Existing projects involve a project company taking over an existing task or function and possibly refurbishing or expanding them. It may relate to a whole task or whole business structure, outsourcing to the private sector the delivery of services needed to perform that task or manage the business.
Existing projects can involve the following:
• Reallocation of management functions
• Outsourcing and repackaging of services
• Reform of recruitment policy and incentive structures
• Improving customer relations
• Reforming corporate objectives.
The projects therefore have the ability to improve corporate and management capacity. This also allows the government to isolate cost centers within the corporate and management structures, thereby
• Identifying inefficiencies
• Allowing the measurement of outputs per unit of subsidy provided
• Enabling the government to reform the way it gives subsidies and incentives to management in the context of infrastructure service delivery.
The clear benefit of PPP in Existing projects is to encourage reform of infrastructure service delivery at the most fundamental levels. Infrastructure service delivery is primarily in need of improved management (financial, technical and labor),10 this implies greater use of Existing projects. Some of the most common services allocated through Existing projects include:
• Management of distribution systems/assets - using performance-based incentive mechanisms to achieve greater efficiency in the management and replacement of assets, responding to end-user complaints, requests for new connections and other asset related services.
• Exploitation of commercial opportunities - certain assets, like airports and toll roads, present opportunities for affiliated commercial undertakings, e.g. using available land, excess asset capacity, or selling additional goods and services to end-users. This is of particular interest in airports and ports where a number of commercial services can be sold using the property available for the project.
• Billing and collection - public service providers are often inefficient when collecting tariffs from end-users due to a lack of incentives created for the public utility to improve its revenue stream and the potential political ramifications. By outsourcing billing and collection, collection risk can be allocated to the private sector as can enforcement penalties, disconnection, etc. The incentive mechanisms for such arrangements need to be developed carefully to avoid overly vigorous application of police powers and the health and safety ramifications of overly aggressive collection methods leading to unnecessary disconnections or excessive (and possibly unhealthy) usage reduction.
• Reduction of operating costs - the project company, in its pursuit of profitability, is generally more experienced at maximizing efficiency than are public utilities. By providing the project company with properly balanced incentives, the grantor can benefit from greater efficiency.
• Customer service - private sector commercial entities are often more focused on customer service, in order to improve profitability and attract a greater customer base. By outsourcing such customer services, public utilities can benefit from the greater experience of the private sector.
This Existing model raises a number of complications not encountered in New projects, for example
• Social risk - Existing projects involve a more extensive interface between the private sector and the general public. Since infrastructure services are often historically provided by public entities, the difference in approach to service delivery and customer relations between private and public sector entity may result in considerable backlash from consumers.11
• Existing activities - Consideration may need to be given to the transfer of public sector employees, existing liabilities, unidentified liabilities and contractual or other obligations which may constrain the project company's activities in the future. Existing projects are vulnerable to the implications of current and past activities.
• Existing assets - Existing assets may not be identified and categorized in advance. Further, the condition of those assets and need for replacement or refurbishment may not be clear until well into the project. The potential for any defects or shortcomings in these assets creates a significant risk for all parties.
• Future expansion - Rather than being bound to a strict scope of works to be built or improvements to be made, the project company may be bound to more general obligations to improve the quality of services delivered, e.g. the level of losses from the distribution system or the quality of services rendered to consumers. The need for capital expenditure may not be clear at commencement of the project. This may necessitate the project company agreeing with the grantor on rolling programs for capital investment based on the amount of income obtained by the project company or as required to satisfy the performance criteria placed on the project company.
• Customer services - The project company will need to comply with public and social obligations associated with the delivery of infrastructure services. Where the regulator is technically competent and genuinely independent from the political establishment, the regulator may provide a practical buffer for the project company against interference from government bodies. In the absence of an adequate regulatory framework, a specific regime will need to be included in the project agreements, and may be reinforced by government shareholding in the project company.
______________________________________________________________________________
10 Gassner, Popov and Pushak, "Does the Private Sector Deliver on its Promises? Evidence from a global study in water and electricity distribution", (World Bank, December 2007). www.ppiafdev.org.
11 Delmon, "Implementing Social Policy into Contracts for the Provision of Utility Services", in Dani, Kessler and Sclar eds., Making Connections: Putting Social Policy at the Heart of Infrastructure Development (2007).