Attracting investors - Issues in preparing business cases Mr Kevin DIXON Managing Director Asia Pacific Mott MacDonald Kevin.Dixon@mottmac.com +65 62839100 Mott MacDonald does not accept any liability for reliance on information presented herein
Contents Mott MacDonald s credentials in PPP Attracting Investors issues in preparing a business case Lessons learnt from our experiences
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Water PPP Project Alpha and Wastewater PPP Project Omega Northern Ireland Water UK Preparation of a business case to examine PPP, which resulted in the recommendation of a 25 year concession DBFO model. We were involved from this stage through to the end of construction
Thai Tap Water Supply Thai Tap, West Bangkok Thailand, 320 MLD Water BOO Demand growth + government commitment to closing groundwater abstraction boreholes + sensible take or pay agreement We are currently supporting the expansion of this Project to 450 MLD
Jakarta Water Supply Jakarta Water Supply Indonesia We have worked with both the east & west concession companies in preparing capital investment plans for submission to the regulator, provided Lenders with due diligence and managed EPC contractors to make capital works improvements
PPP Objectives Long term commitment to the capital investment, operation & maintenance of water supply and sanitation infrastructure by all parties involved with costs & profits recovered from consumers with ability to pay
The Challenge Money markets continue to be nervous about long-term commitments to risky projects How to convince investors and lenders to finance your project?
Stakeholders Carbon Offtaker Government Regulator Customers Local Department/ Public Corp./ Private Co. Lenders/ Investors Project Company EPC Contractor Operator MM Designer Manufacturer
Threats to Project Company Financial Risks Fiscal Regime Currency devaluation Ability to bill consumer & collect cash High debt / Poor cash-flow Political, Legal & Regulatory Risks Institutional strength Policy or Rule changes Sub - sovereign Demand risks Market Risks Off-taker credit risk Price or Service Competition Project Company Project risks Political & regulatory risk Water Supply Risks Construction Risks New entry Performance Risks Dominant party behaviour Environmental risks Land acquisition risks Social risks NRW / Network Constraints Construction & Operation Risks
PPP - Structured Finance Model Carbon Offtaker Customer Lenders/ Investors Credit agreements; shareholder agreements Offtake agreements Government Local Department/ Public Corp./ Private Co. Construction agreements Project Company Water Purchase Agreement; Consents & Permits O&M agreements EPC Contractor Equipment supply agreements Operator Designer Manufacturer
PPP - Structured Finance Model Carbon Offtaker MM Compliance Customer Affordability Government Local Department/ Public Corp./ Private Co. Policy development; Support of Parliamentary Acts; Establishment of Service Level Agreements, Privatization Master Plans; Procurement Strategies; Demand Forecasting; Independent Review; Contract Preparation; Detailed Specification; Owner s Engineer; Independent Checking Engineer; Independent Technical Auditor; Independent Validation & Verification; Cost Control; Interface Management Lenders/ Investors MM Market Conditions; Lender s Engineer; Technical Due Diligence; Social & Env. Due Diligence; Asset Valuation Obtaining Permissions & Consents, Survey, Detailed Design Project Company EPC Contractor Designer MM Cost Control, Design & Construction Management Manufacturer Safety cases; Reliability, Availability, Maintenance & Safety Review Consortia Design; Risk Management; Social & Environmental Impact Assessment; Contract Preparation; Contract Audit, PDD Operator Asset Management Planning, Investment Planning, Cost Optimization, Monitoring, Auditing, Operational Maintenance Planning & Procurement
Lessons Learnt Experienced investors have learnt that successful projects will have: Long-term government commitment, no political interference and experienced advisors The project will have a simple contractual structure and minimal number of contracted interfaces A convincing business case and risk management strategy To attract investors in a competitive money market, the public sector needs to prepare a convincing business case for the Project, comprised of: Measurable physical and economic demand for the water services A robust payment mechanism for recovering costs and profits for the water services A technically feasible and affordable solution for providing the services And a clear and common sense Project risk management strategy
Thank you Kevin.Dixon@mottmac.com Enni.Soetanto@mottmac.co.id www.mottmac.com