Ways to Successful Preparation and Financing 1st European Road Congress 24-26 November 2004 Lisbon Congress Centre Dipl.-Ing. Wilfried Rammler Rosario Victoria Bridge, Argentina 1
HOCHTIEF...worldwide Toll Road Projects within the HOCHTIEF-group Travequerung, Lübeck, Germany - 50 % ownership - project volume approx. EUR 160 million Rosario Victoria Bridge, Argentina - 26 % ownership - project volume approx. EUR 400 million Américo Vespucio Nor-Poniente, Santiago de Chile - 45 % participation in urban tollroad with electronic tolling system - project volume approximately EUR 580 million Tunnel el Salto, Santiago de Chile - 50 % ownership - project volume approx. EUR 160 million Bakwena toll road, South Africa - 17 % participation via CONCOR - project volume approximately EUR 340 million Eastern Distributor Tollroad, Sydney - 11% interest in Airport Motorway Ltd., which holds the concession for the Eastern Distributor Tollroad in Sydney Cross Israel Highway - ownership via Canadian Highway Intl. (CHIC) - multilane freeflow electronic tolling system 2
PPP in the Development of the European Transport Network The financial capacity for further public investments into the national and super-national road and transport network is exhausted in many European countries. Available funds are used up by increasing cost for the maintenance of existing facilities. Intensive traffic is bringing many road networks in Western and Eastern Europe beyond the brink of their capacity. The central question for politicians and road users is not, whether they do or do not accept the collection of tolls or the participation of private players in public infrastructure projects. If they do not, there will be no funds for a road transport network with sufficient capacity. European Governments will not be able to provide the necessary funds in the foreseeable future, maybe never again. Private capital is available in abundance. Private capital and private involvement are needed to achieve the needs for roads in Europe in the future. 3
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Difficulties encountered with PPP Projects Private investment in infrastructure projects has been decreasing for more than 5 years. Preparation and implementation of PPP projects has frequently been subject to hold-ups and difficulties. Discouraging experiences by investors and lenders in the recent past with difficult or unsuccessful PPP projects have reduced their interest. The central question for public authorities is not whether to use PPP, but how! 5
Reasons for progress impediments Institutional deficiencies Inadequate project preparation Inadequate regulatory framework Evolution of accounting standards and Implementation of IAS standards at the international level as from 2005 Immediate listing of important expenses Slow and gradual increase of the income level Significant losses, from the beginning of the project Economic factors Lenders need for security Rising of project requirements Transfer of uncontrollable risks of technical (geological), political, economic and financial nature to the private sector Increased risk premiums 6
The Financial Consequences Banks and financial Markets: are increasingly reluctant to back up traffic risks reduce the volume and tenor of loans granted to such projects increase their margins Private investors: are reluctant to decrease their return on equity wish to avoid significant losses in their consolidated balance sheets 7
Required Actions to support PPP Capacity building for institutions and authorities Improvement of financing mechanisms and development of new financial instruments Increased involvement of bilaterals and multilaterals (MLAs) Professional project preparation Selection of commercially and economically feasible projects with regard to the requirements of the capital markets 8
Capacity Building Improvement of the regulatory framework Adoption of concession-specific laws Development and inclusion of adequate provisions (taxes, dispute settlement, change of conditions, termination etc.) Improvement of budgetary procedures and public accounting rules Creation of a Task Force for the public authority Established by law Improve cooperation across public authorities (advice, standardization) Autonomous from Controlling and Finance Ministries Enjoy regulatory and supervisory powers Facilitate internal training and experts support 9
Financial Instruments Traditional Project Finance (PFI) Straightforward Lenders are favourable to PFI Proven state budgeting tool Does not favour economic optimisation Only works well in countries with solid financial rating Limits benefit of private sector innovative capacity Does not induce benefit of financial leveraging effects through tolls paid by users Shifts full burden of debt on the private sector Optional financing instruments Autonomous Public Financing Entity (APFE) Global approach to project income and surplus Identification and allocation of socio-economic benefits generated by the project Mobilisation of funds Reduction of State guarantee facilitates de-budgeting Profit-sharing mechanism with public sector Partial payment by users induces leveraging effect 10
Increased Involvement of Multilaterals Desirable Improvements in MLA policies Increase of share, value and length of MLA s interventions Better consideration of small-scale projects Extension of access to products to non-sovereign entities Development of local financing capacities MLA s / Monoliners collaboration Diversification of financial means Future Developments Improved intervention capacity for national crises (extreme inflation/ disinflation etc.) Improvement of strong currency rate instruments Improvement of simplification/standardisation Covering of a share of transaction costs through public development Better distribution of risks 11
Solid Project Preparation and Transparent Tender Procedure Tender procedure tailored to the project needs Thorough and unvarnished assessment of economic, financial and technical key parameters and project feasibility Early market testing through continuous contact with potential bidders during tender preparation phase Availability of necessary project information to the bidders Clearly defined criteria on project performance requirements Transparent tender evaluation criteria and evaluation process Clearly defined regulation process with adequately prepared executing authorities Sufficient time for tender preparation 12
Regard to the Requirements of the Capital Markets Solid project economics with secure revenue stream (subsidies, tariff policy) Sufficient political and economic stability, unbiased and fair jurisdiction Control of currency risks: exchange rate, convertibility, transfer Conducive legal and administrative framework: early identification of project related risks analysis of consequences in case of risk events assessment of probability for risk events and associated cost allocation of risks to those parties that are best suited to handle and bear set up of mitigating measures for risk events to minimise effects 13