MAY 2016 ABOUT THE AUTHORS ELAN CUSIAC-BARR Building Trust with All Stakeholders Is Vital for Success: is a Senior Investment Officer in IFC’s Public Private Partnership Transactions Advisory Services division (C3P). Prior to joining IFC as Hub Leader for C3P in West and Central Africa, Elan spent Implementing a Public-Private Partnership in over 10 years with KPMG’s Global Infrastructure and Projects Group the Electricity Sector in Guinea and CPCS Transcom, advising on infrastructure PPP mandates in Africa, Asia, Europe, and the Fragile and conflict-affected states (FCS) face specific socioeconomic and Middle East. political challenges that hinder their ability to improve infrastructure and AICHA FARIDA BOUBAKARY, drive economic growth. Implementation of public-private partnership (PPP) an Investment Analyst in C3P, has been involved in various transactions in FCS is usually hampered by weak institutional structures mandates since joining IFC, advising governments on private and capacity, limited or lacking PPP experience, and an uncertain business sector participation in transport and power. She also participates environment complicated by fragile politics and security issues. However, in institutional-reform proposals for Public Private Partnership’s it is still possible for governments to define workable and desirable PPP promotion and capacity building in Africa. arrangements that will help deliver public service and infrastructure ANGE CLAVER KOUASSI, improvements by attracting the necessary investments and expertise. This an Investment Analyst in C3P, joined IFC in 2012. He has been SmartLesson examines how IFC’s PPP Transaction Advisory group (C3P), involved in PPP advisory mandates and business in collaboration with the World Bank and the government of Guinea, development across Sub-Saharan Africa as well as country-level successfully introduced an innovative PPP in Guinea’s national electricity PPP programs aimed at improving the legal and utility by pooling World Bank Group resources and building the trust of our institutional framework and strengthening the capacity of key Guinea counterparts—and attracted private sector interest in Guinea amid public stakeholders. ongoing political transition and a health scare from the Ebola epidemic. APPROVING MANAGER Michael Opagi, Principal BACKGROUND Guinea hired C3P in January 2014 as Investment Officer, CASPA. the lead adviser to structure a perfor- Guinea’s 12.28 million inhabitants1 mance-based PPP for EDG. are served by one national electricity distribution utility, Electricité de Gui- The PPP project was structured as a née (EDG), responsible for providing four-year performance-based man- power generation, transmission, and agement contract. The contract was distribution services across the coun- funded by the World Bank under the try. However, electricity distribution Power Sector Recovery Project (PSRP), under EDG suffers from weak gover- the $50 million blended grant/credit nance, old infrastructure, poor main- from the International Development tenance of assets, frequent blackouts, Association to improve the techni- high electricity theft rates and losses, cal and commercial performance of poor billing and collection rates, and overall poor financial performance. To the national power utility. The PSRP help address this, the government of was part of the broader development partner support to Guinea under its 1 World Bank, 2014. national Energy Sector Recovery Plan. SMARTLESSONS — MAY 2016 1 The project also benefited from close coordination with 10 donors, who committed $790 million of funding to Guinea’s Energy Sector Recovery Plan. Specifically, IFC as- sisted the government in designing the management contract and at- tracting and selecting a strong and reliable operator for EDG through a transparent and competitive tender process in the context of unprece- dented challenges, made even more difficult by travel restrictions be- cause of the Ebola epidemic, which limited interactions with govern- ment counterparties. The performance-based manage- ment contract was signed in June EDG Headquarters in Guinea. 2015 with Veolia-Seureca, a French consortium, despite significant chal- lenges posed by the Ebola epidemic, closely with its client, the World Bank energy team, which was at its peak during this time. The private and the IFC-Bank country teams to overcome each operator will ensure delivery of the much-needed challenge that emerged at each step in the process. improvements in EDG’s operational and financial performance to achieve the key performance indi- LESSONS LEARNED cators established in the contract. The improved ser- Lesson 1: Maintain a close relationship with vices—for nearly 300,000 households by the end of the World Bank Group country office team the four-year contract—are expected to increase the quality and reliability of power services in Guinea. and leverage their network. Veolia started operations in September 2015. This Identifying, and working with, government coun- PPP project was successfully closed in 18 months, which is exceptional, given the country context, and terparts who are able to effectively manage and en- is well under IFC’s average for closing comparable gage all relevant stakeholders is invaluable, particu- projects.2 larly in a challenging and politicized environment like Guinea. IFC’s technical-delivery skills were important to demonstrate credibili- ty. However, interpersonal skills and collaboration, building trust with the client, were vital for success in Guinea’s challenging environment. How you build your professional re- lationships and develop the trust of your various partners can determine the success of your transaction. IFC’s PPP transaction team interacted 2 IFC’s PPP Advisory division, part of IFC’s Cross-Cutting Advisory Solutions Department (CAS), measures a closed project from project inception to when the PPP contract is signed between the government and the Contract negotiations with the preferred bidder, Veolia-Seureca, in the IFC office in private partner. The average period for closings for its Guinea. (Photo by Ange Claver Kouassi) global portfolio is about 23 months. 2 SMARTLESSONS — MAY 2016 However, not enough can be said about how im- the Guinean authorities through each step of the portant it is to align the activities between IFC and project, which proved crucial in obtaining Ministry the World Bank to deliver successful projects to of Energy and Hydraulics approvals and (ultimate- our clients. IFC’s involvement was based on closely ly) in the successful award of the project. Once aligning itself with the World Bank’s work in the C3P’s PPP transaction mandate started, the team power sector as far back as 2011. In 2013, when continued to invest significant time in building the Bank energy team was preparing to deliver the relationship with, and the capacity of, the key its next power sector project, IFC worked on two stakeholders through workshops and learning by fronts: with the Bank on the development of the doing. Just prior to starting its mandate, C3P had PPP component on the Bank project, and with the delivered a PPP pipeline and capacity-building Guinea government to offer transaction advisory study to the Guinean government. Weekly inter- services. This effort epitomizes the value of World actions took place via video conferences, confer- Bank Group collaboration for the benefit of our ence calls, or face-to-face meetings. This approach clients. was crucial in enabling these Guinean officials from the Commission to explain and justify critical During project implementation, C3P communicat- decisions to EDG management and the Minister of ed continually with the World Bank energy team, Energy and Hydraulics. This also allowed the Bank the Bank procurement team, and the IFC and Bank Group teams and the Commission to be informed country management units. The relationships the of all relevant information for the project in real Bank Group country team had developed with the time and to react accordingly. Ministry of Finance and the Presidency provided di- rect access to key decision makers. This privileged IFC’s encouragement to set up a competent body access ensured the client’s responsiveness to key dedicated and committed to the task at hand project issues that the C3P team flagged during helped decision making in the long run. In addi- the advisory mandate. The team relied on the Bank tion, by working with a dedicated Commission, Group country office to sustain close communica- the team preserved the institutional memory of tion and coordination with the Ministry of Energy the project, despite an unstable political environ- and Hydraulics, EDG, the Ministry of Finance, and ment that resulted in changes in the leadership the Presidency, formally and informally. in some institutions we dealt with. Although the principal adviser to the Minister of Energy was re- Lesson 2: Identify and work with a dedicated placed one week before the signing of the man- government committee that is accountable agement contract, the rest of the Commission for project delivery. remained available to continue working on the The team knew from the outset that the Guinea project. This continuity was critical for taking the public sector’s weak capacity for implementing project through the final stages of implementa- PPPs would be a core challenge to successfully clos- tion. ing the PPP project. Therefore, the team focused its strategy on 1) advising the government to set Lesson 3: Build on the experience for joint up a dedicated project delivery team; 2) providing delivery of a PPP project to truly work as PPP capacity building; and 3) identifying key deci- one World Bank Group. sion makers and facilitators early on in the process who were necessary to ensure that the project re- The IFC mandate started in early 2014, due in large mained on track. part to the team’s collaboration with the World Bank which had already started in 2011, the begin- C3P worked with the government to ensure that a ning of the Bank’s power sector reform program dedicated project delivery team was in place with in Guinea. Over time, an informal modus ope- a clear objective to deliver the project. Once the randi was naturally established between IFC, the dedicated project delivery team (the Commission) Bank, and the client, which enabled greater col- was set up, the team interacted on a regular basis laboration. However, reaching agreement on the with the principal adviser to the Minister of Ener- procurement process and approvals required an gy, who led the Commission. This adviser steered innovative approach, and the IFC and Bank teams SMARTLESSONS — MAY 2016 3 had to learn by doing throughout the project to The lesson is to formally document the procure- achieve a successful outcome. ment approach to be undertaken, including com- munication and approval processes. This protocol This project pioneered an innovative hybrid ap- would have set out a joint timetable with agreed proach in procuring a PPP for a distribution utility deadlines, including approvals and the roles of by combining World Bank procurement guidelines each party. This approach would have provided for consultants with a performance-based man- more visibility in the procurement approach, tim- agement contract. The management contract lev- ing, and required documentation of any delays, eraged private sector involvement alongside donor and it would have established the rules of en- financing to improve electricity services through gagement to ensure that any conflict-of-interest targeted key performance indicators (KPIs). By concerns are settled from the outset of the proj- structuring clear and measurable KPIs, the contract ect. Based on this experience, the Bank Group can sets out a framework to ensure that performance use the EDG management contract as a replication improvements on key financial and operational model for reforming and improving troubled utili- metrics will meet the client’s project objectives. ties and introducing a PPP. Clear financial incentives were in- troduced to improve performance. The Bank Group’s additionality was therefore clearly demonstrated in providing IFC’s structuring expertise alongside the Bank’s sector know- how and funding. Achieving this innovative approach took time for the following reasons: 1) the project had to develop a realis- tic time frame and process for the re- quired World Bank approvals;3 2) rec- onciling the use of Bank procurement guidelines for consultants with the requirements of a PPP project meant agreeing on a hybrid approach in which the procurement guidelines would not change but the contract would be based on a management services agreement template that was better suited to the project; 3) managing personnel changes during the bidding process led to reopening issues that had already been agreed on by the IFC and World Bank teams and the government; and 4) ques- tions about a potential conflict of interest were raised because of IFC’s close collaboration with the Bank on the PPP transaction, and this necessi- tated extensive discussions between Bank and IFC management. 3 Each key milestone in the PPP transaction Contract-signing ceremony at Guinean Presidential House. required nonobjections by the World Bank, as the (Photos courtesy of Veolia) funder, as well as government approvals. 4 SMARTLESSONS — MAY 2016 Lesson 4. Interact closely and CONCLUSION continually with authorities and According to a SmartLesson from bidders to overcome challenges 2013, “Any project requires a champi- in difficult situations. on: someone to articulate and refine the vision, guide progress, and advo- The team was fully aware that attract- cate for support. For PPPs, political ing credible bidders to the project champions are particularly vital. ...”4 would be extremely challenging, given This has been a core axiom for the the FCS context in Guinea, and this success of IFC’s PPP projects—from a situation worsened with the onset of political champion, to drive the po- the Ebola epidemic during the procure- litical process and ensure government ment phase. Therefore, strong market- commitment, to an operational day- ing and interaction with potential bid- to-day champion, to drive the transac- ders were critical for success. Sounding tion at a technical level and to keep out the market of potential bidders is the political process on track. The proj- crucial for a good understanding of the ect team succeeded in identifying and level of interest in projects, especially working with competent day-to-day in challenging locations and situations. counterparts to keep the project on This enabled us to make structuring track. However, in FCS such as Guin- decisions and recommendations that ea, political instability brings more were appropriate for the project. uncertainty, which can hamper the project. So we would argue that the The team also held close discussions concept of champions, and their close with the authorities and potential bid- collaboration, extends to the project ders on how the Ebola epidemic would and country office teams. This project affect the bid. One option was to delay succeeded because of an exceptional the tender until after the Ebola crisis alignment between the government was declared over, but this did not sat- champions and those champions that isfy the government’s objectives. With led the IFC, World Bank, and country consent and confirmation from the pri- office teams through close working vate sector on continued participation, relationships and communication at the tenders proceeded. Therefore, the each step in the project. In FCS, it is important to build trust within the bid process had to be adapted to this World Bank Group and with your cli- crisis to be acceptable to the potential ent—and get your champions aligned bidders. This approach involved very and in place! close interaction with potential bid- ders to reassure them during the pro- DISCLAIMER SmartLessons is an awards cess and encourage them to bid. To program to share lessons learned ensure that all bidders had access to in development-oriented advisory services and investment the same key data, the project shared a operations. The findings, comprehensive virtual data room with interpretations, and conclusions expressed in this paper are those all of them, made site visits to EDG op- of the author(s) and do not tional, and used video conferencing for necessarily reflect the views of IFC or its partner organizations, the bidders’ conference. In the end, the the Executive Directors of The World Bank or the governments evaluation of bids took place in Sene- they represent. IFC does not gal, to comply with travel restrictions assume any responsibility for the completeness or accuracy of the to Guinea due to the Ebola crisis. information contained in this 4 “A Winning Framework for Public-Private document. Please see the terms Partnerships: Lessons from 60-Plus IFC Projects,” and conditions at www.ifc.org/ by Richard Florizone and Laurence Carter. smartlessons or contact the http://smartlessons.ifc.org/smartlessons/lesson. program at smartlessons@ifc.org. html?id=1663. SMARTLESSONS — MAY 2016 5