Krys­ta Boodoo and

M Glenn Hamel-Smith

Pub­lic pri­vate part­ner­ships “PPP” will be a key path for­ward in the Gov­ern­ment’s plan to de­liv­er projects un­der the re­cent­ly an­nounced Trinidad and To­ba­go Re­vi­tal­i­sa­tion Blue­print, con­sist­ing of “mega projects” to trans­form T&T over the next decade, with con­struc­tion an­tic­i­pat­ed to be­gin as ear­ly as this year.

Dur­ing the an­nounce­ment, a call was made for col­lab­o­ra­tion among in­ter­na­tion­al or­gan­i­sa­tions and pri­vate sec­tor firms to help pro­vide the nec­es­sary fi­nanc­ing, as well as the pub­lic ser­vices, as gov­ern­ment em­barks on ma­jor up­grades across the coun­try.

A PPP is an al­ter­na­tive fi­nanc­ing ap­proach to de­liv­er pub­lic in­fra­struc­ture as­sets and ser­vices through the par­tic­i­pa­tion of pri­vate par­ties pro­vid­ing spe­cialised sup­port by means of a long-term con­tract with a pub­lic agency.

This type of in­fra­struc­ture de­liv­ery mod­el can be ben­e­fi­cial in many ways as it is fund­ed by a pri­vate par­ty that takes on the re­spon­si­bil­i­ty for de­liv­ery and man­age­ment through­out the life­time of a project, and ei­ther all or most of the aris­ing risks.

Or­di­nar­i­ly, PPP projects are long term arrange­ments that last over 20 years. Al­though they may ap­pear very cost­ly on the face of it, they are de­signed to ide­al­ly max­imise use of pri­vate sec­tor skills, as the projects are meant to be del­e­gat­ed to the most ca­pa­ble in or­der to im­prove pro­cure­ment. The aim is an im­prove­ment in ef­fi­cien­cy in the de­liv­ery of pub­lic in­fra­struc­ture ser­vices, and con­se­quent­ly, the pos­si­bil­i­ty of the si­mul­ta­ne­ous ex­e­cu­tion of mul­ti­ple projects which may have been out of the reach of the pub­lic agency due to lim­it­ed fund­ing.

Pri­vate sec­tor re­turns are linked to ser­vice out­comes and per­for­mance of the as­set, or in­come gen­er­at­ed over the term of the con­tract. Such an ap­proach makes PPPs more ben­e­fi­cial to a pub­lic agency when com­pared to tra­di­tion­al pro­cure­ment as it re­moves the im­me­di­ate sig­nif­i­cant pres­sure on the na­tion­al bud­get. How­ev­er, for a PPP to serve its pur­pose, it must de­liv­er bet­ter val­ue for mon­ey than con­ven­tion­al de­liv­ery, while re­main­ing com­mer­cial­ly vi­able—ide­al­ly lead­ing to mar­ket com­pe­ti­tion, which dri­ves in­no­va­tion. The projects should, there­fore, ide­al­ly be self-sus­tain­ing, and rev­enue-gen­er­at­ing such that their op­er­a­tions, af­ter com­ple­tion, cov­er the cost of ac­quir­ing, op­er­at­ing and main­tain­ing the as­set, while re­turn­ing a prof­it to the pri­vate sec­tor in­vestors over the de­ter­mined pe­ri­od.

Con­ven­tion­al pub­lic pro­cure­ment projects have a short­er life­time; how­ev­er, the gov­ern­ment adopts most of the project risks which may lead to, among oth­er things: (i) in­ap­pro­pri­ate de­signs, (ii) out­dat­ed tech­nol­o­gy be­ing utilised, (iii) bud­get over­runs, (iv) poor main­te­nance of as­sets, and (v) time de­lays. PPPs al­low the gov­ern­ment to de­ter­mine and de­fine the ser­vice re­quired, while the pri­vate sec­tor de­signs the work ac­cord­ing­ly.

Com­mon types of PPP struc­tures in­clude:

• De­sign-Build-Fi­nance-Op­er­ate-Main­tain — Re­spon­si­bil­i­ty for de­sign­ing, build­ing, fi­nanc­ing, op­er­at­ing and main­tain­ing the as­set are bun­dled to­geth­er and trans­ferred to the pri­vate op­er­a­tor, par­tial­ly or whol­ly fi­nanced by debt;

• Build Op­er­ate Trans­fer — The pri­vate sec­tor rais­es funds, car­ries out con­struc­tion, op­er­ates the as­set for a de­fined pe­ri­od and then trans­fers the as­set back to the pub­lic sec­tor;

• Build Own Op­er­ate — Con­trol and own­er­ship re­main in the hands of the pri­vate sec­tor;

• Leas­ing — The pri­vate sec­tor de­signs, builds and op­er­ates the project through fi­nanc­ing, in­cen­tives and or con­ces­sions of­fered by the pub­lic sec­tor;

• Joint Ven­ture — Joint fi­nanc­ing and op­er­a­tion by the pub­lic and pri­vate sec­tors.

Ex­am­ples of PPPs in T&T:

One of the most re­cent PPP projects is the Mt Hope Ma­hogany Courts apart­ment com­plex. The land was pro­vid­ed by the gov­ern­ment and the full con­struc­tion cost, which should be re­cu­per­at­ed through the sale of the apart­ment units, was adopt­ed by the pri­vate de­vel­op­er, NH In­ter­na­tion­al (Caribbean). This project has been de­scribed as the first PPP con­tract in­volv­ing the Hous­ing De­vel­op­ment Cor­po­ra­tion (HDC).

The “Port of Port-of-Spain project” refers to our port’s PPP project. The Port Au­thor­i­ty aims to se­lect a pre­ferred part­ner this year un­der Build-Re­ha­bil­i­tate-Op­er­ate-Trans­fer (BROT) scheme for a 25-year con­ces­sion.

Some chal­lenges faced when util­is­ing a PPP mod­el can in­clude:

• The in­cor­po­ra­tion of PPP pro­ce­dures with­in the pub­lic sec­tor;

• The de­vel­op­ment of a func­tion­al PPP en­vi­ron­ment;

• Po­lit­i­cal­ly-based de­ci­sions and reg­u­la­tion;

• Lengthy pe­ri­ods of de­ci­sion-mak­ing;

• Com­mu­ni­ty back­lash;

• Changes in prices of com­modi­ties, cost of labour and ex­change rates etc. It is wide­ly known that T&T faces a ma­jor prob­lem ac­cess­ing for­eign ex­change which might be nec­es­sary for cer­tain in­puts re­quired for some PPPs.

Many of these chal­lenges can be over­come by ad­dress­ing them ear­ly in the process and tak­ing ap­pro­pri­ate steps to mit­i­gate them.

Who else ben­e­fits?

As projects open up op­por­tu­ni­ties for long term, sta­ble in­vest­ments pro­vid­ed by the fi­nanc­ing of the pro­vi­sion of es­sen­tial ser­vices, lo­cal and in­ter­na­tion­al fi­nan­cial in­sti­tu­tions stand to prof­it from PPPs. Both in­vestors and lo­cal banks, with the right frame­works, can par­tic­i­pate in pub­lic ad­min­is­tra­tion in­fra­struc­ture fi­nanc­ing. Such projects cre­ate jobs for lo­cal con­trac­tors, as well as sup­pli­ers and ser­vice providers, which leads to the stim­u­la­tion of eco­nom­ic ac­tiv­i­ty and the re­in­force­ment of con­fi­dence in our eco­nom­ic re­silience. Such in­creased eco­nom­ic ac­tiv­i­ty and re­silience should ul­ti­mate­ly re­dound to the ben­e­fit of so­ci­ety as a whole.

PPPs can cer­tain­ly be a ben­e­fi­cial ap­proach to ex­e­cut­ing pub­lic sec­tor de­vel­op­ment, par­tic­u­lar­ly where di­rect fund­ing by the Gov­ern­ment or pub­lic sec­tor agen­cies may be chal­leng­ing to ob­tain. If prop­er­ly ex­e­cut­ed, such an ap­proach can go a long way in help­ing to achieve many of the projects iden­ti­fied in the Re­vi­tal­i­sa­tion Blue­print, par­tic­u­lar­ly those that will gen­er­ate suf­fi­cient and sus­tain­able rev­enue from their op­er­a­tions to sup­port the PPP mod­el.

Dis­claimer: This col­umn con­tains gen­er­al in­for­ma­tion on le­gal and busi­ness top­ics and does not con­sti­tute le­gal ad­vice.