The Czech PPP Programme

1. The Czech PPP Programme Libor Cupal, Deputy Director, Head of Project Management6 November 2006, VI EUROSAI Training, Prague

2. Building Institutional Capacity& Creating The Appropriate Framework

3. Market Development Summary + Concession law in place from July 2006 + 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 – No political champions yet – up to now indifferent approach with no support – 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

4. The Czech Standard Project Agreement Publicly available - market consultation has just commenced • Written by CMS Cameron McKenna 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

5. Pilot Projects 4 projects in OBC phase with advisers already involved 5 projects in Inception phase before hiring advisers TWO JUSTICE COURTS CAMPUS UJEP PARDUBICE HOSPITAL ARMY HOSPITAL AIRCON NA HOMOLCE HOSPITAL MOTORWAY D3 SPORTS-HUB PRISON

6. Pilot Projects 7 non-transport projects of € 350 m in total value 2 transport projects of € 700-1000 m in total value * city brownfield regeneration

7. Creating The Appropriate Frameworkfor Gateway and Approval Process

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

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

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

11. 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 the first drafts already on PROJECTS 9 in an inception/ preparation phase • project governance • 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 MoF • close focus on health and education in next step

12. Developing PPP market Where we are – where we go 2003 Legal framework analysis 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 Project inception & Hiring advisors Project definition & Procurement The first contracts awarded The first attempt to standardise model/contract NOW 2005 2006 2007 2008

13. Our essential “MUSTs” for project inception phase

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

15. Project governance rules Setting clear decision making and project management rules • Responsibility and competences split Responsible Authority centralor local government Procuring Authority Regulator MoF Members nomination • Project Board must have power to decide PROJECT BOARD Member Stakeholders • One person responsible for day-to-day project management PROJECT MANAGER Support Project team • Regulator a PPP Centrum roles Procuring Authority Team Financial Advisor Technical Advisor Legal Advisor Public Promotion Agency Other Advisors

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

17. 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 • Changes in Law • Authority Step-in • Expiry and Handback • Early Termination • Compensation on Termination

18. 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.

19. 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

20. 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 sectorswill keep momentum • Up coming political changes unlikely to change direction • Systematic approach to develop Czech PPP market

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