The Czech PPP Programme Libor Cupal Deputy Director

The Czech PPP Programme Libor Cupal, Deputy Director, Head of Project Management 6 November 2006, VI EUROSAI Training, Prague

Building Institutional Capacity & Creating The Appropriate Framework * 1

Market Development Summary + + + Concession law in place from July 2006 – – No political champions yet – up to now indifferent approach with no support * Pipeline of pilot projects diversified in various sectors Standardised Advisory Tender Process – documentation and contract The Czech Standardised Project Agreement – market consultation started Elections in June ´ 06 – position of PPP Centrum “likely” to be defined PPP Centrum has full support of the Czech PPP Association – 70 members Role of PPP Centrum is still politically not defined yet – no power Transport projects out of PPP Centrum reach – no political will Unable to create “programmes” – likely after the pilots prove success 2

The Czech Standard Project Agreement Publicly available - market consultation has just commenced § Written by CMS Cameron Mc. Kenna and local lawyers § Partly based on UK School and Health standard contracts § Concerns about contracts developed for the pilots to be precedents § Shall propose framework even for the pilots in terms of compensation on termination, risk treatment, … § Coordinated market discussion § Increase general awareness § Not obligatory – currently no power to enforce * 3

Pilot Projects 4 projects in OBC phase with advisers already involved 5 projects in Inception phase before hiring advisers TWO JUSTICE COURTS ARMY HOSPITAL AIRCON CAMPUS UJEP PARDUBICE HOSPITAL NA HOMOLCE HOSPITAL MOTORWAY D 3 SPORTS-HUB PRISON * 4

Pilot Projects 7 non-transport projects of € 350 m in total value 2 transport projects of € 700 -1000 m in total value Projects in OBC phase Type Value Tender Prison / guarded for 500 inmates DBFM € 37 m Apr ’ 07 Two Courts DBFO € 27 m Feb ’ 07 Army Hospital / new non-medical wing DBFO € 16 m Jan ’ 07 Sports-Leisure Hub Ponava * DBFO € 90 m na Na Homolce Hospital / new medical wing DBFM € 22 m Mar ’ 07 Projects in Inception phase Type Value Advisory Tender Motorway D 3 - 30 km part BOT € 370 m Bids in June ’ 06 Pardubice Hospital / med & non-m wing * DBFO € 73 m Sept ‘ 06 University Campus UJEP* DBFO € 80 m Dec ’ 06 AIRCON – airport city rail link DBFO € 400 -600 m H 1 ’ 07 * * city brownfield regeneration 5

Creating The Appropriate Framework for Gateway and Approval Process * 6

Right framework? Create four forces Interaction between them creates pressure and helps to keep momentum IV Let them Interested need each Private Sector Players other! II III Diversified portfolio of low-risk profile pilot projects into the more sectors & authorities I Political leader Regulator Central PPP Unit * Law Rules & Guidelines 7

Public sector issues Be realists more than optimists! § General reluctance to change § Insufficient capacity and expertise Give support § Adversity to hire “expensive” advisors § Limited funds buying limited scope – no will to invest Set rules § Hiring “preferred” but mostly incompetent advisors § Public Authorities poor “corporate governance” Coach § “Short-termism” – lacking a long-term strategic view § Popular spending at future expense Regulate § Fiscal threat creating hidden costs * 8

Institutional capacity Ministry of Finance “Regulator” § Regulation of fiscal impacts on state budget § Liability account book-keeping § Project approval “Gateway” process PPP Centrum § Best practice center providing knowledge transfer between projects and sectors § Active support on projects § Coaching public sector to be “Good Client” Departmental PPP units § Slow but steady learning curve * REGULATION “GATEWAYS” BEST PRACTICE into Guidelines PROJECT SUPPORT BUILDING CAPACITY 9

PPP Centrum – current status § § Central government PPP unit employing professionals Company fully owned by Ministry of Finance Exists 27 months - gradually improves skills & recognition 6 months spent to draft Standard contract guidance – key sections GUIDELINES PROJECTS the first drafts already on § project governance 9 in an inception/ preparation phase § § § * selection and hiring advisors risks in PPP projects control mechanisms – Gateways processes code of ethics § 5 pilots approved by Government to start preparation § 4 pilots supported by Mo. F § close focus on health and education in next step 10

Developing PPP market Where we are – where we go Legal framework analysis 2003 Government declaration of policy in PPP Regulator and PPP Centrum established Legislation amendment process began Drafting of rules and guidelines 2005 2004 Legislation in place The first pilot PPP projects identified 2005 * Project inception & Hiring advisors Project definition & Procurement 2006 NOW The first contracts awarded 2007 The first attempt to standardise model/contract 2008 11

Our essential “MUSTs” for project inception phase * 12

Key stones of successful preparation 1. Ensure only credible advisors with relevant experience are hired 2. Set clear and binding rules of project governance 3. Put in place sufficient control mechanisms 4. Standard contract guidelines Legislation amendmen process - Concession law in place § central & regional authorities empowered to enter long-term contracts § Mo. F having power to regulate central and also regional projects § end-user charge collection allowed * 13

Project governance rules Setting clear decision making and project management rules Responsible Authority central or local government Procuring Authority Members Regulator Mo. F § Responsibility and competences split nomination § Project Board PROJECT BOARD must have power to decide Member § One person Stakeholders PROJECT MANAGER Support Project team * Procurin g Authority Team Financial Advisor Technical Advisor Legal Advisor Public Promotio n Agency Other Advisors responsible for day-to-day project management § Regulator a PPP Centrum roles 14

Approval & control process To avoid costly mistakes during project preparation Mandatory approvals according to the new law Project preparation phases 1. Project Identification 2. Develop Business Case APPROVAL I. Business Case prior OJEU 3. Develop Public Procurement Strategy 4. Competitive Procurement APPROVAL II. FBC & Contract prior signing 5. Contract Award and Signing 6. Contract Management * Control process completeness check GATE 1 Strategic Assessment GATE 2 Economical Feasibility GATE 3 Public Procurement Strategy GATE 4 Investment Decision GATE 5 Readiness for Service GATE 6 Project Evaluation 15

Standard contract guidance To initiate market discussion and to keep control over the pilots * § § § § Land Supervening Events (compensation, relief and force majeure events) Service Commencement Payment and Performance Bench Marking and Market Testing Indemnities Insurance Maintenance Changes in Law Authority Step-in Expiry and Handback Early Termination Compensation on Termination 16

Discussion to Control process The audit on PPP projects incl. the examination of the achievement of value for money and next performance measurement in the project lifecycle demands the use of best practice principles, particularly in government, as the use of public funds should be open to the scrutiny of citizens and the parliament. The control/ audit system is therefore expected to be engaged to ensure that transparent and robust process is followed. The system must be capable of bringing an objective viewpoint to the project and to monitor the process throughout. * 17

Discussion to Control process Tasks and open questions : § Set / refine roles and responsibilities of relevant bodies § Approve project control “Gateway” process and analytical framework § § * for audits Set a system of independent reviewers Define a set of key questions (in checklists/workbooks) for all important stages of the project lifecycle Political and instutional support Roles and expected impact of the Czech Supreme Audit Office 18

Key messages § Realistically on the ground – learnt from past failures § Situation is not ideal but gradually improves § Pragmatic approach – keep things simple § Look for the best practice „transfer – adapt – use“ § Diversified focus on more sectors will keep momentum § Up coming political changes unlikely to change direction § Systematic approach to develop Czech PPP market * 19

www. pppcentrum. cz PPP Centrum a. s. Na Příkopě 3 – 5, 110 00 Prague 1 Czech Republic * 20