Development of Policy, Legal, and Insitutional Framework for - ppiaf

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Development of Policy, Legal, & Institutional Framework for the PPP Program in Malawi Final Report What are the results of the Consumer Demand, Affordability, and Willingness to Pay Survey? What service delivery outcomes and improvements are expected from the project? What are the Service Delivery Standards, and can those Standards be complied with through operations and maintenance costs that are sustainable? About the Funding: Has the feasibility consultant’s cash flow projections been verified by the PPP Unit's project advisor, and do they enable a competitive Financial Internal Rate of Return? Given prevailing market expectations regarding Equity Financial Internal Rate of Return, can tariff levels required to achieve such return be realistically attained given the consumer profiles and willingness/ability to pay, and political factors impacting tariffs? Are the potential funding sources identified in the “market sounding” credible in terms of their track record of success in similar projects, and their financial capacity? Is the proposed debt-to-equity ratio within generally accepted gearing limits for this sector, and are any Government guarantees or contingent liabilities required to secure the debt? Will the projected cash flows provide sufficient assurance of debt service, in particular does the debt service coverage ratio comply with generally accepted norms for the sector? Is there a “take-or-pay” off-take contract that requires Government to pay for capacity even if consumption levels and/or Accounts Receivable collection performance does not provide the required cash flow to make payments required under the contract? Is there a supply contract, e.g. fuel supply for a power generator, for which Government must provide a guarantee, or if supply costs pass through to the buyer(s) can the buyer(s) afford it? Because the PDF operates like a Trust and its Governing Board sets policies consistent with its fiduciary responsibilities, the contributors of the assets of this quasi- Trust have broad discretion in the instructions that they give to the Governing Board. These instructions can be adjusted from time to time as circumstances change. As is the case with a Unit Trust for investment purposes, those providing the Corpus of the Trust may collectively, or in some cases individually, instruct the Board (analogous to PDF Project Priorities The PDF policy board will set annual priorities for the types of projects to be funded by the PDF, and make these public. Projects that fall outside these priorities will not be excluded from getting PDF funding, but the PDF priority will be one of the factors taken into account. the Fund Manager in an Investment Trust) how they want their money to be invested. As is the case with an Investment Trust, these investment decisions reflect the mix of risks that the investors want to have in the Trust. Therefore, the contributors to the PDF may, from time to time, instruct the Governing Board regarding their preferred risk profile. Some PPP projects may have a relatively high level of risk (international PDF experience has been that a high-risk project is one that has about a 25% probability of not reaching financial closure) and other may offer lower financial and economic returns but have commensurately lower levels of risk. The THE INSTITUTE FOR PUBLIC-PRIVATE PARTNERSHIPS 52
Development of Policy, Legal, & Institutional Framework for the PPP Program in Malawi Final Report responsibility of the contributors to the PDF is to keep the Governing Board informed of its preferred risk/return profile. For some donors, their contribution to the PDF really is an investment. For example, when development finance institutions like IFC and KfW make contributions to a PDF, one of the reasons why they do it is that the PDF is likely to generate a continuous “bankable” deal flow of projects that they can finance. A return on funds invested in the PDF is provided through the financing of these projects. Similarly, when a government invests in a PDF, it may perceive that as an investment for future economic returns. Due to these factors, a PDF must operate like an investment trust, rather than a source of free money for Project Sponsors or a “give away” program for feasibility consultants to use for lining their pockets. A project's eligibility for funding is assessed under three categories: ‣ Priority – does the project fit within one of the categories of priority projects; ‣ Risk – does the risk/return profile match that specified by the contributors; and ‣ Treasury – is the proposed expenditure consistent with fiduciary responsibility of the Governing Board to manage the PDF in accordance within policies set by the contributors. Each category has its own rating. Each category then feeds into a matrix that is used to decide whether funding will be provided unconditionally, on certain conditions, or if no funding will be provided. V.H. Organizational Structure and Profile of PPP Unit Staff Positions The PPP Unit will require a few very senior professional staff, at least one full-time international advisor(s) (for a period of 2-5 years until skills can be transferred) plus some essential support staff and access to office services and related resources. There will also be a need for mid-level professionals, who can be either locals, who have a particular area of technical expertise (such as accounting, financial analysis, engineering, and contract management) or expertise in a particular sector. Regardless of the organizational structures or systems in place, the quality of the PPP “working” management team will be the most critical factor. Most of the other support requirements will be short-term specialists with minimum training requirements. Proposed Management Structure of the PPP Unit The figure below shows a possible management structure of a “mature” PPP Unit. THE INSTITUTE FOR PUBLIC-PRIVATE PARTNERSHIPS 53
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Development of Policy, Legal, and Insitutional Framework for - ppiaf

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