Public-Private Infrastructure Advisory Facility (PPIAF) PPPs: An Introduction

Transcription

1 Public- Infrastructure Advisory Facility (PPIAF) PPPs: An Introduction

2 Infrastructure PPPs Why infrastructure? Why the private sector? What are PPPs?

3 Infrastructure Provides Basic Services Billions lack access to services 2.5 billion people lack access to sanitation services 1.6 billion live without electricity 1 billion lack access to roads 900 million drink unsafe water Needs are growing rapidly In the next 25 years, another 2 billion people will be born 97% in developing countries Needing water, electricity, and transport 3

4 Improved Infrastructure Helps Reduce Poverty Paved roads double girls school attendance (Morocco) Clean water reduces child mortality by 55% (India) 72% of children with electricity at home read in the evening, vs. 43% of those without (Colombia)

5 But Infrastructure Needs are Huge in Asia Asia s Total Infrastructure Investment Needs by Sector, (in 2008 $million) Cited in ADB and ADBI Infrastructure for Seamless Asia (2009)

6 SSA LIC-Fragile LIC-NonFragile Resource-Rich MIC DRC Ethiopia Madagascar Niger Mozambique Senegal Kenya Tanzania Sudan Zambia Uganda Benin Malawi Ghana Lesotho Chad Rwanda Cote d'ivoire Nigeria Burkina Faso Namibia South Africa Cameroon Cape Verde Percentage of GDP and in Africa Africa Infrastructure Investment Needs as % of GDP Investment (New+Rehab) O&M Source: AICD

7 Global Infrastructure Investment in new PPI projects in developing countries, US$ billions* s Rest of developing countries India New projects Source: World Bank and PPIAF, PPI database. * Adjusted by US CPI. 7

8 and in Africa Figure 1 Investment in PPI projects in Sub-Saharan Africa, by type of PPI, Figure 2 Investment in PPI projects in Sub-Saharan Africa, by sector, US$ billions* s US$ billions* Concession Divestiture Greenfield project New projects Source: World Bank and PPIAF, PPI database. * Adjusted by US CPI. Energy Telecom Transport Water and sewerage Source: World Bank and PPIAF, PPI database. * Adjusted by US CPI. 79% of regional investment concentrated on greenfield projects (BOT, BOO, merchant, or rental assets) Nigeria and South Africa accounted for 41% of regional investment in 2010 Telecom dominates sectoral investment (95%), mostly in mobile operators Energy and other sectors lag: only 240MW of greenfield power plants 8

9 What are PPPs So, what are PPPs? A public-private partnership (PPP) involves the private sector in aspects of the provision of infrastructure assets or of new or existing infrastructure services that have traditionally been provided by the government Long-term contractual relationship Sharing of risks between public and private entities Public sector retains ultimate accountability for the provision of the service

10 Another View of PPPs PPP - Core Pure Pure Public PPP - Broadest Definition Privatization - purely commercial Misc. Manufacturing (Philippines) Textile & Sugar Mills (Bangladesh) Privatization - continuing interest Privatization - Regulated Concession Airline (Jamaica, New Zealand) Railway (New Zealand) Electricity Distribution (UK, VIC, Jamaica) Railtrack (UK) Water Supply (Manila, Philippines) Toll Roads (South Africa) Toll Road (Portugal, VIC) PPPs PFI Service or product Facility Availability Bulk water supply (VIC) Some Schools (UK) Court Building (VIC) O & M Contracts Tram and Train Contracts (VIC) Jamuna Bridge (Bangladesh) Management / Service contracts Motorways (South Africa, pre-1999) Hotels (Jamaica) Market economy Schools (Philippines) Public provision Roads (New Zealand) State-owned economy Schools (USSR pre 1990) Roads (USSR pre 1990)

11 PPPs: Value for Money and Greater Efficiency Leverage private funds and pool them with public resources Better value for money efficiency and innovation Spread financing over the lifetime of the asset relieving public budgets Improve risk sharing between public and private parties Boost sustainability and innovation Cut hidden costs of inefficiency by half in African energy sector PPPs force governments to look at lifecycle costs for services, and ensure long term sustainability and maintenance of assets

12 PPPs: Easier in Some Sectors than Others investment commitments to PPP projects in developing countries, by sector of activity, US$ billions* 100% Water & Sewerage 4% 90% 80% Transport 17% 70% 60% 50% Energy 32% 40% 30% 20% 10% 0% Telecom Energy Transport Water and sewerage Telecom 47% Source: World Bank and PPIAF, PPI Database *Adjusted by the US Consumer Price Index

13 PPP Flows Vulnerable to Crises investment commitments to PPP projects in developing countries, by sector, US$ billions* Number of projects Mexico and Argentina Asian Crisis Brazil Crisis Market Liquidity Global Crisis 2012? TequilaCrisis Crisis in one country should be associated with higher spreads in other markets, if they both are a result of a changed attitude to risk or liquidity Source: World Bank and PPIAF, PPI Database *Adjusted by the US Consumer Price Index

14 Concentrated in a Few Countries 180 Top developing countries with investment commitments to private Energy, Transport, Water and Telecom projects, US$ billions Remaining countries Brazil China India Mexico Turkey Russia Note: Includes investment in projects reaching financial closure in Source: World Bank and PPIAF, PPI Database.

15 ...Even Greater Concentration in Recent Times Chile, $15.2, 3.2% Brazil, $52.7, 10.9% Main Recipients of PPP Investment in Energy, Transport and Water Main Recipients of PPP Investment (Billions USD) China, $40.5, 8.4% India, $10.6, 2.2% Indonesia, $13.0, 2.7% Remaining countries, $307.0, 63.8% Mexico, $26, 4.8% India, $90, 16.6% Main Recipients of PPP Investment (Billions USD) (Billions USD) (Billions USD) Turkey, $24, 4.4% Russia, $32, 5.9% Remaining countries, $203, 37.1% China, $63, 11.5% Argentina, $42.5, 8.8% Brazil, $108, 19.7%

16 What is required to generate a pipeline of PPP projects?

17 PPPs Require Political will sustained over time Ongoing political stability Clear enabling environment PPIAF!! Technical capacity to develop and deliver projects Transparent procurement processes Clear allocation of risks Bankable project structures Investor interest Availability of financing 17

18 Complex to Deliver: PPP Lifecycle 1. Set PPP Policy & Strategy Solicited Unsolicited 2. Identification/Origination 3. Analysis of Individual s Technically feasible? Financially attractive for potential private sector partners? Affordable for public sector? Value for money? Appropriate risk transfer? Review risks as contract evolves 4. Transaction Management 5. Contract Management, Monitoring and Enforcement Over Life of Contract Ensure that both public and private partners meet terms of contract 18

19 Complex Structuring in PPPs Political and Macroeconomic Risks FX Risks and Refinancing Risks Shareholders Regulatory Risks Lenders / Bondholders Shareholders Agreement Concession Agreement Granting Authority Regulatory & Demand Risks Operator Performance Risks Operation & Maintenance Agreement (O&M) Company Input Supply Agreement Services/Offtake Purchaser Purchase Agreement (e.g. shadow toll government entity) End-users Traffic Demand Construction Contractor Construction Contracts Input Supplier Land acquisition and further transfer to PPP Completion Risks

20 and Funding Shareholders Lenders / Bondholders Return on Investment Granting Authority Debt Service Debt Equity Concession Fee Operator Operating Fees Company Tariff/User Fee Services/Offtake Purchaser Construction Contract Price Input Costs Construction Contractor Input Supplier

21 Allocation of Risks Political Cost Increase Environmental Market Development Operatio n Performance Completio n Company Grantor Construction Contractor Operator Offtake Purchaser Input Supplier Delmon, 2009

22 What are PPPs are very long term I +ve Typical PPP Cashflows Cumulative Net Cashflow Annual Revenues -ve Annual Costs

23 What are PPPs PPPs are very long term II +ve Typical PPP Cashflows Total Debt Cumulative Net Cashflow Annual Revenues -ve Annual Costs

24 Spectrum of Financing Instruments

25 Financing Plan: Combining the Instruments Objective to raise the funds at least cost with a repayment profile that matches the revenue stream minimise exposure to currency devaluation Large number of factors to consider Can be a time-consuming and costly process THEREFORE, most sponsors of large projects involve advisors at an early stage to assist in the financial structuring of the project

26 Financing Instruments equity sponsors & contractors commercial arms of IFIs debt commercial bank loans bonds Support mechanisms export credits guarantees (IFIs) Public equity Government parastatal public utilities Public loans Government parastatal public utilities Concessionary (public) finance soft loans, grants carbon credits Or ideally a combination

27 Financing for Different Structures Equity Debt Support Mechanisms Public Debt Public Equity Concessionary Finance? Split Public project 100% ly Owned Minority Public Holding Majority Public Holding Direct Public Subsidy Public- Parastatal Agency/ Government

28 Financing Models BOOT, BOT etc Parastatal or Gov t Investment Equity Debt Export Credit and Guarantees Public Debt Public Equity Concessionary finance Split Public 100% ly Owned Minority Public Holding Majority Public Holding Direct Public Subsidy Public- Parastatal Agency/ Government

29 Financing from MDBs and Bilateral Agencies Equity Minority Holding (e.g. IFC, ADB, EBRD) Debt Export Credit and Guarantees Public Debt Commercial Loan (e.g. IFC, ADB, EBRD) Partial Risk/Credit Guarantee Investment Loan/Credit Public Equity Concessionary finance Loan or Credit through Government Grant/Credit/Low Cost Loan Split Public 100% ly Owned Minority Public Holding Majority Public Holding Direct Public Subsidy Public- Parastatal Agency/ Government

30 Creating an Enabling Environment Reduce barriers to investment Improve access to knowledge Establish the necessary policy, regulatory and economic frameworks Reduce risks and transaction costs Encourage private sector investments Strengthen institutional capacities

31 PPP Development Process: Inception to Implementation PPIAF PPIAF PPIAF TRANSACTION ADVISER TRANSACTION ADVISER TRANSACTION ADVISER Infrastructure Development Strategy Legal/Inst l Reforms Local PPP Capacity Building Develop Bidding Documents PPP Procurement PPP Closing/ Signing Inception of PPP Concept Development of a PPP Operator Selected PPIAF TRANSACTION ADVISER TRANSACTION ADVISER TRANSACTION ADVISER Building Consensus Assess PPP Options Define Transaction Structure Market to Investors PPIAF Local PPP Capacity Building PPIAF WB Support for Transactions Partial Risk Guarantee

32 PPIAF Support to Scale-up PSI Technical Assistance to Governments to Structure PPPs Enabling Environment Reform Policy development Legal and regulatory reforms PPP options Tariff regimes Preparation Generation Business plan development Pre-feasibility studies Preparation of concessions and PPAs Negotiations of contracts Dissemination and Capacity Building Awareness building Training Rapid diagnosis for PPPs 32

33 Some Lessons I The private sector does deliver on higher efficiency and service quality In a world-wide study, for a sample of over 300 electricity and water utilities with private sector participation, the results are that private sector participation leads to greater efficiency and quality of services: Increase in sales per worker Increase in connections per worker Increase in bill collection rates Improvement in distribution losses and unaccounted-for-water but a significant decrease in employment However, private participation can and has gone very wrong: issues of incomplete contracts, re-negotiation, antagonism between public and private parties Lessons learned Strategy Preparation (preparation, preparation!) Supervision Source: PPIAF Gridlines (2008), Gassner et al. The Impact of Sector Participation,

34 Some Lessons II Need for fundamental reforms Should place a clear priority on sustained growth in the infra sector Market reforms: competition and transparency Improving business environment: fostering independent regulatory bodies Ownership reforms: corporate governance, role of government Success rests not only on the approach to infrastructure but also on the actual activity undertaken, irrespective of public or private Proper risk allocation PPPPPPP!! GFC forced a closer look at the tradeoffs between financing and efficiency in PPP models that are not pure/100% PPPs and fall into a grey area between public and private o Lease affermage, concessions, joint ventures and management contracts

35 Some Lessons III Interfaces matter! Both within public sector and between public and private sectors Leadership of initiative high level with calling powers Treasury/Finance: assesses fiscal impact/manages contingent liabilities, approves/modifies terms Inter-ministerial/executive council (led by Finance): approves policies (risk allocation) & prioritizes projects PPP unit: monitors PPP program, designs procedures (preparation, procurement, quality), designs contracts, advises/sometimes executes transactions Line ministries: prioritise within sector, develop pipeline aligning public and private investment program, design and implement projects Oversight body: oversees compliance w/ concession contract, laws & regulations, approves adjustments Dispute resolution framework (arbitration)

36 Some Lessons IV Domestic financial markets and financial discipline Need for long-term domestic financing Removing the subsidy mentality: foster cost recovery and equity through tariff reforms False notions of cost and risk from distortions in the infrastructure finance markets Management of contingent liabilities Risk management framework in developing and approving projects Comprehensive approach to managing contingent and contractual liabilities Foreign exchange planning and management

37 Some Lessons V Getting the priorities right - public and private Capital markets development and local currency funding often needed for large-scale infrastructure But financial engineering never substitutes for sound project design In the end, it is always the taxpayers and users who pay Source: Connecting East Asia: A New Framework for Infrastructure, The World Bank