How to tap into the unique opportunity of infrastructure financing within the Argentine PPP framework. Nov 2018

Transcription

1 How to tap into the unique opportunity of infrastructure financing within the Argentine PPP framework Nov 2018

2 PPP framework development considering regional experiences Lessons learned Government iniciatives To promote short term political agendas is harmful for infrastructure and maintenance investment Infrastructure projects that are financed 100% by the public sector lead to structural disinvestment and cost inefficiency The government s priority is to promote sustainable development through infrastructure Legal frameworks and long term financing schemes have been implemented PPP law 27,328 was passed on November 2016 The statutory decree was published on February 2017, modified in November 2017 The PPP Unit (Ministry of Economy) works aligned with other Ministries on: Project design and structuring Feasibility studies Tender document preparation Promoting projects nationally and abroad Receiving assistance from CAF, World Bank and IDB for good practices recommendations

3 Risk structure and mitigation Contract length Country risk Demand risk Construction risk Liquidity premium impact Sovereign spread risk Real FX risk Conversion risk Controversy solution mechanism Source of funding risk Excess liquidity capture Transparency risk

4 Risk structure and mitigation Contract length Contract length Better balance between installment value and repayment duration Possibility of tendering again ahead of time, under different macro conditions MMUSD MMUSD/year 5 years 10 years 15 years 20 years 25 years 30 years Nominal cost Installment cost

5 Risk structure and mitigation Country risk Country risk Issuance of ARAIs with each monthly construction update Termination payment Monthly issuance of Investment Progress Recognition Acts (ARAI) only to be used for the calculation of the Termination Payments 100% End of construction 0% Month 1 Month 60

6 Risk structure and mitigation Demand risk Demand risk O&M expenses are repaid in equal installments throughout the length of the contract O&M cost repayment linked to demand scenarios Demand risk therefore mitigated Some projects with only one level of TPDs issued Other projects with multiple TPD levels triggered by user growth TPD Maint 1 TPD Maint 2 TPD Maint 3

7 Risk structure and mitigation 5 year construction term Construction risk Issuance of TPIs with each quarterly construction execution update Quarterly issuance of unconditional and irrevocable, US$denominated certificates Certificate values are subject to reaching quarterly milestones TPIs enable various types and sources of private funding End of construction TPI 1 TPI 20 Month 1 Month 60

8 Risk structure and mitigation Sovereign risk spread Sovereign spread TPI increases, to compensate for a higher sovereign risk spread TPI decreases, to compensate for a lower sovereign risk spread TPI Adjustment to PPP Contractor Reciprocal mechanism to hedge sovereign spread risk (SRS), applied between bid and financial close dates Spread SRS compression implies a reduction adjustment to TPIs, and vice versa Liquidity premium Sovereign risk spread to PPP Trust Return kept constant, in spite of SRS fluctuation US Treasury bond yield

9 Risk structure and mitigation Currency real appreciation - depreciation risk Real FX risk Mitigation amount PPP Trust mitigation Optional & reciprocal hedging mechanism by UVA/FX variation, applied during construction period -10% +10% Real FX Local currency real appreciation will be mitigated by PPP Trust PPP Contractor mitigation Local currency real depreciation will be mitigated by PPP Contractor

10 Risk structure and mitigation Conversion risk Conversion risk Total project cost Availability payments Repayment funding sources US$ denominated capex to be repaid in US$, through 10 years after end of construction, with TPIs issued quarterly through construction period CAPEX [USD] TPI Public resource ARS denominated opex to be repaid in ARS, on a monthly basis, with TPDs issued monthly OPEX [ARS] TPD User payments Adjustable TPD

11 Risk structure and mitigation Controversies solution mechanism Controversies solution risk Technical panel The affected party will possibly go to: Technical panel 3 specialists: technical, legal and financial, selected as a whole and at the beginning of the contract Judicial court International arbitration Judicial court Controversies solution International arbitration

12 Creation of the PPP under Law 27,328 and Law 27,431 Funding and payment risk Specific source (e.g. gasoil tax) PPP Trust as a vehicle for payment and guarantees Funding through specific sources such as liquid fuel taxes Other sources (tolls) Top-up payment FPPP 12-month reserve account TPI TPD Financing entity TPI PPP Contractor National Budget

13 Risk structure and mitigation Funding and payment mechanisms Funding and payment risks Quarterly TPI issuance Payments every 6 months for 10 years TPI maturities are grouped on an annual/biannual basis Construction period TPI-I TPI-II TPI-III TPI-IV

14 Risk structure and mitigation Funding and payments mechanisms Funding and payment risk Optimization savings Quarterly TPI issuance Payments every 6 months for 10 years TPI maturities are grouped on an annual /biannual basis Repayment schedule is optimized to reduce negative carry Construction period TPI-I TPI-II TPI-III TPI-IV

15 Risk structure and mitigation Surplus liquidity capture Excess liquidity capture Investment instruments offered by the Secretary of Finance according to the due date of each awarded project Such instruments will attract excess liquidity raised during construction period At a convenient rate for both parties PPP Trust TPI SPV PPP Capex Subcontractor TPI Capex TPI Investors in 144A bond or other TPI Capex Financing SPV IDI PPP Liquidity Potential available liquidity profile from the RARS Financing SPE Tíitles Funds IDI: Taylor made Investment Instrument Secretary of Finance

16 Risk structure and mitigation Process and document transparency Transparency risk High Level Reporting Mechanism with the Anticorruption Office and OECD Congress Bi-Chamber PPP Commission NAO follow up Free access to tender documents PPP Secretariat website

17 A structure to enable the optimization of multiple and new financing sources Short termfinancing Long term financing Loan Payments Bank financing Multilateral loan Long term bank loans TPI Buyer Y Principal + Interests TPI SPA PPP Contractor sells Y% of its TPI in exchange of the payment of a purchase price Bridge loan for construction VAT loan Y% payment of TPI Pre financial close cash Principal + Interests Consts during construction Principal + Interests Tariffs / Charges TPD payment Contracting party Reserve account PPP Trust Issuance of TPD Payments under EPC contract Z% payment of TPI PPP Contractor EPC Subcontractor TPI TPD Issuance of TPI Certificates of construction progress under EPC contract X% payment of TPI Payments International Bond TPI Buyer X Principal + Interests TPI SPA PPP Contractor sells X% of its TPI in exchange of the payment of a purchase price Post financial close cash Principal + Interests Financing through capital market Revolving working capital loans

18 New PPP Financing Trust will facilitate short-term loans Funding entity Bank 1 Convening authority Treasure letters Contracting entity Contract Guarantees PPP RARS Contract Guarantees PPP RARS Qualified credit subjects Consortium A Bank 2 Top up payment Depletion account Revolving working capital loans and CTEG Consortium B Bank 3 Bank 4 Multilateral Bank BNA Principal + Interests Loans to FPPPF Escrow account Funding account PPP Financing Trust Principal + Interests Consortium C Consortium E Consortium F Consortium SUR Corporate guarantees + ARAIs Payment by Termination + TPIs issued + Bail and pledge

19 The FPPPF will channel short-term financing for up to 1,300 MMUSD Capital Working de Capital Trabajo CTE Total ago 18 aug 18 feb 19 aug 19 ago 19 feb 20 aug 20 ago 20 feb 21 aug 21 ago 21 feb 22 aug 22 ago 22 feb 23

20 The PPP plan covers the main infrastructure sectors Energy and Mining Transport, Communications and Technology Water, Sanitation and Housing Health, Justice and Education

21 Projects bundled by bidding programs ENERGY AND MINING TRANSPORT, COMUNICATIONS AND TECHNOLOGY ELECTRICAL TRANSMISSION ROADS AND HIGHWAYS FREIGHT RAILWAYS PASSENGER RAILWAYS DESCRIPTION Construction of new high voltage transmission lines Road design, construction, expansion, Improvement, maintenance, operation, managing and financing Improvement of existing tracks and construction of new tracks and construction of a locomotive workshop Improvement, operation and maintenance of existing rail tracks of existing rail tracks TERM More than km in lines 36 months Stg1 2018Q4 Stg2 2019Q1 Stg3 2019Q2 More than km in highways and km in safe roads 665 km in railways and 1 locomotive workshop months 48 months Stg1 2018Q1 Stg2 2019Q1 Stg3 2019Q2 2019Q1 More tan 80 km in railways 36 months 2019Q1 MAGNITUDE TENDER

22 Projects bundled by bidding programs WATER, SANITATION AND HOUSING EDUCATION, HEALTH, AND JUSTICE HYDROELECTRIC DAM MULTIPURPOSE ADMINISTRATIVE OFFICES IRRIGATION HOUSING SOLUTIONS PENITENTIARY FACILITIES DESCRIPTION Construction of Dam and Hydroelectric Plant with associated power transmission lines and relocation of roads and a small town Construction of new and better work spaces for the National Public Administration Development program of new irrigation areas Housing Development Program (ProDeVi) Construction of 3 new penitentiaries TERM Installed power: 210 MW m hectares houses households 63 months 48 months 60 months months 2019Q1 2019Q2 N/A 2019Q inmates months 2019Q1 MAGNITUDE TENDER

23 Location of PPP projects - Roads and highways A Stage 1 Stage 2 Stage 3 Corridor A RARS E-I CAPEX: 1,330 MMUSD Tender: 2018Q1 D Corridor D RARS E-II Tender : 2019Q1 Q Corridor Cuyo RARS E-III Tender : 2019Q2 B Corridor B RARS E-I CAPEX: 1,233 MMUSD Tender : 2018Q1 I Corridor I RARS E-II Tender : 2019Q1 M Corridor Parque RARS E-III Tender : 2019Q2 C Corridor C RARS E-I CAPEX: Tender : 2018Q1 G Corridor G RARS E-II Tender : 2019Q1 L Corridor L RARS E-III Tender : 2019Q2 E Corridor E RARS E-I CAPEX: US$1,109 MM Tender : 2018Q1 N Corridor BB RARS E-II Tender : 2019Q1 J Corridor RARS E-III Tender : 2019Q2 F Corridor F RARS E-I CAPEX: US$921MM Tender : 2018Q1 H Corridor H RARS E-II Tender : 2019Q1 K Bridge Par-StaFe RARS E-III Tender : 2019Q2 S Corridor Sur RARS E-I CAPEX: US$806 MM Tender : 2018Q1

24 More than 23,000 jobs will be generated in PPP RARS Stage I [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] Jobs [CELLRANGE] Corridor A Corridor B Corridor C Corridor E Corridor F Corridor SUR Direct Employment [Years 1-4] Direct Employment [Years 5-15] Indirect Employment [Years 1-4] Indirect Employment [Years 5-15] Source: Dirección Nacional de Vialidad

25 Timeline of bidding, offers, adjudication, signing and execution of contracts Presentation to investors in Europe Market survey with financial entities Transparent Consultation Procedure Formal launch in the CCK Presentation to investors in Europe and EE.UU. Presentation to investors in Asia Presentation to investors in London Signing of the 6 contracts and integration of 550 MMUSD in guarantees Expected start of works Today Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Publication of draft pre bid Bid Presentations Publication of pre bid Opening of economic offers Receipt of technical and economic offers Awarding Takeover IDB Technical Assistance for structuring Executive summary publication of structure Reception of 1,200 inquiries via website, with the issuance of 11 circulars without consultation and 4 circulars with consultation Preparation of executive projects in conjunction with DNV

26 PPP Contractors have already committed 550 MMUSD in liquid guarantees Today Financial Closing Deadline Taking of Possession Provisory reception Additional guarantees to integrate: Month 6: +50 MMUSD Month 9: +50 MMUSD Definitive reception FCG = MWG = Reception of Offers MSG = 3 2,5 2% % % 3% TTPIAR 0,5% TTPIAR 3% TTPIAR BB = 15 MMUSD Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 15 TTPIAR: Total TPI Amount Required FCG: Financial Close Guarantee BB: Bid Bond MSG: Main Services Guarantee MWG: Main Works Guarantee

27 Proyectos PPP Líneas de Transmisión Eléctrica T M Stage 1 Stage 2 Stage 3 RD-CH LTE E-I Tender: 2018Q4 N PL-VV LTE E-II Tender: 2019Q1 W PL-BG LTE E-III Tender: 2019Q2 M O U Z W Y X V T X RD-LR LTE E-II Tender: 2019Q1 ET SM LTE E-II Tender: 2019Q1 O U CH-PL LTE E-III Tender: 2019Q2 PL-AT LTE E-III Tender: 2019Q2 N Y AT-BG LTE E-II Tender: 2019Q1 Z ET PL LTE E-III Tender: 2019Q2 P CH-PM LTE E-II Tender: 2019Q1 V PL-EZ LTE E-III Tender: 2019Q2 P

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