A number of approval processes will apply to a PPP project. Approvals help raise key questions and issues during preparation of the project. They are important for quality control but also for buy-in from different agencies, achieving greater ownership and certainty for investors. But these layers of different agencies with approval rights can complicate the process. To the extent possible these approval requirements should be streamlined, to facilitate efficient application and approval, reduce the cost of approvals, and fast-track the investment process.
| Box 3.11: Public Sector Comparator (PSC) |
| A comparison between the cost of public delivery of the project and that through PPP can provide a useful mechanism is assessing value for money. But a PSC is difficult to assemble with any accuracy. In order to assess PSC properly, full information is needed on how the project would be implemented by the public sector, including actual cost of construction, cost of operation, cost of financing and risk borne by the public sector (which is difficult to calculate with any accuracy). For further discussion of PSCs, see the UK Treasury website, www.treasury.gov.uk. |
The following describes a few of the key parties that often have approval rights and the points in the project process at which such approvals are usually required.
• Sector line ministry in particular during project selection, feasibility verification (based on the feasibility study), before issue of bid documents, award/financial close, and renegotiation.
• Government fiscal risk management authority in particular during feasibility verification (based on the feasibility study), before issue of bid documents, award/financial close, and renegotiation.
• Sector regulator will be responsible for some combination of economic impact (e.g. tariff levels, cross-subsidization amongst consumers and cost allowances), environmental impact and consumer protection. Approval rights arise during project selection, award/financial close, and renegotiation.
• Procurement agency will be responsible for monitoring the use of transparent, competitive procurement. Approval rights arise before issue of bid documents.
• Environmental agency, land agency, Attorney General, etc.-there are a variety of agencies with regulatory authority over specific issues, with approval rights during feasibility verification (based on the feasibility study), before issue of bid documents, award/financial close, and renegotiation.
| Box 3.12: Delusion and Deception in Risk Assessment |
| As human beings, our risk assessment tends to be influenced by personal beliefs or biases, for example: • underestimating the time and cost required to complete a task, • believing we understand risk better than we really do, • underestimating risks associated with familiar tasks, for example traffic accidents while driving to work and slipping in the bathtub, • validating prior decisions. There may be collaboration in these influences. This collaboration may have pure motives, for example exaggerating the benefits and underestimating costs and time to help decision-makers justify a project they believe is important. And yet, this deception ends up costing the taxpayer, since risks that are ignored are not managed. Source: Flyvbjerg, Garbuio and Lovallo, Delusion and deception in large infrastructure projects: Two models for explaining and preventing executive disaster, California Management Review, vol 51, no 2, winter 2009; Delmon, Project Finance, BOT Projects and Risk (2005); Delmon, Increasing the efficiency of risk allocation in project financed public private partnership (PPP) transactions by reducing the impact of Risk Noise, ICLR (Winter 2014). |