WHAT IS PPP?

PPPs consist of long term agreements between the public and private sectors aiming at the provision of public services by relying on the private sector’s competence and its financial capabilities and expertise. Such partnership is not a partnership in capital nor in profits, but rather a partnership in risks, whereby the public sector transfers some of the project’s risks to the private sector and retains other risks according to each party’s ability to manage these risks.

Contrasting PPP to standard traditional procurement,  the latter specifies inputs, fixing as such all variables of a project except for the price, which determines the winning bidder, whereas PPP specifies outputs taking advantage as such of all the benefits that the private sector can bring to a project, and putting all variables, including price, subjected to scrutiny.

PPP is often misperceived as privatization by the public. While privatization involves the sale of assets the receipt by government of a payment for the assets transferred, PPP involves the acquisition of assets and the payment by government for services rendered by the private sector and for the amortization of the acquisition price of the asset.
As such, privatization involves the transfer of all risks and benefits to the private sector, while PPP consists of  risk sharing with the private sector.

Another misconception involves comparing the cost of government funds or the sovereign debt rate to private financing which includes a component of equity return. such comparison is flawed since
– It assumes that the project cost is the same regardless;
– It does not quantify and account for risks;
– It does not include the cost of impact on overall sovereign debt; and
– It does not include overall benefits to the economy.

FRAMEWORK IN LEBANON

Law 228 has defined privatization as transferring the ownership or management of a public project, totally or partially, to the private sector, including the concession structure or similar modern structures designed to develop and manage economic projects for a certain period. While Law 228 has granted the HCP the authority to tender projects under the concession or similar modern structures, it has not defined a specific tendering mechanism. For this reason, the HCP’s Secretariat General has worked since 2007 on the public private partnership (PPP) law which aims at defining a detailed and coherent tendering mechanism for PPP projects based on international best practice, while ensuring transparency and professionalism.

The PPP Law 48, enacted on September 7, 2017, governs all PPP projects including power and telecommunication PPP projects, and makes it optional for municipalities to subject their projects to the provisions of this law. As per the law, a PPP project is defined as any public benefit project in which the private sector contributes financing and management and at least one of the following activities: design, installation, construction, development, restoration, equipment, maintenance, rehabilitation and operation.

The law guarantees transparency by involving all stakeholders in the tendering process. The law calls for a three level decision making process:

–       the Council of Ministers,

–       the HCP whose inter-ministerial structure also ensures the involvement of all relevant ministers,

–       the project committee, chaired by the the HCP general secretary and where the relevant ministry and the ministry of finance and the sector regulatory authority are represented. The project committee is assisted by a working team which includes the retained consulting team as well as representatives of all relevant stakeholders and any experts of specific competence.

The role of each entity in the tendering process is represented below

One of the law’s main features is that it outlines the key provisions of the Partnership agreement, which constitutes an integral part of the tender document and which ensures that the rights of the private partner and the government are safeguarded.

The PPP law also establishes the HCP as the PPP Unit and tasks its operational work to the HCP Secretariat General (hyperlink to our team), which is headed by the Secretary General, and which would grow to become a melting pot for the accumulation of expertise to cooperate with the public sector on future PPP projects. The size and complications of PPP transactions and their difference from traditional procurement deals require the existence of skills which are of a financial, technical, legal and regulatory nature, and allow risk management, contract management, and tender execution. The PPP unit will be composed of experts who are specialized in partnerships with the private sector, speak the banks’ and private companies’ language and acquire possess the necessary expertise in the fields of financing, negotiation and contracting. This would ensure the design of PPP agreements that guarantee the public interest and respect the investors’ rights.

The PPP Unit is also responsible for formulating the PPP Program, which would establish credibility and commitment to a PPP pipeline and provide as such comfort to investors.

ROLE OF PPPs IN LEBANON

PPPs are crucial for Lebanon to:

– build and develop much needed infrastructure, where electricity, education, health, transportation, telecommunications and other infrastructure consistently deteriorating. The chronic budget deficit has prevented governments from making non-immediate investments, with only 4% of the Government budget being invested in it over the past two decades. The culture of upkeep and maintenance of Government assets is absent.

-deliver projects on time – on budget given that these risks are transferred to the pivate sector, where it is estimated that in Lebanon traditionally procured projects exceed costs by an average of 20% and are delayed by an average of 35% beyond agreed timetable.

– enhance economic growth which stood at a mere 1.76% in 2016 according to worldbank data. Studies have shown that a 1% percent increase in PPP investment increases GDP per capita by 0.3%. (Booz & co., Public Private Partnerships, A New Catalyst for Economic Growth (2008)).

– create 215,000 jobs, among which skilled labor 89,000 jobs for university graduates (assuming $6.22 billion worth of PPP projects and applying the World Bank’s findings to the Lebanese case)

– revive and deepen capital markets through the securitization of project assets and listing of SPV shares

– avoid waiting for availability of financing as PPP allows launching numerous projects simultaneously even in the absence of funding for capital expenditures, and therefore, urgent projects are not delayed.

– enhance decentralization as local authorities can resort to the PPP tendering method stated in the law to execute projects for which they lack the skills and the experience to develop on their own.

PPP LAW

The PPP Law defines the PPP project as any public benefit project in which the private sector contributes financing and management and at least one of the following activities: design, installation, construction, development, restoration, equipment, maintenance, rehabilitation and operation.

The law governs all PPP projects including power and telecommunication PPP projects, and makes it optional for municipalities to subject their projects to the provisions of this law.

The decision making process is based on a three levels, the Council of Ministers, the HCP which is a ministerial committee and the project committee, chaired by the the HCP general secretary and where the relevant ministry and the ministry of finance and the sector regulatory authority are represented. Such structure ensures transparency of the tendering process.

Transparency is further enhanced by making the tender document, which includes the Partnership agreement, public. One of the law’s main features is that it outlines the key provisions of the Partnership agreement, which ensures that the rights of the private partner and the government are safeguarded.

COOPERATION WITH UNECE

PPPs are at the heart of UNECE’s work through its committee on Innovation, Competitiveness and Public-Private Partnerships (CICPPP) which aims at enhancing governments’ expertise  to identify, negotiate, manage and implement successful PPP Projects. To this end, the UNECE has established the International PPP Centre of Excellence (ICoE) to raise PPP awareness and develop guides on best practice and to address the capacity gap within governments.

One main component of ICoE’s work consists of the formation of international project teams to develop international standards for people-first PPPs, to identify international best practices in PPP programmes with the objective of creating a policy document to guide governments in the transparent selection process of a model in different sectors. The HCP was appointed by the Ministry of Foreign Affairs and Immigrants as the representative of the Government of Lebanon for the purpose of UNECE’s work on PPPs. In this capacity, the HCP team has been, since 2014, actively participating in drafting the standards for the sector of Water & Sanitation, Zero Tolerance to Corruption and Women Empowerment.

Another main component of ICoE’s work is the estabishment of sector-specific international PPP Specialist Centres which would supplement the work of the project teams. These Centres would provide country-specific experiences to empirically support the standards and would also play an integral role in the implementation of future standards provide information.
In this respect, the HCP and the UNECE Secretariat have reach an agreement that the HCP hosts International Specialist Centre of Excellence in PPP for Ports (ICE4P) in Beirut, Lebanon. ICE4P aims to
become a depository of information and best practice models that can be useful to PPP practitioners in the Ports sector worldwide.

ONGOING PROJECTS

Since the passage of the PPP Law in September 2017, the HCP has been approached by a number of public entities to look into the possibility of tendering some projects on an PPP basis. The HCP is currently working closely with these project initiators to prepare project pre-feasibility files to be submitted to the HCP board.

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