Public Private Partnership Proposal

Kogi State Government

October 2012
TRAINING - LONDON

Michael Andersen

Public Private Partnership Proposal

Kogi State Government
October 2012
TRAINING - LONDON

Michael Andersen

Disclaimer
This Proposal is made by Michael Andersen Advisory Services, a Nigerian Accounting and Audit practice,

is in all respects subject to the negotiation, agreement, and signing of a specific engagement letter or contract.

This Proposal contains confidential material proprietary to Michael Andersen Advisory Services. The

materials, ideas, and concepts contained herein are to be used to assist Kogi State in conducting a Public Private Partnership Training for some of its Commissioners, Permanent Secretaries, Directors and Special Assistants. used for any other purpose, except with the prior consent of Michael Andersen Advisory Services.

This information and the ideas herein may not be disclosed to anyone outside the intended parties or be This proposal is subject to the satisfactory completion of Michael Andersens customary evaluation of

prospective clients and engagement.

Should you decide not to engage Michael Andersen Advisory Services, please return this Proposal along

with any photocopies, and ensure that this document is not distributed to, or shared with other parties.
Michael Andersen

9/10/2012

Michael Andersen Advisory Services No 228B , Eti Osa Way Ikoyi Lagos Nigeria.

Telephone : +44 7818366186, +234 7033420653; +234 8056667569; Email: [email protected]

Internet: www.michaelandersen.biz

His Excellency Governor Idris Wada The Executive Governor of Kogi State Government House, Lokoja Kogi State, Nigeria.

28th September 2012

Dear Sir, On behalf of Michael Andersen Advisory Services (Michael Andersen), we would like to thank you for the opportunity to submit this proposal to provide training on the methodologies and Best Practices of establishing viable Private Public Partnerships (PPP) in the State. Michael Andersen is delighted to submit this formal response which presents our scope of work, approach and methodology, experience and capability with respect to assisting you in achieving your goals in these respects.
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We have carefully considered your requirements and believe that we are ideally placed to provide you with the services you require. We are putting forward a team that comprises seasoned professionals with deep transaction experience. These professionals understand the salient local market conditions and technical issues associated with the proposed engagement and are expected to bring their expertise to bear towards a successful execution.
Accordingly, we would like to draw your attention to the following aspects of our business: Michael Andersen is amongst the leading advisors in the Public and Private Sectors in Nigeria, offering unrivalled experience in the areas of Audit and Accounting support services. Michael Andersen is currently executing numerous related training and advisory services.

The team is ready to commence work when instructed and enthusiastic about the prospect of working with you. We look forward to demonstrating our commitment for this engagement and we trust that this is reflected in our proposal. Yours faithfully Michael Olujitan

Partner and Head, Michael Andersen Advisory Services

9/10/2012

Michael Andersen

Outline
Who Are We?
What We Can Do Why Michael Andersen?

Team Structure
Business Arrangements Key Contacts

9/10/2012

Michael Andersen

Who Are We?

We are a leading Audit, Accounting, Taxation and Consulting group of firms located in Abuja.
Audit

Financial Advisory

Tax

Our main focus is Training, Business Consulting, Auditing, Accounting, Financial Advisory and Taxation for Public and Private Sector Organizations.
We are Accounting Solution Providers with public and private sector focus and we create value 9/10/2012 Michael Andersen for our clients and maximize our

Consulting

Accounting

Who Are We?

Our Competence
We are a team of diligent professionals with excellent track record and drive for continual success. We have a global vision and our principal activities include : Training Private - public partnership advisory; Providing advisory services on business re-engineering and restructuring; Crafting of business plans; Audit and Assurance services; Accounting Support services; Rendering due diligence and financial modelling services; Advisory services on enhancement of internally generated revenue.
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Outline
Who Are We?
What We Can Do Why Michael Andersen?

Team Structure
Business Arrangements Key Contacts

9/10/2012

Michael Andersen

What We Can Do
Our Proposed Services
Our aim, at the end of the training, is to ensure that all participants: obtain a basic understanding of PPP; understand the advantages of PPP procurement; know the typical projects for which PPP financing is used; gain appreciation of the contract options and deal structures used for PPP procurement; appreciate the key principles underpinning PPP, as well as the key players and their roles in PPP procurement; and know the critical factors necessary for successful PPP implementation.

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What We Can Do
Our Proposed Services
Some of the topics, in addition to others, that will be discussed in the Training include:
Definition of PPP Features of PPP PPP vs Other Methods Range of PPP Options Benefits of PPP Key Principles Key Structures, Players and Roles Types of PPP Success Factors

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Public Private Partnership (PPP)

Cooperation with the Private Sector

Contracting

Public-Private Partnership

Privatisation

Fiscal Resources Roles and Responsibilities of the Public Sector Competencies and Know-how of the Private Sector

Contractual arrangements Private Capital

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Public Private Partnership

What It Is What It Is Not Long-term contractual arrangement Public sector retains strategic control over service delivery Private Sector contractor takes full responsibility for design, delivery and operations Private Sector contractor accepts the responsibilities and risks of delivering the project Payments are made by the public sector partner (or the public) for performance and availability and in some cases usage 9/10/2012 Michael Whole life costs are minimised Andersen

Simple outsourcing of functions where substantial financial, technical and operational risk is retained by the public sector Donations by a private sector institutions for a public good Privatisation or divesture of state assets and/or liabilities: the public sector retains ownership and shares risk/reward Commercialisation of a public function by the creation of a 13 state owned enterprise

Public Private Partnership (PPP)

PPP vs. Traditional Procurement
Traditional Procurement PPP

The Public sector:

Writes project specifications Manages construction or

The Public sector:

Specifies (with consultants and

development contract Pays capital over the development period Operates and manages the asset

The private sector:

Builds to specifications produced

advisors) its service requirements Waits for specified services to be provided through the PPP contract Monitors service delivery and performance Retains overall responsibility for service provision

The private sector:

Manages the PPP contract Funds the capital cost, which it recoups through service 14 payments

by the public sector In some cases, provides services outsourced to it by the public Michael Andersen 9/10/2012 sector

Public Private Partnership (PPP)

PPP vs. Traditional Procurement
Why PPP may be better than traditional procurement Traditional Public Funding N
Exposure to construction cost overruns Exposure to construction time overruns Exposure to operating cost overruns

PPP Funding Approach

N
No payments until facilities are available for use Amount of the service payments locked-in prior to commencement

Time Estimated costs

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Time Government exposure

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Michael Andersen

Public Private Partnership (PPP)

PPP vs. Privatisation/Divestiture
Privatisation
Publicly owned assets are not

PPP

The Public sector:

sold off to the private sector Specifies (with consultants and In many cases, assets initially advisors) its service requirements funded by the private sector are Waits for specified services to be eventually transferred to the provided through the PPP public sector contract Public sector retains ownership and ultimate responsibility for Monitors service delivery and service provision performance Core services continue to be Retains overall responsibility for provided by the public sector, service provision while ancillary service provision is The private sector: shared with the private sector Public authorities responsible for Manages the PPP contract policy and levels of service Funds the capital cost, which it Private sector is paid according to 9/10/2012 Michael Andersen recoups through service 16 performance in reaching agreed payments

Public Private Partnership (PPP)

Range of PPP Options
THE PPP SPECTRUM
Typical Characteristics of PPP Options (contract length is indicative)
2-3 yr contracts 3-5 yr contracts 20-30 yr contracts permanent

Managem ent Contract

Leasi ng

Includes arrangements such as Concession, BOT, BOO, PFI, DBFO, PPI

Divestitu re

Risk Transfer to Private Sector

Public Sector Ownership Private Sector Ownership

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Note: Different countries use different terminology to refer to essentially similar arrangements. Michael Andersen 17

Public Private Partnership (PPP)

Range of PPP Options (2)

Operation & Maintenance contract

Design Build Operate

Buy Build Operate

Build Operate Transfer Fully Private

Design Build

Lease Develop Operate

Build Transfer Operate

Build Own Operate

Low Roles, Skill Requirements, and Risks of Private Sector

High

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Public Private Partnership (PPP)

Typical Deal Structure

Direct agreement

Lenders

Public sector partner

Service contract Loans

Advisers

Private sector partner

Special purpose vehicle

Sub-contracts

Advisers

Equity agreement

Design and construction Operation and maintenance

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Public Private Partnership (PPP)

Parameters and Rationale
Serious (i) service delivery and (ii) infrastructure backlogs

Internationally a new approach to service delivery whereby

Governments should ensure delivery, and not necessarily deliver it themselves

Expenditure demand is outstripping income (almost all over the world)

PPP is clearly and unambiguously seen by Governments to be

part of the solution to these backlogs

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Public Private Partnership (PPP)

Parameters and Rationale (2)
Specific goals
Fiscal Quality of service Financial Political Ideological Management Technological

To provide better value for money and give government expenditure (capital and recurrent) more impact
To provide more effective, efficient, reliable and responsive services to clients To mobilise capital markets to provide long-term funding at competitive rates To enhance community, client or pressure group involvement in the provision of services To increase private sector involvement in government operations To empower and motivate employees and make operations more businesslike To apply new information technology, innovative design, new construction and materials technology
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Public Private Partnership (PPP)

Key Principles of PPP
Value for Money This is achieved when the required quality of service is delivered at a cost that is cheaper than the cost of conventional public sector delivery of the same services. It means that the provision of a public sector function by a private party results in a net benefit to the institution, defined in terms of cost, price, quality, quantity, or risk transfer, or a combination of these. Risk and Responsibility Transfer A PPP contract transfers many of the risks of ownership of the project to the private sector, which puts its capital behind the successful delivery of the facilities and service. The payment structure (or mechanism) is the principal means of
9/10/2012

defining the risk allocation withinAndersen Michael the project.

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Public Private Partnership (PPP)

Key Principles of PPP (2)
Competition Bids should be compared for: Value Contractors ability to accept risk Benefits compared to a conventional solution Innovation Suitability as a long-term supply partner The Specification of Service Outputs The public sector partner should concentrate on stipulating the required service outputs, allowing the PPP Contractor as much latitude as possible as to how these output requirements are met

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Public Private Partnership (PPP)

Key Principles of PPP (3)
Affordability Particular PPP projects must be affordable to the public sector partner. Affordability is whether the cost of the project over the whole project term can be accommodated within budgetary limits, given existing commitments. It involves considerations such as the extent of any capital contribution by the public sector partner to the PPP project, the annual limits of the unitary payment, and the costs of managing the PPP agreement.

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Public Private Partnership (PPP)

Benefits
Government
Reduces borrowing Capital freed for other expenditures Encourages public sector reform new ways of working and new approaches to service delivery Improves project delivery time, cost and quality Defers payments over the contract period Improves cost estimates given robust analysis Strategic control of the project or service delivery remains with the public sector Risk transfer to the private sector

Private Sector
Greater scope for doing public sector business Expertise can be used and further developed Goes to profitability Growth and job creation Leverage Increased debt capacity Lower financing costs

Public
Earlier access to improved facilities or services Tax rates remain unaffected Higher finish standards Ability to maintain desired service standards Any savings equal more efficient use of public money Operators incentivised to deliver service standards for whole-life of the asset Develops long-term outlooks and better understanding of total project costs

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Public Private Partnership (PPP)

Key Structures

Central PPP Taskforce

Budgetary, Legal & Regulatory Framework

Ministry PPP Units

Infrastructure Development Plan

PPP IMPLEMENTATION PLAN

Local government PPP Units

Cabinet Sub-Committee

Inter-cabinet PPP Group Michael Andersen

Public/Private PPP Panel

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Public Private Partnership (PPP)

Key Players and Roles Key structures, players and roles [2]
PPP units/ taskforces at various levels of government comprising procurement, finance and legal experts from the private sector, working alongside civil servants. The taskforce is responsible for:
promoting a wider understanding of the principles of the PPP

within the public sector;

setting a framework for identifying projects that are suitable/not

suitable for PPP (including selection of pilot projects);

acting as a one-stop advice centre for potential private sector

bidders/investors;
developing templates (such as standard contractual terms) for

addressing problems that arise on PPP projects;

identifying ways in which the public sector can use PPP to

provide more and better services; etc. Public/ Private PPP panel comprising representatives from the public and private sectors. This consultation group should only meet about

Public Private Partnership (PPP)

Key Players and Roles
External advisers and consultants comprising a a team of specialists who will bring financial, legal, technical and project management experience to the analysis, negotiations and implementation of PPP projects on behalf of the public. Inter-cabinet (ministerial) PPP group comprising representatives from all the PPP units. The group will meet regularly to:
report on a regular basis to the Cabinet Sub-Committee;

debate common policy issues and agree a public sector

position; and
initiate the development of policy guidance.

Private sector participants who need to be actively cultivated for successful execution of a PPP scheme.

Public Private Partnership (PPP)

Types of PPP Projects
PPPs may be used for a wide variety of projects, provided that they are justified by a demand or existing need for which a business case can be made, and the proposed partnership does not compromise governments financial targets. The project may involve the delivery of physical infrastructure or ancillary Physical services. Infrastructure

Transport - roads; light rail; ports; airports; water & sewerage treatment Ancillary services plants; schools; hospitals; defence; residential housing; government offices; conference centres; sports stadia and leisure facilities; prisons, Services which complement physical infrastructure may also provide etc. opportunities for PPPs, either in conjunction with an agreement to provide the physical infrastructure or through an independent arrangement, e.g. revenue cycle management in water or waste management.

Public Private Partnership (PPP)

Success Factors

Outline
Who Are We?
What We Can Do Why Michael Andersen?

Team Structure
Business Arrangements Key Contacts

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Why Michael Andersen?

Our Value Proposition
Identifying key business issues, risks and mitigating factors upfront Being properly prepared Capitalising on our significant audit experience Having access to additional resources

Helps increase complianc e to relevant statutory requireme 9/10/2012 nts

Helps increase the speed of execution

Prompt identification and communication of key business issues and our previous collaborative experience results in value maximization Michael Andersen 32 risks Helps maintain control of the process Helps minimise disruption to the Commission s operations

Why Michael Andersen?

Experienced Team Our multi-disciplinary team has very deep public and private sectors experience across business re-engineering, strategy, audit, accounting and human resources. Members of Michael Andersen team have recent experience of advising in many states of the federation in a wide variety of geographies with diverse market, socio-economic and regulatory regimes. Members of our team have advised on similar requests in the past, both in Nigeria and abroad, and are currently in talks with several Corporations and Government Agencies. Within Michael Andersen we have a range of market, financial and regulatory reporting specialist with relevant experience. We have adequate local resources, sector specialists within the Michael Andersen network to deploy. We have tested competence to ensure efficient delivery on this transaction.
Michael Andersen

Relevant Experience

Market Leading Adviser

Value Focused Scope & Efficient Approach

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Outline
Who Are We?
What We Can Do Why Michael Andersen?

Team Structure
Business Arrangements Key Contacts

9/10/2012

Michael Andersen

34

Our Team Structure

Our Team Our Approach to Client Service

Our team draws together specialists from our Abuja office to provide you with the full range of skills and experience to help ensure the success and the timely completion of this assignment. Michael Olujitan Engagement Partner

Vision
The experience to anticipate risks The confidence to provide honest advice Thinking outside the box to develop alternatives

Flexibility
Experienced and committed teams Focused on putting the client first A depth of additional expert resource available

Engagement Director

Communication
Building long-term relationships with clients Frequent informal interaction Regular formal progress reports

Associates

Delivery
Focused on timely completion of tasks Proactive in driving processes forward A reputation for never compromising quality Michael Andersen 35

...Our team is constituted based on experience and qualifications

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Our Service Team

Mr Michael Olujitan
Name Position Education and Qualifications Area of expertise Michael Olujitan Chief Executive Officer, Michael Andersen Advisory Services

B.Sc. Petroleum Engineering, University of Ibadan, Ibadan, Nigeria Fellow, Association of Chartered Certified Accountants, UK Associate, Institute of Chartered Accountants of Nigeria
Financial Services; Telecommunications, Public Sector and Energy (Oil, Gas &

Years of experience and track record

23 years Michael specialises in value for money reviews, capital projects, Audit Tests of Financial Systems using Rex and IDEA 5.0 Audit software, preparation of Audit Reports including recommendations for improving existing systems, Accounting and Taxation , Banking, Corporate Finance , Project Appraisals and Funding. He is experienced in International Project Finance, review of viability of mergers and takeovers, involving the review of Balance sheets and Accounts of merging organisations and making recommendations for improvements.
Michael is the CEO of Michael Andersen Advisory services & Head of our

Accounting Advisory Services.

9/10/2012 Michael Andersen 36 He has overall responsibility for our Accounting Support Services and

function. In this role, he has been involved in providing accounting services,

Outline
Who Are We?
What We Can Do Why Michael Andersen?

Team Structure
Business Arrangements Key Contacts

9/10/2012

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Business Arrangements
Training Location: London, UK
Number of Training Number of Participants Days 10 5 Cost per Participant () Total Cost () 5000 50000

Our fees are competitive, negotiable and are based on the time spent on your assignment. However, in view of our intention to build a relationship with the Kogi State, we are willing to offer a discount, which is negotiable. Kogi State will be responsible for the transportation and accommodation of the participants. The fees are exclusive of VAT
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Outline
Who Are We?
What We Can Do Why Michael Andersen?

Team Structure
Business Arrangements Key Contacts

9/10/2012

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Key Contact
We welcome enquiries and will be happy to discuss your specific needs with you. Please feel free to contact any of the individuals listed below:

Name
Michael Olujitan CEO, Michael Andersen Andersen Consulting Company Company Ltd Muyiwa Olufemi Johnson Johnson Head, Client Services Client Services Department Department Tope Ogbonyomi Head, Business Development Development

Phone Number
+44 7818366186, + 234 7033420653 or 7033420653 or +234 8056667569 8056667569 +234 (0) 7030066660

E-mail
[email protected] [email protected]

[email protected]

+234 (0) 8098930402

[email protected]

Michael Andersen

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