east asian public-private partnerships in a global context

East Asian PPPs in a Global Context

Asia-Singapore Infrastructure RoundtableCledan Mandri-Perrott, Lead Financial Officer,

Infrastructure Policy

Singapore Hub

The World Bank

2

What is the potential for PPPs?

Infra Financing Gap

Current Infrastructure Finance

Yearly Infra Finance Needs – Developing Countries

c. $1 trillion

c. $ 1 - 1.5 trillion

PPI = $182 billion

MDBs = c.$40 billion

Green Investment Gap c. $ 0.2 – 0.5 trillion

Future financing requirementsfor infrastructure

Future investment requirements

2020

EAP (35–50%)

ECA (5–15%)

LAC (10–15%)

MENA (5–10%)

SA (20–25%)

SSA (5–15%)

$1.8–$2.3

By region

2020

Water (15–30%)

Electricity (45–60%)

Telecom (10–15%)

Transport (15–25%)

$1.8–$2.3

By sector

Source: “Infrastructure for Development: Meeting the Challenge”, background paper for Brookings-G24 High-Level Seminar, April 11, 2012, Washington, DC. The estimates are based on various World Bank papers and a paper on infrastructure prepared by the MDBs for the G20 in 2011.

Note: MENA=Middle East and North Africa; SSA=Sub-Saharan Africa; ECA=Eastern Europe and Central Asia’ LAC=Latin America and Carribean; SA=South Asia; EAP =East Asia and Pacific

($ trillion per year, 2008 constant prices – financing figures in $ billion)

4

Private vs. PPP Priv & Public Debt & Equity

$125 B

$30 B

$5 B

$58 B

$52 B

$26 B

$11 B

Divestitures

TelecomPrivate Equity

Public Equity

Public Debt

Private Debt

PPPs

How much of PPI is private?

Source: World Bank Infrastructure Policy, PPI Database

19

90

19

95

20

00

20

05

20

10

20

11

20

12

0

50

100

150

200

0

50

100

150

200

250

300

350

400

450

Private investment in infrastructure in low and middle income countries, by region

EAP ECA LAC MNA SAR AFR # of projects

2012 US$ billions*

Source: World Bank Infrastructure Policy, PPI Project Database.* Adjusted by US CPI

How much private infrastructure investment is going into East Asia?

Cumulative by Country over last 5 years


Latin American APEC members tend to attract more private investment in infrastructure…

Source: World Bank and PPIAF, Private Participation in Infrastructure Database

China

Vietnam

Indonesia

Malaysia

Thailand

Chile

Philippines

Mexico

Peru

0.00% 0.40% 0.80% 1.20% 1.60% 2.00%

PPI as a % of GDP in Low and Middle Income APEC Economies (excluding telecom)

Room for Greater Leverage in EAP

EAP

ECA

LAC

MNA

SA

AFR

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8%

PPI % of GDP, 2012

China

Indonesia

India

Russian Federation

South Africa

Turkey

Brazil

0 50 100 150 200 250 300 350 400

2

14

25

71

111

131

340

PPI Investment per person, 2012


10

How is the risk appetite for investment?

0 10 20 30 40 50 60 70 80 90

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

Correlation between Country Risk and predicted value of FDI/GDP

FDI/GDP predicted

Linear (FDI/GDP predicted)

Country Risk

FD

I/G

DP

FDI and Sovereign Risk

Source: Araya, Schwartz & Andres, World Bank (2013)

PPI and Sovereign Risk

0 10 20 30 40 50 60 70 80 90

-0.00299999999999998

-0.000999999999999984

0.00100000000000002

0.00300000000000002

0.00500000000000002

0.00700000000000002

0.00900000000000002

0.011

0.013

Correlation between the predicted value of PPI Concessions/GDP and Country Risk

PPI con-cessions/GDP pre-dicted

Linear (PPI conces-sions/GDP pre-dicted)

Country Risk

PP

I/G

DP

0 10 20 30 40 50 60 70 80 90

-0.00300000000000002

-0.00100000000000002

0.000999999999999979

0.00299999999999998

0.00499999999999998

0.00699999999999998

0.00899999999999998

0.011

0.013

Correlation between the predicted value of PPI Greenfield/GDP and Country Risk

PPI green field/GDP predicted

Linear (PPI green field/GDP predicted)

Country Risk

PP

I/G

DP

Source: Araya, Schwartz & Andres (2013) Source: Araya, Schwartz & Andres (2013)

13

New environment – costlier and more uncertain

Before the crisis Now

Dominated by Banks (US & Europe)

Caution by Commercial Banks:Increase of financing costs & restructuring balance sheets due to Basel III

Monoline Insurance for total wrap

Disappearance of Monoliners

Price (for UK): LIBOR +90bps Price (for UK): LIBOR + 275 bps

Term (for UK): 30 years Term (for UK): <7 years

14

Pre-Crisis Crisis & Post-Crisis -

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

EquityBondLoan

18 %

28 %

Source: World Bank Calculations from ProjectWare Database

Gearing has decreased

15

What instruments are out there?

16

Risk mitigation - Tools

Risk Instrument Availability

Convertability,expropriation

Political Risk Insurance High – MIGA, commercial insurers

Breach of contract,Regulatory ChangeNon-honoring

Contractual & Regulatory CoverPartial Risk Guarantee

Moderate but increasingWB, MIGA, some private insurers

Debt service Partial Credit Guarantee High – WB / IFI’s, private insurers

ForEx Cover Devaluation Low to none

ConstructionRamp-up (early demand)

Project BondsNew PPP Structures

Under design

17

Where is support needed? Where do the opportunities lie?

UPSTREAM

knowledge

strategic advice

transaction support

financing and

guarantees

PPP / Infra Data & Trend

Analysis

M&E / Impact

Evaluation

Infra Planning & Investment

Prioritization

Regulatory Framework

PPP Units and

Regulatory Capacity

Best Practices &

Standardized Contracts

Sector Strategy /

Market Structure

Project Design/

Feasibility

VGF Estimates

/ Financial Structure

Bidding Documents

and Transaction

Gov’t PPP / VGF

Financing

DOWNSTREAM

Project Pipeline

Development

Design of New Facilities

Design of New Risk

Instruments

Private Debt & Equity

Guarantees

Where is support needed

Debt Financing Costs

Capital Expenditures / Depreciation

Operational Expenditures

Dividends / Return on Investment

Revenues Costs

User Fees, Tariffs or Tolls

Closing the Project Viability Gap





Revenues Costs

Add Rev’s


Government Transfers






Debt Financing

Cap Ex / Depreciation

Op Ex

Dividends / RoI

Reduce Costs

Increased competition Innovation from competitive investments; Project design; Transparency

Regulation and oversight. Incentives for efficiency Competitive bids

Longer-term finance; lower rates;

Lower regulatory and political risk

Revenues CostsCosts with

Support

Add Rev’s

Lower regulatory &political risk

Cost Reduction Measures








Debt Financing

Cap Ex / Depreciation

Op Ex

Dividends / RoI

Reduce Costs

Increased competition Innovation from competitive investments; Project design; Transparency

Regulation and oversight. Incentives for efficiency Competitive bids

Longer-term finance; lower rates;

Lower regulatory and political risk

Revenues CostsCosts with

Support

Loan, Partial Risk Guarantee, Partial Credit Guarantee, Political Risk Insurance

PRI, PRG, Financing of project preparation

Analysis and Research

PPP design, regulation, market structure. Equity investment in providers

Political Risk Insurance, Partial Risk Guarantee

Add Rev’s

Lower regulatory &political risk

Cost Reduction Measures



WBGTools


Assess PPPProspects

WBG Support for Infrastructure Finance Projects

TransactionStructuring

ImplementTender

Bid Award & Contract

Signing

Construction & Commercial

OperationDate

ContractManagement

1-2 months 6-9 months 9-12 months 1-2 months 2-3 years 10-30 years

Identification Phase 1: Structuring Phase 2: Implementation Project Construction & Operation

Project Preparation

Active Project

IFC PPP AS (Structuring & Tendering Advice)World Bank Policy Advice

IFC Equity InvestmentWorld Bank / MIGA

IFC (Lender)World Bank/MIGA

IFC Advisory/Investments World Bank