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PPP Workshop Warsaw

Part I: Recent trends and

developments of PPP in Germany

Ministry of Regional Development

Department for Individual Projects‟ Preparation

Dr. Clemens Elbing

Peter Wettengel

Warsaw, 28th / 29th April 2011

1. ÖPP Deutschland AG

2. Public-Private Partnership (PPP)

3. Recent trends and developments of PPP in Germany

4. PPP projects in Germany (database)

5. Contractual and organizational framework

6. Sector analysis and identification of PPP potentials

7. PPP procurement process

2PPP Workshop Warsaw28th / 29th April 2011

Foundation of ÖPP Deutschland AG

Milestones:

Decision to launch the company July 2007

Budget approved April 2008

ÖPP Deutschland AG registered December 2008

Operational March 2009

Our mission:

Enhance PPP in Germany

Neutral, independent and reliable consulting services

Bundling of public and private sectors know-how

To maximize efficiency gains for the public sector


4

Business fields

Consulting public authorities on Federal, State and Municipal level on

structuring PPP projects, preparation and supporting tendering processes

economoic analysis, cash-flow modelling and project management

Framework conditions

improving framework conditions and standards

Know-how transfer

know-how transfer between all involved public and private parties

development of PPP expertise in public authorities

Market development

identifying new potential PPP sectors and structuring new PPP models

supporting policy-makers and administrations to develop these sectors

Advisory

PPP

Framework

conditions

PPP Workshop Warsaw28th / 29th April 2011

Structure of ÖPP Deutschland AG

5

60 %

Private sector ShareholdersPublic sector shareholders

40 %

General assembly

Supervisory board

Management board

Contractors, suppliers,

FM-companies, banks and

consulting firms

Holding company *

StatesMuni-

cipalities

Federal

government

(5 representatives) (4 representatives)

* Every four years new placement of shares of the holding company


Advisory activities and work on framework conditions

Our current PPP consulting activities

New Federal Ministry of Research and Education

Federal research centers and Federal authorities

School buildings

Hospital projects

IT and services

Our current work on framework conditions

Helpdesk for Federal, State and Municipal decision makers

Completed projects: financing PPP after the financial crisis, street-lighting,

kindergartens

Ongoing projects: sports-facilities, standardised PSC-model, traffic-signaling, IT,

benchmarks for health-projects, structures to include medical-equipment in PPP

Envisaged projects: public fleets with electric vehicles


PPP advisory activities

7

Social Security

(FM, In-House-

Consultancy)

Federal research

centers and

authorities

„Haus der Zukunft“

Berlin

New Federal Ministry

of Education and

Research

Fe

de

ral

Sta

tes

Research Institution

(feasibility studies)

Universitätsklinikum

Schleswig-Holstein

Feasibility studies

on specific public

real estates

PSC-tests on school

projects

Public services

centers (IT/services)

Early stage

consultancy

Mu

nic

ipa

litie

s


1. ÖPP Deutschland AG – Partnerschaften Deutschland








Public-Private Partnership (PPP)

PPP projects are long-term contractual arrangement between the public and

private sector to . . .

> develop public infrastructure, real estates or services

> reduce public spending and achieve efficiency gains

> develop long term interests for getting better jointly

> achieve risk and know-how transfer

> provide incentives to optimise processes over the whole lifecycle


Typical contractual structure of a PPP project

10

Contractor

PPP contractS

ha

reh

old

er

agre

em

ent

Le

nd

ing

agre

em

ent

Shareholder BankSPV

O&M

contract

Public body

Operator

Other

service

partner

Turnkey

contract

Contracts for

other services


11

Why is PPP efficient for the public sector

Key characteristics of PPP

Life-cycle approach

Optimum risk transfer

Use of output-specification

Payment mechanisms with penalties

Long-term partnership


Advantages of PPP

Achieve efficiency gains

Delivery on time and in budget

Long-term maintenance of standards

Transfer of risk to the private sector

Improve public services

Major advantages of tendering projects

under PPP type of arrangements

Large scale infrastructure projects can be started earlier and delivered quicker

Implementation of projects under restricted public budgets

Chance to restructure public services

Contractual mechanisms provide incentives for the private sector to optimize

projects over the lifecycle for the benefit of the public sector

Major know-how transfer from the private to the public sector

Risk transfer to the private sector, reduction of chance for cost overruns and

delays for public sector projects

Transparency of whole-life costs of assets and services


Major disadvantages of tendering projects

under PPP type of arrangements

Higher costs of capital for the private sector in comparison to public finance

Transaction costs (advisors, tendering processes, due diligences,

administration)

Long-term nature of the project with long term commitment and less flexibility

Complexity of project structures (legal, contractual, financial, organizational)

Necessary prerequisites for PPP projects

Political and economic stability

Reliable legal environment

Political acceptance and willingness for PPP delivery

Competent contract partners

Competition during the tendering stage

Commercial robustness of the project


Political agenda for PPP in Germany

Clear political commitments to utilize PPP on Federal, State and Municipal level,

however there is still resistance to change from tradition procurement to PPP

Target: 15 % of public investments in PPPs

Public sector comparator tests (comparing lifecycle costs of different tendering

options e.g. PPP with traditional procurement) standardized and widely used

Road and highway sector: step by step change from public budget to user

finance

PPPs to improve the construction volume for German contractors

Reduce barriers for small & medium sized enterprises (SME) to participate in

PPPs

Develop standards and use Know-how transfer effectively

Implementation of PPP in new sectors


Specific aspects of PPP in Germany

Federal structure

> Federal government

> 16 states

> about 12.000 municipalities

Construction sector is dominated by small and medium sized enterprises (SME)

Major focus is on the development of small projects

Project finance is used just in a few projects, German forfeiting model

„Forfaitierung mit Einredeverzicht“ offers low borrowing rates

However ÖPP Deutschland AG certainly focuses on large PPP projects finance

transactions


German PPP projects (March 2011)

Projects closed:

> In total 161 PPP projects are closed in Germany

> 2010: 16 public real estate and infrastructure projects were closed (12 municipal

projects, 3 state projects, 1 other project), total investment volume 366 Mio. €

> 2011: so far 2 municipal real estate projects were closed

> 2009/2010 effected by global financial crisis

> After the crisis many projects are tendered without financing (DBO)

Pipeline of projects: about 100 projects in tendering or preparation

Source: PPP-project database; www.ppp-projektdatenbank.de


Closed PPP projects in 2010


Major focus is on PPP schools

58 projects have reached financial close

More than 50 projects in the tendering projcess or in preparation

Average investment volume 26 Mio. €

Average efficiency gain 14 %

Most of the projects are refurbishments, some of the new construction or

extension of existing buildings

Most of the schools include also sports facilities

19


PPP Workshop Warsaw 28th / 29th April 2011

PPP project database

21

http://www.ppp-projektdatenbank.de/

sectors:

public real estate

infrastructure

education

administration

health

justice / security

culture / leisure

sport facilities

transportation air,

roads, water, rail

vehicles

IT

supply

others

State

Municipality


Database project information

Short description of the project

Basic project information (sector, state, municipality, …)

Contractual details (investment volume, NPV, efficiency gain, contractual terms,

services transferred design/ build/ operate/ maintenance/ finance, …)

Name and contact details of

> Authority

> Private partner

> Advisors

Picture of the project


PPP projects closed

23

12 projects350 Mio.€

16 projects508Mio.€


38 projects1506Mio.€



16 projects366 Mio. €

2 projects207 Mio. €

2 projects

14 projects

30 projects

52 projects

90 projects

117 projects

143 projects

159 projects 161 projects

0

20

40

60

80

100

120

140

160

180

0

200

400

600

800

1000

1200

1400

1600

1800

2002/2003 2004 2005 2006 2007 2008 2009 2010 2011

Investitionsvolumen und Anzahl Projekte pro Jahr Anzahl Projekte kumuliert

Investments real estate: 4.311 Mio. €, 148 projects Investments roads & highways: 1.883 Mio. €, 13 projects by 2011, 31st March


Investments and number of projects per year number of projects cumulated


PPP public real estate and road / highway projects closed

24

64350 457 592 887 757 653 344 207

51

620

657

534

22

2

14

30

52

90

117

143

159 161

0

20

40

60

80

100

120

140

160

180

0

200

400

600

800

1000

1200

1400

1600

2002/2003 2004 2005 2006 2007 2008 2009 2010 2011

Investitionsvolumen Hochbau Investitionsvolumen Straßenbau Anzahl Projekte kumuliertInvestments real estate Investments roads & highways Number of projects cumulated

Investments real estate: 4.311 Mio. €, 148 projects Investments roads & highways: 1.883 Mio. €, 13 projects by 2011, 31st March



Culture, sport, event and leisure buildings

23%

Administration buildings19%

Prisons, other securitybuildings

3%

Schools, kindergartens, universities

38%

Others4%

Hospitals and others health care 5%

Roads and highways 8%

Number = 161 by 2011, 31st March

PPP projects closed by sectors

(Percantage of the number of projects)

25



PPP projects closed by sectors

(Percantage of investment volume)

Culture, sport, event and leisure buildings

11%

Administration buildings

12%

Prisons, other securitybuildings

5%

Schools, kindergartens,

universities24%

Others6%

Hospitals and others health care

12%

Roads and highways 30%

26

Total investment volume: 6.194 Mio. € by 2011, 31st March



Number of closed PPP schools

27

Number of school projects = 58 (38 %); Total number of PPP projects = 161 up to 2010


171 Mio. €5 projects







1

6 11

20

33

42

52

58

0

10

20

30

40

50

60

70

0

100

200

300

400

500

2002/2003 2004 2005 2006 2007 2008 2009 2010

Investment volume and number of projekts this yearAccumulated number


PPP roads and highway projects in Germany

13 road and highway projects have reached financial close

4 federal motorway projects (A-Model): A1, A4, A5, A8

2 federal road projects (F-Model)

7 state and municipal road projects

Total investment volume of about 1.883 Mio. €

Current pipeline

A-Model

2 in tender process

7 further projects identified

F-Model

Further projects identified

28



German road and highway sector:

Comparison of A- and F-Model

A-Model

• Planning, construction, finance,

operation, maintenance; extension of

existing four highway lanes to six lanes

• Assistant of the administration, acting

by order on behalf of the administration

• Federal government and federal state

• 30 years starting with site installations

• 12 projects, 522km

• No special law required

• Toll of heavy good vehicles (HGV)

• Up to 50% subsidy of investment costs

F-Model

• Planning, construction, finance,

operation, maintenance, new

construction of bridges, tunnels,

mountain passes or 4 lane

expressways

• Transfer of tasks, rights by grant law,

legal act or ordinance

• Municipality or federal state

• 30 years starting with start of

operation

• 9 projects, 53km

• FStrPrivFinG, Federal Roads

Construction Private Financing Act

• Tolling for all vehicles

• Up to 20% subsidy of investment costs

Description

Status of concessionaire

Principal

Concession

Projects

Legal basis

Toll

Finance



common strengths/weaknesses of the models

Strength

• Step towards

• User finance

• New roles of public and private sector

• Reduction of public spending

• Up-front subsidies to structure projects

feasible and bankable

• Standardization

• Lifecycle approach

• Output oriented specification for

construction, operation and maintenance

• Increasing understanding

• Legal basis

• Risk allocation

• Financial viability

Weaknesses

• Political selection of pilot projects instead of a

strategic selection of projects with great demand

• Long time until deal-flow is achieved

• Risk of isolated projects

• Tax disadvantages (VAT)



different strengths/weaknesses of the models

Strength

• Real toll solution

• Price as parameter

• Maximum reduction of public spending

• Possible future integration in

privatized highway clusters

• No additional toll for users means no

diversion effects

• Stability of toll level

• Appropriate risk allocation

• Reduction of traffic volume risks

• Possible future integration in

privatized highway clusters

Weaknesses

• Application just for bridges, tunnels,

mountain passes and four-lane expressways

• Legal framework conditions

• Risk transfer to the private sector

• Possible diversion of users

• Complex flow of revenue stream

• Critical length of projects

• Efficiency of O&M services

F-M

od

el

A-M

od

el


PPP projects closed by investment classes


32

up to 15 Mio €50%

> 15 up to 25 Mio €21%

> 25 up to 50 Mio €15%

> 50 Mio 14%




33

up to 15 Mio €10%

> 15 Mio up to 25 Mio €12%

> 25 up to 50 Mio €15%

> 50 Mio 63%

PPP projects closed by investment classes





Project finance58%

Forfaitierung mit Einredeverzicht

35%

unknown7%

PPP projects closed by type of funding


34




35

Project finance20%

Forfaitierung mit Einredeverzicht

69%

unknown11%

PPP projects closed by type of funding





36

Inhabermodell77%

Mietmodell6%

Konzessionsmodell8%

Leasingmodell1%

Gesellschaftsmodell3%

unknown5%

Erwerbermodell0%

PPP projects closed by contract options





37

Inhabermodell70%

Mietmodell8%

Konzessionsmodell8%

Leasingmodell2%

Gesellschaftsmodell2%

unknown9%

Erwerbermodell1%

PPP projects closed by contract options

(Percantage of number of projects)




38

0/0

0/0

1/13

0/0

1/22

1/10

3/15

0/0

9/220

1/10

4/69

9/180

6/67

0/0

0/0

2/31

Total: Number of projects and investments (117

projects / 2.558 Mio. €)

2010: Number of projects und PPP investments

(13 projects/ 218 Mio. €)

by 2011, 31st March

13/167

0/0

8/58

44/816

12/738

1/11

0/0

8/191

0/0

0/0

0/0

1/60

1/7

0/0

1/14

4/77

PPP projects closed

Regional distribution of projects – municipalities



39

0/0

0/0

0/0

0/0

0/0

0/00/0

0/00/0

0/02/262

2/197

1/66

3/203

5/200

0/0

0/0

6/153 2/78

1/5

1/25

1/100

2/138

0/0

0/0

0/0

0/0

0/0

1/66

0/0

0/0

1/60

Total: Number of projects and investments

(26 projects/ 1.427 Mio. €)



PPP projects closed

Regional Distribution of projects – states

by 2011, 31st MarchSource: PPP-project database; www.ppp-projektdatenbank.de


40

0/0

0/0

1/13

0/0

1/22

1/10

3/15

0/0

11/298

2/15

5/94

10/280

8/205

0/0

0/0

2/31



Total: Number of projects and investments

(143 projects/ 3.985 Mio. €)

0/0

0/0

15/429

2/197

9/124

47/1019

17/938

1/11

0/0

14/344

0/0

1/60

2/73

0/0

1/14

5/137

PPP projects closed

Regional distribution of projects – states and municipalities

by 2011, 31st MarchSource: PPP-project database; www.ppp-projektdatenbank.de


PPP contract options public real estates (1)

42

Contract option Description (property, services, risks) Contract period

Contract option I

PPP-Erwerbermodell

Construction of a real estate (or refurbishment) owned

by the private partner and on the property owned by

the private partner; principal has the right to use the

real estate during the contract period; by the end of the

contract period the asset is transfered to the principal

e.g. 20-30 years

Contract option II

PPP-FM Leasingmodell

Similar to PPP-Erwerbermodell but no transfer of the

assets at the end of the contract period; principal has a

call option at the end of the contract (calculated

recovery value is fixed in the contract)

e.g. 20-30 years

Contract option III

PPP-Vermietungsmodell

Similar to PPP-Erwerbermodell but no obligation to

transfer the asset; call option for the principal at the

end of the contract (market value of the asset)

e.g. 20-30 years

Contract option IV

PPP-

Gesellschaftsmodell

Transfer of services (design/build/finance/operate) to a

SPV with private and public sector participation

e.g. 20-30 years


PPP contract options public real estates (2)

43

Contract option Description (property, services, risks) Contract period

Contract option V

PPP-Contractingmodell

Installation or optimization of technical facilities/

equipment; assets (property, facilities / equipment

owned by principal); operation of the facilities by the

private partner e.g. with energy-saving targets

e.g. 5-15 years

Contract option VI

PPP-Konzessionsmodell

Construction of a real estate or service delivery by the

private partner; private partner has typically the right to

charge user fee from users of the infrastructure, real

estate or services to refinance the investments

e.g. 15-30 years

Contract option VII

PPP-Inhabermodell

Construction and/or refurbishment of a real estate on

the property owned by the principal; operation of the

building by the private partner; real estate and property

are owned by the principal, no transfer to private

partner

e.g. 15-30 years


Important contractual terms for PPP projects

Obligations and rights of both contract parties

Description of services (planning, construction, finance, O&M) typically attached

in the output specification

Contract period, relevant milestones and deadlines

Financial terms, payment mechanisms and penalties based on output

specifications, project subsidies and guarantees, performance bonds and

required insurances

Escalation mechanisms and possible tariff adjustments

Transfer of ownership at the start and end of the contract

Termination rights, indemnity clauses and lender step-in rights

Exclusivity guaranteed by contract

Possible transfer of existing staff and terms for their contracts


Prerequisites and structuring PPP projects (1)

45

• Stable political environment

• Existing and reliable legal system

• Possible changes in legislation

• Regulation and possible effects of

deregulation paths

• Legal barriers for the project

• Enforcement for contractual-claims

• Corruption

• Crime rates

• Typical tendering processes

(transparency, competition, legal basis

Legal

Legal system

Regulation

Financial

Economy and economic cycles

Accounting, taxes

Financial markets and products

Financial institutes

Institutional

PPP task forces or competence centers

Ministries in charge

Technical

Preferred technical solution

Other technical options

Services transferred (construction, O&M)



46





deregulation paths



• Corruption

• Crime rates



Legal

Legal system

Regulation

Financial


Accounting, taxes



Institutional



Technical




• Financial viability and robustness of

the projects cash flow

• Realistic demand forecast (e.g. traffic)

• Greenfield or brown field project

• Financial barriers for the project

• Soft or hard currency revenues

• Existing financial markets and financial

products (swaps, options, derivates)

• Demand (e.g. existing and long-term

traffic)

• Government guarantees or subsidies

• Involvement of multilateral or bilateral

financial institutions

• Risk transfer to export credit agency

• Type of payment mechanism (e.g. for

roads direct toll, shadow toll,

performance or availability payments)

• Willingness and ability to pay by users

• Exclusivity by contract or regulation



47





deregulation paths



• Corruption

• Crime rates



Legal

Legal system

Regulation

Financial


Accounting, taxes



Institutional



Technical




• Political commitment for PPP

• Willingness of key decision makers

• Existing task forces

• Tested standardization for PPP

• Mature or new PPP market

• Government guarantees or subsidies

• Involvement of multilateral or bilateral


• Involvement of export credit agencies

• Identification of sovereign tasks related to

the project that can‟t be handed over



48

Legal

Legal system

Regulation

Financial


Accounting, taxes



Institutional



Technical




• Technical feasibility of the project

• Technical options for construction

phase

• Solutions for operation and

maintenance of the facilities

• New or proven technologies

• Availability of resources for planning,

construction, operation and

maintenance

• Environmental issues

• Competent local partners


PPP is used in Germany already in many sectors

50

Supply/ disposalTransportation

Airports

Air Transportation

Other systems

Roads (network)

bridges, tunnels

service stations

tolling-systems

E-mobility

Ro

ad

sR

ail

Tracks (network)

rolling stock

stations

light rail projects

Network

harbours

harbour facilitiesWate

r Street lighting

signaling

IT-projects

Po

we

r Generation,

distributione

ne

rgy,

ga

s,

he

atin

g

Te

le-

co

m Landlines

mobile networks

Wa

ste Collection

disposal, re-use

waste-to-energy

fresh

wa

ter

wa

ste

wa

ter

Generation

distribution

canals

WTP

Wate

r

Administration

• Town halls

• Ministry buildings

• Public administration

Education

• Kindergartens

• Schools

• Universities

Health

• Hospitals

• Cancer therapy centres

• Old people homes

Security

• Police buildings

• Fire stations

• Prisons

• Military projects

Culture, leisure

• Sport facilities

• Museums

• Theatre, opera buildings

• Other cultural projects

Others

• Fair areas

• Court buildings

• Social housing

• Military housing

• Post buildings

• Embassies

Infrastructure Public Real Estates

?

PPP„s implemented

In preparation

New opportunities?

?

?

?

?


In Britain PPP is already used in many other sectors

51

Supply/ disposalTransportation

Airports

Air Transportation

Other systems

Roads (network)

bridges, tunnels

service stations

tolling-systemsRoa

ds

Rail

Tracks (network)

rolling stock

stations

light rail projects

Network

harbours

harbour facilitiesWate

r Street lighting

signaling

IT-projects

Po

we

r Generation,

distributione

ne

rgy,

ga

s,

he

atin

g

Te

le-

co

m Landlines

mobile networks

Wa

ste Collection

disposal, re-use

waste-to-energy

fresh

wa

ter

wa

ste

wa

ter

Generation

distribution

canals treatmentWate

r

Administration

• Town halls

• Ministry buildings

• Public administration

Education

• Kindergartens

• Schools

• Universities

Health

• Hospitals

• Cancer therapy centres

• Old people homes

Security

• Police buildings

• Fire stations

• Prisons

• Military projects

Culture, leisure

• Sport facilities

• Museums

• Theatre, opera buildings

• Other cultural projects

Others

• Fair areas

• Court buildings

• Social housing

• Military housing

• Post buildings

• Embassies

Infrastructure Public Real Estates

PPP„s implemented


Street-lighting

Great investment needs

High saving potentials in energy and CO2-emission (in average about 35 % in

some cases up to 80 % of energy consumptions)

Lots of old street-lighting facilities (30% of about 9 Mio. street-lighting facilities

are from the 1970`s or older)

There are already contract-types similar to PPP (e.g. Bremen, Gera, Hagen)

> Main differences are property rights of assets, risk-transfer, payment-mechanisms,

contract period and the transfer of energy supply

In September 2010 a PPP tender package was published by ÖPP Deutschland

AG for street-lighting including all necessary tender documents for a municipal

street-lighting project (lighting-concept, installations, finance, operation,

maintenance, energy-supply over a period of 15-20 years)

52PPP Workshop Warsaw 28th / 29th April 2011

Health sector

Major investment needs for buildings, facilities and medical equipment

Huge energy saving potentials for existing hospital and other health buildings

Restricted public budgets

Traditional dual finance-system of health projects

Change to Diagnosis Related Groups (DRG„s) which leads to financial pressure

on hospitals

Many old hospitals with decentralized structures and inefficient operation

procedures

PPP offers great potentials to close the investment gap but not many projects

have been closed yet


Tendering process for PPP in Germany

55

Phase IV: Implementation and contract management

Phase V: Re-use, transfer of assets

Phase I: Establish business needs and option appraisal

Need, technical, economic and financial feasibility

Selection of potential realisation concepts

PPP-Test (qualitative test of project)

Phase II: Preparation and conception

Development of the traditional procurement option (PSC)

Development of the PPP procurement option (PPP)

Comparison of lifecycle costs (PSC-PPP)

Phase III: Tendering stage and conatract award

Preparation of tendering process

PQ, bids, negotiations, BAFO

Comparison of lifecycle costs (PSC-BAFO)

Contract award, financial close

Monitoring the contract

Performance measurement


Early stage needs assesment

56

Definition of project objectives

Who are the users

Who are the decision makers

Which authorities must be included in the approval process

Political willingness

Long-term need for buildings and facilities

Amount and type of investment

Current organisation of ownership, operation and maintenance

Existing personal and possibility to transfer staff to private partner

Available annual budget

Are there any deal-breaker


Qualitative PPP-test

57

Framework conditions

Political willingness

Acceptance of administrations

Legal barriers

Available annual budget

Project indicators

Investment volume

Transfer of services (design,

construction, finance, operation,

maintenance, decommissioning)

Reasonable risk-transfer and clear

interfaces between public and

private partners

Possibility to define output-

specification and incentives

Long-term need

Schedule

PPP Workshop Warsaw 28th / 29th April 2011

PPP test: typical steps


Kickoff Workshop

> Introduction to PPP and different procurement options

> Discussion of the project, projects objectives and restrictions

> Necessary project data (standardized questionnaire)

Data collection by the client, user or responsible authority

Further discussions no data and restrictions

Assessment of feasibility of the PPP-option

Final workshop

> Tested criteria

> Results for every criteria

> Discussion of the feasibility as PPP

> Definition of next steps with milestones and follow-up activities

Official statement on the feasibility of the project as PPP

Public sector comparator (PSC) tests are now widely used

to compare lifecycle costs of different tendering options

59

5 10 15 20 5 10 15 20

Traditional procurement PPP

Costs Costs

Years Years

Typical effects of delay and

cost overruns

Cost appraisal

Fixed annuity payments during

operation period for planning,

construction, finance, O&M

Con

str

uctio

n

co

sts

O&M costs


Principal model for PSC tests

60

Remaining risks

Transferable risks

Costs of conventional planning,


(including transaction/

administration costs)

Remaining risks

Annuity payments for planning,


Transaction costs for PPP

Traditional

procurement

Costs

PPP


Output based specification of services

Description of service standards that should be achieved for construction, O&M

for PPP should be a mix between input and output specification

Output specification are a description of what should be achieved and not how it

should be achieved (no bill of quantities as description of inputs)

Gives private sector bidders the opportunity to implement their best solutions

To set incentives to improve service standards by the private sector

Basis for payment mechanisms


Example for output specification: response time

62

Source: 4Ps Standard Procurement Package “Output Specification Street Lighting”


Example for output specification: cleaning

63

Source: 4Ps Standard Procurement Package “Output Specification Police & Fire Stations”


Sources of finance for PPP projects

Public budget (e.g. for availability payments, annuity charges, shadow-toll)

Private sectors equity as risk capital for the project

Mezzanine capital

Debt from commercial banks and public banks

Loans and grants from the EU, reconstruction banks, bilateral or multilateral


Users (e.g. user charges, direct toll, service-charges, …)


Characteristics of Project Finance arrangement

Special Purpose Company

Foundation of a special purpose company or vehicle (SPC, SPV) for the project

Shareholders develop the project, invest equity and control the SPV

Cash flow related lending

Evaluation of the projects cash flow and not of the investors financial capabilities

Test of the robustness of the business case

Revenue stream is of central interest for the financial success

Risk sharing

Risk sharing between the parties

Optimum risk transfer: every party bears the risks that he is best able to manage

Off-balance-sheet finance

Banks lend to the SPV

Non- or limited-recourse finance


Awarding criteria for PPP must be defined

carefully to set the right incentives

Minimum annuity payments (e.g. for public real estates or services)

Minimum tariff (e.g. for roads or ports)

Minimum concession period (e.g. roads, ports or airports)

Minimum government subsidies (e.g. rail)

Maximum government income (e.g. roads, ports or airports)

Fastest achievement of defined targets e.g.

> required investment volume

> operation start

> achieving certain energy savings

Qualitative criteria e.g.

> Architecture, design quality

> Sustainability of building and facilities, use of renewables

> Concept for operation and maintenance


Risk management is the major success factor for PPPs because of the long-term nature

and complexity of project structures

Major objective is to identify cost and value drivers, to allocate risks between the involved

parties and to make sure that they are handled over the lifecycle

Risk workshops are often used to identify all possible risks

They need to be classified into global risks and project risks

To document the risk allocation a risk matrix is often used

Complex risk analysis are only of value if the existing data is of great detail

The analysis of risks in scenarios (combination of risks) and with sensitivity analysis

(analysis of the effect of single risks) is often used

Monte-carlo simulations can make sense for large complex projects with good data

67

Risk management for PPP projects


Risk management process for PPP projects

68

Cyclic process over the whole lifecycle

- Checklists, Indicators

- Brainstorming

- Delphi method

- Workshops

- Priority list of risks

- Cost and value drivers

- Deterministic

analysis

- Sensitivity

analysis

- Monte-Carlo

Simulation

- Risk profile over

the whole lifecycle

Contracts

including

- Service Levels

- Payment

mechanisms

- External contracts

management

- Internal controlling

- Refinancing and

restructuring strategies

- Exit Options

Identification Assessment Analyzation AllocationMonitoring/

Control

Assess

- Likelihood

- Consequences

- Duration of

possible

occurrence

Develop risk list

- Global

- Sector specific

- Project specific

Calculate economic

indicators and stress

testing

- Projects

- Sub portfolios

- Overall portfolio

Risk transfer

- avoid

- reduce

- insure

- or take risks

- Concepts, Strategies

- Monitoring/ control

- Working procedures for

defects, reaction times, payment

mechanisms

Documentation of risks,

allocation, responsibilities


Typical global risks of PPP projects

69

Political

Changing politics, regulation

Security/peace (inner and outer)

Taxation

Approval

Legal Risks

Changing legislation

Rule of law

Independant judiciary

Acceptance of human rights

and protection of property

Environmental Risks

Changing legislation

Conflict with environmental

organizations

Changing environment

Commercial

Currency risks and exchange rates

Inflation

Existence of financial markets

and products (swaps, forwards, derivates)

Restricted transfer of revenues


Typical project risks of PPP projects

70

Construction Risks

Delay in completion

Technology risks, ground risks

Organizational

Natural events

Relying on other infrastructure

Operational Risks

Availability/ costs of resources

Efficiency of facilities

Logistics

Maintenance procedures

Organizational

Natural events

Revenue Risks

Quantitiy risks

Price risks

Financial Risks

Exchange rates/currencies

Syndication risks

Extra costs, delay


Possible tendering procedure for PPP

Open tender

Restricted tender

Competitive dialogue

Competitive bidding with or without PQ (typical procedure)


Competitive bidding procedure

72

Interested companies

x indicative bids

Contract award to preferred bidder

Invitation to tender

OJEU tender notice

Negotiations with x bidders

Invitation to x bidders to submit

best and final offer (BAFO)

BAFO

Evaluation of economic, technical

and organisational capabilities of

companies to deliver the project

Evaluation of bids

Price … %

Technical concept … %

Operation & maintenance … %

Other aspects … %

Evaluation of BAFO

Price … %

Technical concept … %

Operation & maintenance … %

Other aspects … %


Schedule competitive bidding


Tendering process under the new EU

competitive dialogue

74

OJEU tender notice Pre-Qualification

QuestionnaireSelect Participants

Invitation to participate

in dialogue

Dialogue phase

no. of solutions/bidders

can be reduced

Final tenders

Tender evaluation,

seek clarification and

fine-tuning from

tenders as necessary

Selection of Preferred

Bidder (PB),

notification to

PB/others; contract

award after 10 days

With PB clarification

and confirmation of

commitments

Contract award Financial close


Schedule competitive dialogue


Lessons learned from PPP in Germany

Major driver for PPP is political willingness

Need for central competence centers, standardization and know-how transfer

Professional consultancy is required for projects (economic, legal, technical)

Framework conditions need adjustments (political, legal, taxation, economic)

Need for reliable public sector comparator tests

Strategic selection of projects seems to be important

The global economic and financial crisis has currently stopped many PPP

projects but markets have already recovered

Examples in the road and highway sector proof that the allocation of traffic /

demand risks is of critical importance (real toll, shadow toll, performance based

or availability based payments)


www.partnerschaften-deutschland.de

Thank you for your attention!

Dr. Clemens Elbing

Manager

phone: +49 30 / 25 76 79-338

e-mail: [email protected]

Peter Wettengel

Consultant

phone: +49 30 / 25 76 79-323

e-mail: [email protected]

ÖPP Deutschland AG – Partnerschaften Deutschland

Mauerstraße 79

10117 Berlin

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