Tag Archives: Social Infrastructure

Scoping Education PPPs – a Four Step Approach

Scoping Education PPPs is tough. These four steps will help you do it right.

As I have written previously here, PPPs have the potential to break the cycle of invest and neglect in education infrastructure that erodes efforts to tackle inequalities in coverage and quality of education in developing countries. Experience in Canada, Australia, Latin America and in my Scottish homeland show us that it can be done.

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In the course of Caledonian Economics’ recent education PPP assignments in West Asia, Central Asia, Southeast Europe and Latin America, it has become apparent to us that the education sector needs a different approach to PPP project identification and selection compared to the classic infrastructure sectors (such as transport, energy, municipal services).

The textbook approach, as described in the APMG PPP Certification Guide is to use a Multi Criteria Analysis structure to pick the best PPP candidates. It asks: is the project of a suitable size, is it legal, is there a market, and so on? Each candidate project is given a score based on a basket of criteria, and the least suitable ones are weeded out. Then, a pre-Feasibility Study or Outline Business Case is produced to confirm viability and affordability of a very limited shortlist.

This approach works fine in the classic infrastructure sectors because the list of ideas to be sifted is generally self-evident and limited. For example, a highway is needed between two major towns, or a region’s power grid is failing, or the capital city’s water treatment system can’t cope with its growing population.

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Social infrastructure – especially education buildings – is quite different. The challenges are multi-faceted and diffuse, especially in developing countries. A city of 1 million people will have several hundred schools, colleges and universities of many different designs and ages, some will be in terrible condition, some will be operating with two or even three shifts of pupils, while others may have spare capacity. Although the problems are clear for all to see, the best configuration of buildings and services to include in a PPP are seldom immediately obvious.

Identifying the best candidates for PPP requires a systematic approach, the main steps of which are described below.

Step 1 – get reliable data

Decision making in a complex and dynamic environment requires reliable data. If we are to avoid spending money in schools that are too big, or too small, or in the wrong places we need a reliable database that contains the following information on each building:

Crumbling school in West Asia
  1. location
  2. size (gross floor area and theoretic number of pupils)
  3. condition of the building (a simple A-D rating system is fine – is the building weathertight, in good decorative order, with functioning heating and safe drinking water)
  4. suitability for education (A-D rating for factors such as classroom size, facilities, telecoms)
  5. population (age cohort) forecasts for the area covered by the school
  6. number of teachers, vacant positions. This data allows the best use to be made of the space that already exists – the first step in managing the education portfolio efficiently.

Step 2 – Tackle the worst first

 Crumbling college building, still being used in 2019

This means prioritising the worst buildings or the biggest gaps between forecast supply and demand, or where there is greatest economic or social need. This does not necessarily imply using PPP where need is greatest (PPP may be problematic in areas with high risk of natural disasters, for example), but it will guide the overall investment strategy. In Scotland our long term strategy is to have all schools at least ‘B’ in terms of Suitability and Condition. Our first phase of PPPs tackled the buildings rated as ‘D’, especially those in areas of economic deprivation.

Step 3 – Know what works best for PPP

Some developments are more suitable than others for PPP. Large high schools, greenfield projects, and uncomplicated sites make more attractive PPPs than small buildings, brownfield sites and renovations. Regions with good transport links and established construction and building maintenance businesses are also likely to be more attractive.

I like to visualise this by placing buildings on a graph, with ‘Need’ on the y-axis and ‘Suitability for PPP’ on the x-axis.

Project Selection Matrix

Schools that are placed in Zone A are low priority. Schools in Zone B are not suitable for PPP and the most urgent ones should be addressed using other sources of finance. The most suitable candidates for including in a PPP will lie in Zone C.

Step 4 – Assemble viable bundles

The minimum ‘viable’ size (usually expressed as capital cost) of a PPP is a subject of discussion. The absolute value will be affected by local economic conditions, maturity of the market and availability of finance, but in my experience a reasonable rule of thumb would be at least 5,000 classroom places.

Therefore the final stage in the project selection process should be to identify a group (or groups) of schools within Zone C that share common features. This could mean schools of a similar size (so that standard designs can be used), or within a region (efficiency of logistics). Confidence in the local construction and building maintenance sector should also be a consideration and will reduce the risk of procurement failure.

An example of a PPP pipeline emerging from this kind of analysis in a developing country might be to launch pilot projects in a country’s two largest cities of between 5,000 and 10,000 pupils, perhaps one for public schools (grades 1-11) and one for VET colleges. A second phase of PPPs might involve a project in a smaller city for kindergartens, and one to create public schools in a vulnerable rural region. Subsequent phases would learn from the pilot models, improving and expanding their use.

Conclusion

In conclusion, the diffuse nature of the education sector requires some adaptation to the standard approach to PPP project identification and selection.

The challenge when selecting projects for education PPPs is to balance the competing considerations of social need with deliverability.

A systematic approach which identifies the most suitable candidate schools, then creates PPP projects bundles based on common features will maximise prospects of a positive outcome.

Elgin High School, a PPP school in Scotland

Martin Finnigan

Caledonian Economics,

Edinburgh, Scotland

martin@calecon.com

Copyright Caledonian Economics 2019 ©

Also published on Linkedin

https://www.linkedin.com/pulse/scoping-education-ppps-tough-four-steps-help-you-do-right-finnigan

Lessons from a New School

Yesterday I had the pleasure of attending the opening ceremony of Oban High School, a PPP school on the west coast of Scotland.  The building is a superb example of a modern learning environment, but the stars of the day were the pupils whose excitement and enthusiasm was a joy.

My team at Caledonian Economics were financial transaction advisers on the project, which reached financial close in 2016. The new building opened for pupils in 2018, with demolition of the old school buildings and sports pitches completed this year.

Oban High School Pipe Band - World Champions

Oban High School Pipe Band – World Champions

Reflecting on this in the light of my recent projects in #Azerbaijan, #Uzbekistan and #Kosovo, I wondered what lessons we can apply, as we tackle the challenges of crumbling buildings and dynamic populations in these former Soviet countries.

Lesson 1) – school estate regeneration is a long term business.  My involvement with redevelopment of schools in the region goes back to the feasibility study we wrote in 2000.  This led to a series of developments using both direct capital investment and PPP modalities.  The approach I recommend in developing countries is to:

  1. start by making the most efficient use of the classroom space that already exists;
  2. next, tackle areas of greatest need – buildings in bad condition, or mismatch between forecast population and classroom spaces;
  3. then, choose the procurement method that is best suited to the task at hand. Our large new high schools are #DBFM -type #PPPs, small primary schools are financed using government capital, and refurbishments use budgeted revenues.

Lesson 2) – listen to the pupils.  The range of facilities in the new school are striking: gymnasium, dance and music studios, workshops for vocational skills, and all weather sport pitches.  Yet, when I asked pupils what they would recommend for as priorities to maximise the impact on pupils of new school buildings in developing countries, they told me about the simple things, such as:

  1. bright, airy, uncluttered classrooms and informal ‘break-out’ spaces;
  2. avoid projectors and screens – large bright backlit monitors are much easier to read;
  3. plenty of whiteboard space, to capture important points;
  4. good school meals.

Lesson 3) – create networks of institutions.  Oban High School works closely with the small (30 pupils) High School on the remote island of Tiree.  Video links and screen sharing, backed up with in-person visits, tackle the curriculum constraints and provide developmental experiences for staff and pupils.

The Oban-Tiree link generally involves connecting classes, as compared to the one-to-one approach being followed by e-sgoil in the Western Isles.  These techniques are relevant for remote, rural and mobile communities in developing countries.  Reliability, I have been told, is more important than bandwidth: good audio matters more than high resolution video.

The network also includes the local further education (#VET) college who deliver training on construction, marine and mechanic skills.

Lesson 4) – In Oban I saw how extra-curricular after-school arts, sport and music activities build social and team-working skills, and strengthen the core curriculum.

Many schools in developing countries operate with two or three shifts of pupils – sometimes a response to population growth, but sometimes also a consequence of demand for popular schools while nearby schools have spare capacity.  Multiple shifts make extra curricular activities virtually impossible, depriving pupils of opportunities to increase the quality and value of their school days.  This is a primary determinant of ‘need’ described in Lesson 1).

Finally I would like to thank the Head Teacher Mr Bain, the staff at the school, the team at Argyll & Bute Council, and especially the pupils of Oban High School for a memorable, instructive and very enjoyable day.

Education PPPs in Azerbaijan

We are very pleased to be working in an international team to support the Ministry of Education in #Azerbaijan on a long term donor-funded assignment to explore opportunities to expand the use of public-private partnerships (#PPP) in the Education sector.

This country of around 10 million people is a place of great contrasts. In the capital Baku, a glitzy modern centre sits alongside ancient Silk Road caravanserais, while an easy drive on good roads crosses the arid coastal desert before rising into the Caucasus – a mountain range as high as the alps.

Azerbaijani, a language closely related to Turkish, is the main language, with most people also speaking Russian.  English is not widely spoken, although this is changing rapidly as international links grow.  Most of the country was part of the Russian empire in the 19th century then the USSR until independence in the early 1990s.

Education is secular and compulsory from years 1 to 9 plus a pre-school year, and a high proportion of pupils do an additional two years in school. Most then go on to college or university.

We are looking forward to identifying the most suitable PPP modalities for addressing challenges within the education system here, testing their feasibility, and helping develop capacity and capability within the country.

 

NHS Greater Glasgow & Clyde – DBFM Financial Close

Yesterday, 20 December 2018, the latest NHS Greater Glasgow and Clyde healthcare PPP reached financial close.  The DBFM healthcare project will procure two new facilities (the new Greenock Health Centre and Mental Health In-patient facilities at the Stobhill Hospital) from hub West Scotland under a single hub/DBFM contract.  Under current plans, a third facility will be added to the contract under a pre-agreed change procedure during 2019.

We supported the NHS in-house team and were responsible for a range a financial transaction support activities including assessing financial submissions from the private sector partner, confirming that returns, margins and fees are consistent with benchmarks and confirming that the financial model is consistent with technical project details.   On the day of financial close we supported rate benchmarking, financial model optimisation and completion activities.

 

Jedburgh Intergenerational Campus – financial close

As financial transaction advisers to Scottish Borders Council on their Jedburgh Intergenerational Campus project, we are pleased to report that Financial Close was achieved on 25 October.

The new £32 million education campus will replace three existing schools in the town and will include #nursery, #primary, #secondary, and further educational facilities.

The project is being delivered in partnership with hub South East Scotland using the standard Scottish PPP/DBFM structure, and achieved financial close 13 months after the business case (known as the New Project Request) was approved.

This successful project continues our relationship with the Council, having previously advised them on the development of the new Kelso High School which achieved Financial Close in February 2016 and which opened on time and budget in November 2017.

Glasgow School PPP

Glasgow City – two new Primary Schools

The Glasgow City Council procurement of the new Blairdardie and Carntyne primary schools reached financial close on 23 October 2017, and the first of the schools, Carntyne, was handed over on time and budget on 19th October 2018, with Blairdardie on target for hand over on time in February 2019.

 The new primary schools have been developed under a single compact PPP contract between the Council and  hub West Scotland.

As the public sector Financial Transaction Adviser on this PPP we supported the Council’s in-house team and were responsible for assessing financial submissions from the private sector partner. This included confirming that returns, margins and fees are in line with the market and consistent with pre-agreed levels.  We worked closed with technical specialists to calibrate the payment mechanism, and supported commercial negotiations.

NHS Highland – New Hospitals in Skye and Badenoch/Strathspey

We are helping NHS Highland procure two new DBFM/PPP hospitals from hub North Scotland. The new hospital in Broadford on the Isle of Skye will replace the ageing Dr MacKinnon Memorial Hospital, and the new hospital in Badenoch and Strathspey will centralise services currently delivered through several dispersed inpatient units that are not fit for purpose.

Within a wider redesign of health and social care services, the new hospitals will deliver a range of benefits including:

  • greater numbers of people being cared for at home;
  • reduced length of stay in hospital;
  • co-location of specialisms and related services;
  • equality of access to services;
  • dementia-friendly inpatient facilities;
  • more dignity and privacy for patients – 100% single rooms with en suite.

The two new hospitals will be developed under a single DBFM/PPP contract using the Scottish hub ‘compact PPP’ modality.

We will support the NHS in-house team and are responsible to assessing financial submissions from the private sector partner, confirming that returns, margins and fees are value for money and consistent with pre-agreed levels.  We will liaise with technical specialists to calibrate the payment mechanism and Key Performance Indicators (KPIs), and will contribute to commercial negotiations.

Smart Cities graphic

What can we learn from the best Smart Cities?

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OUR REPORT ON THE SMART CITIES EVENT, DEN HAAG, July 2018

In 1950, around 70% of the world lived in rural areas and 30% in cities.  By 2050 these percentages will have reversed (UN World Urbanisation Prospects, 2014). Much of this growth and shift will be in developing economies.  It is said that if everyone on earth lived a typical Western lifestyle, our ecological footprint would be so large that we would need four planets to live on!

As our world’s population grows and becomes more urban, we must become much more efficient and ‘smart’ about how our cities function.

Last week I took part in the 8th edition of the annual Smart City Event in the Hague, Netherlands. The use of smart technology and big data is already evident in the Netherland’s energy, waste and transport systems, health & social care provision and in its prison service.

Delegates and speakers from governments, business, academia and knowledge institutions shared and discussed their perspectives on what makes ‘Smart Cities’ and whether the term is meaningful.

One speaker, Oualid Ali, President of the Futures Cities Council asked a searching question: what is the alternative to being a ‘Smart City’? An ’Intellectually Challenged City’? Ali noted that digital technology and data are nothing without innovation and ideas from people.  His preferred term is “Future Cities” with the focus being on innovation, digital or otherwise.

When the jargon is stripped away we are left with the principles of sustainable development, within which ‘smart’ or digital solutions move cities toward our overarching goal of sustainability.  There are huge opportunities for cities to gather and use data to reveal patterns of use and behaviour in order to improve the efficiency and effectiveness of our buildings, transport and flows (waste, water, energy). Being ‘Smart’ is about making these flows more efficient and sustainable for the benefit of the City’s people.

City development is not a simple topic which can be easily labelled.  As we saw during the conference, the possibilities for innovation are endless.  However, here are the top five questions cities should ask as they strive to become ‘Smarter”:

  1. Do you really understand the needs of business and citizen? There is no single blueprint to make Smart Cities. Does your approach consider challenges facing your particular city (perhaps energy, waste management, mobility, or safety) and understand what your citizens consider to be a ‘good city’ to live? A top down ‘government knows best’ approach rarely works.
  1. Are interests aligned? Are you bringing your public sector, businesses, academia, consultants and civil society together with a goal of knowledge sharing and learning best practices from others? Ingenuity and a culture of openness is needed if you are to move toward a city that is fit for the future.  Organisations such as C40 Cities support this approach at an international level.
  1. Big data means big security – are you ready? The implications of gathering and storing vast quantities of data and the importance of cyber security cannot be an after-thought. Do you understand the levels of risk involved, are they at the fore, how good is your understanding of legal and regulatory frameworks?
  1. How will you get everyone over the digital divide? How will you cater for citizens who cannot access digital data and technology, perhaps because of health, status or poverty? Such citizens risk becoming marginalised, perpetuating urban inequalities.
  1. How will you pay for it? The public sector will be a key enabler, but what blend of public and private financing will be required? How will you structure the blend to fit your context and the initiatives you wish to pursue, minimising risk and maximising benefits?  An element of ‘’spend to save” will usually be needed to realise long term efficiencies and cost savings, and you should reflect appropriate timeframes in your upfront financial analysis.

Interest in ‘Smart Cities’ has grown rapidly and is now central to urban policy, planning and development.  But do ‘Smart’ or ‘Future’ cities’ offer a panacea to development and the challenges our cities face today?

Of course not, but these concepts reflect a direction of travel towards a world where we tackle the challenges of population growth, climate change and resource shortages.  More efficient, sustainable cities will better serve the people who live in them today and in the future.

Written by Lynne-Marie Thom who leads the Smart Cities, infrastructure and local economic development activities at Caledonian Economics.  She has a background in financing and implementing national infrastructure projects.  She worked with Scottish Government to develop the 2015 National Infrastructure Investment Plan including the Digital thematic component, and has helped deliver infrastructure at national, municipal and local levels, using a variety of innovative funding mechanisms to target development of growth-enabling infrastructure.

Kosovo – Supporting the Development of the first Education PPP

We have been appointed by the International Finance Corporation (IFC) to support them and the Municipality of Prishtina with the preparation and implementation of the first Education PPP project in Kosovo.  The project will see two schools rehabilitated and four new ones built.  Our role will be to help address various technical and commercial issues as part of IFC’s due diligence and transaction structuring.

This will be the first Education PPP in Kosovo, and continues our leading role in structuring Education PPPs worldwide.  It adds IFC (part of the World Bank Group) to the list of Multilateral Development Bank partners with whom we have worked on Education PPP assignments, a list that also includes the Asian Development Bank, Inter-American Development Bank, Development Bank of Latin America and the European Investment Bank.

Colombia Investment Roadshow

This week, on 21 and 22 May 2018, we attended the first Colombia Investment Roadshow in London, a joint event whose organisers included British & Colombian Chamber of Commerce; the British Embassy in Bogotá; the Department of International Trade teams in Colombia and London; The Foreign and Commonwealth Office Andean Desk and the Prosperity Fund Colombia; The Colombian Embassy in London and Procolombia.

The purposes of the event were to present the key infrastructure projects in Colombia, to explain the investment environment and to support joint initiatives to address some of the challenges that are still experienced in the sector and in the country.

A series of speakers explained the economic backdrop and investment outlook in the country, and provided personal perspectives on experiences of developing projects there.  Key projects in rail, rolling stock, Smart Cities, schools, healthcare, waterways, airports and water treatment were described in detail, including explanations of the procurement process and the roles of the main protagonists.

The main points we took from the event were:

  • the prospect of imminent accession to the OECD provides evidence of the rigorous process of reforms, policy and regulatory improvements that have been implemented. Between 2010 and 2017 the economy grew an average of 3.8% a year and it has one of the highest levels of foreign direct investment in the region;
  • the final peace agreement concluded with FARC in December 2016 brought to an end half a century of armed conflict, and saw the start of a 15 year implementation period;
  • improved connectivity and the development of Smart Cities are key to the successful implementation of the peace agreement.  A large transport infrastructure initiative has been launched to tackle infrastructure bottlenecks that are holding back development, especially in rural, conflict-affected areas;
  • in 2017 the Economist Intelligence Unit singled out Colombia as being well-prepared for infrastructure PPPs in the region. Forms of PPP are being used for the Bogotá Metro, renewal/operation of the Transmilenio BRT system, Cauca road network, El Dorado II Airport and to restore navigability of the Magdalena River.  Pilot PPPs are being developed for schools and hospitals in Medellín, Barranquilla and Bogotá.

At Caledonian Economics we look forward to building on existing relationships in Colombia and developing new ones, so that we can play our part in the continuing success of this remarkable country and helping create, as one speaker put it, “a piece of the peace”.