world islamic economic forum (wief) madinah institute for leadership and entrepreneurship (mile) 7...

World Islamic Economic Forum (WIEF)

Madinah Institute for Leadership and Entrepreneurship (MILE)

7th WIEF Roundtable

Madinah, Saudi Arabia

Promoting Growth through Public Private Partnership : Global Lessons

17 April 2013

For presentation purposes: no reliance

Public Private Partnership

► A Public Private Partnership (“PPP”) is a contractual relationship between a government and a private sector entity

► The private entity finances, builds infrastructure assets and provides operations and maintenance services

► Some key principles of PPPs are: ► Public sector pays for the “service” and not the “asset”► No payment until asset is operational► Value for money► Risk allocation (to the party best able to manage the risk)► Requires competitive bidding and► Output specification for services

► Synonyms of PPPs include PSPs (private sector participation), Joint Ventures and Privatizations.

► A typical PPP are BOOT contracts (Build Own Operate Transfer)

What are PPPs?

► Alternative way of funding projects► Introduces private finance to public sector projects► Public Sector defines and buys a service not an asset► Private Sector delivers the service (and assets as required)► PPP structure is usually to create a single standalone business,

financed and operated by the private sector► Create the asset and then deliver the service to the public sector

client, in return for payment commensurate with the service levels provided

Public Sector:

Required Services

Share operational role

Private Sector:

Creates assets

Shares operational role

Service Delivery

Payment for Performance


Pros

► Improved and consistent provision of services

► Certainty over financial outcomes

► Improved risk allocation –i.e. risk transfer

► Improved asset utilization► Encourage private sector

innovation through output based approach

► Competition drives down project cost

► Whole-of-life approach to project costing

Cons

► Complex contractually to negotiate

► Longer time to implement than traditional projects

► High implementation costs:

► Finance► Fees► Due diligence► Developer resources

Pros and cons of PPPs


Debt funding~80-90%

Special purpose vehicle

Public Authority

Equity funding~10-20%

Contractor ADesign

Operator ESoft FM

Operator FEnergy

Management

PFI and PPP structuresPPP Structure more commonly shown as..

Note: The high gearing would be typical of an availability based payment mechanism

Operation & Maintenance Contracts

Operator CLifecycle

Contractor BBuild

Operator DHard FM


PPP Risk Transfer

Private Sector Risk

Public Sector Risk

DBFOM

Public Sector Private Sector

Risk

Transfe

r

Design-Bid-Build

Design-Build

Build-Operate-Transfer

DBOM

BOO

Privatization

Build-Transfer-Operate

EPC

Key:

Outsourcing


Latest challenges surrounding the effectiveness of PPP

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

1%

2%

3%

Illustrative PFI debt margins (UK)

Source: UK Treasury

• Shorter term finance• Hard and soft mini perms• Club deals over syndication• Extended debt tails• Increased equity contribution• Larger deals bond financed


PPP Transaction Debt Margins (Q1 2013)

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,5000

200

400

600

800

1,000

1,200

Americas Asia Central Africa ME Europe

Value (US$ million)

Mar

in (b

ps)

Recent loans in the infrastructure sector (2013 Q1) show an average range of 250-350 bps in debt margins globally

Source: EY Analysis of Thompson data for the 3 months up to 9 April 2013


Successful PPP’s in the MENA Region

Project cost/concession period

Debt: Equity (%)

Debt Margins(bps)

Sponsor(s) BanksFinancial Close

Medinah Airport Expansion (KSA)

• US$ 1,204.3m• 25 years 60:40 -

TAV Airports Holding, Saudi Oger, Al Rajhi groups

Arab National Bank, National Commercial Bank, SABB and SMBC

July 2012

Qurrayah IPP(Saudi Arabia)

• US$ 2.975 b• 20 years

74:26- ACWA Power, Samsung C&T ,

MENA Infrastructure Fund, SEC

BSF, NCB, Standard Chartered, HSBC, Samba, SABB, ANB, SMBC and KfW plus equity bridge providers

Dec 2011

Muharraq Wastewater STP(Bahrain)

• US$ 328m• 29 years

85:15 220 – 275Samsung Engineering, Invest AD, United Utilities

Credit Agricole CIB, Natixis, Sumitomo Mitsui Banking Corp.

July 2011

PP11 IPP (Saudi Arabia)

• US$ 2.1 b• 20 years

75:25 250 – 340GDF Suez, Al Jomaih Group, Sojitz, SEC

Credit Agricole, Standard Chartered, EDC, KfW, Societe Generale, Intesa, CIC, Alinma Bank, NCB, BSF and Samba

June 2010

Shuweihat II IWPP (Abu Dhabi)

• US$ 2.68 b• 25 years

79:21 260 GDF Suez, Marubeni, ADWEABank of Tokyo Mitsubishi UFJ, Sumitomo Mitsui Banking Corp., KfW BankenGruppe plus 10 others

Oct 2009

Paris-Sorbonne University (Abu Dhabi)

• US$ 412m• 28 years

85:15 200 - 275 Mubadala Calyon, Bank of Tokyo Mitsubishi UFJ, SMBC, Royal Bank of Scotland, BNP Paribas, First Gulf Bank

Dec 2008

Queen Alia Airport (Jordan)

• US$795m• 26 years

47:53 175

Aeroport de Paris Management (AdPM), J&P Overseas, J&P Avax, Abu Dhabi Investment Company (ADIC), Engineering and Development Group, Noor Financial Investments

Crédit Agricole Group , Europe Arab Bank , Natixis, Islamic Development Bank, IFC

Nov 2007

Zayed University (Abu University)

• US$1 b• 10 years

83: 10 with 7% Mez

290 – 395 Mubadala Bank of Tokyo-Mitsubishi UFJ , First Gulf Bank , Crédit Agricole Group , Royal Bank of Scotland , SMBC and BNP Paribas

Nov 2009

Source: IJ Online – Inspiratia - MEED


Effectiveness of PPP

Advocacy

Decision

Making

Solid

Business

Case

OperationConstructionFeasibilityPlanning

Concession granted

Comments:

Advocacy:

• Visioning for the Project• Monitoring of the Concession

Decision Making:

• Agreement to take into transaction phase based in market testing

• Selection of appropriate SPV• Intervention when output specifications not

delivered

Solid Business Case:

• Determining the basis for private sector participation

• Engaging market for best price against service delivered (i.e. Value for Money)

• Delivery on outline case

Procurement

Commercial CloseFinancial Close


Current strategies in various countries in the region

Saudi Arabia No central PPP Unit

(Municipalities) Projects closed in waste water and

aviation Pipeline: IWPP, transport, city

development

Egypt Delivered projects in social,

utilities, transport Decree No. 238 of 2011 Egypt’s

PPP Law Pipeline: Healthcare, Ports

Libya All infrastructure sectors PPP model being considered by

new government Pipeline: Transport, healthcare,

education, power, refineries

Jordan Transport, however attempted

using PPP on renewable projects

Privatisation law in 2000 followed up by PPP regulations in 2008

Pipeline: water, transport

Qatar PPP framework under development Healthcare, education, housing, IWPP Pipeline: Education, healthcare,

housing, IWPP

Kuwait IWPP, social and transport PPP Law, PTB Pipeline: Many PTB projects

on hold

Bahrain IPP/IWPP/ waste water Privatization committee Pipeline: Social housing

UAE IPP/IWPP, Social,

transport

Abu Dhabi No PPP Legislative

framework No defined pipeline

Dubai PPP legislation in

process Pipeline: Transport

Oman Power and water (IPP/IWPP) Regulation comment Pipeline: Education, healthcare,

housing


Global Examples

Australia Mature PPP market Pipeline projects in

education and transport aligned to the commodity industry

South Africa PPP Unit created in

2000 Potential PPP

projects in healthcare, waste and water management to improve agricultural sector

UK PF2 being rolled out Lack of clear pipeline of future projects,

however rail and nuclear appear to be signature projects being carried forward

India Political will for PPP

and private sector participation is strong

1,965 total PPP projects up to 2011

Opportunities in transport sector

Nigeria Closed deal on

highway PPP PPP pipeline focused

on transport and power (e.g. Lagos Airport)

USA Total of 34 states

(including Puerto Rico) possessing dedicated P3 legislation

All Sectors,, however key sectors include transport (e.g. Chicago Midway Airport), social accommodation, and renewables

Canada PPP model supported at

both federal and provincial levels

33 operational PPPs Pipeline projects focus is

transport

Spain Mature PPP market with significant recent

volumes of secondary market sales Pipeline projects in transport


Partnership strategies for successful implementation of PPP

Fund raising incentives

Expropriationof private land

Organizationand legal

framework

Central PPP Unit

Government equity stake in

the SPV

• Subsidies e.g. interest accrued on loans• Investment grants for construction• Coordinating with financial institutions to provide medium/long term financing (i.e.

refi-risk, subsidise accrued interest etc)• Examples include Egypt Authorities covering changes in base rate but not

margins• Where necessary, authority expropriate land for use by the private investor• Provision of infrastructure ready sites with plots enabled through connections to

the utilities grid• Examples include Dubai and Bahrain free zones

• Significant relaxation of regulatory impediments and restrictions• Investment in public sector procurement authorities• Transparent and consistent tendering process• Examples include Kuwait’ Law 2007 with Dubai also drafting a PPP law

• Captures lessons learnt for future projects• Consistent assessment and benchmarking of projects by Higher Committee• Fair and transparent approach to procurement• Examples include Kuwait’s Partnerships Technical Bureau (PTB)

• Ultimate form of risk sharing• Enables control of the project through regular government intervention• Examples include Omani IWPP transactions and latest Treasury advice from UK


Questions?

world islamic economic forum (wief) madinah institute for leadership and entrepreneurship (mile) 7...

Documents