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For further information on Public Private Partnership please contact:
Public
 Private Partnership Unit

Ministry of Finance and Economic Development
Private Bag 008
Gaborone
Botswana
Tel: +267 3950226
Fax: +267 3956086

Government Enclave, Khama Crest

Block 25 State Drive, Gaborone

FAQ

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1.             What is a Public-Private Partnership (PPP)?

There is no one widely accepted definition of public-private partnerships. It may broadly be defined as "a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance". PPPs typically do not include service contracts or turnkey construction contracts, which are categorized as public procurement projects, or the privatization of government assets or companies where ownership is transferred to the private sector.

The PPP Policy of Botswana defines PPP as:

“A PPP involves a contractual arrangement between a Government institution and a private party whereby the private sector party provides public infrastructure and/or infrastructure related services and where the provision of such infrastructure and/or infrastructure related services is

   a)          Based on measurable output (and result) specifications;

  b)         Governed by a payment mechanism that provides payment only on delivery of services at required standards;

  c)           Accompanied by a transfer of financial and operational risks with consequential financial effects; and

  d)          Demonstrates value for money to Government.”

Deriving from the above definition, the main features of public-private partnership are:

·      Long-term contract between Government and a private sector partner for the provision of services of public interest, based on new or improved assets;

·      The private sector partner is involved in all stages of the project - design, construction, financing, maintenance and / or operation of the facility;

·      Public institution defines requirements in terms of quality and level of service and not in terms of inputs;

·        The private sector partner provides all or the majority of the project's funding;

·        Equitable distribution of risks between the Government and the private sector partners on the basis of who can better deal with them;

Most countries face the challenge of how to meet the growing demand for new and better infrastructure services yet there is limited budget resources and competing priorities. In addition, even where funds have been budgeted for, capacity in the public sector to implement many projects at the same time remains a challenge. The public sector does not have the capacity to effectively utilize the funds allocated for projects.

Governments have now found that partnership with the private sector is an attractive alternative to increase and improve the supply of infrastructure services. The partners in a PPP, through a legally binding contract, agree to share responsibilities during the construction and/or operation and management of an infrastructure project. This partnership is built on the expertise of each partner and the appropriate allocation of:

·         Resources;

·         Risks;

·         Responsibilities; and

·         Rewards

PPPs transfer a major share of the risk associated with infrastructure development (such as the costs associated with overruns, schedule delays, unexpected maintenance, and/or latent defects in the assets) to the private sector. This is accomplished by engaging the private sector in a bundled contract for the life of the asset. This contract connects ongoing operations and/or maintenance payments to the quality of the original construction. This means that:

·       Governments do not pay for the asset until it is built and operational;

·       A substantial portion of the contract is paid out over the long term, and only if the asset is properly maintained and performs well; and

·    The lifetime cost of the asset is known upfront, meaning that Governments do not bear the burden for costs that arise unexpectedly during the contract period.

While they are not the right solution in every case, PPPs can provide many benefits when applied to the right projects.

2.             What are the benefits of PPP?

·    In addition to supplementing limited public sector funding and capacities to meet the growing demand for infrastructure development,  there are several reasons for the collaboration between the public and the private sector in developing and providing infrastructure  services. Some of these benefits include—

·         Increased efficiency in project delivery, operation and management;

·        Availability of additional resources to meet the growing needs of investment in other priority social services sectors such as health and  education;

·         Access to private sector expertise, financing and technology (both hardware and software);

·       Better screening of solutions options, appropriate project structuring and whole life cycle costing of the project;

·         Project delivered on time, to budget and with increased quality and level of service;

·        The Government knows exactly how much it will have to pay, and when. This is useful for financial planning.

3.             Should lack of Government budget be the main factor in considering a PPP?

The lack of Government budget is one of many factors that need to be taken into consideration when deciding to undertake a PPP project. Other factors include:

·  The costs of developing and procuring PPP projects are often high. The size of the project should therefore justify the cost of implementing the project using the PPP method;

·   The private sector will only enter into a PPP arrangement where the operating cash flows from the project are expected to offer a reasonable return on investment and to repay the debt plus the cost of financing. These costs have to be borne by either the customers (as tariffs) or Government in the form of subsidies;

·      The private sector will do what it is paid to do and no more than that – therefore incentives and performance requirements need to be clearly set out in the contract.

·       There is no unlimited risk bearing by the private sector. More risk means a more costly project;

·       Political and social impact of the project in terms of tariff increases, loss of jobs or impact on the  environment;

·    PPP projects may also impose many explicit and implicit liabilities on the Government. These  contingent liabilities have a significant  impact on the economy’s debt sustainability.

A project should not be considered for being implemented as a PPP project unless efficiency gains from improved project delivery, operation and management, and access to finance and technology can offset the above-mentioned additional costs

4.             Why are PPPs attractive?

PPPs are attractive as an off-budget mechanism for infrastructure development because they;

·        Enhance the supply of much-needed infrastructure services;

·        May not require any immediate cash spending;

·        Provide relief from the burden of the costs of design and construction;

·        Allow transfer of many project risks to the private sector;

·       Promise better project design, construction, operation and service delivery;

·       Have a positive influence in foreign direct investment flows into the country.

By gradually exposing the public sector to increasing levels of private sector participation in delivery of public infrastructure, PPP has a vital role in private sector development, particularly in developing the local private sector through joint ventures with international firms.

5.             How is a PPP project different from a conventional project?

There are significant differences between a conventional construction project and a PPP project. PPP projects are different from conventional construction projects in terms of project development, implementation, and management. The main differences are that:

·    Conventional procurement is based on input specification where the public sector institution decides on the asset it wants in order to deliver a service and takes full responsibility for all works related to the delivery of the service. On the other hand, the focus of a PPP project is not on delivering particular assets but on delivering specified services at defined output specifications;

·   Under conventional procurement, the public sector assumes all the design, construction and operating risks, whereas risk allocation between the partners is at the heart of any PPP contract. Both partners should clearly understand the various risks involved and agree to an allocation of risks between them;

·      A PPP contract generally has a much longer tenure than a conventional construction contract. Thus, managing the relationship between the private company and the public sector institution over the contract tenure is vital for the success of a PPP project;

·     To ensure that the project is affordable and demonstrates value for money, a PPP project goes through a rigorous project development process involving robust business and financial modelling, detailed feasibility assessment and thorough procurement options analysis.  As a result, the development and procurement process for PPP projects takes much longer than traditional procurement processes;

·       In the case of PPP, all phases of a project (design, construction, and operations) are awarded to a single contractor. This allows scope for better, smarter solutions. In traditional procurement, each phase may be contracted out to a different party;

·     Under a PPP arrangement if the contractor does not deliver the outputs as agreed, the Government may withhold part of the payment.

6.             What are the limitations of PPPs?

There are many important economic, social, political, legal, and administrative aspects, which need to be carefully assessed before a decision is made to implement a project using the PPP method. PPPs have various limitations which should be taken into account. The major limitations include:

·       Not all projects are feasible (for various reasons: political, legal, commercial viability, etc.);

·   The private sector may not have interest in a project due to perceived high risks or may lack technical, financial or managerial capacity   to implement the project;

·     A PPP project may be more costly unless additional costs (due to higher transaction and financing costs) can be off-set through  efficiency gains;

·      Change in operation and management control of an infrastructure asset through a PPP may not be sufficient to improve its efficiency unless other necessary conditions, such as appropriate sector and market reforms, are met. Often, the success of PPPs depends on    regulatory efficiency;

·    PPP projects often have underlying fiscal costs and contingent liabilities of PPPs on the Government that may arise in the medium and long-term. These underlying fiscal costs and contingent liabilities on the Government should be given due consideration when a PPP project is considered.

7.             What are some of the key challenges of PPPs?

A range of deficiencies in the capacity of both public and private sector could hinder the formation of a successful partnership. Major challenges include:

·   the reciprocal mistrust and lack of understanding of one another’s interests and needs across the public and private sectors;

·   the absence of locally available information on, and experience with, arranging sustainable partnerships; and

·   the underlying legal, political and institutional obstacles to forming effective public-private relationships.

 These challenges often lead to lengthy negotiations, increased transaction costs and make smaller projects much less attractive to potential investors.

8.             What is the typical structure of a PPP arrangement?

A typical PPP structure can be quite complex involving contractual arrangements between a number of parties, including the Government, project sponsor, project operator, financiers, suppliers, contractors, engineers, third parties (such as an escrow agent ), and customers.

Figure 1 below shows a simplified PPP structure. The actual structure of a PPP, however, depends on the type of partnership model and can be quite complex involving contractual arrangements between a number of parties including the Government, project sponsor, project operator, financiers, suppliers, contractors, engineers, third parties (for example, an escrow agent), and customers.

 Figure 1: Typical Structure of a PPP Project

 SPV

9.             What is an SPV?

The creation of a separate business entity called a Special Purpose/Project Vehicle (SPV) is a key feature of PPP. The SPV is the legal entity that undertakes the PPP project and negotiates contract agreements with other parties including the Government.

An SPV is set up by the consortium of private sector investors (the successful bidders), who in exchange for shares representing ownership in the SPV, contribute the equity capital, and agree to implement the project. An important characteristic of an SPV as a company is that it cannot undertake any business that is not part of the project. An SPV is a separate legal entity from the consortium, but protects the interests of both the lenders and the investors

10.          Should Government have an interest in an SPV?

Sometimes, Government may want to ensure a continued interest (with or without controlling authority) in the management and operations of PPP projects that are of strategic importance, or in projects that require significant financial contribution from the Government. In such a case, a joint venture may be established. The SPV is then established as a joint venture company between the public and private sector investors where Government acquires equal rights and equivalent interests to the assets within the SPV like other private sector shareholders.

Other than for strategic, financial and economic interest, the Government may also like to directly participate in a PPP project. The main reasons for such direct involvement may be to:

·         Hold interest in strategic assets;

·         Address political sensitivity and fulfil social obligations;

·         Ensure commercial viability of the project;

·         Provide greater confidence to lenders; and

·         Protect public interest.

 However, Government participation in the SPV may lead to conflict of interest and regulatory capture. Government may not have the moral high ground to enforce its regulatory responsibility.

PPP Projects

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PPPs form an integral component of Government’s overall strategy for provision of public services infrastructure across all sectors. To date there are two Projects which have been developed through PPP in Botswana namely;

Ombudsman and Land Tribunal Office Accommodation Project – the project was a ten year concession for provision of office accommodation for the Office of the Ombudsman and Land Tribunal, inclusive of courtrooms, offices, auditorium, cafeteria and parking. Construction was completed within schedule (16 months). The project term expired and was handed over in 2017.

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SADC Headquarters Office Accommodation Project – a 17 year concession project for provision of office accommodation for SADC inclusive of offices, parking, resource centre and facilities management (cleaning, security and hard facility management). The project is still ongoing.

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PPP Pipeline – Following the approval of National Development Plan 11 a pipeline of potential PPP projects has been identified.  These projects will go through thorough assessment to determine whether they are suitable for implementation using the PPP method. The list is tabulated below;

Projects List

Ministry

Project

Description

1

Ministry of Basic Education

Teachers Housing

Construction of 4,000 housing units for secondary school teachers   

2

Ministry of Lands and Water Sanitation

Glen Valley Waste Water Reuse Project

Glen Valley wastewater treatment and reuse   

3

Ministry of Lands and Water Sanitation

Chobe-Zambezi Water Transfer Scheme

Water abstraction from Chobe-Zambezi river and pipeline   

4

Ministry of Investment,Trade and Industry

Economic Zones Common Facilities

Construction/operation of common facilities for Economic Zones   

5

Ministry of Health and Wellness

New Francistown District Hospital

Construction of a new district hospital and a psychiatric department in Francistown   

6

Ministry of Health and Wellness

Construction of Level 1 primary hospitals

Construction of Level 1 primary hospitals in Werda, Sebina, Tonota, Sehitwa, Botshabelo, Shoshong and Tsetsebjwe  

7

Ministry of Agricultural Development and Food Security

Zambezi Agro-Commercial Development

Irrigation scheme in Pandematenga   

8

Ministry of Defence, Justice and Security

Police Headquarters Expansion

Expansion of Police Headquarters in Gaborone  

9

Ministry of Defence, Justice and Security

SSG Workshops and Houses

Construction of SSG workshops and 150 staff houses in Francistown 

10

Ministry of Defence, Justice and Security

Prison Headquarters

Design, construction and maintenance of BPS headquarters in Gaborone   

11

Ministry of Defence, Justice and Security

Sepopa Prison Farm

Construction of new prison comprising of Security Wing, Farm and staff houses at Sepopa   

12

Ministry of Defence, Justice and Security

Construction of an Offender Rehabilitation Centre Lobatse

Design, construction and maintenance of an offender rehabilitation centre in Lobatse   

13

Ministry of Lands and Water Sanitation

Land Servicing

Provision of integrated infrastructure services to land in Kasane, Ramotswa, Mochudi and Francistown   

14

Ministry of Environment,Natural Resources and Tourism

Gaborone Tourism Precinct

Development of meeting, conference and exhibition facilities and promotion of urban tourism

15

Ministry of Environment,Natural Resources and Tourism

Three Dikgosi Monument

Development of the “Three Dikgosi Monument” for urban tourism

16

Administration of Justice

Serowe Magistrate Court

Construction of Serowe Magistrate Court

 

PPP Process

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The PPP Policy provides the legal basis for the procedures to be undertaken during the implementation of PPP projects. The Guidelines therein provide best practice guidance on the processes and procedures to be followed by all Government entities to obtain the required approvals for the procurement of PPP projects.

The PPP procedures follow the logical sequence of the project cycle, from project selection, through structuring, procurement and award, to contract management (implementation) phase. The PPP process is as follows:

Project Initiation (Inception) Phase

The project initiation (inception) phase determines whether the selected project can (and should) be delivered as a PPP instead of using conventional public procurement. The identification of PPP projects should be undertaken as part of the national development planning process. This phase involves:

Prefeasibility Assessment

·         Carry out needs analysis

·         Undertake solutions options analysis

·         Perform high-level cost-benefit analysis

·         Provide motivation for PPP procurement

·         Develop preliminary risk matrix

·         Provide project implementation and management plan

Registration as PPP project

·         Submit prefeasibility assessment report to PPP Unit

·         If found suitable, the project is registered and proceeds to next stage

Output: PPP project is registered with the PPP Unit

Business Case Consideration (Feasibility Study) Phase

The aim of the feasibility study is to confirm that the procurement of the project using PPP will deliver value for money to government. The key steps are:

Project Team

·         Establish a Project Team,

·         Engage Transaction Advisor

Business Case Consideration

·     Carry out technical, legal, financial and environmental/social due diligence, and detailed assessment of project risks to redefine project scope;

·         Undertake detailed commercial, financial and risk analysis;

·         Define required service standards (output requirements), risk allocation and payment mechanism;

·         PPP options assessment, market sounding and PPP pre-structuring;

·         Define procurement method and plan including evaluation criteria;

·         Draft the PPP tender documents – EOI, RFP, draft PPP contract.

Output – Feasibility Study Report

Project Procurement Phase

Procurement is carried out in accordance with the Public Procurement and Asset Disposal Act. It starts with the invitation of Expression of Interest (EOI) and ends with financial close. The key processes are:

Bidding process

·         Issue invitation for EOI;

·         Shortlist suitable bidders;

·         Send out Request For Proposal to shortlisted bidders;

·         Hold bidders conference;

·         Manage bidders data room and issue necessary clarifications;

·         Evaluate tenders and select preferred bidder.

Contract Negotiations and Award

·         Negotiate PPP contract details;

·         Award and sign PPP contract.

Financial Close

·         Conclude financing and ancillary agreements;

·         Sign all PPP related agreements;

·         All funding approvals in place.

Output – Private party in place

Contract Management (Implementation) Phase

Once the contract has been signed each party performs its respective role. Contract management requires a good working relationship between the two parties, and continues throughout the project term. Key activities include:

Construction:

·         Set up contract management team;

·         Approval of designs;

·         Site transfer and permits;

·         Monitor construction – manage variations, claims and disputes;

·         Commissioning and commencement of delivery.

Operations:

·         Monitor and manage project outputs;

·         Manage claims, changes and disputes.

Hand back and transfer:

·         Monitor and manage handover maintenance;

·         Handover protocols;

·         Ex-post evaluation.

 Output – Performance Reports and Value for Money Audits

Public Private Partnerships Framework

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Institutional Framework

PPP projects are complex, long-term investments involving many stakeholders. Though PPPs can deliver better value to taxpayers, this is only possible when they are correctly developed and effectively executed.

Government entities are responsible for implementation of PPP projects. However, the specialised nature of PPP procurement necessitates technical support being provided to the government entities, and the size of the financial commitments requires involvement of the Ministry of Finance and Economic Development in addition to the Public Procurement and Assets Disposal Board (PPADB)  and the Competent Authority (under the Local Authorities Procurement and Asset Disposal Act) statutory oversight of the procurement processes.

Accordingly, the institutional framework for implementation of PPPs in Botswana is as follows:

Sector Ministry

The sector ministries with their departments and public enterprises (parastatals) have the primary responsibility for service delivery. As such they are responsible for implementation of PPP projects. This involves identifying projects, project development, and PPP procurement, managing and monitoring their PPP projects.

The sector ministries will establish a PPP Project Team for each project to oversee project implementation. A PPP Transaction Advisor and other relevant experts will provide technical assistance to the sector ministries during project implementation.

Public Procurement and Asset Disposal Board

PPADB is responsible for the statutory oversight of the PPP procurement process to ensure the integrity of the procurement process.

Ministry of Finance and Economic Development  

Ministry of Finance and Economic Development is responsible for planning and coordination of PPP projects, providing technical assistance, advice and guidance during project implementation, supporting PPP capacity building in the sector ministries and PPP advocacy and public education/awareness. The ministry is also responsible for the approval process of PPP projects including making provisions for necessary finances and ensuring that such finances will be available during the life of the project.

Legal Framework

A PPP is essentially a specialised form of procurement, albeit one that involves a detailed procurement process and substantial financial commitment by Government over a longer time frame. The legal and regulatory framework is therefore embodied in the Public Procurement and Asset Disposal Act for central government projects and the Local Authorities Procurement and Asset Disposal Act for local authorities’ projects.

Under these laws, specific regulations will be adopted to govern the procurement of PPPs within the overall legislative framework. Standard documents for covering the various PPP process will also be developed to ensure standard application of the PPP process.

PPP projects will also be regulated by the various sector specific laws and regulations as well as the Public Finance Management Act.

 

 

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