Speech by Mr Raymond Lim, Acting Second Minister For Finance, At The Public-Private Partnerships Forum, Wednesday 6 October 2004, 0930 Hrs At Raffles City Convention Centre06 Oct 2004
Ladies and Gentlemen,
Welcome to the Public Private Partnerships forum. Today's forum is a step towards developing a partnering Relationship between the public and private sectors. Thank you for joining us to discover more about how the public and private sectors can work together to generate more value for Singaporeans.
In August, the Ministry of Finance launched an online public consultation exercise on the use of Public Private Partnership (PPP) for Government development projects. MOF put out a draft PPP Handbook and conducted several industry consultation sessions to seek your comments. We are encouraged to see the interest from the private sector. 79 companies from the banking, construction, consultancy and legal sectors attended the consultation sessions. MOF also received many constructive feedback and comments on the Handbook. We are gratified by the high level of interest in PPP.
I would like to thank you for sharing your views with us. This sharing of knowledge and experience is very important in helping the public sector refine its thinking and approach to PPP. I will highlight some feedback that we have received. But first, let me explain why the public sector sees the need to partner the private sector in delivering public services.
What is PPP?
PPP is part of the Best Sourcing programme, which was introduced last year to ensure that public sector agencies use the most economic and efficient way to deliver services. In his Budget Speech this year, the Minister for Finance announced a target to market test 5% of non-core government functions. Some of the initial functions that public agencies are market testing include IT services, vehicle maintenance and cheque processing services. For many of these functions, simple Best Sourcing solutions, such as contracting for manpower or simple outsourcing will suffice. However, as we market test more functions, we need to think of more sophisticated ways to tap on the private sector's flexibility, innovation and efficiency. Here is where PPP comes in.
PPPs are long-term contracts where the private sector provides services and facilities to the government. A typical PPP requires the private sector to design, construct, finance, maintain and operate facilities over a period of 15 to 30 years. This is different from the traditional way the government has procured facilities and services. Traditionally, when a public sector agency wants to develop a new facility, for example, a new student hostel, it will engage a company to first design the hostel, and then separately engage another company to construct the buildings. Upon completion, the public agency will own and maintain the facilities, or contract out operations and maintenance to another company. PPP will bring these companies together, often as a consortium, to undertake the whole project, from designing, financing, to the long-term maintenance and operations of the facilities, and the delivery of public services.
We are not saying that all projects will be procured through PPP from now on. What we are saying is that public sector agencies will be exploring more options, including PPP, when planning for new services. If PPP can meet the service requirements more cost-effectively compared to other service delivery models, we will use PPP.This means that the Government will be doing a more thorough search to make sure that we are using the best method to deliver services to the public.
What is not PPP?
Some people have asked if PPP is privatization. No, it is not. Under PPP, the government remains accountable for the delivery of the services. The government will buy the public service on behalf of the public. The public will continue to obtain the service from the government. Service quality will not suffer due to PPP. The government will specify the service standards and ensure that the private partner is appropriately incentivised to meet these standards. In fact, under PPP, since the actual delivery of the services has been passed to the private partner, the public sector can spend more time to monitor service levels and ensure that service standards are met.
Why then we are doing PPP? Government facilities are mostly built on time and services are being delivered. So, why "fix it when it ain't broken"?
PPP is part of the government's continuous search for better value for money. The public sector must continue to find better ways to meet the growing needs of Singaporeans. Fundamentally, PPP is about improving the delivery of public services.
How exactly does PPP improve public services?
- The longer contract period in PPP makes both the public agency and the private partner take a long term view when building, operating and maintaining government facilities. For example, the private partner will no longer just find the cheapest way to build a government facility, but will build the facility such that it is also cost-effective to run over its lifetime. In other words, we will not only have a facility that looks good and works for only the first two or three years, but a facility that is fit for the purpose and economic to run for as long as 20 to 30 years.
- In addition, with PPP, the government agencies will be able to benefit from the best and most competitive services that the private sector can provide. In particular, by not specifying the exact manner of, or assets required for the delivery of the services, government can benefit from the creativity and changes in the delivery of the services that may be made from time to time by the private sector.
Not only does PPP have the potential to improve services, it also enables the public sector to better focus on acquiring services at the most cost-effective basis, rather than directly owning and operating assets. The Government will be able to leverage on the expertise of the private sector in managing assets, while it focuses on meeting the needs of Singaporeans through effective and efficient service delivery.
We see that there are significant benefits for the public and the public sector agencies if we can implement PPP projects properly. PPP can offer more business opportunities for the private sector, because private companies will be involved in delivering a wider range of services. Without PPP, some of these services, such as the operation of water treatment plants, would have continued to be done in-house by the Government.
In short, PPP brings together the expertise of the Government and the private sector to meet the needs of the public effectively and efficiently, while offering more opportunities for the private sector.
However, PPP might not be suitable for all projects. The complexity and long term nature of PPP contracts means that there will be greater administrative costs involved. The government can expect to save overall using PPP only if the projects are relatively large. Therefore, the Ministry of Finance has set a guideline that projects above $50 million should be considered for suitability as a PPP. Projects less than $50 million can be considered depending on the nature of the project. Such projects may be bundled with similar lower-value ones to create an economic PPP deal size. But, we will not use PPP just for the sake of PPP. PPP will only be used if it can deliver better value for money than other procurement models.
Feedback from Public Consultation Exercise
The respondents to the public consultation exercise have highlighted other pitfalls of PPP that we should look out for. For example, there were some concerns that the PPP procurement process might be lengthy and involve high bidding costs. Some companie s thus suggested ways to make the procurement process more efficient, for example, by conducting a robust assessment of the viability of PPP early, as well as having a strong project management team to carry out the procurement in a timely manner.
Such suggestions are very valuable to us. MOF will work towards ensuring that such good practices are adopted for future PPP projects. For example, MOF has included key ingredients of effective project management into the PPP Handbook.
Several companies also pointed out the importance of having a central coordinating agency to educate the public and private sectors on PPP, and also to resolve cross-agency issues in PPP. I agree with this suggestion, and I am glad to say that MOF will be playing this coordinating role to ensure that PPP projects will be implemented appropriately.
Small companies have also expressed concerns that PPP will mean fewer jobs for the SMEs, but more contracts for the big companies. This need not be the case. SMEs can still participate in the PPP consortiums as partners, contractors or subcontractors. PPP calls for more cooperation among companies to deliver the full suite of services needed by the Government. SMEs can make use of opportunities such as this forum to network with your potential partners and build up the partnerships to participate in PPP projects. In addition, projects where PPP is not suitable, such as projects below $50 million in sectors where PPP is unlikely to yield value for money, will continue to be procured directly from the private sector through conventional government procurement.
Of course, there are many other constructive suggestions. As far as possible, we have included your comments in the revised PPP Handbook that is available today. However, some technical issues, such as refinancing and termination clauses, will need to be considered further by MOF before finalizing the policies on these issues. The Handbook you receive today is not the final guide. It is a live document. As we gather more of your feedback and learn together from the upcoming PPP projects, we will continue to update the Handbook and post it on the MOF website.
What's next for PPP?
So, what's next for PPP? The next step is to roll out a few PPP projects to gain practical experience. Implementing PPPs can be challenging, but there are real gains to be reaped if we do it properly. We are fortunate that we do not have to learn about PPP the hard way - through trial and error by doing it from scratch. Several countries, including the United Kingdom and Australia, have already used PPP, mainly for:
i) Sports facilities;
ii) Incineration plants, water and sewerage treatment works;
iii) Major IT infrastructure projects;
iv) Education facilities, such as student accommodation facilities;
v) Hospitals and polyclinics;
vi) Expressways; and
vii) Government office buildings.
These are the areas that we will be focusing on for now.
The actual projects that we are considering for PPP include the Sports Hub, which will be developed to replace the National Stadium. Estimated at $650 million in capital value, this project offers great potential for private sector innovation, particularly on how to develop a creative business plan to maximize the use of the facilities and operational revenues at the Sports Hub.
Another project that is being considered is the development of student housing with ancillary facilities by the National University of Singapore (NUS). We are looking to inject private sector expertise and innovation to design and develop these facilities to enhance student life and vibrancy on campus.
The public sector is also looking at PPP for a new incineration plant, a Newater plant and several IT infrastructure projects.
In total, the potential PPP projects will involve up to $1.3 billion worth of capital investment over the next 3 to 5 years. We welcome private sector partners to work together with us on these projects.
As we apply PPP, we need to keep in mind the fundamental concept of "mutual benefit". When entering into a PPP project, a partnership attitude must be taken by the public sector agency and the private partner. PPP is not about squeezing the most out of the other party, but about how the public and private sectors can work together as a team to make the best use of our expertise and resources and build a win-win relationship.
Objective of the PPP forum
Our session today is about opening our minds to the possibilities of PPPs and learning together as partners. We will be hearing what innovation and imagination can do for PPP projects. It is valuable for us to learn from others and avoid unnecessary pitfalls as far as possible.
We are fortunate that we can learn directly from the forerunners of PPP in Singapore - Hyflux and the Public Utilities Board, which have been involved in a PPP project to design, build, construct and operate Singapore's first desalination plant. I thank Ms Olivia Lum from Hyflux and the PUB speakers for kindly agreeing to share their experience with us.
I wish everyone a great learning time.