T.R. MINISTRY OF DEVELOPMENT Public Private Partnership Experience of Turkey Sedef Yavuz Noyan (Head of PPP Department) BANKS FOR GROWTH TIRANA, NOVEMBER 14, 2017 www.kalkinma.gov.tr
Outline Rationale for PPP in Turkey PPP Models and Methods Turkey s PPP Experience Incentive Mechanisms Large Scale PPP Projects
Infrastructure Development Relation Infrastructure capacity in developing economies lags significantly behind that of developed economies Source: McKinsey, Infrastructure productivity: How to save a $ 1trillion a year, 2013. 3
Infrastructure Demand According to McKinsey 1, The world spends $ 2,5 trillion annually The need is $ 3,5 trillion (3,8 % of the world GDP) for transportation, energy, water and telecommunication sectors, from 2016 through 2030 just to support expected rate of growth 1- McKinsey Global Institute, Bridging Global Infrastructure Gaps, June 2016
Importance of Infrastructure Increasing the infrastructure investments by 1 % could increase GDP by 1,2 % 2. Similarly, increasing infrastructure investment by one percent of GDP could generate millions of indirect jobs in short term 3. Low-income countries in Central Africa could add as much as 2,2 percent to their annual growth if they had the same level of infrastructure as India or Pakistan 4. Middle-income nations in Latin America could add 2 percentage points to annual growth rates if their infrastructure were with that of middleincome nations such as Turkey 4. 2- Citi GPS, Infrastructure for Growth: The Dawn of a New Multi-Trillion Dollar Asset Class, 2016. 3- McKinsey Global Institute, Bridging Global Infrastructure Gaps, June 2016. 4- McKinsey, Infrastructure productivity: How to save a $ 1trillion a year, 2013.
Turkey s 10th Development Plan (2014-2018): Investment Strategies Priority areas are: education, health, drinking water and waste science and technology, transportation irrigation sectors. water, 6
PPP Investment/Public Investment Ratio 90% PPP Investments / Public Investments* 80% 70% 76% 60% 50% 40% 30% 27% 20% 10% 0% 10% 14% 5% 3% 0% 1% 0% 1% 3% 1% 7% 10% 3% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 *Excluding local governments investments 7
Turkey s PPP Market in 2016 Turkey ranks third in European PPP market according to EPEC (European PPP Expertise Center European Investment Bank-2016) & Turkey ranks third among 139 countries according to World Bank (between 1990-2015) 8
Rationale for PPP in Turkey Complementary and supplementary to limited conventional financing Helps to attract foreign direct investment Enhances the quality, effectiveness and efficiency of public services Facilitates know-how and technology transfer
PPP Models and Legislation in Turkey Models & Legal Framework & Sectors Build-Operate-Transfer Law No 3996, 3465 and 3096 Build-Operate Law No 4283 Build-Lease-Transfer Law No 5396,652,6428 and 351 Transfer of Operating Rights Law No 4046,5335,3465,3096 Motorway Port Airport Marina Border Gate Power Plant Thermal Power Plant Hospital College Dormitory School Airport Port Power Plant Electricity distribution 10
PPPs in Turkey: Existing Legal Framework
Turkey s PPP Experience Project in Operation Project in Financial Close or Under Construction Total Number of Projects 187 34 221 Project Investment Value 20,2 billion $ 39,9 billion $ Project ContractValue* 54,5 billion $ 76,9 billion $ 60,1 billion $** 131,4 billion $** *Investment Value+Transfer of Operating Rights Fees paid by the private sector ** In 2017 prices 12
Turkey s PPP Experience Transfer of Operating Rights; 90; 41% Build-Operate- Transfer; 105; 48% Build-Lease- Transfer; 21; 9% Build-Operate; 5; 2% 13
Turkey s PPP Experience Culture and Tourism Railway Industrial Facilities 2 1 1 15 Border Gates Marinas 17 Number of Projects 221 18 Airports Health Campuses 21 22 Ports 83 41 Energy Motorways
Turkey s PPP Experience Culture and Tourism Railway Industrial Facilities $ 1,4 $ 0,14 $ 0,25 $ 0,43 Border Gates Marinas $ 1,7 Total Contract Value $ 131,4 $ 68,8 Airports Health Campuses $ 11,9 $ 2,6 Ports $ 25,9 $ 18,2 Energy Motorways * 2017 Prices, Billion $
Bidding Criteria for BOT and BLT Projects Operation Period Lease Amount (paid by investor to government in BOT projects) Lease Amount (paid by government to investor in BLT projects) Minimum Demand/Revenue Guarantee 16
Financing Structure in PPP Projects in Turkey Minimum equity/credit ratio for PPP projects is 20%/80% according to legislation, For mega projects, 80 % credit becomes most common practice. 17
Incentive Mechanisms for PPP in Turkey Shadow toll or revenue guarantees, Assumption of Debt by Treasury provided: BOTs must have minimum 1 billion TL (app. 285 million $) investment BLTs must have minimum 500 million TL (app. 145 million $) investment
Incentive Mechanisms for PPP in Turkey «Step-i» right for the creditors, Exemption from VAT, stamp duty and charges, Fee-free use of state-owned immovable assets and expropriation, International arbitration allowed.
Large Scale Projects in Operation
North Marmara Motorway Project (Including 3rd Bosphorus Bridge) Yavuz Sultan Selim Bridge (3rd Bosphorus Bridge) part opened on 26th August 2016, the rest in 2017. The longest suspension bridge with railway and the widest span * In 2017 prices 21
North Marmara Motorway Project (Including 3rd Bosphorus Bridge) 3.AIRPORT GARİPÇE RİVA USKUMRUKÖY POYRAZKÖY HÜSEYİNLİ ODAYERİ IŞIKLAR REŞADİYE PAŞAKÖY BAŞAKŞEHİR ÇAMLIK SULTANBEYLİ MAHMUTBEY SABİHA GÖKÇEN AIRPORT ATATÜRK AIRPORT 22
North Marmara Motorway Project (Including 3rd Bosphorus Bridge) Model: BOT, Investment cost : 3 billion $, Capacity: 102 km motorway (including the bridge), 158 km in total Construction period: 2,5 years, Operation time: 7 years 8 months (bidding critera), * In 2017 prices 23
Eurasia Tunnel Model: BOT Investment cost $1,4 billion Capacity: 5,500 m tunnel, 20 k s in total Construction Period : 4,5 years; in operation by 2016, Operation Period: 24,5 years (bidding criteria). * In 2017 prices 24
Gebze-Orhangazi-İzmir Motorway Model: BOT, Investment cost: $ 7 billion, Capacity: 433 km motorway, Includes Osmangazi Bridge Connects İsta ul to İz ir (two production and consumption centers) Operation period: 15 years 4 months 110 km part of the motorway (including the 2,6 km Osmangazi Bridge) is in operation. * In 2017 prices 25
Health Campuses There are totally 29 PPP (BLT) projects which are authorized by the High Planning Council, The 21 of 29 projects contracts are signed,16 are financially closed. Total bed capacity is 37.741 for authorized 29 PPP projects. 26
Mersin Health Campus Model: BLT, Investment Cost: 373 million $, Bed Capacity: 1250, Construction Period: 3 years,. Operation Period: 25 years, Contract signed by 2013, In Operation by 2017 Bid Evaluation Criteria: The lowest lease amount. * In 2017 prices 27
Adana Health Campus Model: BLT, Investment Cost: 666 million $, Bed Capacity: 1550, Construction Period: 3 years,. Operation Period: 25 years, Contract signed by 2013, In Operation by 2017, Bid Evaluation Criteria: The lowest lease amount. * In 2017 prices 28
Yozgat Health Campus Model: BLT, Investment Cost: 178 million $, Bed Capacity: 475, Construction Period: 3 years,. Operation Period: 25 years, Contract signed by 2013, In Operation by 2017, Bid Evaluation Criteria: The lowest lease amount. * In 2017 prices 29
Isparta Health Campus Model: BLT, Investment Cost: 308 million $, Bed Capacity: 755, Construction Period: 3 years,. Operation Period: 25 years, Contract signed by 2014, In operation by 2017, Bid Evaluation Criteria: The lowest lease amount. * In 2017 prices 30
Large Scale Projects in Construction
İstanbul New Airport One of the biggest airports in the world by means of passenger capacity, Model: BOT Investment cost: $ 14,4 billion, 4 phases, 1st in operation by 2018 Final Capacity: 150 million passenger capacity 4 terminal building 6 runway 16 taxiway Construction period: first phase 42 months Operation period: 25 years Lease amount: $ 36,9 billion (inc. VAT) (bidding criteria) 1,5 billion lease/year * In 2017 prices 32
17 Health Campuses: e.g. Ankara Bilkent Health Campus Model: BLT Investment Cost: 1,2 billion $ Bed Capacity: 3662 Construction Period: 3,5 years, Operation Period: 25 years, Contract signed by 2012, Bid Evaluation Criteria: The lowest lease amount. * In 2017 prices 33
Large Scale Projects Tendered and Looking for Finance
MOTORWAY PROJECTS* Kı alı-tekirdağ-ça akkale Motorway project (Malkara Section) (Investment cost: $ 2,9 billion, Capacity: 324 km motorway,) Menemen-Aliağa-Ça darlı Motorway Project (Investment cost: $ 395 million, Capacity: 75,6 km motorway) North Marmara Motorway Proje t /Kurtköy Akyazı Section (Investment cost: 1,6 billion USD, Capacity: 169 km motorway) North Marmara Motorway Proje t/kı alı-odayeri Section (Investment cost: 940 million $,Capacity: 88 km motorway) Ankara-Niğde Motorway Project (Investment cost : 1,14 billion $,Capacity: 330 km motorway) * In 2017 prices 35
Health Campuses Model: BLT, Health Campuses searching for finance: Kütahya, Şa lıurfa, Tekirdağ Health Campuses, Total Capacity: 2.780 beds, Total Invetsment Cost : 818 million $, Operation period 25 years, Bid Evaluation Criteria: The lowest lease amount. * In 2017 prices 36
Project Pipeline 6,5 Billion USD projects in short-term pipeline (mostly motorways), New logistics centers, port projects, railway projects, irrigation projects and urban infrastructure projects are expected to come in mid-term pipeline. 37
Lessons Learned for a Successful PPP On private sector side: o Political stability and political will to implement PPPs, o Good regulatory environment, where rule of law is valid, o Macroeconomic stability of the country, o Reliable dispute resolution mechanisms, o Good capacity in governmental organizations. 38
Lessons Learned for a Successful PPP On public sector side: o Understanding what a PPP project means (Not carrying out a project free of charge or realizing the project immediately). o Prioritizing the projects in the means of project value and sectoral importance and choosing the right project. 39
Lessons Learned for a Successful PPP o Preparing a proper feasibility study (including technical, financial and judicial analysis). o Economic feasibility is a must! o Preparing a value for money analysis. o Allocating risks properly between public and private partners. o Estimating the liabilities (debt assumption, revenue and demand guarantees etc.) 40
Lessons Learned for a Successful PPP o Coordinating all public institutions related with the project. o Planning the bidding process properly. o Implementing the contract management properly. o Using technical consultancy when needed. o Taking the financial market into consideration. 41
Lessons Learned for a Successful PPP o Implementing a transparent performance evaluation and inspection o Reinforcing project monitoring and evaluation structure. o Creating a systematic information flow from line institutions to PPP Unit. o Creating an auditing mechanism on PPP projects (in addition to the line institutions own mechanism). 42
Lessons Learned for a Successful PPP PPP is a useful tool IF RISK ALLOCATION IS DONE PROPERLY CONTRACT MANAGEMENT COORDINATION AND PLANNING 43
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