developing public private partnership in the republic of serbia international legal options paul,...

Developing Public Private Partnership in the Republic of Serbia

International Legal OptionsPaul, Hastings, Janofsky & Walker (Europe) LLP

Kirk Lovric, Project Finance

16 November 2010

www.paulhastings.com ©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP Confidential - not for redistribution

Outline

About Paul Hastings International Expectations International Options Case Studies PPP Market Development Strategies for Success Q&A


About Paul Hastings

Paul, Hastings, Janofsky & Walker LLP is a global law firm with over 1,250 lawyers in 18 offices around the World.

We operate from the major business centers in Europe, North America and Asia.

In Europe, we have key offices in London, Paris, Frankfurt and Milan. We are a full service corporate law firm with a market leading project

finance and PPP practice. We advice around the globe on PPP projects with particular emphasis on:

• Europe;• North America;• South America;• Asia; and• Middle East.


Selected recent PPP experience in Emerging Markets

Varna and Bourgas – Bulgaria Advising Vinci Airports and Vinci Concession in relation to their bid to expand and operate the airports in Varna and Bourgas, Bulgaria on a BOT basis.

Istrian Toll Motorway – Croatia Advising the Government of the Republic of Croatia on the refinancing of the first phase of the Istrian toll motorway and the financing of the construction, operation and maintenance of the Istrian toll motorway (European Road Deal of the Year 2003).

Oman Airport Privatization – Oman Representing Alterra (a joint venture between Bechtel and Singapore Changi Airport) in its bid for the Muscat and Salalah airport privatization in Oman.

Military Hospital – Czech Republic Advising the Czech Government in connection with the construction and financing of the Military Hospital in Prague.

Mumbai and Delhi Airport Privatizations – India Representing Reliance Energy Limited in its bid for both of the Mumbai and Delhi airport privatizations in India.

Croatian Ports – Croatia Representing Dubai Ports in respect of a port project in Croatia.

Jorge Chavez International Airport in Lima – Peru Representing Odgen Aviation in connection with a bid to acquire a concession to operate the Jorge Chavez International Airport in Lima, Peru.

The PRC Ministry of Railways JC - Cina Advised NWS Holdings Limited, a Hong Kong listed company, in the establishment of joint venture enterprise with a total investment of RMB20 billion to operate rail container terminal and related businesses in 18 cities in the People's Republic of China.


International Expectations

Western European PPP Procurement Requirements In the EU, PPPs that qualify as “public contracts” under the Public Contracts

Directives must comply with the EU Procurement Directives (EU/Directive/17)

Public Banks like to see that procurement has been completed in accordance with EU rules.

Eastern European Procurement Practices Eastern European countries generally have not got EU compliant

procurement processes which makes it difficult for EIB and EBRD to lend

Aim to comply with EU procurement law & the Public Contracts Directives, otherwise PPP projects will not obtain competitive finance in the market

Eastern European countries are often more reliant on funding from the World Bank, EIB or the EBRD for funding aspects of their PPPs and, consequently, EU procurement is more important


International Expectations

Complete revenue forecasts using international qualified consultants (be realistic about revenue and asset value not concerned about extracting a commercial return on Government assets)

Aim to access EU Cohesion Funds and Public Bank funds

Use International Construction Contractors (even though construction prices quoted by foreign contractors and the returns required for its equity will look excessive when applied its public sector comparators)

Use International Commercial Banks (even if the financing terms proposed by the foreign contractor are considered to be too expensive)

Be concerned and focused on: Government Balance Sheet and budgetary restrictions (avoiding Sovereign

Guarantees) – aim to transfer Construction, Financing and Operations risk to a large Private Sector partner with the balance sheet to take such risk

Ensuring first projects are a success (Large PPP Partners are concerned about development costs in emerging markets) – other PPPs will follow


International Options

Government Financial Support Options

Availability Payments Shadow Availability Payments Revenue Guarantees (Sovereign Government Credit Service Payment, Debt not Sovereign

Guaranteed)

Private Sector Revenue Options

Hybrid – Eg: Higher Tolls on Freight on Motorway than Public Usage– Mixture of Different Pricing for Hospital Usage

Risk Allocation Options

Ground Risk Allocation Repayment of Debt on Contract Termination


International Options - Financing

Transport Projects Spectrum

Hybrid

Sufficient Revenue Partial Revenue

Market Revenue Shadow Usage Payment/ Availability Payment

(Full Government Support)

Insufficient Revenue

PPP Projects Spectrum


International Options - Risk Allocation

Major Risk Borne by Government

Borne by Concessionaire

Shared

Land Permit

Land Acquisition

Final Design & Building Permit

Ground Risks

Construction

Operation & Maintenance

Defects (New Works)

Defects Latent Defects Patent Defects

Demand

Financing

Contract Termination


Case Studies – Traditional Structure

Concessionaire

Government

Private Investor(s)

Construction Contractor Operator

Lenders

Concession Agreement

Shareholders Agreement Funding

Agreements

Construction Contract

O & M Agreement

Traditional PPP Structure


Case Study – Bina Istra Motorway

Concessionaire

Government

Private Investor(s)

Government

Construction Contractor

Operator

Lenders

Concession Agreement & Availability Payment

Shareholders Agreement

Funding Agreements


O & M Agreement

Emerging PPP Structure

Tolls

Private Hard Toll Revenue


Case Study – Prague Military Hospital

Concessionaire

Government

Private Investor(s)

Government

Construction Contractor

Operator

Lenders

Shareholders Agreement

Funding Agreements


O & M Agreement

Emerging PPP Structure

PrivateHotel

Revenue

Private RevenueConcession Agreement & Availability Payment


PPP Market Development

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5

Transport – Motorways and Tolling Systems

Transport – Airports, Railways and Ports

Social Infrastructure (Schools, Prisons and Hospitals)

Defence

IT


PPP Market Development

Stage 1

Stage 2

Stage 3 -1

Stage 3 -2

Stage 3 - 3

Governments

Public Sector Banks

Sponsors

Commercial Banks/Bond Houses/Monolines

Private Equity Funds


Strategies for Success

Identification of key public infrastructure for investment Ensuring necessary legal framework is in place Identification of “pathfinder” projects – select projects that are not

technically too difficult and will be attractive to the market (e.g. in terms of amounts and duration) and can be achieved within a PPP structure

Ensure risk allocation will achieve off-balance sheet treatment Identification of key personnel within Government to co-ordinate PPP

projects and to be a repository of PPP know-how Establishment of market precedent Standardisation for costs savings


Strategies for Success

Recognise process involves a multi-party approach with a diverse number of stakeholders

Recognise that some participants may be less sophisticated than others Identify Government’s Key Concerns and the Private Sector’s Key

Concerns Draw upon experienced participants and advisers Formulate strategies to:

• Avoid Pitfalls and Obstacles• Address Government’s Key Concerns• Address Private Sector’s Key Concerns


Q&A

Q&A


Future Contacts

Jonathan SimpsonPartner, Head of European Projects, LondonPaul, Hastings, Janofsky & Walker (Europe) LLPT [email protected]

Kirk LovricSenior Associate, LondonPaul, Hastings, Janofsky & Walker (Europe) LLPT [email protected]

Pierre KirchPartner, BrusselsPaul, Hastings, Janofsky & Walker (Europe) LLPT [email protected]


Our Offices

For further information, you may visit our home page atwww.paulhastings.com or email us at [email protected].

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developing public private partnership in the republic of serbia international legal options paul,...

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