ismed training: assessing the ppp option, presentation by ifc

Advisory Services Public Private Partnerships

Creating opportunity where it’s needed most

PPP Training Session

Assessing the PPP Option

Sep 16, 2014

Table of Contents

2

Section I IFC in Brief

Section II River Transport and the Private Sector

Section III Initial Selection of a PPP Project

Section IV How to prepare for a PPP Contract

Section V IFC’s Port Credentials

Section VI MENA PPP Success Stories

Section I.

IFC in Brief

IFC in Brief

The World Bank Group

4

IFC is a member of the World Bank Group promoting private sector development

Multilateral Investment Guarantee Agency

1988Provides political risk insurance / guarantees against losses from non-commercial risks to facilitate FDI in developing countries

International Development Association

1960Provides concessional loans/guarantees to governments of the poorest countries.

International Bank for Reconstruction and Development

1945Lends to governments of middle income developing countries.

International Centre for Settlement of Investment Disputes

1966Settles investment disputes between foreign investors and host countries

International Finance Corporation

1956Provides loans, equity, and Advisory services to stimulate private sector investment in developing countries.

IFC in Brief

IFC Roles - Investment vs. Advisory

5

PPP Advisory

Sustainable Business Advisory

IFC is the world’s largest multilateral provider of financing for private enterprises

IFC also provides technical assistance and advice to governments and businesses

Investment Services Advisory Services

Loans

Equity

GuaranteesAccess to Finance

Investment Climate

Section II.

River Transport and the Private Sector


Untapped Potential in Egypt

7

� The Nile presents > 1850km of navigable

waterways;

� Nile barges’ current capacity (800,000 tons) is

fully utilized by existing demand, which is

projected to increase at 4.8% per annum to

reach 2.1 million tons in 2026;

� The River Transport Authority (“RTA”) is

pioneering projects to enhance Nile River

Transport infrastructure;

o Upgrading & developing new navigational routes;

o 4 river ports earmarked to be developed throughPPP in Qena, Sohag, Meet Ghamr and Assuit.

� River transport, logistics and port

management sectors are now slowly gaining

momentum.

� Nile river transport accounts for less than

1% of total cargo shipped in Egypt;

o Netherlands, Belgium and Romania �

39%, 24%, and 23% respectively

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Netherlands

Belgium

Romania

Bulgaria

Germany

Croatia

Austria

Hungary

France

Luxembourg

Slovakia

River Transport % share of Total Transport (2004-2012)


Clear Opportunity

8

� Roads are “unbearably” overcrowded;

� Subsidies are being gradually removed and

fuel becoming more expensive;

� River transport is more economical and has

a lower carbon footprint (1 barge = 45 trucks

with ¼ of emissions);

� RTA’s target: Raise river transport capacity

to 10% of all locally transported goods as

well as expand trade in Africa.

Transport Cost for Cargo

Transport Cost for Containers

440410

330

Road Railway River

20

17

11

Road Railway River

EGP/ metric ton

EGP/ container

PRIVATE SECTOR INTEREST

� Transports 42% of cargo shipped via the Nile;

� Operates 39% of the existing Nile Barges;

� 39 ports are privately - Tanash (managed by

National River Transport Co. - Citadel Capital)

was inaugurated in 2010;

� More private sector participation in the sector

can be expected if projects are well structured

and prepared.

Public Sector and Military

52%Private Sector39%

Individuals9%

Users of River Transport

Barges Ownership

Others15%

Private Sector42%

National River Transport Co.

25%

Al Hawamdeya Sugar Co.

18%

Military

River Transport and Private Sector Role

Private Sector Value Added

9

Long Term View

PPP investment decisions

tend to be based on a long-

term view rather than short-

term concerns.

Risk Allocation

Risks are transferred to the

party best able to manage

it at the least cost.

Innovation & Efficiency

Private sector is in a better

position to tap on new

technologies and make use

of the most efficient ways to

conduct the work.

Competitive Pricing

Competitive bidding process

translates into increased

efficiency and lower costs.

Executional Capacity

The private sector often

brings greater know-how,

construction capacity, labor

capacity and resources.

Performance-Based

Payments to the private

sector are usually linked to

how they perform, creating

the right incentives and

efficiency levels.

Value for Money

Lower cost and time

overruns in private sector

managed projects. If PPPs

are not completed within

budget, private sector

usually bears the cost.

Political Agenda

Once tendered, PPP

projects are not subject to

political interference.

Private sector participation creates advantages to Governments and end-users

Long-term View


Performance of PPPs vs. Publicly Procured Projects

10

Improved Project

DeliveryStudy Non PPP Procurement PPP Procurement

Cost Overrun UK 73% 22%

Australia 35.3% 11.6%

Time Overrun UK 70% 24%

Australia 25.6% 13.2%

* Data relates to Australian projects

Source: UK Study: NAO Report of 2003 – UK’s National Audit Office Report on PPPs

Australia Study: Allen Consulting Group (University of Melbourne) – 2000 – 2007

Percentage of projects* PPP Projects Non-PPP Projects

On time 76 30

On budget 78 27

Not on time 24 70

Not on budget 22 73


Risk Profiles of Public procurement vs a PPP

11

Public Procurement

Estimated CapEx

Tim

e O

verru

n

Cost Overrun

Estimated OpEx

Cost Overrun

EGP

Years

1 2 3….

No Upfront Payment

Yearly Payments

EGP

Years

1 2 3….

PPP


Types of Private Sector Participation

12

Port Assets Public Port O&M concession Lease/Affermage PPP Model Privatization

Land Public Public Public Public Private

Basic infrastructure Public Public Public Public/Private Private

Terminal infrastructure Public Public Public Private Private

Equipment Public Public Public Private Private

Labor/operations Public Private Public/Private Private Private

Contract Duration Na 3-5 years 5-15 years 25-30 years NA

Types of PPPs

Section III.

Initial Selection of a PPP Project


The Process

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1) Identify priority investment needs at the political level;

2) Investigate which procurement method is likely to yield the most “value for money”;

3) Select only those projects suited for PPP and which raise investor interest;

4) Build your PPP Pipeline and coordinate approach to the market.

TARGET: select project that (i) provides better value for the country if implemented through a PPP;

and (ii) attracts private sector participation.

MoF (PPP Central Unit)

Ministry of Transport

Consultants

Ministry of Planning

� Roads� Water and Wastewater

Utilities

� Roads� Railways� River Transport

� Generation plants (gas, steam, etc.)

� Renewable Energy

Ministry of Housing Ministry of Electricity


What projects can be tendered through PPP?

15

Typical parameters reviewed:

a) Feasibility and Economic Viability – Does project make sense technically and commercially?

Do benefits exceed the costs entailed?

b) Commercial Viability – Will the project financial returns attract quality sponsors and lenders?

c) Market Appetite – Is private sector interested in this project, sector, country at this point in time?

d) Performance based contract - Can outputs be specified in an objective way?

e) Scale of the Project – Is there a minimum size set for PPP projects;

f) Fiscal Stance – Does the government have the budget (in case of subsidies/guarantees)?

g) Value for Money – is there an opportunity for risks to be transferred to the private sector and

thus create some value for the Government?

Premature procurement before conducting pre-feasibility check will lead to limited competition,

speculators rather than investors with a lot of renegotiation

Example of Toll-Road Pre-feasibility

• Route determination (for land acquisition) and Public consultations;• Initial costing including potential environmental and social impact;• Initial traffic study and willingness to pay survey.


Value for Money Exercise

16

Public SectorComparator

Capex

Risks

O&M

Financing Costs

Taxes

PPP Price

VFM

How much would it cost the Government under each case?

Risks

Payments

Section IV.

How to prepare for a PPP Contract?

How to prepare for a PPP Contract

Various Steps…

Phase 1Analysis & Diagnosis

Due diligence identifies client objectives, investor interest, and strategic options, to inform optimal structure.

Phase 2Implementation

Development of marketing strategy to assistance with bid evaluation, award, and closing

Due Diligence and Market Sounding

Define Transaction

Structure

Government Decision

Market to Investors

& Pre-qualification

Prepare PPP Contract

Conduct Tender

Process

Commercial and Financial

Closing

18


Typical Timeline – 12 to 18months

19

Stage 1 Stage 2

(Market testing)

Stage 3(Tender process)(Due Diligence)

Months: 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Mandate signed with Advisor Advisor, Client

Advisor selects lawyers, engineers Advisor

Legal due diligence Lawyers

Review of feasibility studies Engineers

Environmental impact study Engineers

Valuation model prepared Advisor

Due diligence reports finished Consultants

Transaction structure decided Advisor, Client

Marketing to investors Advisor

Pre-qualification of investors Advisor

Finalize tender documents Advisor

Data room open to investors Advisor

Submit bids Bidders

Evaluate bids, select winner Advisor, Client

Signing and financial close Client, bidder


Wide range of things to check…

• Grantor authorizations• Governing Law• Dispute resolution• Sovereign immunity• Expropriation risk• Existing contracts• Existing personnel• Environmental liabilities• Security and mortgage

allowance

• Regulation₋ Navigable routes₋ Tax charges₋ Fuel supply

LEGAL & REGULATORY

• Traffic forecast• Cost analysis

₋ Construction₋ Operations₋ Maintenance₋ Rehabilitation₋ Bonds₋ Insurance

• Design• Expansion triggers• Rehabilitation triggers• Personnel• Technology

• Setting:₋ Pre-qualification criteria₋ Performance criteria and level

of service

TECHNICAL

• Scope of the concession₋ Finance, design, construct,

operate (?)₋ Traffic Risk –

Passenger/Cargo (?)• Term of the concession• Design• Noise & pollution standards• Personnel• Revenue sources

₋ Tolls₋ Passenger fares₋ Handling charges

• Need for concession fee?• Rates are regulated or not?• Escrow account for revenues to

be used for future rehabilitation needs?

• Change orders, change in law, delays, defaults, termination, arbitration, etc.

COMMERCIAL & STRUCTURING

20


Know and Coordinate with all Project Stakeholders

River Transport Authority

Project Company

IFC / Consultants

General Public (End-users)

Ministry of Transport

� Commercial Banks � International Financing

Institutions� Export Credit Agencies

Other lenders

� Construction, civil works, rehabilitation and expansion.

� Operation and maintenance

� EPC Contractor / Developer

� Operator� Other investors

Financing Shareholders/Sponsor

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Ministry of Finance

Ministry of Investment

Ministry of Planning

Environmental Quality

Authority

Ministry of Water

Resources & Irrigation

Ministry of Defense

Ministry of Interior

Stakeholder engagement and coordination is necessary to ensure successful implementation of the project


Contract must reflect Effective Risk Allocation

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"Risks should be allocated to the party best able to manage them"

Public PrivateShared

Planning

permission

Regulatory risk

Volume risk

Inflation risk

General Regulatory risk

Force majeure

Detailed planning permission

Design

Construction

Commissioning

Operating performance

Project Finance

Technology obsolescence

Section V.

IFC’s Port Credentials

$87 million in private investment

$631 million in fiscal impact

450 jobs to be created.

BeninPort of Cotonou2009

25-year concession to build and operate a container terminal.

$200 million in concession fees during first 8 years of operations.

Awarded to SMTC, part of Bollore group.

$14.8 million annual fiscal impact


500% increase in container traffic

Brazil Port of Suape2008

30-year concession to build and operate a container terminal at the port of Suape.

Non-renewable lease with clear requirements regarding quality of service quality and transfer of assets back to state.

Awarded to ICTSI (International Container Terminal Services).


$166 million additional investment expected by 2017

$33.3 million in fiscal benefits

MadagascarPort of Toamasina2005

20-year concession

Container terminal operation, management, financing, rehabilitation and development

Awarded to International Container Terminal Services

Section VI.

MENA PPP Success Stories

MENA PPP Success Stories

The Team’s Success Stories and Current Mandates

28

Egypt

�New Cairo Waste water �Alexandria Hospitals�Dairut IPP

West Bank

�Solid Waste Management

Morocco

�Guerdane Irrigation

Saudi Arabia

�Hajj Terminal�Medina Airport�KAIA Desalination plant�KAIA Airport�Taif Airport

Jordan

�Queen Alia airport�Tafila Wind Power

Pakistan

�Punjab Wheat Silos �Sindh Wheat Silos

Afghanistan

�Da Afghanistan BreshnaSherkat

� Closed� Active

AfghanistanDa Afghanistan Breshna Sherkat2014

300,000 people with improved access to

electricity services in Kandahar

4-year management contract to strengthen DABS’ managerial and technical capacity, with partial transfer of operating risk.

Fixed fee and bonus / penalty regime to encourage operator to meet DABS’ loss reduction targets.

Pending award: four bids received at RFP stage.

West BankSolid Waste Management2013


services

Reduced greenhouse gas emissions of 13,400 tons of CO2

Management contract for the Al Minyalandfill and transfer stations with transfer of operating risk.

Awarded to a Greek Consortium of W.A.T.T. S.A., Mesogeos SA and EPEM S.A..


services.

$225 million in investment.

Two new hospitals and blood bank facility and a combined 424-bed capacity.

20-year concessions to finance, design, construct, furnish, equip, maintain, and provide non-clinical management services.

Awarded to an international consortium: Egypt’s Bareeq Capital, G4S, Siemens & Detac.

EgyptAlexandria University Hospitals2012

8 million people with improved access to

services.

$1.4 billion in investment.

25-year concession to build, transfer, and operate the entire Prince Mohammed Bin Abdulaziz Airport (Madinah Airport).

New airport terminal and passenger facilities to open in 2015.

Awarded to TIBAH, a consortium from Turkey and Saudi Arabia.

Saudi ArabiaMadinah Airport 2011

1 million people with improved access to

services.


New wastewater treatment facility.

20-year concession to build, operate, and transfer the 250,000m³/day treatment plant.

Operational by 2013.

Awarded to Orasqualia (Egypt’s Orascom Construction Industries and Spain’s Aqualia).

EgyptNew Cairo Wastewater2010

12 mn per year terminal capacity.


54.6% of gross revenues to government.

25-year concession to design, construct, operate, and finance for a new airport terminal.

New terminal opened in 2013.

Awarded to Airport International Group consortium.

JordanQueen Alia International Airport 2007


services

$43.6 million in investment

$10 million fiscal impact

Saudi ArabiaKAIA Desalination 2007

New desalination plant serving King

Abdulaziz International Airport (Jeddah).

20-year concession to build,

operate, and transfer the 30,000m³/day desalination plant.

Awarded to SETE Technical Services, in association with Aquatech International, Haji Abdullah Alireza and Company, and WTD srl.

5.8 million people with improved access to

services.


$60 million fiscal impact

Saudi ArabiaHajj Airport Terminal2006

New “Hajj” airport terminal at King Abdulaziz International Airport (Jeddah).

20-year concession to build, transfer, and operate the new terminal.

Awarded to Saudi Binladin Group in association with Aéroports de Paris Management.

1,917 citrus farmers with improved access to

irrigation services

$37 million in investment

100% connection rate by 2009

11,000 people with improved income

MoroccoGuerdane Irrigation 2004

First ever irrigation PPP worldwide.

30-year concession to build, co-finance, and manage the irrigation network.

Awarded to a consortium led by Morocco’s Omnium Nord-Africain.

ismed training: assessing the ppp option, presentation by ifc

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