Infrastructure Public-Private Partnerships by zyc19183

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									Infrastructure
Public-Private Partnerships
EBRD sector factsheet


The EBRD is committed to the development
of a sustainable public-private partnership
(PPP) market in its countries of operations.
To date, it has invested €1.2 billion
supporting 23 PPP transactions in the
transport and municipal infrastructure
sectors with a total project cost of                                              The EBRD operates in 29
                                                                                  countries from central Europe to
€4 billion.                                                                       central Asia.


                                                                                   The world market
The infrastructure networks of central and eastern Europe and the former Soviet    for PPPs
Union were designed and built decades ago and are insufficient to support the
                                                                                   The market for transport and
needs of a market economy.
                                                                                   municipal infrastructure PPPs
A large amount of financing and expertise is needed to upgrade new roads and       is growing worldwide.
railways, ports and airports, water and waste-water networks, district heating
and urban transport.                                                                     Infrastructure PPPs
                                                                                         Number of projects

Many governments in the EBRD’s countries of operations have limited                 25

experience in applying public-private partnerships (PPPs) techniques to             20
implement their infrastructure plans
                                                                                    15
The EBRD has a rich experience in financing transport and municipal
infrastructure PPP projects, working with central or local governments and the      10

private sector.
                                                                                     5



PPP essentials                                                                       0
                                                                                              2005
                                                                                                    Europe
                                                                                                           2006          2005      2006
                                                                                                                          Outside Europe

A public-private partnership is a long-term contract signed by a public                       Transport             Municipal infrastructure

agency (federal, regional or local) and a private partner for the construction,
refurbishment, operation and maintenance of the infrastructure network (e.g., a          Infrastructure PPPs
                                                                                         US$ billion
road system, a water treatment plant).                                              20


With a PPP, governments rely on the know-how, expertise and finance of the
                                                                                    15
private partner to deliver the infrastructure services that are traditionally
provided by the public sector.
                                                                                    10

PPPs are more likely to be successful if the selection of the private partner
is open and competitive, risks are allocated “efficiently” to the party who is       5

best able to manage it, and the PPP contract is fair and flexible to adapt to
unforeseen events.                                                                   0
                                                                                             2005            2006        2005        2006
                                                                                                  Europe                 Outside Europe
                                                                                               Transport            Municipal infrastructure


                                                                                   Source: Infrastructure Journal Project Database.
                                                                                   This contains only PPP projects that reached
                                                                                   financial close where a significant part of the
                                                                                   project is funded under a limited recourse or non-
                                                                                   recourse project finance structure.
Well-designed and implemented contracts can meet
the challenges of PPPs and provide the benefits of
private sector involvement.


                                                         Advantages and challenges
                                                         There are potential advantages and challenges of using
                                                         PPPs to implement infrastructure projects in transition
                                                         economies.

                                                         On the advantages side, PPPs can:
                                                         ■   represent “value for money” over the life-cycle of the
                                                             project
                                                         ■   accelerate public investment plans
                                                         ■   deliver projects on time and within budget
                                                         ■   transfer some project risks to the private sector.

                                                         On the challenges side, PPPs can:
                                                         ■   be complex deals with high transaction costs
                                                         ■   hide public liabilities which should be accounted for
                                                         ■   sometimes result in corrupt behaviour by the public
                                                             and private parties involved
Treating Zagreb’s waste water
                                                         ■   be the subject of undue political influence.
Following an international competitive tender in 2000,
ZOV, a Zagreb-based company owned by a consortium        Well-designed and implemented contracts can meet the
made up of two international companies and a local       challenges of PPPs and provide the benefits of private
company, was awarded a 25-year concession contract       sector involvement. While PPPs are growing in acceptance
to build, operate and transfer back to the state a       across the world, they will not replace traditional public
waste-water treatment plant for the city of Zagreb.      procurement. The choice of procurement option by
                                                         governments should be driven by “value for money”
The total project cost is €288 million, including the    considerations.
construction of the plant and a bridge bringing sewage
across the Sava river. The EBRD provided €55 million.
Other finance was provided by KfW and the sponsor’s      Financing instruments
equity.
                                                         The EBRD can provide a wide range of financial products
The private consortium agreed to build the plant in      for use in PPP transactions including loans, equity,
line with EU environmental standards, operate it, and    guarantees and treasury products. For example, to date,
transfer it at the end of the concession period to the   the Bank has:
city of Zagreb. The city takes on the risk regarding     ■   provided loans to private parties to finance PPPs in
the volume of water used and the risk regarding the          its countries of operations in excess of €1.2 billion,
collection of the waste-water tariff.                        including junior and subordinated debt, which make
                                                             the senior debt more attractive to a broader range of
This allocation of      The total project cost is            investors
risks ensures that
the private operator
                        €288 million, including          ■   made equity investments in PPPs with a project value
constructs the plant    the construction of                  in excess of €155 million
and operates it         the plant and a bridge           ■   provided guarantees to underwrite the availability
efficiently to achieve  bringing sewage across               of refinancing, thereby creating synthetically longer
EU environmental        the Sava river.                      maturities that are necessary to support infrastructure
standards while the                                          projects
city has the incentive
                                                         ■   provided interest rate swaps to allow concession
to collect the tariffs
                                                             companies to manage interest rate risks.
to pay a fee to the operator.
The unique institutional features of the EBRD allow
the Bank to build trust between the public and
private sector.


Best practice features
Worldwide experience from successful infrastructure PPPs
points to a common set of best practices:
■   Design of the PPP contract should include a clear
    specification of the scope and quality of the services to
    be delivered by the private operator and the tariff that
    customers will have to pay for the service. It should
    provide a clear allocation of responsibilities and risks
    in the delivery of the infrastructure services regarding
    management, operations and maintenance, and
    investment finance.
■   Selection of the private operator should be based on a
    competitive process with clear and transparent criteria,
    which are fair to all bidders competing for the contract
    and cost-effective.
■   Implementation and monitoring of the PPP contract
    should benefit from the necessary institutional
    arrangements to manage the relationship between the
    private operator, the public contracting authority and
    the public as customers. This tripartite relationship
    includes performance monitoring, tariff adjustment,
                                                                Airport gateway in Albania
    dispute resolution and contract renegotiation.              In January 2004, following an international competitive
                                                                tender, Tirana Airport Partners (TAP), a consortium led
                                                                by Hochtief Airport of Germany, was awarded a 20-year
Building trust                                                  concession to modernise the “Mother Theresa” airport
The unique institutional features of the EBRD allow the         of Tirana, the only international airport in Albania and
Bank to build trust between the public and private sector       therefore the country’s main gateway.
participants in an infrastructure PPP investment.
                                                                The project includes the design, financing, building,
■   The Bank promotes transparency of the investment            operating and maintenance of a new passenger
    project involved and provides comfort to the private        terminal, a new cargo centre and an access road. The
    sector against political risks and comfort to the           cost of the project is just over €50 million. The EBRD
    government hosting the PPP regarding commercial             provided a senior loan to TAP, the concessionaire,
    fairness.                                                   alongside DEG and local banks Alpha Bank and
■   The Bank undertakes its own independent legal,              American Bank of Albania.
    economic and financial due diligence.
                                                                TAP is taking the risk of   The project includes
■   When governments are embarking on a PPP                     building and operating
    programme for the first time and lack experience and                                    the design, financing,
                                                                the airport facilities in
    know-how, they can rely on the EBRD to facilitate the       line with the required      building, operating and
    appraisal and structuring of their project proposals.       design and construction     maintenance of a new
■   The Legal Transition Team of the Bank can assist            standards set in the        passenger terminal
    governments with the review of the legislative,             concession contract.
    regulatory and institutional features of their concession   The concessionaire is
    and PPP regimes.                                            also taking on traffic volume risk. Revenue depends
                                                                on traffic volume, passenger taxes and aircraft landing
■   The EBRD co-finances PPPs with other international
                                                                charges.
    financial institutions, such as the European Investment
    Bank and the International Finance Corporation and          This project was successfully awarded following
    private commercial sources.                                 an international tender with the participation of an
                                                                experienced investor. It is a “first” in south-eastern
                                                                Europe and the Caucasus and constitutes an excellent
                                                                example of the potential for PPP investments in the
                                                                region.
 Allocating traffic risk in Hungary                                                        Contacts
 Efficient risk allocation is a necessary condition for successful PPPs. The               European Bank for
 Hungarian motorway experience illustrates the importance of allocating                    Reconstruction and
 traffic demand risk.                                                                      Development
 In 1993, the EBRD financed the M1/M15 Hungarian motorway, the first                       One Exchange Square
 transport PPP in central Europe, where the traffic demand risk was fully                  London EC2A 2JN
 transferred to the private concessionaire. Planned traffic levels did not                 United Kingdom
 materialise and the concessionaire became insolvent and then liquidated in
 1998. A year later, the government nationalised the motorway.                             Switchboard/central contact
                                                                                           Tel:     +44 20 7338 6000
 In 1995, the EBRD financed the M5 motorway PPP. Learning from the M1/                     Fax:     +44 20 7338 6100
 M15 experience, the M5 PPP contract was designed with a five-year revenue                 Telex:   8812161 EBRD L G
 subsidy, to be activated in case of insufficient traffic, reflecting a partial
 transfer of traffic demand risk. Traffic volumes were lower than planned and              Infrastructure
 the subsidy was drawn on. Nevertheless, the concessionaire re-financed                    business group
 itself, ending its reliance on subsidies and enhancing its profitability. The
                                                                                           Director: Alexander Auboeck
 government finally replaced motorway tolls with “availability payments” paid
                                                                                           Tel:    +44 20 7338 7845
 from the public budget.
                                                                                           Email: auboecka@ebrd.com
 In 2005, the M6 motorway PPP, also co-financed by the EBRD, was
 developed and implemented in record time without cost overruns. The M6
                                                                                           Municipal and
 PPP contract was designed with “availability payments” where the private
                                                                                           environmental
 concessionaire bears no traffic demand risk.
                                                                                           Infrastructure team
                                                                                           Director: Thomas Maier
                                                                                           Tel:    +44 20 7338 7924
                                                                                           Email: maiert@ebrd.com

Infrastructure team PPP portfolio                                                          Transport team
                                                                                Total      Director: Riccardo Puliti
                                                                 EBRD                      Tel:    +44 20 7338 7379
                                 PPP                                           project
                   Period                     Sub-sectors       finance                    Email: pulitir@ebrd.com
                             transactions                                       cost
                                                               (€ million)
                                                                             (€ million)
                                            Water                                          Russia country team
Municipal and                               Waste water                                    Infrastructure Deputy Director:
environmental    1996-2006       11         Urban transport        658          1,385
infrastructure                              District heating                               Natasha Khanjenkova
                                            Solid waste                                    Tel:     + 7 495 787 1111
                                            Motorways                                      Email: Khanjenn@ebrd.com
                                            Railway stations
Transport        1993-2006       12                                564          2,578
                                            Ports                                          Legal transition team
                                            Airports
                                                                                           Senior Counsel: Alexei Zverev
                                                                                           Tel:    +44 20 7338 6370
                                                                                           Email: zvereva@ebrd.com
An experienced team
The EBRD’s portfolio of PPP transactions, both existing and new ones in                    Publications
the pipeline, is supported by a group of experienced bankers working in the                Tel:   +44 20 7338 7553
Transport and the Municipal and Environmental Infrastructure teams. With                   Email: pubsdesk@ebrd.com
its mandate to foster transition to markets and private sector involvement in
infrastructure, the EBRD is well-placed to serve the needs of transport and
municipal infrastructure networks across its countries of operations.                      www.ebrd.com

								
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