Newsletter #3

This is our third newsletter for the PPP Web Tokyo Conference 2007.

We are pleased to send this final newsletter of the PPP Web Tokyo Conference 2007. This newsletter provides a summary of our discussions. For more detailed information about the discussions, please visit our website below. At the end of this newsletter there are a few brief questions. We would very much appreciate it if you would answer them regardless of whether or not you posted comments during the discussions.

1. Outline of the discussions

The moderators and participants discussed 4 topics.

Theme 1:Role of PPP Unit

As of the closing of this discussion, members generally agreed that there was no single answer as to the roles of the PPP Unit, even though they have reached at least the following consensus.

(i) The important roles of the central PPP Unit are

• guardian and developer of policy;
• ‘gate keeper’- ensuring that a consistent approach is applied;
• evaluator and advisor in relation to risks; and
• center of best practice and expertise.

(ii) Having a central PPP Unit perform these roles is the key enabler for a successful PPP program.

Individual PPP units have different goals because the circumstances surrounding the units are not common. We agreed that the roles and the authority of the PPP Unit depend on the legal and organizational capacity of each government. We discussed pros, cons and challenges of each type of Unit, but the discussion was not concluded. Thus, a continuation of the discussion is desired.

Theme 2: Tendering

Firstly, participants discussed the involvement of external advisors in the tendering process. These advisors help the public sector by saving time and acquiring know-how from other projects inside and outside jurisdictions. In other words, they are very capable in transferring know-how among various jurisdictions. However, the public sector should retain primary control. Secondly, the introduction of a dialogue process to tendering was discussed. Partnership Victoria (PV) introduced their outline of the interactive tender process, and pointed out that communication is important because this dialogue process reduces the transaction cost and improves tenderers’ proposals. In PV this dialogue process is normally dealt with in two ways: Q & A process and discussions in structured workshops. In the case of negotiated procedures in the UK, the public sector should acquire clear and comprehensive appointment letters in advance in order to avoid reopening issues or protracted negotiation of new issues. Success largely depends on how to prevent post-preferred bidder interaction. As for the competitive dialogue (CD), it seems too early to judge whether CD is really practical and truly workable for tendering procedure of PPP/PFI or not. Japan introduced a quasi-CD last November and administrators hope to learn much about the process from its performance.

Theme 3: VFM

Various drivers of VFM, Value for Money, were discussed. One of the most active topics concerned the view, appearing in the HM Treasury report, that contracting for soft services in PPP/PFI does not deliver as much value for money as construction and hard FM. Other issues included: the importance of proper asset/service combinations; the necessity of good quality control processes for project management; a well-informed project review; and well-prepared procurement and contract management teams. Members also raised the questions concerning how to treat ‘core services,’ such as correction services in prisons, including whether it is really necessary to comply with the policy of the public sector delivering ‘core’ services.

Theme 4: Finance

The demands for financial innovations in the PPP/PFI field, such as refinancing and the development of secondary markets, have increased because of successful delivery of long life cycle projects. The discussion also examined structures of finance, including ratio of debt, equity and mezzanine debt to the whole procurement expenditure. The equity ratio depends on the type of projects. For example, where demand risk rests with the SPC, such as in PV toll road projects, it contains 40-50% equity. Equity holders are members of a consortium in the UK, but it is notable that investment bankers become equity holders in PV. In addition, participants also discussed how to improve bankability of SPC. The moderator pointed out that the key is, ‘whether, and how, the additional costs of private finance, vis-a-vis public finances...can be addressed without undermining the financial disciplines which come from involving the private sector.’

2.Conclusion

We are grateful for everyone’s discussion contributions that provided some great insight. We appreciate the efforts of our moderators, Mr. Um, Mr. Farquharson and Mr. Jennet, who were kind enough to undertake the tasks of being moderators. We would also like to express our appreciation to Mr. Foster, who was invaluable in his contributions to our discussion.
We would like to thank everyone for the participation and valuable comments. This discussion can afford us to share information and experiences from some of the most advanced projects in the world. The contributions of the web discussion are far more beneficial than what is available from general public resources. We hope this might be the first step in establishing a useful forum for practitioners.

3. Future Development

Hopefully we will meet everyone again in the next forum of PPP Web Tokyo Conference. We found it valuable to share information and to exchange views among practitioners in different countries, which have common issues and challenges. Thus we hope to continue this dialogue among practitioners in the near future.

Recently, various countries and organizations created opportunities to exchange information in the field of PPP/PFI. We hope our attempt will actively and effectively contribute to the sharing of information and experiences, and expand the understanding of this field. In order to do this, we intend to create new methods to deepen the discussions in future forums and to bring together synergy effects along with other attempts.

Finally we are truly thankful for all those receiving this newsletter, especially those who were actively involved in the web conference. Our respect goes out to all those who are tackling problems in their own PPP/PFI. Hopefully we can meet you again in the next forum of PPP Web Tokyo Conference.

4. Announcement

As we have closed the discussions, we are moving the website to the Page below: PPP Web Tokyo Conference 2007

We also have an English version of the website for the Private Finance Initiative Promotion Office, the Cabinet Office of Japan. Please refer to the Site below: PPP/PFI Promotion Office