Phase II : Development & Approval
Once a project is selected for preparation as a PPP, the engagement of the municipality accelerates with the appointment of a project manager, development of a feasibility study, consulting the market, and finalizing for approval for tender, likely with assistance from outside advisers.
To ensure smooth and efficient development of the PPP project, the municipality must appoint a project manager at least as soon as the project is selected for development as a PPP. The municipality may want to appoint the project manager earlier to help develop the concept note. The project manager will supervise and manage the PPP project on a daily basis. The project manager carries out, or causes to be carried out, every practical task that is required for the development and procurement of the PPP project.
It is essential for the successful development of the project that the project manager receives a clear mandate and full management authority from the municipal government to exercise his or her duties. The project manager must be recognized by all stakeholders as the key point of contact for all matters related to the project. The project manager must be authorized to take all decisions within his or her scope of duties or to elevate decisions to a higher level when needed.
The project manager must have good project management skills and a good knowledge of the sector. Knowledge and expertise in PPP are obviously a strong plus, but in practice often not available. The required in-depth PPP expertise can in any case be supplied by an outside adviser. In countries having a PPP unit or a PPP knowledge center, these can also support the project manager with PPP-specific, technical matters.
To learn more about the Project Manager, download the full Guidance Note.
The feasibility study provides a full, multidisciplinary assessment of the project’s viability and recommends a PPP structure. (See Module 4: Feasibility Study.) In brief, in the feasibility study the project is not only analyzed and assessed but also further developed and elaborated in view of the subsequent selection of a private sector partner for its implementation.
The feasibility study findings constitute the basis for the decision by the municipality to proceed or not with the procurement and implementation of the project. The feasibility study report informs the decision-making body in the municipality about the feasibility and desirability of undertaking the project as a PPP, and about the readiness of the project to proceed to procurement.
The feasibility study should cover the following areas of analysis:
Legal, environmental, and social due diligence
PPP structuring options
Procurement and implementation plan
Issues must be explored relevant to all stakeholders, government entities, businesses, the local community, the poor, women, and disenfranchised groups. (See Module 18: Community Engagement.) The better and more complete the feasibility study, the more sustainable the project will be; it will be tempting to cut corners, to save money on this analysis, when time is scarce and when expectations are unrealistic.
Undertaking a feasibility study requires substantial efforts and a broad range of expertise. Municipalities, even large ones, in general do not have the required human resources to carry out a full feasibility study by themselves. Therefore, feasibility studies are prepared by an external adviser or firm hired by the municipality. The role of the municipality in the feasibility study is:
- Drafting and issuing the terms of reference for the preparation of the feasibility study;
- Selection and appointment of the consultants;
- Management and supervision of the consultants during the preparation of the feasibility study;
- Helping to make data available, and providing access to various stakeholders, and
- Deciding on, based on the findings of the feasibility study, which model of PPP to use and whether the project should proceed to the procurement phase.
The outsourcing of the feasibility study to an adviser does not imply that the municipality is not actively involved in the feasibility study. On the contrary, as the initiator and developer of the PPP project the municipality throughout the feasibility study determines the direction of the study through interaction with the consultants.
To learn more about the Feasibility Study, download the full Guidance Note.
The adviser hired to develop the feasibility study may be a multidisciplinary consulting firm or, more often, a consortium consisting of several specialized firms each contributing its own expertise (for example technical, legal, economic, environmental, financial, PPP transactions). (See Module 6: Sample Consultant Terms of Reference.) The municipality manages and supervises the adviser, which is not a simple process. PPP advisers can be sophisticated and are subject to a complex set of incentives. (See Module 5: Managing Consultants).
To learn more about Hiring a Transaction Adviser, download the full Guidance Note.
The municipality will want to consult the market to understand project structures that meet market requirements and market appetite for certain projects, sectors, and municipalities. Market consultations should be performed at various times during project selection and preparation. The larger and more complex the project, the more extensive the market consultation needs to be to attract the right investors.
The market consultation may need to be held in foreign locations to facilitate engagement with potential foreign investors. Consultations with potential lenders would also be useful to gain an understanding of issues related to financing. The advisers will help with market consultations, based on a thorough analysis of potential investors.
To learn more about MArket Consultation, download the full Guidance Note.
The findings of the feasibility study are submitted to the body within the municipality that is authorized to decide whether the project proceeds to procurement. (See Module 7: Procurement.) If the project requires financial support by the municipality, the amount of this support must also be approved by the body authorized to create municipal liabilities and/or commit funding from the municipal budget. Provincial or national government may have approval rights over the project at various stages, in particular before tender and at approval. The approval stages should be mapped out to manage appropriately.
To learn more about Approval for Tender, download the full Guidance Note.