ICLTE Structuring Public-Private Partnerships Summary
Anna Liza Madayag Gaspar, CPA
+63-925-5525277
annalizagaspar@gmail.com
Process of approving BOT-PPP
● BOT Law
● IRR
● Investment Coordination Committee
Guidelines
Steps in Structuring BOT-PPP
1. Prepare and plan the transaction
2. Set objectives and determine constraints
3. Allocate functions to parties
4. Set payment method to the private party
5. Identify, evaluate and allocate risks to parties
6. Market the transaction
1. Prepare and Plan Transaction
- Assign a BOT-PPP structuring team
- Retain transaction advisors
Step 1 Assign Structuring Team
Manage the BOT-PPP transaction from concept to
financial closure
Step 2 Retain Transaction Advisors
Implementing agencies need competent legal and
technical advisors to help identify flaws and risks of
the proposed project and agreement
(missing pages 7 to 12)
Step 3 Develop and launch stakeholder plan
Step 4 Develop transaction plan
2. Set objectives and determine constraints
Objectives and constraints will guide structuring
decisions
Framework
Objectives - result that the implementing agency and
stakeholders want to achieve with a BOT-PPP
arrangement
Constraints and restrictions - legal, political and
others that can influence choice of BOT-PPP
arrangement
Objective can be sub-objective of the broader
objective of doing project
When setting objectives and constraints:
a. Set clear and well articulated objectives and
constraints
Clearly defined: minimize life-cycle cost of
project
Poorly defined: minimize project cost
b. Avoid setting conflicting or duplicate
objectives
c. Identify the relative importance among the
objectives and constraints
d. Set objectives and constraints that represent
the consensus of key stakeholders
Step 1 Identify objectives and constraints of key
decision makers
Step 2 identify common objectives and constraints
Step 3 Build consensus on objectives and
constraints and relatie important
Statement of objectives and constraints - clear and
succinct description of objectives and constraints,
their relative importance and the stakeholder that
were consulted to reach consensus
Commonly used objectives of BOT-PPP
a. Risk transfer to the private sector
b. Minimize whole-of-life costing
c. Innovation - private sector introduces
innovation
d. Maximize asset utilization
e. Minimize public sector borrowing by
accessing private finance
Common constraints
a. Minimize or avoid increase in prices to
end-users
b. Maximize ownership of national private firms
c. Minimize loss of jobs
d. Minimize the time until the project is
commissioned
3. Allocate functions to parties
Design, construction, financing, operations and
maintenance
Functions - discrete actions or groups of actions that
need to be carried out for a project to be
implemented
Common functions to develop and implement infra
projects
a. Design (D)
b. Build (B)
c. Operate (O) and Maintain (M)
d. Finance (F)
Different ways of combination
a. O&M
b. DBO
c. DBOF
Concession - operation that collects revenue from
the public, usually for existing assets
BOOT - operation that collects revenue from a govt
buyer, usually for new assets
ICLTE Structuring Public-Private Partnerships Summary
Anna Liza Madayag Gaspar, CPA
+63-925-5525277
annalizagaspar@gmail.com
BOO - ownership remains with private firm (pf)
Rehabilitate-o PF takes over existing facility
DROF - pf rehabilitates an existing asset perate-transfer IA reacquires control of facility at
DBOL - pf leases, implementing agency (ia) finances end of term
DB - NOT a BOT-PPP, pf doesn’t provide public
service or makes an asset available for the ia to Rehabilitate-o PF takes over existing facility
provide that service wn-operate No time limitation on ownership
Management contract - pf no capital at risk Step 1 Identify relevant functions
Principles to follow in allocating functions between pf Step 2 Develop options for allocating functions
and ia - Develop a set of at least 3 options
i. which party is best placed to undertake functions Step 3 Evaluate options vs objectiives
- Maximize value for money (VfM) which can -each option corresponds to the objectives and
be influenced by constraints identified
1. Relevant expertise Step 4 Choose preferred option
2. Incentives to maximize VfM when - Ranks options according to how they
performing the function respond to objectives and constraints
3. Accountability for performing the 4. Set payment method to the private party
function Payment method - who pays, how much, and on the
ii. What benefits can be obtained from combining basis of what product or output the payment is made
functions a. End-users pay tariffs, fares or tolls
- To decide if functions be combined b. Government buyer
1. Minimizing life-cycle costing c. Government part-payment (subsidy)
2. Maximizing innovation Questions to consider in designing subsidy
3. Maximize asset utilization arrangement
9 Contractual Arrangements in the BOT Law - What is the policy objective that the
government is trying to achieve with
Scheme D B F Owner of the subsidy?
Facility - Who will benefit from the subsidy?
- What will be the amount of the
Build-and-tran PF PF PF IA subsidy?
sfer Full cost less price paid by end-user
- How will the subsidy be paid?
Build-Lease-Tr PF PF PF IA after lease
ansfer period Upfront
Annualized amount/output-based aid
Build-operate-t PF PF PF IA fter BOT term (OBA)
ransfer ● Increased transparency throug
explicit subsidies, and tying
Build-own-ope PF PF PF PF
these subsidies to ouputs
rate
● Increased accountabiliyt of
Build-transfer- PF PF PF IA after service providers by paying
operate commissioning, them after they delivered
but PFoperates agreed output
● Increased sustainability by
Contrac-add-o PF adds to existing facility
linking on-going subsidies to
perate IA reacquires control of facility at
end of term sustainable service
● Improved monitoring of results
Develop-opera PF develops adjoining property since payments are made
te-transfer IA reacquires control of facility at against agreed outputs
end of term
ICLTE Structuring Public-Private Partnerships Summary
Anna Liza Madayag Gaspar, CPA
+63-925-5525277
annalizagaspar@gmail.com
Natural monopolies - cost of providing services wiht
one network is lower than the cost of providing
services with more than one network
Economic regulation of naturla monopolies - ensure
taht the drive for profits leads to lower costs and
better service:
Anglo-american tradition - independent government
agency regulates
French- contract-based, service standards and
prices stipulated in contract
Principles to follow in deciding payment method:
a. Ensure that pf recovers costs of undertaking
the functions assigned to it, including the cost to meet user’s requirement
of bearing the risk of undertaking these
functions
b. When socially acceptable, set rices paid by
end-users at or as close as possible to full
long-run marginal cost of providing the
services they receive
c. Use payment method to create strong
incentives to the private firm to meet service
or asset maintenance standards
d. Make payment method consisten with
selected risk allocation choice
Step 1 Set service standard and estimate costs
Include quality service standards, asset availability
specifications
Standards or specifications - determine capital
investment and O&M costs that are needed to meet
hte desired level of service
Step 2 Determine demand for services and
willingness to pay
Overestimated demand - add significant cost to the
IA in the long-term
Step 3 Analyze financial viability
Calculate the IRR and NPV based on cost, demand 1.
and price info
Step 4 Determine tariff, payment amount of subsidy
● Set tariffs at lowest level that end users are 2.
willing to pay or the tariff that recovers the full
cost of service
● Set subsidy to cover difference between tariff
and full cost of service
5. Identify, evaluate and allocate risks to parties
Allocating risk efficiently - key part of achieving VfM
Risk - possibility of deviation in actual project
outcome - benefits and costs accruing to each party
with an interest in the project - from the expected, pr
most likely outcome
- Can include possibility of unexpectedly good
or unexpectedly bad outcome
Risk allocation in PPP - process of determining
which risks should be allocated to the PF, which
risks be retained by IA and which risks should be
shared in a defined way or transferred to a third
party to achieve better VfM
Definition of Terms
Value fo money - optimum combination of
whole-of-life costs abd quality of the good or service
Total project risk - possibility of unpredicatable
variation in the total value of the project
Risk event - event whose occurrence affects total
project value
Risk type - possibiliity of variation in project outcome
arising from the occurrence of a particular risk event
Materialize - when a risk event occurs with a
consequent impact on project outcome
Probability of loss or likelihoood of risk event -
measure of how likely it is that a certain risk eevnt
wil occur
Value or severity of loss - size of the loss associated
with a specific risk event
Expected value of loss of expected cost of risk - size
of loss associated with a specific risk event times the
event’s probability of occurrence
Risk management - a continuous process for
systematically identifying, analyzing, controlling,
mitigating and monitoring risk throughout the life
cycle of a project using a cost-benefit justified
strategy
Eleven Generic Categories to Classify PPP Risks
Pre-contract risk
1.1. Existing structure
(refurbishments/extension)
Site risk
2.1. Existing structure
(refurbishments/extension)
2.2. Site conditions
2.3. Permits and approvals
2.4. Environmental liabilities existing prior
to project
2.5. Environmental liabilities created
during operation
2.6. Cultural heritage
2.7. Availability of site
 ICLTE Structuring Public-Private Partnerships Summary
Anna Liza Madayag Gaspar, CPA
+63-925-5525277
annalizagaspar@gmail.com
3. Design, construction and commissioning risk 1. Asset pnwership
3.1. Design 11.1. Default and termination
3.2. Construction 11.2. Residual value on transfer to
3.3. commissioning government
4. Sponsor and financial risk Risk Management Process
4.1. Interest rates pre-completion 1. Risk identification: comparison with risk
4.2. Interest rates post-completion checklist or using expert knowledge
4.3. Exchange rate 2. Risk assessment - assess nature of each risk
4.4. Currency convertibility and profit identified including likelihood of occurrence
repatriation and severity of loss
4.5. Inflation 3. Risk allocation - apportioning responsibility
4.6. Financing unavailable for bearing costs, or benefits, that result from
4.7. Sponsor risk each identified project risk materializing
4.8. Further finance required due to 4. Risk mitigation - taking of positive actions by
government action a party to improve their ability (or reduce their
4.9. change in ownership cost) to control, anticipate nd repond to, or
4.10. Refinancing benefit absorb the risk
4.11. Tax changes a. Reducing the level of uncertainty
Special purpose vehicle (SPV) - created by private around key variable
partners to contract with government b. Passing risks thru a thrid party who
- Shields other assets owned by the sponsor cna control them at a lower cost
from the detrimental effects of a project c. Using financial market instruments
failure d. Passin risks on to consumes thru
- No assets other than the project higher prices
- 60 to 80% capiatal financed by project e. Diversification of project portfolios
finance loan 5. Risk monitoring
5. Operationg risk Continually re-assess exposure to each
5.1. Inputs identified risk, and to adjust risk mitigation
5.2. Maintenance and refurbishment plans accordingly
5.3. Changes in outout specification PPPs are about achieving VfM by transferring or
outside agreed specification range allocating project risks traditionally borne by the
5.4. Operator failure public sector to the private partner
5.5. Technical obsolescence or innovation Optimal risk allocation - apportionment of risk
6. Demand risk between public and private parties to a PPP contract
6.1. Demand risks that minimizes the total cost of risk bearing to the
6.2. Non-technical losses (tariff project, maximizing VfM
avoidance) To achieve optimal risk allcoation, each risk should
7. Network and interface risk be allocated to the party that is:
7.1. Withdrawal of support network ● bes t able to control likelihood of risk event
7.2. Changes in competitive network occurring
7.3. interface ● Best able to control the impact of risk on project
8. Industrial relations risk outcomes
8.1. Industrial relations ● Able to absorb risk at lowest cost
9. Legislative and government policy risk Generic risk allocation matrix - preferred allocation of
9.1. Approvals PPP infrastructure project risks nd rationale for the
9.2. Changes in law/policy generic risk allocation position
9.3. regulation Risk management report - incudes estimate on
10. Force majeure risk severity of impact, likelihood of occurrence and
10.1. Force majeure risk priority preferences for eahc risk
ICLTE Structuring Public-Private Partnerships Summary
Anna Liza Madayag Gaspar, CPA
+63-925-5525277
annalizagaspar@gmail.com
Structure brainstorming - systematic process of
liberally generating a large volume of ideas from a
diverse group of experts by stimulating ther
individual creativity
- Provides specfic rules for participants to
followin order to make the generation of
ideas more systematic and to ensure even
pariticpation, regardless of personality and/or
ranking
- - a complete round of passes ends the
brainstorming session
6. Market the transaction
Prohect finance - financing of long term
infrastructure projects based on a financial structure
where debt and equity used to financed the project
are repaid with the cashflows if the project
Sponsors - equity investors
Step 1 Prepare tarsanction teaser
Step 2 advertise and register investors
Step 3 Market test transacion structure
Step 4 Market test contract

Applications of Guidelines to Unsolicited

Projects
Step 1 Prepare and plan transactions
● Assign an internal team to review unsolicited
proposal
● Retain specialized advisors that will support
its work
● Have a clear plan for consulting with
stakeholders
● Prepare a plan for taking the unsolicited
proposal from the stage of being reviewed
and approved by IA to a contract becomes
effective
Step 2 Set objectives and constraints
Step 3, 4, 5 Allcoate functions, set payment method
and allocate risk
Step 6 Market test