Training workshop PPP in health sector

Transcription

1 EU Health Facility, Vietnam Training workshop PPP in health sector Session 9 Tran Duy Hung Senior PPP and Finance Expert Da Nang, 1-3 December,

2 Content Healthcare PPP structures/options Financing hospital PPP projects 2

3 Optimum balance in Healthcare PPPs: depend on market and public conditions Value for money Bankability (Market and bank/equity requirements) Affordability (Patient affordability and public budget capacity) 3

4 PPPs can offer a mechanism for government to finance improved healthcare provision Private Provider Contract Ministry of Health/PPC Assets (e.g.$, facility, skills) New healthcare facility or services Assets (e.g.$, land, facility) 4

5 In healthcare sector, PPPs can be structured around: Hospital and Clinical services Clinical services: Delivery of medical care, including doctors, nurses and skills 5

6 There are different PPP contracting options that can be considered Outsourcing of non-clinical support services Outsourcing of clinical support services Outsourcing of specialized clinical services Establishing a private hospital wing within a public hospital Private management and lease of services and facilities Private financing, construction and leases Private financing, construction and operation, and Full privatization 6

7 PPP Contracts PPP Contracts (Decree 15/2015/NĐ-CP) BOT/BTO/BOO User pay BTL/BLT BT O&M Payment from GoV Land for Infrastructure Service fee Sources of Revenues for Investors 7

8 Range PPP Structuring Options High Concession Divestiture (Investor- Owned Utility) RETURNS (to The Private Sector) BLT/BTL BOO/ BOT Low Service Contract O&M Low RISK (Private Sector Investment Required) High 8

9 Financing healthcare PPPs Healthcare PPP projects have to be affordable, feasible and sustainable This therefore requires a careful assessment of capital expenditures, revenue drivers, and estimated operating expenses If a finance gap is identified, it is critical that the party responsible for this is identified and held responsible 9

10 Main Sources of Healthcare Financing in Vietnam Public Expenditure Government Funds Out-of-Pocket Expenditure (OPE) Private Expenditure Insurance ODA 10

11 Challenges in Viability Gap Biggest hurdles in Vietnam may be in viability gap (High investment costs but Public concern to keep pricing at affordable level to public) Huge Investment Sector Policy Needs for Reasonable Cost Recovery Too much Risks Huge investment Costs & Needs for reasonable Cost Recovery (Required Return) Public Policy concerns Competitive & Affordable Pricing Policy (Regulated returns) Optimum balance not achieved, unable to compromise Affordable Pricing Cross Subsidies Simple call for FDI and concession type BOT would not become a suitable solutions, unless VIABILITY GAP is to be absorbed in some way or other

12 Many, but not all, infrastructure projects identified will have HIGH economic and social rates of return, but will have relatively LOWER financial rates of return for the owners. High Low Financial Internal Rate of Return (FIRR) Publicly-Identified Projects High Social & Economic Internal Rate of Return (EIRR) Low 2. Project Structuring (Public Supports) Privately- Identified Projects 1. Project Screening 12

13 PFI Hospital Project (Design-Finance-Build-Maintain-Transfer) Private Sponsor 1 Developer/Investor Private Sponsor 2 Design/Construction Private Sponsor 3 Facility Maintenance $ Lenders Loan Repayments Equity Single Purpose Project Co. (SPV) Unitary Payment Available Hospital Facility Financial Perform. Guarantee PPP Contract Government (Min. of Fin.) Patient Fees (IF any ) State Health Dept. Patients Health Care Services State Budget Funding 13

14 Infrastructure Financing Methods From the Lender s Perspective 1. Sovereign Finance 2. Corporate Finance 3. Limited-recourse Project Finance 14

15 Sovereign Finance Government borrows funds to finance a new public infrastructure facility and provides a sovereign guarantee to lenders. Govt. may contribute its own equity in addition to borrowed funds Lenders analyze government s total ability to raise funds through taxation and general public enterprise revenues, including any new tariff revenue from the project Sovereign guarantee shows up as a liability on Government s list of financial obligations $ Lenders /MDBs Sovereign Guarantee Loan Repayment GOVERNMENT Min. of Finance Line Min./ ASA Tariffs Construction Contract Private Construction Contractor Construction Taxes Consumers/ Tax Payers Services Public Infra. Facility 15

16 Corporate Finance A private corporation borrows funds to construct a new infra facility/project and pledges its own private assets to lenders as collateral to guarantee repayment. Corporation carries this debt ON its own balance sheet ( Mining the Corporate Balance Sheet ) The corporation may choose to contribute its own equity as well. In performing credit analysis, lenders look at the assets pledged by the corporation as well as the strength of its other revenues. $ Lenders Loans Repayment Private Corp. Fees or Tariffs PPP Contract /License Investment Infrastructure Facility Government Users Services 16

17 Limited-recourse Project Finance A Team or Consortium of private firms establish a new Single-Purpose Project Company (SPV) to Build & Operate a new infra facility. The SPV is capitalized with equity contributions from private sponsors. The Project Company (SPV) then borrows funds (80%) from private commercial lenders. The lenders look almost only to the projected future revenue stream generated by the project and the Project Company s limited assets to repay all loans. The host country government does not provide a full guarantee to lenders. Private sponsors provide only limited guarantees to contribute more equity, if needed. Off-Balance-Sheet financing $ Lenders Loans Priv. Sponsor 1 Repayments Equity Priv. Sponsor 2 Equity Single Purpose Project Co. (SPV) Priv. Sponsor 3 Implementation/ Concession Agr. Govt. User Fees or Unitary Payments Public Services End-Users 17

18 Project Finance CONs Lender s are risk-averse PPP Transaction Costs are high Some projects do not reach financial closure Private financing is more expensive than public financing PROs Large Projects which no single private corp. can fund on its own balance sheet Long Terms long project operating lives, so long-term financing required Unique Function projects are a stand alone business Monopoly projects are either natural monopolies or given some exclusive rights by Govts. Returns Loan sizes are very large and higher risks can be matched by higher returns 18

19 Corporate Finance vs.project Finance Corporate Finance Corporate borrowing Many projects All assets are exposed to the risks of payment obligations Financing on the balance sheet of the investor Focus on inputs Indefinite time horizon for equity On balance sheet Project Finance Project borrowing One project, one cash flow Non or limited- recourse Financing on the futute cash flow of the project Focus on project risks Project life cycle is limited Off balance sheet 19

20 Attractiveness of financing strategies Public Finance Corporate Finance Project Finance Government Private investor/contractor Lender 20

21 Thank you for your attention!!! Questions and queries, please contact: Mr. Tran Duy Hung CEO of Monitor Consulting, Senior PPP and Finance Expert Tel: Website: 21