Keynote speech An International Evaluation of PPP Models for Roads

Transcription

1 7 th Portuguese Roads Congress National Civil Engineering Laboratory Keynote speech An International Evaluation of PPP Models for Roads César Queiroz, Ph.D. Roads and Infrastructure Consultant Former World Bank Highways Adviser Lisbon, 12 April 2013

2 Presentation Outline Infrastructure and economic development Public and private financing Private financing in the UK: from PFI to PF2 Toolkit for PPP in Roads and Highways Main stages of a PPP project Financial models for assessment of PPP Sharing of risks between the public and private sectors Discussions

3 Infrastructure The built environment in which we live (Ausubel and Herman) The physical framework upon which the economy operates and our standard of living depends (ASCE)

4 Infrastructure comprises Public utilities: power, telecommunications, piped water supply, sanitation and sewerage, solid waste collection and disposal, piped gas Public works: roads, dams, canals, railways, ports, waterways, airports, buildings

5 Developing and Developed Countries Developing countries include low- and middleincome economies Developed (advanced, industrial, rich) countries denote high-income economies The World Bank s main criterion for classifying economies is gross national income (GNI) per capita, previously referred to as gross national product (GNP)

6 Classification of Economies Economies GNI per capita Low-income $1,025 or less Middle-Income $1,026 to $12,475 Lower $1,026 to $4,035 Upper $4,036 to $12,475 High-income $12,476 or more Source:

7 Examples of Gross National Income GNI, $/cap Country US$/capita Nor Swi USA Fra Slo Por Est Bra Arg 9740 Mex 9240 Bol 2040 Taj 870 DRC 190 Nor Swi USA Fra Slo Por Est Bra Arg Mex Bol Taj DRC

8 Economic Development and Infrastructure GNI ($/pop) GNI = 1.39 PRD R squared: countries Source: Queiroz and Gautam

9 Public and Private Financing Many governments have recognized that more (and better quality) infrastructure is needed They also know the limitations of their budgets and public debts Private financing has been sought as a means to improve infrastructure without overburdening public budgets

10 Private financing is not new Toll road at Wadesmill in Hertfordshire, UK, established in 1663 by Act of Parliament 19th century concessions: toll roads, bridges, tunnels in US; railways in France; subway in London Suez (1860) and Panama (1880) canals Decline around 1930 (great depression) Resurgence in the 1980s: worldwide

11 The Maysville Turnpike, USA, 1830

12 U.S. 1 in South Carolina, 1921 A toll house at the approach to a bridge

13 Toll Backup Chesapeake Bay Bridge toll booths, beachbound traffic August 1999 Source: The Washington Post

14 Riverside Freeway, SR 91, CA First fully automated toll road (free-flow system), 16-km long, opened on December 27, 1995 Serves commuters on Riverside Freeway (SR 91), Orange County, south of Los Angeles Original developer and operator: California Private Transportation Company Achieved cash flow break-even in mid-1998 (can pay operating and debt expenses from revenues)

15 SR 91: Toll lane information

16 SR 91: Toll rate information

17 SR 91: Two express toll lanes in each direction

18 SR 91 Express Toll Lanes Typical afternoon peak

19 Private Finance Initiative (PFI) in the United Kingdom In Britain, the private finance initiative has been used to build everything, from roads to hospitals. So far, projects worth GBP 53 bn have been signed. Source: Building debts for the future, Financial Times Editorial Comment, August 8, 2011 (page 8),

20 UK: From PFI to PF2 UK Treasury report (Dec 2012), "A new approach to public private partnerships," stated that PFI "has become tarnished by its waste, inflexibility and lack of transparency" Changes include government participation as a minority equity investor ensuring greater public sector involvement, responsibility, and transparency which also reduces leverage (debt to equity ratios)

21 Long term public debt and user charges A possible alternative to long term public debt: Charge the users (e.g., tolling) as Portugal has done and the UK has started to do: Its first tolled motorway is the M6, near Birmingham, operated by Midland Expressway Limited:

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23 US$ millions PPP activity slowed down in many countries Global investment in Road PPPs Roads Total BRICS OECD Others India and Brazil Source: Dealogic ProjectWare Database 23

24 Financing of PPPs impacted by the Global Financial Crisis Before crisis ( ): perception of less risky economy Too much money chasing few projects Trend toward very large PPPs Emphasis on off-balance sheet accounting GFC aftermath ( ): perception of risk increased Availability of financing drastically reduced Bidders unable to fully secure financing by bid date Less loan syndication, longer to close 24

25 Highly leveraged projects out of flavor n in OECD countries * Based on a sample of 80 PPP projects across infrastructure sectors, which reached financial close in 2011

26 Solid projects reached financial close despite crisis Examples of failure and success in 2010 Comarnic-Brasov Highway, Romania Alignment changed by 70% following negotiations (Euro 2 billion) No clarity on how availability payments would be financed Unknown financial adviser Project considered too big and complex Preferred bidder pulled out before financial close St Petersburg Pulkovo Airport Expansion Existing airport with growing demand PPP legislation enhanced High-quality international advisers Bidders comments and flexibility incorporated Attracted more than Euro 1.2 billion Global PPP Deal of the year

27 Toolkit for PPP in Roads and Highways Developed by the World Bank/PPIAF To assist transport sector policy makers to implement procedures to promote private sector participation and financing of roads Available, in English and Russian, free of charge at:

28 The Six Modules of the Toolkit Additional Tools: Glossary, Site Map Link to the Toolkit: Toolkit

29 The Six Modules of the Toolkit Dance, Henri Matisse, 1909, Oil on canvas, MOMA, N. York

30 Continuum of PPP options The Toolkit presents a broad definition of PPP including performance-based contracts

31 Main stages to launch a PPP project Stage 1: Identification, Prioritization and Selection of the PPP Project Stage 2: Due Diligence and Feasibility Studies: includes activities and studies to ensure the selected project is well designed and can be successfully tendered and implemented Stage 3: Procurement: includes prequalification of bidders and the bidding and bid evaluation processes, and a section on Unsolicited Bids

32 Main stages to launch a PPP project Stage 4: Contract Award: gives advice on dealing with the preferred bidder Stage 5: Contract Management: deals with the construction and operation periods of a project including transfer back if relevant BOT, but not BOO Reference: Toolkit Module 5

33 Financial assessment of PPP projects May be required in every stage (1 to 5) of a PPP project In particular, financial assessments may have to be done several times during the implementation phase of a project - renegotiations Used to be a cumbersome task, only done by financial experts The financial models included in the Toolkit for PPP in Roads and Highways have helped to demystify such calculations

34 Toolkit Financial Models Purpose Familiarization of non-financial specialists with the basics of project finance and financial simulations for a (highway) PPP project Better understanding of key parameters which affect the financial viability of a PPP project Preliminary scrutiny of PPP projects Limits Simplified financial models: graphical and numerical versions Specific project assessment requires detailed financial models prepared by experienced financial practitioners

35 Represents the main financial features of a project company in graphic form and their sensitivity to a range of 14 key assumptions The graphs change according to the key project assumptions Cash Flow graph Debt graph Dividends graph Graphical Model Link to financial models Toolkit > Tools > Financial models

36 Numerical Model Provides financial statements by a potential concessionaire to analyze the construction and operation of a Build-Operate-Transfer (BOT) highway concession The Assumptions sheet of the model contains key parameters and data input as determined by the user The financial model is not a banking model and is not intended to provide project-specific financial modeling

37 Traditional procurement and PPP arrangements Project life: usually less than 5 years vs more than 20 years Completion and delivery of the facility vs long term service provision Input vs output orientation Contract signed with a contractor vs with a special purpose vehicle (SPV) Public financed vs user fees or tariffs (or some other arrangements) Better sharing of risks in PPP

38 How can the goals of a complex PPP project be achieved? Careful selection of the project Due consideration of economic, financial, social, and environment aspects Realistic expectations, including deadlines A dedicated and well prepared team PPP agreement satisfactory to stakeholders, including a fair distribution of risks Transparent, competitive selection of the concessionaire

39 Un cuento Cuando despertó, el dinosaurio todavía estaba allí. [When s/he awoke, the dinosaur was still there.] Augusto Monterroso ( ), Guatemalan writer

40 Renegotiation Why Renegotiation? The concession designs and regulations are incomplete The conditions in the original contract are largely changed for example, revenues much lower than anticipated Governments interfere with contract clauses

41 Renegotiation (cont d) Cost of Renegotiation May undermine the competitive bidding process, consumer welfare, and sector performance May increase public opposition to PPP May compromise the credibility of the government and its reform program Source: Guasch (2004)

42 Distribution of risks between the public and private sectors Varies with the form of public support For both actual tolls and shadow tolls, the private investors assume demand (traffic volume) risk, but this risk is smaller under shadow tolls because traffic volumes are not subject to the effect of toll rates ( elasticity ) For availability payments, demand risks remain with the public sector, while the main risks assumed by the private partner are construction risk and those associated with road performance during implementation of the contract Minimum traffic or revenue guarantee helps to mitigate the demand risk

43 Experience in some countries UK, Portugal: Toll, shadow toll, availability fee China, Brazil, Italy, USA, Canada: Toll India, Korea: Toll, availability fee France, Spain: Toll, capital grant Chile: Toll, minimum revenue guarantee Poland: Toll, shadow toll Finland: Shadow toll

44 Road Concession Options and the Distribution of Risks Option Construction Demand Performance - Traditional Public Public Public Outsourcing - PBC Public Public Private - Tolls Private Private Private - Shadow Tolls Private Private Private - Availability Private Public Private Fees - Hybrid Private Pri/Pub Private

45 Allocation of risks High RISKS TO PUBLIC SECTOR Force Account Traditional Outsourcing Performance-based Contracts Availability Payments Shadow Tolls Decreasing Public Risks, Increasing Private Risks Toll Road BOT BOO Low RISKS TO PRIVATE SECTOR High

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47 OBRIGADO! Cesar Queiroz Roads and Transport Infrastructure Consultant Former World Bank Highways Adviser Tel: Washington, DC USA

48 Change in Terminology Following statistical practice, the World Bank has adopted the following terminology in line with the 1993 System of National Accounts (SNA). The changes in terms are listed below: Previous terminology New terminology Gross national product, GNP Gross national income, GNI GNP per capita GNI per capita Private consumption Household final consumption expenditure General government consumption General government final consumption expenditure Gross domestic investment Gross capital formation Source:

49 References Toll Roads and Concessions How to Hire Expert Advice on PPP Labor Issues in Infrastructure Reform Toolkit for PPP in Roads and Highways Concession Law Reform EBRD European Commission Communication on Public Private Partnerships ML&aged=0&language=EN&guiLanguage=en

50 References (cont d) Workshops on the Toolkit for PPP in Roads and Highways: New Delhi, Brasilia, Kiev, Moscow Worldwide Trends in Private Participation in Roads ation_in_roads.pdf Seminar on Legal, Economic, and Implementation Issues in PPP Projects, Warsaw, June 17-18, Competitive Selection of Private Partners and Use of Standard Bidding Documents, June ystoolkit/6/bibliography/pdf/poland_comp_selec_conces_cqueiroz_ pbaquero_final.pdf

51 References (cont d) Ausubel, J. and R. Herman Cities and their Vital Systems: Infrastructure past, present and future. National Academy Press, Washington, D.C., USA Failure to Act: The Impact of Current Infrastructure Investment on America s Economic Future American Society of Civil Engineers World Bank GNI per capita, Atlas method UK Treasury. Dec "A new approach to public private partnerships df Guasch, J. Luis (2004). Granting and Renegotiating Infrastructure oncessions Doing It Right. Washington, D.C.: World Bank /Rendered/PDF/288160PAPER0Granting010renegotiating.pdf

52 Cesar Queiroz, former World Bank Highways Adviser, is an international consultant on roads and transport infrastructure. His main expertise is in public-private partnerships, road management and development, performance-based contracts, port reform and rehabilitation, improving governance, quality assurance and evaluation, research, teaching and training. Between 1986 and 2006, he held several positions with the World Bank, including Lead Highway Engineer and Principal Highway Engineer. Prior to joining the World Bank, Cesar was the deputy director of the Brazilian Road Research Institute in Rio de Janeiro. He holds a Ph.D. in civil engineering from the University of Texas at Austin, a M.Sc. in production engineering from the Federal University of Rio de Janeiro, and a B.Sc. in civil engineering from the Federal University of Juiz de Fora, Brazil. Cesar has published two books and more than 130 papers and articles. His recent assignments include infrastructure advisory services to Russia, Brazil, Latvia, Lithuania, Poland, Ukraine, Philippines, Uganda, Sri Lanka, India, Egypt, Colombia, Laos, Mozambique, Saudi Arabia, Tunisia, Sweden and Norway. He is currently a visiting professor at the University of Belgrade, Serbia, and has lectured on PPP at George Washington University since 1996, and at the International Law Institute since 2007.

53 Day Dream, Seward Johnson s sculpture, Photo by D. Aragona, December 2010

54 Why PPP? «The real issue for PPP is not public infrastructure versus private infrastructure. It is more simple: the issue is less infrastructure versus more.» Source: Clive Harris, World Bank 54

55 Development of PPP projects

56 Open competitive bidding Wide advertisement press, road show, data room Prequalification of potential bidders helps ensure quality bidders Bidding documents well prepared -- clear and nondiscriminatory Clear procedures for bid submission Public bid opening Transparent bid evaluation criteria, which are well defined in the bidding documents

57 Open competitive bidding (cont d) Negotiation of the final contract, if required, should be done only within the parameters defined in the bidding document Selection of the successful bidder based on the most economically advantageous offer Clear and effective complaint and appeal handling mechanisms in place