December 22, 1999
regarding the realisation of 'Public-Private Partnership'
and the establishment of a 'Knowledge Center'
Item 128 (1999-2000) - No.1
Ladies and Gentlemen,
In Flanders, there is an exceptionally exciting and expanded programme in regard to mobility where major investments are needed. Many different administrations (on Flemish, as well as provincial and community levels) have indicated the desire, with a view to a number of concrete projects, to organise PPP ('Public-Private Partnership'). But as yet, there are no actual, concrete support centers.
In the Flemish governing agreement, in the chapter entitled "A Flemish Mobility Plan" is stated:
"Taking into account the limited budgeting means, in supplement to a system of 'public-private partnership' (PPP) an alternative financial basis needs to be structured which will allow for this two-track policy to actually be realized."
Further, the following is established in the context of working out the "missing links":
"In regard to investments and lacking infrastructures - both roads as well as waterway infrastructure - the system of public-private partnership will be especially investigated in order to limit the financial burden. Among others, there is a proposal being considered to bring all of the cross-river connections above and below the Scheldt under one administrative authority."
The text of the governing agreement expresses the will to organize PPP, but do not specify how it should happen.
Though the government and the private sector have long worked together on certain projects, it is a new development that, following the lead of other European nations, this cooperation will be instigated in the form a conceptualized instrument.
PPS is a concept by which the government and private partners work in an integrated cooperation in the realization of a project, maintaining the identities and the responsibilities (risks) of the separate partners. This cooperation is output driven, and encompasses the design, the installation, the maintenance and the financing.
PPP is a system that is not limited to the transport infrastructure. It can also find application in the environment and education sectors, to the benefit of urban development or renewal, public transportation, in cultural projects, including the cultural activities and services, and so on.
PPP, while not simple, appears to be a very versatile cooperation concept, in which multiple partners are involved, each with their own unique background, methods of working and objectives. In order to have it work successfully, it is a requirement that the system of cooperation is well structured and benefits from a permanent support base, relying on the acknowledgement of the know-how on both sides, on mutual respect and on a long-term vision.
The plans that the Flemish government has made known in this regard, have up till now, not been adequately outlined. Therefore, the Flemish government is invited to let PPP have a concrete beginning by establishing a knowledge center within the Flemish finance administration, such as that which was set up January 1, 1999 within the Netherlands Ministry of Finance.
2. Situation in Flanders
2.1. Budget draft 2000
It would appear that the programme for the first few years is very extensive, both in the sense of the "missing links" to be carried out in public works, as well as in the context of projects to be financed in areas of culture, health, welfare, education, urban renewal, etc.
There is only talk of PPP:
"Finally, in regard tot his programme, the means are grouped together, for policy preparation. In the course of 2000, this will focus on the conceptual filling out of the financial and fiscal measures for which the government has provided, among others, a more flexible inspection environment, employment of PPP techniques, and orientation of the fiscality to labor incentives."
In a breakdown of the budget, no corresponding explanations in regard to these means are identifiable.
- In par. 69.9 ba 12.29, under the heading of "Expenditures related to preliminary studies with a view to public-private cooperation in matters of work on infrastructure" NGK 100 mil. BEF. From the explanatory notes, it appears that this refers to studies in foreign countries, (among others, of infrastructure projects), which in the first place, have the intention of increasing Flanders' export potential. After that, there is specific reference to the strategic plan for the region Flanders internationally, namely: increasing the economic impact on Flanders.
The submitting party is of the opinion in the context of the knowledge center to be established, that these means could better be assigned to programme 24.1.
2.2. Administrative implementation within the Flemish government
On 1/9/1999, minister Stevaert gave the assignment to the administration for 'Living Environment and Infrastructure' (LIN) to set up a workgroup in regard to PPP. The workgroup was to be formed of representatives from various administrations and from the Inspection section of Finance, and would then be supplemented by external representatives such as the GIMV, the 'Belgian Banking Association', the VCB, the VEV and the European Commission.
The workgroup is to be supported by a multi-disciplinary (primarily legal-economic) external consulting bureau. To this end, an invitation for bids needs to be prepared.
Minster Stevaert's intention is to immediately go to work around a number of test cases. On the basis of the proposals coming from the department, in collaboration with the Stevaert cabinet, the decisions will be made on which projects are to be selected as test cases.
In order to lead test cases to real projects, it seems a necessity to set up the knowledge center within the department of Finance.
2.3. Potential in Flanders
In Flanders there is clearly potential present where PPP holds out the offer of added value. Possible projects are to be found everywhere we turn:
There needs to be a summary made of the "missing links" with a scheduling of when they will need to be filled in. Better insight into the possibilities offered by PPP can result in an expanded, longer-term programme for significant infrastructure projects.
The OESO conference on 'Intermodal Transport and Logistics Networks' concluded the following:
"Public-private partnerships appear to be the most promising solution to the financing of transport infrastructure as they combine public sector experience in infrastructure development and policy making with the commercial vision and willingness to accept risks of the private entrepreneur.
Good partnerships depend on:
PPP can also be employed, for example, in the implementation of ICT in education. We find an example of this on a European level in the "European Education Partnership", which has the objective to bring private partners and other actors from the realms of communication technology together with the education sector to promote the use of new technologies within the schools.
3. The European Commission and the European Conference of Transport Ministers
The European Commission is a passionate advocate of PPP implementations. At the PPP conference in Paris, which took place on January 12, 1999, the vision of the EC was represented as follows":
"(…) Eu égard aux contraintes qui s’exercent sur les finances publiques, il est urgent de développer des véritables partenariats entre le secteur public et le secteur privé afin d’accélérer la mise en oeuvre du RTE et d’améliorer la rentabilité des investissements, de façon à rapprocher les projets de leur niveau de viabilité financière."
" (…) In regard to the constraints which bear down on public finance, it is urgent to develop real and functional partnerships between the public and private sectors, to accelerate the functioning of the 'RTE' and to improve the profitability of investments in order to approach the projects to their level of financial viability."
"Elle en a en outre souligné que les PPP ne sont pas seulement une source de financement complémentaire, mais un instrument permettant d’introduire dans la programmation et l’exploitation des projets d’infrastructures les méthodes efficaces du secteur privé".
"Furthermore, it accentuated that PPP represents not only a supplemental source of financing, but also an instrument to introduce the efficient methods of the private sector into the programming and implementation of the infrastructure projects".
In May 1999, the European transport ministers gathered in Warsaw in connection with the "European Conference of Transport Ministers" about PPP.
The following were some of the recommendations of the conference:
5. L’introduction des PPP exige un climat macro-économique favorable et un cadre réglementaire qui soutienne et encourage la participation du secteur privé.
6. Elle nécessite aussi un débat politique qui permette aux acteurs politiques et au public d’en apprivoiser l’idée, surtout quand des redevances ou péages entrent en ligne de compte.
5. The introduction of PPP demands a favorable macro-economic climate and a framework of regulation supporting and encouraging the participation of the private sector.
6. This also necessitates a political forum permitting the political actors and the public personalities to grow accustomed to the idea, especially when service fees or payments enter into the accounting.
4. The situation in the Netherlands
PPP is a concept that in the Netherlands, has found a footing since as early as the end of the 80s. This developed in connection with the construction of the tunnel under the 'North' and the 'Wijker' tunnel. In the framework of PPP implementation, these were not positive example projects.
On the basis of the report by the Dutch Minster of Finance – "Meer Waarde door Samen Werken" ('Added Value in Cooperation'), in order to benefit and to improve the functioning of PPP, a 'knowledge center' was established within the Ministry of Finance, beginning on January 1, 1999.
Soon, the PPP knowledge center will propose to the minister and the government a limited selection of projects permitting a carefully monitored expansion of the PPP activity in the immediate term. Along with the selection of projects, the center will work on an expanded policy and knowledge development. Focal points in this are: making the financial instrumentation operational, a policy for maintaining the EU tender regulations and process architecture.
In April 1999, the first progress report of the knowledge center was made public.
It seems only logical to the submitting party, that we learn from and make use of the experience in the Netherlands.
5. Critical success factors of PPP
5.1. PPP may not be used as a mere instrument of alternative financing, compensating the scarcity of (investment) means. Improving the bottom line of a budget may not be the only motivation for PPP, though it may well be one of its effects: doing the same for less money, or doing more for the same money. Above all, considerations of expediency or efficiency, must serve as the basis for decisions to implement the instrument of PPP.
The crux of a PPP system is that both parties (government and private) do together that which they do best, and that they each themselves assume the accompanying risks that go along with their side of the equation. So they must become partners on equal terms and be fully cognisant of the other's strengths and weaknesses. It is in this way that the potential of added value is to be achieved.
The input of the private partner must be manageable, and the risk to be taken, quantifiable.
5.2. PPP does not diminish the primacy of the political element. The government is and remains responsible for (potentially divisive) question areas such as, for example, matters of community planning (zoning considerations, etc.).
5.3. PPP must be able to work on the principle of competition.
5.4. At the same time, there must be a view to the economic as well as social benefits (profitability).
5.5. In principle, there must be room to have to the consumer share in payment for the use of the service or infrastructure. The income from this payment must not only serve for financing the direct costs, but must also be seen as providing some income or profit (for the private partner), and on the long term, the government as well, to the benefit of the community.
5.6. PPP must be able to rely on practicable policy framework.
6. Another way of governmental action
6.1. The government must operate on the basis of the desired result, and must (may) not be concerned with determining by which means the result is to be realised.
6.2. The scope of the projects must be kept very broad, such that the processes of 'value adding' can be used in order to share in financing the project (i.e. increasing the value of an area).
6.3. The form of cooperation to be chosen must be reflective of the specific character of the project and the underlying proportion of risk.
6.4. It is very important that within the government there be adequate capacity on hand to function as an equal, reliable and professional partner.
6.5. To successfully implement PPP, it is necessary for the two partners to come together at a very early stage. This means that in an early stage, the step be taken to put out for tender, by which formation of planning and execution are integrated. As such, the private partner becomes more of a supplier of services than of goods in the classic sense of tender offers.
6.6. To be able to analyse the added value of implementing PPP in respect to a given project, the government must be in a position to apply an instrument of comparison.
7. Policy framework
An important condition in the successful implementation of PPP is the ability to rely on a policy framework. Within such a framework, a long-term vision must be apparent which benefits from the support of the largest possible consensus in the area of policy, both at the political and the administrative levels. A policy framework with a long-term vision will bring to the equation the benefit that the private partner will be much better able to get a realistic fix on the political risks of a given project. This is even more the case, because infrastructure projects often stretch over longer periods, during which the circumstances and the political preference can easily change.
The policy framework may not be too stringent, but must remain flexible enough to be usable over such longer periods and extended projects. Nor may the negotiations between government and the private partner be burdened down by margins that are too narrow.
An important question relates to the manner in which the parliament can exercise its monitoring mandate adequately in cases of PPP implementation. With private financing, the costs for the installation and operation of the element of infrastructure involved will no longer entirely be a part of the administrative budget. With a classic allocation, where the entire price tag is logically included in the budget, the approval of the budget represents a mandate for the negotiator to assign the project to a supplier within the budgetary limitations thus established. This is not the case with PPP. Here, the private partner is involved from early in the planning, such that negotiations are carried out on a much broader base than simply financial considerations. In this respect, it is advisable, ahead of time and case by case, to come to agreement on margins within which the results of negotiations would have to fall. These margins would need to be the results of agreements between parliament and the government/negotiator.
8. Intrinsic support
As appears from the preceding considerations, it is advisable to implant PPP within the government in an expanded framework of professionals, such that the issues can be generally approached on an adequate basis. For this reason, in other countries there is usually a knowledge center established within government.
It is advisable such a knowledge center become an inter-disciplinary team which works to promote the unity of the entire government 'modus operandi'. Such a knowledge center addresses the following mission statement:
- to bring together all the relevant knowledge and experience. Project coordinators can then make use of this basis to limit the costs of overhead and transaction;
- to develop a policy framework for PPP that guarantees both organisational and legal transparency for projects;
In the Netherlands, in addition to the knowledge center, there is an 'Advisory Council', which as requested, provides the knowledge center with advice as well as maintains a critically watchful eye over the center's functioning. At this time, this council is being formed and will consist of a group of international experts, and of natives of the Netherlands who are familiar with the course of decision-making and are comfortable in legal, financial, budgetary and conceptual environs.
In Flanders too, it seems a clear necessity to establish a similar advisory body.
This profile is based on the PPP knowledge center that has functioned within the Dutch Finance Ministry since January 1, 1999.
In the Netherlands, Ireland, the UK and Australia, such knowledge centers have been established within the heart of the ministries of finance or the treasury. The choice for the Ministry of Finance is clear. Consider that the ministry has, by virtue of its budgetary function, a central role in the performance of government. Add to this that within the ministry is found the most expertise in respect to privatisation and risk-estimation.
Public-Private Partnership is a modern instrument, which, out of financial considerations and out of efficiency considerations, and in following the lead of a number of other European countries, can play an important role in the development of a number of Flemish projects. But it can't stop at this consideration. We must take a thorough accounting of the complexity of this instrument and its potential effects on the way our government works.
To this end, it is useful to look at examples of PPP implementation in other European countries.
It is advisable that PPP be thoroughly discussed in conjunction with the Flemish Parliament. Such discussions can lead to PPP becoming embedded (institutionalised) such that its chances of success would be dramatically boosted.
From foreign experiences, it also appears that a knowledge center always is established within the financial ministries, in order to provide the government, as a partner, with the related professional skills needed.
Thus, we invite the Flemish government to take the steps to establish a knowledge center and supporting advisory council within ABAFIM, within the shortest possible term.
Wivina DEMEESTER-DE MEYER
The Flemish Parliament,
Wivina DEMEESTER-DE MEYER