ricardo ferreira reis [observatório ppp] 2012_the impact of ppp(s) contracting on portugal's fiscal...
TRANSCRIPT
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The impact of PPPs contracting onPortugals fiscal position andwhat can be done about it
Presentation at the 4th Annual OECD Symposium onPPP Working Party of Senior Budget Officials (SBO)
Professor Ricardo Ferreira Reis
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Introduction
Portugals current Public Finances situation.
The Portuguese experience with PPPs.
PPPs in the Memorandum of Understanding withthe EU/ECB/IMF (The Troika)
The future of PPPs in Portugal: What solutions?
The OPPP at the University: Our mission, organization and
work.
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Public Financesin Portugal
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Public Finances in Portugal:current situation
Significant increase in public spending not followed byeconomic growth
Permanent deficits around 5% before 2008 financial
crisis
After 2008, fast fiscal deterioration
High levels of public debt with an increase in the interest
rates Unsustainable fiscal situation
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Public Finances in Portugal
That have produce significant public deficits
Sources: adapted from the Parliaments National Budget Technical Unit (UTAO) report,INE data, the 2012 National Budget, and Ministry of Finance reports and OPPP estimates
-4.5%
-
3.4% -3.5%
-2.7%-2.9%
-4.3%
-2.9% -3.0%
-3.4%
-5.9%
-4.1%
-3.1%
-3.6%
-10.2%
-9.0%
-4.0%
-4.5%
-7.3%
-9.8%
-5.9%
-4.5%
-11.0%
-10.0%
-9.0%
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
%o
ftheGDP
Maastricht benchmark
official deficit
deficit with no one offopstroika objectives
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Public Finances in Portugal
59.2 58.3
54.4 50.4 49.6 48.751.0 53.7
55.1 56.5
61.763.9 62.7
65.3
83.0
93.3
101.9
110.5106.8 105.0
101.8
40.0
50.0
60.0
70.0
80.0
90.0
100.0
110.0
120.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
That lead to a substantial increase in the public debt
Source: INE (Portuguese Statistics Bureau), forecasts from 2012 onwards takenfrom the Portuguese Government official forecasts
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Public Finances in Portugal
Pro-cyclical deficits, with significant decrease inrevenues and increase in automatic stabilizers
No particular concern with public debt, focus hasbeen mainly on deficit
Election cycle does not help either, but hasconsistently enhanced transparency
Precarious fiscal consolidation recurrentlylead to off budget public spending solutions
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The PPP Experience inPortugal
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The PPP Experience in Portugal
Intensive use of PPP to close the infrastructuregap
Portugal lead PPP projects when measure by the sizeof the GDP
Off-budget temptation, and not Value for Money, wasthe main reason to choose PPP instead of traditionalprocurement
Affordability issued due to the high level of futurepayments.
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The PPP Experience in Portugal
Number of Projects (PPP and Concessions)
1995 1996 19971998 1999 2000
20012002
20032004
20052006
20072008
20092010
13
62
1 512 17
3 4 6
0
8
4
19
11 9
1319 21 22 27
39
56 5963 69 69
77 81
100
111
120
New Projects Accumulated
Source: Adapted from Ministry of Finance PPP reports
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The PPP Experience in Portugal
0
5,000
10,000
15,000
20,000
25,000
30,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Acumulated Capex Year Capex
Total Investment
Source: Adapted from Ministry of Finance PPP reports
Transports45%
Energy31%
Environment19%
Ports4%
Health1%
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The PPP Experience in Portugal
N1 worldwide in PPP investment (measure as % of GDP)
Source: Andreas Kappeler and Mathieu Nemoz, public-private partnerships in europe before and during the recentfinancial crisis, Economic and Financial Report 2010/04 July 2010, EIB.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
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The PPP Experience in Portugal
Annual Payments in Million
0
500
1,000
1,500
2,000
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
in M
Net Charges Total Charges
Source: Adapted from National Budget 2012
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The PPP Experience in Portugal
2011 GDP: 171 billion
NPV in % of GDP
Sector Data
NPV
R= 6%
YTM 2008 -
4%
YTM 2011 -
13%
Roads Gross payments 10.0 12.1 5.8
Net payments 5.2 6.0 3.4
Trains Gross payments 0.5 0.6 0.2
Health Gross payments 1.6 1.8 1.1
Security Gross payments 0.2 0.2 0.1
TOTALGross payments 12.2 14.7 7.3
Net payments 7.4 8.6 4.9
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The PPP Experience in Portugal:7 main reasons for concern
1. High levels of investment in a shortperiod of time.
2. Deficit on structure and managementskills.
3. Poor public management during thebidder process: PSC only after 2006
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The PPP Experience in Portugal:7 main reasons for concern
4. PPP focus only as off-budget operation.
5. Poor budget control of financial
assumptions.
6. Incorrect risk valuation and allocation.
7. PPP renegotiations have systematicallyincreased the payments for public
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PPPs in the Memorandum of
Understanding with The Troika
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PPPs in the MoU with The Troika
15 references in 8 paragraphs
3 lines of actions:
RE-BUDGETING (3.3 e 3.13.i)
MONITORING (3.11, 3.18, 3.19, 3.20 e 3.21)
RE-ASSESSING (3.17 e 3.19)
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PPPs in the MoU with The Troika
TroikaPPP Guidelines
1. Avoid engaging in new PPPs before theassessment of the current ones are reviewedand the legal and institutional framework iscreated
2. Consider the possibility ofrenegotiation of theexisting PPPs with the purpose of reducingState payments.
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The future of PPP in
Portugal:
What solutions?
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The future of PPP in Portugal: What solutions?
Buying Back existing contracts
(2nd wave: 7 former shadow toll roads already in service)
Assumptions:
Future payments until 2031 net of O&M expenses
Present value of net future payments at 15% discount rate (averagecurrent CAPM): M 3 500.
Government funds this amount (about 2% of GDP) at 6% interest fromthe Troikaand uses it to acquire total asset (debt + equity)
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The future of PPP in Portugal: What solutions?
Buying Back existing contracts(2nd wave: 7 former shadow toll roads already in service)
Consequences:
Liquidity injection into the banks (debt payment) and into constructioncompanies (equity purchase)
Eliminating renegotiation risk
Arbitrage opportunity between current 15% CAPM and 6% interest rate onpublic debt (Troikaassistance terms) allows for a yearly saving of up to M400
Increasing Eurostat official public debt by 2 p.p., while decreasing off balancedebt by 5.2 p.p.
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The future of PPP in Portugal: Whatsolutions?
0
100
200
300
400
500
600
700
800
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
in M
Annuity Savings
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The future of PPP in Portugal: What solutions?Other projects
Railways: 3 existing contracts:
Fertagus is performing well
MST under renegotiation
High speed rail suspended
Health:
Clinical services in 3 hospitals:
Recent experiences (opened in2009, to soon to evaluate)
Risk sharing seems to be betterdone
Construction of several units:
Performing well
Energy: Natural Gas Supply:
No public payments
Hidrical Powerplants
Payments forwarded toconsumerselectricity bill
Other roads:
1st wave:
Tolled roads
3rd wave: Under construction
Solution could be equitypurchase
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The OPPP: Our mission,organization and work.
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TRIP
LECROWN CATLICA-
LISBON was thefirst PortugueseSchool to beamongst the selectgroup of BusinessSchools accreditedwith the TripleCrown.
Only 1% ofBusiness Schoolsworldwide have thisaccreditation.
FINAN
CIALTIME
SThese prestigious rankingsrepresent the internationalrecognition of our programsacademic excellenceaccredited ensuring that theymeet the most demandinginternational standards.
CATLICA-LISBON is theLeading Portuguese School tobe ranked amongst the TopEuropean Business Schoolsaccording to the FinancialTimes.
CATLICA-LISBON Masterprogram entered FT rankingsfor Master programs. Occupiesthe 4th position worldwide forthe variable that evaluatesemployability success .
CF
APARTNER CATLICA-
LISBON has beennamed the onlyProgram Partner inPortugal by theCFA Institute, theglobal associationfor investmentprofessionals thatawards theprestigious CFAdesignation.
Catolica Lisbon School of Business andEconomics (CLSBE)
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Center for Applied Studies (CEA)
Applied research and consulting unit of CLSBE.
Mission: to provide a continuous link betweenthe academic world and companies, offering
consulting services in the areas of economicsand management to private, public and socialinstitutions.
These services are mainly driven by theaplication, to real world situations, of severalresearch topics conducted by CLSBE faculty.
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The OPPP
Created in 2009, the Public-Private PartnershipsObservatory (OPPP) is an independent, not forprofit, research driven organization, based inCLSBE
The Observatory develops a systematic approachto PPPs in Portugal, providing rigorous analyticalinformation to its members, and keeping them
also informed about relevant marketdevelopments.
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The OPPP
Currently (October 2011) the OPPP has 30paying members, among public entities andregulators, private contractors andconcessionaries, banking and finance institutions,consulting companies and law firms.
The independence of the OPPP is promoted bythe balance in the composition of its membership
base: every category of players in the PPPscontract is always well represented.
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The OPPP
This balanced diversity of members also adds tothe expertise, knowledge base, and networking ofthe OPPP, turning it into the perfect forum foropen, frank and insightful discussion on PPPs inthe country.
Each member pays a yearly fee and gets firsthand access to all the research produced
internally and participates in the discussions andevents organized by the OPPP. The fees areused exclusively to cover the research activities ofthe Observatory.
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Research Projects at OPPP
PPP risk assessment methodology(2008-2009)
Portuguese PPP risk assessment andRegressions analysis (since 2009)
Public Sector Comparator (2010)
Renegotiation and Refinancing (2011-2012)
Corporate Governance (2012-2013)
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