B I L F I N G E R B E R G E R

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1 Capital Markets Day Concessions 22 November 2006 Phases of a PPP-Project Jürgen Schönwasser, Managing Director 1

2 The Task: Define the process Structure the process Manage the process Conclude the process Support the operations 2

3 Part 1: Development Project Identification Bid Budget Bid Strategy ITN Risk/Reward Analysis Project Selection Analysis of Tender Documents ITN Commitments / Approvals Phases of a PPP-Project: Example Transportation Building the Consortium Set up of Working Groups Bid Clarification BAFO Preferred Bidder Selection of Advisors Preliminary Information Memorandum Short List Documentation Preliminary Selection of Banks Interface with D&C Contract Negotiations Establish SPC Prequalification Interface with O&M Bid Strategy BAFO Financial Close 3

4 1. Client Country / State Legal framework Financial consideration Track record of closing deals Project Selection (1) Is it an attractive project? Can we win the project? Relationship Professionalism Quality of advisors 4

5 2. Project Strategic fit Risk / Reward consideration Size Project Selection (2) 3. Competitiveness Competition Competitive edge of BB Competitive edge of partners Local know-how Own capacity Own experience 5

6 Part 1: Development Project Identification Bid Budget Bid Strategy ITN Risk/Reward Analysis Project Selection Analysis of Tender Documents ITN Commitments / Approvals Phases of a PPP-Project: Example Transportation Building the Consortium Set up of Working Groups Bid Clarification BAFO Preferred Bidder Selection of Advisors Preliminary Information Memorandum Short List Documentation Preliminary Selection of Banks Interface with D&C Contract Negotiations Establish SPC Prequalification Interface with O&M Bid Strategy BAFO Financial Close 6

7 Prequalification 1. Members of the consortium Corporate structure Role in the consortium Financial and economic standing Experience, ability and technical capacity Experience with PPP 2. Nominated subcontractors 3. Advisors Support letters 4. Project management 5. Ability to secure funding Support letters 7

8 Part 1: Development Project Identification Bid Budget Bid Strategy ITN Risk/Reward Analysis Project Selection Analysis of Tender Documents ITN Commitments / Approvals Phases of a PPP-Project: Example Transportation Building the Consortium Set up of Working Groups Bid Clarification BAFO Preferred Bidder Selection of Advisors Preliminary Information Memorandum Short List Documentation Preliminary Selection of Banks Interface with D&C Contract Negotiations Establish SPC Prequalification Interface with O&M Bid Strategy BAFO Financial Close 8

9 Bid Budget Bid Stage Original Current RFP Remaining Budget Budget Total Budget Total Budget Month appr. Budget Budget Spent to Budget PQ RFP Bid BAFO until PB isation Activity to Bid Sub. to Bid Sub. To-Date Preparation Phase Announcement = Bid Management: Local Project Office - Office Rent 0 - Bid Support 0 Bank Charges 0 Bid Bond 0 Translation 0 Copies 0 Document Production 0 Tender Documents 0 Bond Rating Prelim. 0 Other 0 SUBTOTAL BID MANAGEMENT LEGAL ADVISER SUBTOTAL LEGAL ADVISER FINANCIAL ADVISER Retainer 0 Milestones 0 Out-of-Pocket Expenses: 0 London Trips SUBTOTAL FINANCIAL ADV. 0 TAX/ACCOUNTING ADVISER Fees 0 Out-of-Pocket Expenses 0 SUBTOTAL TAX 0 INSURANCE ADVISER Fees 0 Out-of-Pocket Expenses 0 SUBTOTAL INSURANCE 0 TRAFFIC ADVISER SUBTOTAL TRAFFIC PUBLIC RELATIONS / LOBBY. SUBTOTAL LOBBYING OPERATIONS&MAINTENANCE Fees 0 Out-of-Pocket Expenses 0 SUBTOTAL O&M u. FOE 0 HSE 0 Fees 0 Q uality + HS Environment SUBTOTAL HSE 0 0 CONTINGENCY 0 ADVISERS TO LENDERS 0 Financial Model Audit Traffic Study Audit 0 Legal Advisor 0 - Out of Scope Issues 0 Insurance Advisor 0 Technical Advisor 0 SUBTOTAL ADV. LENDERS 0 0 TOTAL COSTS 0 Total Budget Success Total Budget until CC=FC Fees until CC=FC excl. Success Fees incl. Success Fees

10 Part 1: Development Project Identification Bid Budget Bid Strategy ITN Risk/Reward Analysis Project Selection Analysis of Tender Documents ITN Commitments / Approvals Phases of a PPP-Project: Example Transportation Building the Consortium Set up of Working Groups Bid Clarification BAFO Preferred Bidder Selection of Advisors Preliminary Information Memorandum Short List Documentation Preliminary Selection of Banks Interface with D&C Contract Negotiations Establish SPC Prequalification Interface with O&M Bid Strategy BAFO Financial Close 10

11 D&C Working Groups Legal Project Management Finance Heavy Traffic Maintenance O&M 11

12 Part 1: Development Project Identification Bid Budget Bid Strategy ITN Risk/Reward Analysis Project Selection Analysis of Tender Documents ITN Commitments / Approvals Phases of a PPP-Project: Example Transportation Building the Consortium Set up of Working Groups Bid Clarification BAFO Preferred Bidder Selection of Advisors Preliminary Information Memorandum Short List Documentation Preliminary Selection of Banks Interface with D&C Contract Negotiations Establish SPC Prequalification Interface with O&M Bid Strategy BAFO Financial Close 12

13 Preliminary Information Memorandum 1. Project Overview 2. The Consortium 3. Concession Contract 4. Concessionaire s Remuneration 5. Traffic 6. Commercial Arrangements 7. Insurance 8. Financing Plan 9. Risk Analysis 10. Base Assumptions & Sensitivity Analysis 11. Advisors to the Mandated Lead Arrangers 12. Various Financing Documents in Draft Form 13

14 Part 1: Development Project Identification Bid Budget Bid Strategy ITN Risk/Reward Analysis Project Selection Analysis of Tender Documents ITN Commitments / Approvals Phases of a PPP-Project: Example Transportation Building the Consortium Set up of Working Groups Bid Clarification BAFO Preferred Bidder Selection of Advisors Preliminary Information Memorandum Short List Documentation Preliminary Selection of Banks Interface with D&C Contract Negotiations Establish SPC Prequalification Interface with O&M Bid Strategy BAFO Financial Close 14

15 Risk / Reward Analysis Risk Matrix Mitigation Measures Pricing Pass through of Construction and O & M Risk Heavy Maintenance Risk: Life Cycle Evaluation Traffic Risk: Downside Risk Assessment Value Creation 15

16 Part 1: Development Project Identification Bid Budget Bid Strategy ITN Risk/Reward Analysis Project Selection Analysis of Tender Documents ITN Commitments / Approvals Phases of a PPP-Project: Example Transportation Building the Consortium Set up of Working Groups Bid Clarification BAFO Preferred Bidder Selection of Advisors Preliminary Information Memorandum Short List Documentation Preliminary Selection of Banks Interface with D&C Contract Negotiations Establish SPC Prequalification Interface with O&M Bid Strategy BAFO Financial Close 16

17 Phases of a PPP-Project: Example Transportation Part 2: Construction and Operation Start of Concession Completion Certificate Staffing of SPC License to Operate Opening to Traffic Start of Construction Traffic and Road Management Contract Management Continuous Financial Analysis Preparation O & M Refinancing Completion Documentation Sale 17

18 M6 Motorway - Hungary 18

19 Overview of M6 Project Payment mechanism Contractual structure Risk allocation Refinancing Table of Content 19

20 Overview of Project Payment mechanism Contractual structure Risk allocation Refinancing 20

21 Financing, design, construction, operation and maintenance of the first section of the motorway M6 & M8 from Érd to Dunaújváros in Hungary as PPP - model 21

22 BILFINGER BERGER Motorway construction in Hungary up to

23 Motorway: Investment volume: Concession Term: Payment Structure: Key Characteristics 58.6 km approx. 482 m construction 395 m 22 years incl. 18 month construction period 100 % availability risk 23

24 Engineer of Concessionaire (Föber Rt. & TransInvest Kft) Financing Banks Bayerische Landesbank Commerzbank KFW KBC Key Project Participants Design Design Roden Kft. Fömterv Kft. Concessionaire (BB 40% + Porr 40% + Swietelsky 20%) Contractor Contractor Bilfinger Berger 1/3 Porr 1/3 Swietelsky 1/3 Subcontractors Employer (Ministry E&T) Operator Operator Intertoll Ltd. 24

25 Overview of Project Payment mechanism Contractual structure Risk allocation Refinancing 25

26 Payment mechanism 100% availability fee based Natural currency/inflation hedge Availability fee in and in HUF according to cash outflows Escalation in line with real inflation, not with projected inflation Deductions for lane unavailability, due to e.g. Routine maintenance Heavy maintenance Deductions depend on Length of affected road Days and months Safety payment/deductions Rigorous performance point regime Small upside payment for substantially increased HGV traffic 26

27 Overview of Project Payment mechanism Contractual structure Risk allocation Refinancing 27

28 Sponsors BB BOT, Porr Swietelsky Petrol Station Operator Construction Porr, Swietelsky, Bilfinger Berger Contractual structure - Refinancing Hungarian Ministry of Economy and Transport Equity/Subdebt 50m Leasehold 20.5 ys D&C Contract M6 Duna PPP-ConcessionContract 22 ys O&M Contract 22 ys Intertoll Loan 200m Bond 212m LC Fac. 19m Novation of 3 existing SWAPs EIB Dexia Lead Manager Dexia DS L/C BNP SWAP AAA- Guarantee FSA AAA- Guarantee 28

29 Overview of Project Payment mechanism Contractual structure Risk allocation Refinancing 29

30 Risk Allocation Concession Agreement Republic of Hungary Demand Risk Inflation Risks Site Availability Discriminatory Law F/X Risks Risks allocated to State via Concession Agreement Increased Insurance Cost Change in Law Force Majeure Shared Risks Permits M6 Duna Availability Risk Construction Risk Heavy Maintenance Risk Interest Rate Change Interface Risk Risks allocated to M6 via Concession Agreement 30

31 Risk Allocation M6 Duna Subcontractors/Insurers /Banks Construction Risk Availability Risk Interest Rate Change Permits Interface Risk Force Majeure Risks allocated to Subcontractors /Insurers/Banks Heavy Maintenance Risk M6 Duna Insolvency Risk of Subcontractors Increased Insurance Cost Change in Law Increased SPC cost Risks remaining with M6 Duna 31

32 Equity considerations for investment Strategic importance of Eastern Europe and Hungary Hungary debt ratings of A1 Moody s / A- S&P Availability fee based PPP project Construction risk with construction companies Operator with extensive experience in Hungary Operation and routine maintenance risk with Operator, guaranteed by performance and corporate guarantees Manageable Life Cycle Risks (Heavy Maintenance) In general project economics are robust and should result in adequate equity returns 32

33 Overview of Project Payment mechanism Contractual structure Risk allocation Refinancing 33

34 Refinancing Amount 412m - minimal re-gearing of 1m 212m; Bond Manger: Dexia Bond Fully underwritten bond (no road show) 6 month Euribor + 27 bps; 35pbs upfront fee EIB 200m; 6 month Euribor + ; 30 bps upfront fee Monoline FSA Competitive premium payment over time No monitoring fee DS L/C Facility - Replacement of DSRA with L/C Facility: 27 bps SWAP Novation of existing SWAPs to BNP 34

35 Cover Ratios IRR Refinancing - Debt Service Cover Ratio min 1 : 1.20; avg Loan Life Cover Ratio min 1 : 1.22 >12% (Cash on Cash; Equity paid in in three tranches) 35

36 Margin Saving Replacement of DSRA Petrol Station income Re-gearing Benefits of Refinancing Margin saving of >70 bps Original DSRA amount: release in year 2025 Replacement with DS L/C facility: distribution of original DSRA amounts in m petrol station income received Release in 2006 instead of April m re-gearing higher re-gearing not possible due to sensitivity constraints imposed by FSA 36

37 Key Success Factors of the M6 Project selection Small but highly qualified project management team Good interaction between the working groups Internationally experienced consultants Decision makers on both sides with balanced expectations on risk Focus on client relationship Support for the Construction Joint Venture Timing for the refinancing Smooth start of operations Ready for the next project!! 37

38 Capital Markets Day Concessions 22 November 2006 APPENDIX 38

39 List of abbreviations BAFO Best and final offer CC Contract close D&C Design & Construct DSRA Debt service reserve account EIB European investment bank E&T Environment & Transport FC Financial close HGV Heavy goods vehicle HSE Health, safety, environment ITN Invitation to negotiation L/C Letter of credit O&M Operation & Maintenance RFP Request for proposal SPC Special purpose company 39