Policy, Management and Finance of Public-Private Partnerships

Akintola Akintoye, Professor of Construction Economics and Management and Head of School, School of Built and Natural Environment, University of Central Lancashire, Preston, UKMatthias Beck, Professor of Public Sector Management, The York Management School, University of York, UK

"The editors draw upon a considerable amount of contributions from affiliated academic and practical experts with experience across a vast geographical spread.... Readers will find it invaluable in expanding their academic and practical knowledge of the subject." (Building Engineer, March 2009)

• Foreword xiContributors xiiiAcknowledgements xxiiiIntroduction xxvPart One PPP Policy 1Chapter 1 Private Finance Initiative in Use 3Ezekiel Chinyio and Rod Gameson1.1 Introduction 31.2 The Private Finance Initiative 41.3 UK Government’s Influence on the Use of PFI 51.4 Private Sector Tasks in PFI 61.5 Establishing PFI Contracts 61.6 Forms of Finance Used in PFI 81.7 Performance of PFI Schemes – A Theoretical Perspective 101.8 Improving the Performance of PFI 141.9 Performance of PFI Schemes – An Empirical Review 141.10 A Generic Overview of PFI Schemes 191.11 Comparative Studies 201.12 Conclusion 20Chapter 2 Using the Private Sector to Finance Capital Expenditure: The Financial Realities 27Jean Shaoul2.1 Introduction 272.2 The Control of PFI 302.3 Post-implementation Evaluation of PFI 342.4 Conclusion 42Chapter 3 Obstacles to Accountability in PFI Projects 47Darinka Asenova and Matthias Beck3.1 Introduction 473.2 Finance Capital and Institutional Decision Making 513.3 Conclusion 61Chapter 4 Refinancingand Profitability of UK PFI Projects 64Steven Toms, Darinka Asenova and Matthias Beck4.1 Introduction 644.2 PFI Finance and Value for Money 654.3 Mechanisms and Policies of Refinancing 694.4 PFI Profits and Refinancing 724.5 Conclusion 77Chapter 5 The Dedicated PPP Unit of the South African National Treasury 82Philippe Burger5.1 Introduction 825.2 The Rationale for PPPs 835.3 The Rationale for a Dedicated PPP Unit 845.4 A Brief History of PPPs and the PPP Unit in South Africa 865.5 The Role of the South African Dedicated PPP Unit 905.6 Future Challenges 935.7 Conclusion 95Chapter 6 PPP in Greenfield Airport Development: A Case Study of Cochin International Airport Limited 97Thillai A. Rajan, Sheetal Sharad and Sidharth Sinha6.1 Introduction 976.2 Private Participation in New Airport Development 996.3 Indian Aviation Sector 1036.4 The Cochin International Airport Project 1056.5 Performance of CIAL 1126.6 Summary and Lessons 117Chapter 7 PPPs for Physical Infrastructure in DevelopingCountries 123Akintola Akintoye7.1 Introduction 1237.2 An Overview of Public-Private Partnerships 1247.3 PPP: Developed Economies 1257.4 PPP: Developing Economies 1277.5 PPP: Analysis of Private Sector Participation 1297.6 Discussion 1387.7 Conclusions 141Chapter 8 Team Buildingfor PPPs 145Mohan M. Kumaraswamy, Florence Y.Y. Ling and Aaron M. Anvuur8.1 Introduction 1458.2 Integrating and Sustaining PPP Teams 147BLBK049-Akintoye July 30, 2008 13:38 8.3 Hong Kong Perspectives of PPP Teams 1498.4 Singapore Perspectives of PPP Teams 1538.5 Integrating PPP Project Teams 1568.6 Selecting Project Consortium Teams 1568.7 Concluding Observations 160Part Two PPP Finance 163Chapter 9 PPP Infrastructure Investments: Critical Aspects and Prospects 165Demos C. Angelides and Yiannis Xenidis9.1 Introduction 1659.2 Critical Issues in Financing PPP Projects 1679.3 Prospects for PPP Infrastructure Development 1719.4 Conclusion 178Chapter 10 Patterns of Financing PPP Projects 181Sudong Ye10.1 Introduction 18110.2 General Patterns of Financing PPP Projects 18610.3 Choice of Financing Patterns 19510.4 Summary 196Chapter 11 PPP Financingin the USA 198Arthur L. Smith11.1 Introduction 19811.2 PPP Financing Models in the US 20011.3 Case Studies 20611.4 Conclusions 210Chapter 12 Financial Modelling of PPP Projects 212Ammar Kaka and Faisal Alsharif12.1 Introduction 21212.2 Research in PPP Financial Modelling 21312.3 Cost Models 21412.4 Occupancy Cost 21512.5 Cash Flow Models 21712.6 PFI Financial Modelling in Practice 21712.7 An Example of a PFI Financial Model for Schools 22412.8 Conclusion 226Chapter 13 Application of Real Options in PPP Infrastructure Projects: Opportunities and Challenges 229Charles Y.J. Cheah and Michael J. Garvin13.1 Introduction 22913.2 Infrastructure Project Flexibility as Real Options 23113.3 Real Options Literature Related to Architecture, Engineering, Construction and Infrastructure Projects 23413.4 Modelling Issues and Concerns 23713.5 An Integrated Real Options–Risk Management Process for PPP Infrastructure Projects 24413.6 Summary 245Chapter 14 Financial Implications of Power Purchase Agreement Clauses in Revenue Stream of Independent Power Producers in Nepal 250Raju B. Shrestha and Stephen Ogunlana14.1 Introduction 25014.2 Financial Analysis 25214.3 Analyses of Clauses 25514.4 Summary 263Chapter 15 Government Policy on PPP Financial Issues: Bid Compensation and Financial Renegotiation 267S. Ping Ho15.1 Introduction 26715.2 Game Theory 26815.3 Is Bid Compensation Effective in PPP Tendering? 27115.4 Financial Renegotiation and its Associated Problems 28015.5 Financial Renegotiation Game and its Equilibrium 28115.6 Propositions and Rules 28915.7 Governing Principles and Policy Implications for Project Procurement and Management 29215.8 Conclusion 299Part Three PPP Management 301Chapter 16 Innovation in PPP 303David Eaton and Rıfat Akbiyikli16.1 Introduction 30316.2 Innovation and Competitive Advantage in PPP 30416.3 Stimulants and Impediments to Innovation in PFI/PPP Projects 31416.4 Innovation and Financial Issues in PFI/PPP Projects 31916.5 Conclusion 324Chapter 17 Combining Finance and Design Innovation to Develop Winning Proposals 327Colin F. Duffield and Chris J. Clifton17.1 Introduction 32717.2 The Drivers of PFI/PPP Projects in Different Jurisdictions 32717.3 Design Innovation: The Issues 32917.4 Financing Arrangements for PFI/PPP Projects 33317.5 The Theory and Practice of Winning Proposals 342Chapter 18 The Application of a Whole-Life Value Methodology to PPP/PFI Projects 346John Kelly18.1 Introduction 34618.2 Projects 34618.3 Client Value System 34918.4 Whole-Life Costing 35118.5 The Application of Whole-Life Value to the PPP/PFI Process 35618.6 Discussion 360Chapter 19 Best Value Procurement in Build Operate Transfer Projects: The Turkish Experience 363Irem Dikmen, M. Talat Birgonul and Guzide Atasoy19.1 Introduction 36319.2 Bid Evaluation in BOT Projects 36519.3 Case Studies 36719.4 Best Value Procurement in BOT Projects 37019.5 An Application of the Proposed Methodology 37219.6 Concluding Remarks 376Chapter 20 Application of Risk Analysis in Privately Financed Projects: The Value For Money Assessment through the Public Sector Comparator and Private Finance Alternative 379Tony Merna and Douglas Lamb20.1 Introduction 37920.2 The PSC and the PFA 38120.3 Conclusion 395Chapter 21 Developing a Framework for Procurement Options Analysis 398Darrin Grimsey and Mervyn K. Lewis21.1 Introduction 39821.2 What do PPPs Bring to Procurement? 39821.3 Developing a Methodology 39921.4 Conclusion 412Chapter 22 The Payment Mechanism in Operational PFI Projects 414Jon Scott and Herbert Robinson22.1 Introduction 41422.2 The Key Principles 41422.3 Value for Money Arguments 41522.4 Key Components of the Payment Mechanism 41622.5 The Output Specification 41922.6 Performance Measurement System 42122.7 Case Studies 42422.8 Analysis and Discussion of Findings 42922.9 Concluding Remarks 433Chapter 23 Concession Period Determination for PPP Infrastructure Projects in HongKong 436Xueqing Zhang23.1 Introduction 43623.2 PPP Projects in Hong Kong 43723.3 Build, Operate, Transfer Scheme 44023.4 Concession Period 44123.5 Concession Period Determination Methods 44323.6 Simulation-Based Concession Period Determination Methodology 44423.7 Simulation-Based Concession Period Determination Framework 44623.8 Conclusions 454Index 457