cost-benefit analysis by the National Planning Commission, and must pass a hurdle social return rate to be added to a list of public investments. PPP projects are also taken from this list After 'pre-feasibility' or strategic options analysis. For example, in the Republic of Korea a potential PPP is identified as such after pre-feasibility analysis, and detailed project appraisal (such as technical feasibility studies, or cost-benefit analysis) is carried out as part of the PPP appraisal process. A similar approach is followed in South Africa, where PPP implementation is considered as part of an initial 'needs analysis and options assessment' of a potential public investment project. In any case, well-defined PPP processes typically mirror public investment management processes-for example, requiring approvals by the same bodies, as described further in Section 2.3.3: Institutional Responsibilities: Review and Approval. Source: Irwin & Moktad paper on managing Contingent Liabilities (for Chile and Australia)[#162]; Public-Private Partnership Infrastructure Projects: Case Studies from the Republic of Korea [#171, page 63]; South Africa PPP manual [#219, Module 4, pages 1-13] |
To support this screening process, many governments introduce criteria or checklists for PPP potential, against which projects can be compared. Box 3.2: PPP Potential Screening Factors in South Africa provides an example of such a checklist, from the South Africa PPP Manual [#219]. Similar criteria may be also used for more detailed appraisal, as described in Section 3.2.3: Assessing Value for Money below-at the screening stage, the idea is to check if they are sufficiently likely to be met for the project to proceed to the next level of development.
Box 3.2: PPP Potential Screening Factors in South Africa The South Africa PPP Manual lists the following, as factors to consider when deciding whether a project could achieve value for money as a PPP: • Scale of the project-are transaction costs likely to be justified? In Module 2 of this Reference Guide, Section 1: PPP Policy describes how some governments set a minimum size for their PPP projects • Outputs capable of clear specification-is there reason to believe we can write a contract that will hold provider accountable • Opportunities for risk transfer (and other PPP value drivers)-is there good reason to believe that a PPP will provide value for money compared to the alternative of traditional public procurement? That is: to achieve appropriate risk allocation-so risks are largely allocated to the party best able to control or bear them-and capitalize on the PPP value drivers set out in Module 1, Box 1.1: PPP Value Drivers • Market capability and appetite-is there a potentially viable commercial project and a level of market interest in the project? Assessing market appetite may require initial market sounding with potential investors. |
The following resources provide further suggestions and guidance on the factors to take into account when screening potential PPP projects:
• India's online PPP toolkit [#143] includes a 'suitability filter' that guides the user to consider the factors described in Box 3.2: PPP Potential Screening Factors in South Africa, as well as the supportiveness of the public sector environment (including an assessment of the public sector capacities to implement the project as a PPP); the existence of potential barriers to project implementation (based on information from the pre-feasibility study), and other factors such as the expected effort and resources needed to develop the PPP (for example, whether standard contracts are already available)
• In Colombia, the implementing agency must present an Executive Report to the PPP Unit requesting authorization to implement the project as a PPP. The analysis in this report-such as pre-feasibility analysis-is described in the PPP Manual [#55, pages 34-38]. The PPP Unit then assesses the report by applying a Project Eligibility Index, as described in the Finance Ministry's technical note on eligibility analysis [#54]. The index measures the "necessary conditions" for implementing a project as PPP, which include: the organizational and functional capacity of the implementing agency to structure a PPP project, likelihood of attracting competent partners, risk, project size and duration, urgency, and stakeholder views. The document also presents the questions that the implementing agency must answer to generate the information that the PPP Unit will need to apply the eligibility index
• The Government of Hong Kong's Guide to PPPs [#131, pages 31-32] describes a list of criteria that a PPP should meet at the initial screening stage (or 'stage one business case'), to be considered as having a prima facie case for implementation as a PPP.
While identifying PPPs among the sector's priority investment projects is typically the responsibility of the relevant ministry, department, or agency, under new PPP programs sector agencies often need support to overcome initial unfamiliarity or reluctance to adopt PPPs. This can be among the roles of a central PPP unit, as described in Section 2.3.4: Dedicated PPP Units. Developing a PPP and running a PPP transaction is typically more expensive than the equivalent process for a traditional public investment project, which can also deter agencies from identifying PPPs. Additional funding for PPP development can help level this playing ground. For example, the India Infrastructure Project Development Fund [#139] was established as a revolving fund, and can fund up to 75 percent of PPP project development expenses.
The outcome of this screening process is a pipeline of PPP projects, set in the context of an overall infrastructure and sector strategic plan. Making this PPP pipeline public can be a good way to build private sector interest in investing in PPPs in a country. The Chilean PPP Unit, Coordinación de Concesiones de Obra Pública, shares all relevant information on their project pipeline on their website. Farquharson et al describes the advantages of defining the 'investment framework' for a PPP program-including the PPP pipeline, and the complementary other planned infrastructure investments [#95, pages 21-22].