Public Financial Management Responses to an Economically Challenging World 2011 ICGFM Survey
ICGFM Promotes Knowledge Transfer Among Public Financial Management Experts
Wednesday, December 8, 2010
Public Financial Management Responses to an Economically Challenging World
Public Financial Management Responses to an Economically Challenging World 2011 ICGFM Survey
Thursday, May 20, 2010
Private Public Partnership Survey at ICGFM Conference
Has your country used Public Private Partnerships to find sustainable funding for infrastructure investments:
- Yes 43%
- No 53%
- Do not know, does not apply: 3%
- Yes 39%
- No 26%
- Do not know, does not apply: 35%
- Lack of policy and guidance 45%
- Lack of PPP unit to provide guidance 20%
- Lack of government guarantees 15%
- Lack of interest from investors and operators 15%
- Political circumstances 5%
Wednesday, May 19, 2010
The Impact of the Financial Crisis on Public Private Partnerships
The European Union has provided some guidance on how much risk must be passed to the private sector to not show PPP investments on the government balance sheets. There is always something that doesn't go well in long-term contracts, PPPs are no different, according to Mr. Drapak.
The financial crises impact on the PPP market is not over yet, however recovery and optimism is quite strong, according to Mr. Drapak.
Unexpected stress can increase risk on PPP financing and deliverables. Mr. Drapak pointed out that financial stress can originate in unexpected places like Greece. You must expect that financial markets will undergo stress of some sort. Governance of financial markets will increase according to Mr. Drapak. He sees governance as the most important aspect to PPPs.
The financial crisis affected PPPs in liquidity, capital allocation, and the "de-risking" of projects. Debt guarantees have become a new tool in use for PPPs according to Mr. Drapak. Before the financial crisis, there was considered that large projects had less risk. But, financing issues have resulted in many smaller projects. And, some of the risks that were exclusively with the private sector before the crisis is now shared with the public sector. Mr. Drapak asks how governments can show market disruption risks on financing on the books?
The financial crisis has put pressure on PPP governance. Mr. Drapak provided PPP case studies from the UK, South Africa and Russia. The UK is the largest PPP market, according to Mr. Drapak. India has emerged as the second largest world market. The UK created a special agency called "Partnership UK". There is a plan is to make an organization, within Treasury, called "Infrastructure UK." The Treasury of the Government of South Africa is creating a separate PPP organization in order to separate delivery from regulatory interests. The Government of Russia viewed that PPPs were unnecessary because of large budget surpluses. Now, the Government is developing PPPs. Russia is managing PPPs through its own development bank.
Mr. Drapak says that governments did consider the full lifecycle of PPP projects. However, there had not been any planning associated with potential financial crisis. PPP projects today suffers from the increased cost of equity. This requires higher levels of financing by governments which tends to reduce the value for money. In some projects, the government had to replace all private financing while the private sector has the equity risk.
Mr. Drapak discussed global PPP trends showing an increase in activity in BRIC countries. He showed a case study from Canada for Partnerships BC. The organization looked at the internal rate of return while looking at the public contribution to debt. Some people wonder whether government funding is a PPP. Mr. Drapak points out that banks have very little risk in PPPs, so government funding does not change the fundamentals of PPPs. This option is really only available to governments with stable revenue.
Mr. Drapak believes that the financial crisis is improving PPP governance. He also pointed out that the analysis of PPP projects tend to look at full lifecycles unlike traditional capital financing. This often results in better long-term planning for PPPs.
Developed countries tend to leverage PPPs to improve efficiency, according to Mr. Drapak. Developing countries tend to use PPPs for other reasons. The finance crisis means that developing country governments tend to have to take more financing risk than developed country governments.
Filip Drapak has over 14 years of experience in economics, public policy, and finance. Mr. Drapak has worked as assisting professor at Prague University of Economics, as a head of financial advisory services in Societe Generale Komercni banka and as assistant director in corporate finance of PricewaterhouseCoopers During the past six years, Filip was involved in the area of public-private partnerships (PPP) and was instrumental in the creation of PPP Centrum, under the Ministry of Finance to provide technical assistance and support to public entities engaged in public private partnerships. He introduced the Czech Republic's policy for public-private partnerships and was involved in training for the public sector as well as in the formulation of legislation for privatization and concessions.
Mr. Drapak served as the CEO and Chairman of the Board of Directors of the PPP Centrum, as a non executive Chairman of electric distribution company, oil transport company and on boards of airlines company and energy engineering company.
Tuesday, May 18, 2010
The Expanding Role and Increasing Responsibility of Public Auditors
Mr. Verma described the impact of Public Private Partnerships on public finances. PPP's are high risk. Therefore, the role of the public auditor is critical according to Mr. Verma. PPP analysis is challenging to ensure that risk is properly distributed. He described the INTOSAI PPP guidelines for auditing for value for money.
Mr. Verma described problems with private auditors with many private sector companies. He warned that there are important lessons here for public auditors. Public auditors do not have a financial incentive to find unqualified audits And, constitutions around the world guarantee the independence of public auditors to ensure more reliable audit.
Audits are moving from compliance to performance in the public sector according to Mr. Verma. Compliance audit are still critical particularly because these address legal issues. He described the need to audit companies where the government owns more than 50%.
Mr. Verma described lessons learned from the financial crisis. Many interventions by public authorities have been based on the grounds of "too big to fail" rather than in the public interest. The public interest is better served by autonomous and independent organizations. He described how public audit can expand. Mr. Verma argued that government audit information should be published in newspapers to get scrutiny by the common man. He described the approach for risk-based audit in India.
Tuesday, May 19, 2009
Sprited Second Thought on Public Private Partnerships
Monday, May 18, 2009
Private Sector Financing should not be an option for Public Infrrastructure
PPPs seem like magic like free money. Yet, companies have made significant profits. The magic is that the debt is hidden where the government has the obligation to repay the debt to the private sector.
•in UK private sector borrowing is 1-2% more expensive than state debt
• December 2008: Lagos ₦50 billion bond at only 13% (inflation 15%)
• 2002 – 57% of public sector accountants in UK did not think PPPs provided value for money
How has the Financial Crisis Changed the PPP Market
Infrastructure programs provide significant investment opportunities even in the financial crisis. Mr. Drapak suggests that PPP economics have changed. In particular, emerging countries are seeing a lack of funding on both the equity and debt side. There is a general lack of interest of investors and operators in PPP for infrastructure projects.
Before the financial crisis most experts did not make provisions for economic cycles. Equity bubbles are present every 13 years and last 2 1/2 years on average. Housing bubbles have larger impacts.
New debt calculations and risk management concerns can mean that many cost-benefit analysis do not show a positive value for money. Equity financing has increased as an overall percentage, creating high costs. Governments need to look at broader factors in order to better evaluate PPP projects.
The rule had been that larger projects were more attractive to the private sector. Risk and equity factors mean that projects need to be of a more modest size to gain financing.
The government of the United Kingdom has created a method to improve PPP projects called DFC (Direct Funding Competition). The French Institute for PPP is advocating flexible financing rates.
Mr. Drapak concludes that PPP economics are only temporarily jeopardized by the financial crises. He recommends that PPP is not solution in time of financial crises, and should not be leveraged to stimulate the economy.