AICEP BUSINESS OPPORTUNITIES SEMINAR EBRD Lisbon, 22 nd of November 2012

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1 AICEP BUSINESS OPPORTUNITIES SEMINAR EBRD Lisbon, 22 nd of November 2012 Municipal and Environmental Infrastructure Team Susan Goeransson, Senior Banker European Bank for Reconstruction and Development

2 15 years of municipal finance at EBRD 2

3 EBRD s role in the municipal sector Structuring the financing of municipal infrastructure, equipment and services to improve service levels Promote commercialisation and corporatisation of services Development of regulatory structures Promotion of private sector involvement, where appropriate Environmental, social, health and safety improvement Facilitate donor grant and commercial loan co-financing EBRD helps local authorities meet their infrastructure needs s local authorities meet their infrastructure needs 3

4 A fast growing business Activity started in billion deals signed 5bn committed by EBRD 50% municipal clients 30% private clients/ppps 20% sovereign 2011 record year with 600m invested 4 Annual business volume Business volume Net Cumulative Business Volume Net cumulative business volume

5 Key sectors covered Water & Wastewater improved quality of service and environmental compliance Urban Transport improved public transport services (buses, LRT, metro, ferries, etc.) and more efficient and safe network design Solid Waste Management improved efficiency and frequency of collection; adequate disposal; prevention of groundwater contamination District Heating renewal of obsolete heating and distribution systems and significant efficiency gains 5

6 MEI is a valuable partner with a unique offering Commitment The EBRD is a strong, internationally recognised partner with a long term perspective Support Unparalleled presence in the region provides mitigation of political and regulatory risk with close proximity to both local country markets and foreign investor community Engagement Strong and demonstrable track record with governments, key operators and local companies. MEI has dedicated bankers in 14 resident offices. Design Flexible deal structuring and product matching services. Strong credit awareness. Access to substantial sources of grant funding for technical assistance and capital grants. Ability to lend in local currency Awareness EBRD responded vigorously to the impact of the crisis, financing a record number of projects between , taking overall investments to unprecedented levels 6

7 Municipal projects in 28 countries Central Asia, 5% Other Balkans, 3% Caucasus, 1% Turkey, 4% Ukraine, 4% Russia, 24% Bulgaria, 5% Baltics, 5% Serbia, 5% Romania, 15% Other CEE, 5% Croatia, 6% Regional, 7% Poland, 12% 7

8 and across urban infrastructure District Heating 17% Solid waste & other 13% Water and Wastewater 46% Urban Transport 24% 8

9 with diversified structures 9

10 Private Sector Participation EBRD s policy Financing of Private Parties to Concessions requires competitive tendering and a specific process: Which basic conditions foster PPP development: An adequate legal structure Political will to champion PPP processes Robust tariff methodologies and competent regulator Sponsors interest, dependent on market and PPP structure Sufficient capital market development (local and international) for LT financing notably in local currency. 10

11 EBRD can support PPPs With public authorities General advice on acceptable process EBRD Policy for Concessions Grant funded technical assistance General letter of interest to finance With bidders Pre-bidding dialogue with interested players Review of financing instruments (equity, debt) and indicative financing terms EBRD cannot commit to exclusivity ( open support ) After award, negotiation of detailed terms and conditions with the preferred bidder 11

12 MEI in the SEMED region MEI initially looking at opportunities in the water and urban transport sector in the SEMED region, where it will have a two pronged approach Working with traditional utilities, where EBRD will focus on fiscal decentralisation and sub-sovereign approaches Supporting PPPs given scope to involve the private sector in key sectors Key themes include resource efficiency and long term sustainability Potential projects include: New Cairo WWTP through its investment with Aqualia (private, equity) Yarmouk Water, which provides services to nearly one quarter of the country s population, through a sub-sovereign loan (sub-sovereign, debt) 12

13 MEI financing parameters Maturity Amount Public Procurement Rules (PPR) Pricing & Securities Currency Equity vs. Debt Between 10 15, with some loans extending to18 years Flexibility on commitment (no 35% rule for public sector) EBRD procurement rules for public sector projects Competitive selection for private partners in PPPs Possibility for local rules when financing alongside EU projects Aligned with the market Local, where possible Equity investments, where appropriate 13

14 Things MEI will look at before investing in a project: Investment needs to make economic sense: Long sustainability of the project Affordability concerns: Changes in tariffs should not particularly impact vulnerable and low income groups Procurement for public sector clients: With the client, not EBRD For PPPs contracts must be balanced: Fair risk sharing and performance-based contracts Preference for revenue generating projects: Search for cost-efficiencies through improvements in tariffs and collection rate 14

15 CASE STUDIES 15

16 Poland: Wrocław Parking PPP loan Design, construction and operation of an underground parking facilities of 331 places in close proximity to the historical centre of Wroclaw Ease traffic congestion caused by drivers searching for scarce parking Enforcement of traffic laws and restrictions SPV supervised by Mota-Engil Group Tenor of the concession 40 years EBRD Loan signed in 2011 PLN 31.3m (equivalent to EUR 8m) Tenor 15 years, including a 3 year grace period Pledge of selected assets 16

17 Turkey: TASK Water PPP loans TASK Group, a privately owned water and wastewater operator in Turkey EBRD project financing: TASK Güllük (Bodrum) EUR 2.5 million loan to upgrade water and wastewater facilities at the Güllük municipal concession TASK Dilovasi (Marmara) EUR 13.5 million loan to finance a WWTP BoT Bank partnered with Akfen, a pioneer and leader of the PPP business in Turkey, and Tahal, a water operator and engineering firm with broad-based geographic experience Aim is to assist in increasing private sector participation in the water market in Turkey by supporting the Company s ongoing investment plans 17

18 Romania: EU Cohesion Fund Co-Financing EUR 330 million Framework to provide co-financing to regionalised water companies to co-finance their EU Cohesion Fund projects Framework was approved in 2010 and expanded in 2012 as fully utilised Loans on a corporate basis to public utilities without recourse to central or local governments Benchmarking programme to improve transparency and increase competitiveness of the regionalised water companies To date, 14 loans signed for EUR 214 million 6 additional loans planned to be signed in 2012/13 18

19 Moldova: Regional Water Project EUR 15 million project to improve water supply and waste water treatment infrastructure in selected municipalities in Moldova: Floresti, Soroca, Hancesti, Leova, Orhei and Ceadar-Lunga In addition to EBRD finance, project is cofinanced with EIB and NIF grant funds Focus on establishing cost recovery tariffs as well as introducing measures to improve long term viability, including regionalisation. Project will strengthen the municipal utilities to ensure provision of adequate supply of drinking water and improve wastewater treatment facilities with environmental benefits for local river basins (as key sources of drinking water) and ultimately the Black Sea basin 19

20 Poland: Dalkia Polska debt / equity EUR 70 million invested alongside Dalkia Group for a series of investments in Poland over the timeframe. EBRD holds a 35% stake in Dalkia Polska. Dalkia International remains the controlling partner with a 65% stake. EBRD s funds allowed Dalkia Polska to invest throughout the region in ESCO type projects as well as district heating opportunities (privatisations, concessions, lease contracts). EBRD exit in mid 2010 by selling shares back to Dalkia EBRD s involvement has enabled increased private sector participation, as well as improved energy efficiency and cost effectiveness at operating companies. 20

21 Kazakhstan: CAEPCO DH equity/debt EUR 46 million equity investment in JSC Central- Asian Electric Power Corporation (CAEPCO) EUR 23 million loans to Pavlodar and Petropavlovsk DH companies guaranteed by CAEPCO Capital increase proceeds towards CAEPCO s investment programme aimed at modernising the district heating networks in Pavlodar, Petropavlovsk, and Ekibastuz. Bank s participation is important to provide political and regulatory comfort to the private investor. EBRD s participation is important in attracting further interest from strategic investors and IFIs. IPO is the ultimate goal. 21

22 Turkey: Istanbul Ferries LBO loan 2011 privatisation of 100% of IDO The world s largest municipal ferry operator Inter & inner city services across the Bosphorus and the Marmara Sea 51 mln passengers a year 52 vessels and 35 ferry terminals Award for USD 861 mln to TASS Tepe-Akfen-Sera and Brian Souter Introduction of new demand-driven ticket tariffs, creation of new routes and intermodal passenger transportation services EBRD-led acquisition financing of USD 750 mln EBRD junior loan USD 50 mln, 7 years EBRD senior loan USD 100 mln + Turkish banks USD 600 mln, 12 years Currency and interest rate hedging facilities 22

23 Contacts Susan Goeransson Senior Banker, MEI tel: European Bank for Reconstruction and Development One Exchange Square London EC2A 2JN 23