www.pwc.com/br II Simpósio Internacional PwC Inovação em Gestão Pública Abril 2011
Agenda 1. PwC 2. Global PPP context 3. What is PPP 4. Payment Mechanisms and Demand Risk 5. Alternative Financing Models 2
PwC 3
Project Finance deal record 10 years to December 2010 256 deals $62.6bn EMEA 28 deals $9.3bn 62 deals $23.2bn Americas Asia Pacific Global total 346 closed deals with a total value of $95.1bn Source: Project Finance International January 2001 January 2011 Note: Projects with a deal value of <$20m are excluded from league tables 2011 4
Latest league tables Project Finance International Global closed deals Global by number of closed deals for 2010 Rank Adviser No. of deals Value (US$ m) 1 PwC 34 12,136 2 Ernst & Young 29 4,705 3 KPMG 27 9,934 4 RBC 16 12,033 5= Macquarie 15 11,682 5= Deloitte 15 4,958 7 Deutsche 11 2,305 8 HSBC 7 8,672 9 SBI Capital 4 4,043 10= Standard Chartered 3 8,764 10= Natixis 3 4,600 10= Investec 3 1,773 Global by value of closed deals for 2010 Rank Adviser Value (US$ m) Source: Project Finance International, January 2011 Source: Project Finance International, January 2011 No. of deals 1 PwC 12,136 34 2 RBC 12,033 16 3 Macquarie 11,682 15 4 KPMG 9,934 27 5 Standard Chartered 8,764 3 6 HSBC 8,672 7 7 SG 8,600 2 8 Credit Agricole 8,500 1 9 Riyad 7,500 1 10 Deloitte 4,958 15 1 st 1 st globally by value globally with 34 closed deals for 2010 of closed deals for 2010 Total deal value of $12,136m 2011 5
Global PPP Context 6
The Global Infrastructure Challenge Investment (per OECD) Large share will go into China, India and Brazil, but OECD countries will still need to invest to replace ageing infrastructure to maintain global competitiveness (despite much lower growth and diversion of funding to ageing population (healthcare & pensions), climate change and environmental agendas) Implication of trends mean greater use of private finance and user charging (opposed to govt funding) 3.5% of global GDP up to 2030 will need to be invested in infrastructure Estimated average annual world infrastructure expenditure (additions and renewal) for selected sectors, 2010-30, in USD Bn, Source: OECD Annual Annual Total Type of Infrastructure 2010-2020 2020-2030 2010-2030 Road 245 292 5,370 Rail 54 59 1,130 Telecoms 646 171 8,170 Electricity 180 241 4,210 Water 772 1,037 18,090 Total 36,970 * Only OECD countries, Russia, China, India and Brazil are considered here. Slide 7
2011 - uncertainties Spending squeeze will reduce investment in Europe and North America Sovereign credit uncertainties continue Regional instability in MENA Capital markets solutions elusive Reliance on multilateral and government support, with associated political risk UK focusing on cost reduction in existing PPPs 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Annual need for investment in infrastructure $3 trillion Gap between investment need and private investment $2 trillion Private Investment in infrastructure $1 trillion Source: World Economic Forum report March 2011 8
WEF Global Infrastructure Competitiveness Index 2010-2011 Rank Country 1 Hong Kong SAR 2 Germany 3 United Arab Emirates 4 France 5 Singapore 6 Switzerland 7 Netherlands 8 UK 9 Canada 10 Sweden 11 Japan 12 Iceland 13 Denmark 14 Spain 15 US 47 Russia 50 China 62 Brazil 86 India Source: World Economic Forum report 28 October 2010 Slide 9
Government Finances 2010 Cumulative Government Debt 140 120 100 % of GDP 80 60 40 20 0 Source: IMF - October 2010 Edition 9
Credit Default Swap Rates (5 years) 2008-2010 500 450 440 400 350 355 Spread (bps) 300 250 200 150 100 50 106 99 54 40 0 nov/2008 mai/2009 nov/2009 mai/2010 Ireland Portugal Mexico Date Australia UK Brazil Source: Thomson Reuters Slide 11
Private Finance for Infrastructure Market Overall global project finance market volume stood at US$147.4bn for 2009. Average annual Infrastructure spend from 2004-2009 of US$190bn globally. 15% average growth from 2004 to 2008, 60% reduction from 2008 to 2009 Global Loans by Sector (US$m) Sector 2009 2008 Power 56,289 89,858 Oil & Gas 25,640 38,422 Transportation 25,451 54,789 Leisure and Property 7,474 20,899 Telecommunications 8,118 6,259 Water & Sewerage 4,699 2,933 Mining 4,071 11,455 Industry 3,454 11,979 Petrochemicals 2,797 13,413 Waste & Recycling 1,194 550 Total 139,186 250,557 Source: Project Finance International Total Market Volume US$Bn Annual Private Finance Invested Globally 300 250 200 150 100 50 0 2004 2005 2006 2007 2008 2009 Source: Project Finance International Slide 12
The refinancing challenge Source: Standard & Poor s (2010) 9
UK PPP Context 14
UK 1994-2001 1994 1995 1996 1997 1998 1999 2000 2001 Strategy Policy Projects Project Finance Panel HM Treasury Building Feasibility Study Treasury Taskforce DoH Private Finance Unit LU PPP Feasibility Study Partnerships UK + OGC SOPC1 HM Treasury Building FC US$223m MoD Main Building Refurbishment FC US$695m OGC Back to Treasury 2002 2003 2004 2005 2006 2007 2008 2009 2010 Strategy Policy SOPC2 Published "PFI: Meeting the Investment Challenge" SOPC3 Published "PFI: Strengthening long-term partnerships" SOPC4 Published "Infrastructure procurement: delivering longterm value" Infrastructure UK Projects LU PPP FC US$7.3bn M25 Feasibility Study Allenby Military Barracks FC US$2.9bn Barts Hospital FC US$2.1bn Skynet FC US$5.7bn M25 FC US$2.1bn Slide 15
UK Volume as a % of Global Loan Volume Infrastructure Finance Sources: Project Finance Bank Debt 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% UK vs Global Project Finance Loan Volumes 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 300,000 250,000 200,000 150,000 100,000 50,000 0,000 Global Project Finance Loan Volumes (USD Billions) Source: Deal Logic February 2011 Global Volume UK Volume as a % of Global Volume Project Finance Bonds issued in 2010 totalled c. $20bn compared to c. $210bn of Project Finance Bank Debt 11
European Investment Bank EIB - Doing more, better and faster - Guarantee products will be developed further European Project Bond initiative: under the plan the EIB will not have anything to do with bonds at all. What it will do is invest in projects at a Source: Infra Journal quasi-equity, or subordinated debt level. EIB Disbursements Targets 70 60 50 EUR (bil) 40 30 20 10-2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Source:EIB Corporate Operational Plan 2010-2012 7
What is PPP? 18
Contract Structure What is the Project? Provide Funding for Construction Operate Asset (e.g. Toll) Delivery of Asset, Service and Finance Delivery of Asset and Service Delivery of Maintained Asset Maintain Asset Design, Construct and Commission Asset Delivery of Assets
Contract Structure Which Contract? Use of private sector In-house Provision Service Outsourcing / Asset Build Design Build Maintain PPP/PFI Regulated Utility Potential to transfer risk Slide 20
PPP vs Conventional Payment profile can be depicted as follows: Payment profile for the public sector: Cost Overruns Estimated Capital Cost Time overruns Construction phase Running cost overruns Estimated running costs Operation phase No payments until facilities ready Payment based on usage Payment based on availability 5 10 15 20Years 5 10 15 20Years Construction phase Operation phase
Typical PFI structure
Project Risks Risk allocation Risks should be allocated to the party best able to understand and manage them Public Shared Private Land acquisition Changes in requirement Latent defects (existing) Inflation Regulatory Taxation Force Majeure Change in Law Design & construction Commissioning Operating & maintenance costs Operating performance Latent defects (new) Demand? Finance? 23
Payment Mechanisms Some Principles Used - Operations Availability Payment Payment to the private sector for making the serviced infrastructure available to the users Deductions applied for performance failures including non-availability Availability/ Demand Hybrid Payment to the private sector based on the number and type of users of the asset e.g. shadow toll Demand Fares received by the private sector directly from users Possible sharing of demand risk through contract 24
Demand Risk In Passenger Rail Projects Passenger revenues can seldom pay for the costs of a new passenger rail line whether metro/underground or tram/ over ground. New passenger transport projects normally require subsidies (either during construction or operations). If demand risk is transferred to the private sector, concessionaires will likely seek protection or compensation against changes in competing modes of transport. eg bus services Dec 2010
Demand Risk In Passenger Rail Projects Many examples of over-optimistic demand forecasts for passenger rail projects: Eurotunnel, Las Vegas monorail, Sydney airport link, Croydon Tramlink etc. (Well publicised financial failures of toll roads in Australia like Cross City tunnel, Lane Cove tunnel led to Availability payment based road project for Peninsula Link in Melbourne) This does not mean that passenger rail projects should not use private finance But it is important to decide how much demand risk to transfer to the private sector and how much to retain for the public sector. Dec 2010
Why use PPP and private finance? It enables risk transfer away from the taxpayer Whole life costs can be managed transparently Provides budgetary certainty Payments are related to outcomes Dec 2010
Alternative Funding Models 28
Alternative Financing Models Direct government lending (e.g. TIFU in UK) Direct government lending but guaranteed by private sector (e.g. Credit Guarantee Finance in UK) Indirect government lending: rise of state-owned infrastructure or development banks (e.g. EIB in Europe, Banobras in Mexico, DBSA in South Africa, BNDES in Brazil) Forfeiting/discounting (irrevocable payments by authorities e.g. 100% in Germany, 80% in France under Cession Dailly) Capital Grants (e.g. roads in Holland) Equity only models (no private debt e.g. St Johns Hospital in Vancouver) Construction Finance/DBF (e.g. Infrastructure Ontario) Tax-advantaged finance (e.g. munibond market in the USA) March 2011 29
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