Presentation to the Ethiopia Government Delegation to Canada on PPP Peter Kieran May 15, 2014 Ottawa, Ontario
Overview Who is CPCS? Public-Private Partnerships / Transaction Advisory Services Example: Nigerian Power Experience PPPs in Growing Economies Questions and Discussion
Our History
Global Management Consulting Firm Focused on transportation, power and urban development Strategy development, transaction advisory services, economic/financial analysis and policy/regulatory reform 4
Meet our Team Consulting staff We are unique. With over 75 staff; business consultants, economists, financial analysts, planners, infrastructure engineering, operations experts, institutional specialists, social specialists and project managers. We are diverse. CPCS multicultural team can provide unique perspectives. Our team consists of 19 different nationalities. We are forward thinking. In a male dominant industry, CPCS fresh approach involves selecting top talent for our teams, women and men. Our team consists of 32% women. Support staff We are well-educated. Our team members hold MBA s, PhDs, MDs and specialized industry certifications/diploma s. We are global. Reaching wide with 22 worldwide offices and plans for more as we continue to expand. We are multi-lingual: Our languages include English, French, Portuguese, Bengali, Hindi, Japanese, Turkish, Spanish, Arabic, Urdu.
Our Clients Our clients have included every level of government in Canada, foreign government departments and agencies, industry associations, the private sector and all major international financial institutions, including the World Bank. Selected clients are noted below. Government International Financial Institutions Private Sector Industry Associations and Regional Authorities
Overview Who is CPCS? Public-Private Partnerships / Transaction Advisory Services Example: Nigerian Power Experience PPPs in Growing Economies Questions and Discussion
The Need for Private Investment The days of inefficient public monopolies are long gone Private operators/investors are essential for efficient operations in competitive markets and for investment in operations Government has responsibility to ensure infrastructure is provided for its citizens Engagement of private operators and investors is a useful tool to increase efficiencies and stimulate additional infrastructure investment This mix of government and private investment is referred to as Public Private Partnership (PPP)
Sharing the Risk Given high cost of fixed infrastructure, in many cases the private sector will not be able to undertake 100% of the project But private participation is needed to provide operating expertise and reality to investment allocation decisions In some cases (often port and rail for example) separation of roles is best Government can provide the infrastructure The private sector will provide the trains or buses or boats and operate the system at its own risk In other cases private sector may be able to develop infrastructure but other support will be needed from government in order to make project viable
Example Framework for Rail Transport Infrastructure Track & Roadbed Structures Stations Government Funding Operations and Maintenance Rolling Stock Depot & Facilities Railway Systems Control Systems Concessionaire Funding
Importance of Hiring a Trusted Transaction Advisor Today, public sector decision makers the world over are faced with challenging transactional decisions that can represent transformative opportunity or untenable risk. More than ever, hiring a trusted transaction advisor with a proven track record is essential to harnessing the full potential of these complex transactions. Transaction Advisory Services: Developing effective engagement strategies with the private investors Identifying optimal capital structures and financing strategies Securing financing Conducting valuation and business modelling
Role of the Transaction Advisor Legal Procurement Financial Government Transaction Advisor Private Sector Companies/ Investors Investment banking Technical Site investigations Due diligence Investment promotion Road show Consultation with investors Preparation of bid documents Evaluation of bids Negotiation with preferred bidder Financial close
CPCS - Leaders in PPP Innovation CPCS s core business is working with clients to promote private investment in infrastructure Since 1996, we have closed (financial close) 57 infrastructure transactions. Over the past five years, we have advised clients in PPP infrastructure transactions worth over US$10 billion We were advisors on successful PPP transactions of: Railways in 9 countries 1 new urban railway Ports in 9 countries Sale of 11 distribution companies Sale and concession of 6 hydro and thermal power plants CPCS is unique in that we offer a full suite of PPP Services to our clients from feasibility studies to financial close and handover to the private sector.
The CPCS Advantage Advised Governments in over 80 countries on how to increase private sector participation in infrastructure. Renowned for our role as lead transaction advisor for the sale of shares, lease or concession transactions (including build-operatetransfer (BOT), build-own-operate-transfer (BOOT) and build-ownoperate (BOO) projects) Easily mobilize our range of expertise, delivering services across the full spectrum of the infrastructure project life cycle; from feasibility studies and project development through to implementation. We are actively sought after to speak and/or moderate at international conferences on the CPCS model for achieving success in PPP programs and PPP projects.
Proven Experience (in numbers) CPCS Transaction Experience Closed PPP Transactions 60 Value of PPP Transactions $22 Billion
55 Successfully Completed PPP Transactions in Africa Country Sector (s) Completed Transactions Senegal Railway 1 Sierra Leone Port 1 Liberia Port 1 Mali Railway 1 Ghana Railway 0 Benin Port 1 Nigeria Ports, Railways, Power 40 Cameroun Port 3 Congo Brazzaville Railway, Marine, Port 2 Congo Kinshasa Port, railway 0 South Africa Port 0 Madagascar Railway 1 Zambia Railway 1 Malawi Railway 1 Tanzania Railway, Ports 2 Kenya Ports 0
Overview Who is CPCS? Public-Private Partnerships / Transaction Advisory Services Example: Nigerian Power Experience PPPs in Growing Economies Questions and Discussion
State of Nigerian Power Sector Pre-Reform Highly insufficient supply, dependent on self-generation for consistent electricity Highly Illiquid sector Very High Distribution Losses Approx. half of end consumers unmetered and receiving estimated bills Lack of clear and enforceable contracts between entities Insufficient maintenance and investment carried out, assets deteriorated
Low Supply of Electricity Nigeria USA 149 KWh per capita 13,246 KWh per capita Data Source: World Bank Energy Unit November 2013
Private investment in Electricity Nigeria 1998-2004 First entry of independent power plants 2005-2011 Break up of National Electric Power Authority (NEPA) and unbundling into 17 companies within the Power Holding Company of Nigeria (PHCN) Creation of independent regulator (NERC) 2011-2012 Sale of 11 distribution companies and 4 thermal plants Concession of 2 hydro companies (3 power plants) 20
2013 (November) Financial Close (February) Commercial Close (January) Negotiations 2012 (May) Final suite of Bid Documents released to bidders (following bidder comments) (August) Technically qualified bidders announced (September) Financial Bid Opening 2011 (September) Distribution of RfP to qualified bidders 152 bidders purchase 276 bid documents 207 companies approved (May) Prequalification of Bidders 331 EoIs received (February) Investor Road Shows Lagos, Johannesburg, London, Dubai, New York 2010 CPCS retained as Transaction Advisor (December) Process / Timeline 21
Transaction Outcome Bids for generation companies were based upon a standard highest bid value format Bids for distribution companies were based upon highest reduction in aggregate technical, commercial and collections loss Almost $2.6 billion in up front proceeds already collected by government (more transactions to close) Another minimum $3 billion committed to be invested in sector in rehabilitation Transaction been hailed as one of largest and most transparent in electricity sector in Sub-Saharan Africa Distribution Losses to be reduced by about 60% from current levels Generation Capacity required to increase by minimum of 2,000 MW over 5 years
Equity Participation Nigeria China Guersney Korea Luxembourg Mauritius Niger Phillipines South Africa Thailand Turkey United States Zambia
Challenges Going Forward Revenue Gap in Sector Not enough revenues being collected to cover all costs Gas availability Unpredictability about the availability of gas to cover all capacity expansion plus new plants coming on-stream Transmission Capacity Critical link between Gencos and Discos Large investments from government needed in order to avoid bottleneck Public Patience Results will not be overnight, public must be sensitized to the longer term nature of increasing the supply of electricity Availability of Finance Finance is currently almost all domestic and short term Questions of capacity of market to continue to finance sector at same levels
Overview Who is CPCS? Public-Private Partnerships / Transaction Advisory Services Example: Nigerian Power Experience PPPs in Growing Economies Questions and Discussion
Challenges in Developing Countries Doing PPPs for the wrong reason Limited understanding/budgeting of contingent liabilities Low public sector capacity to plan and negotiate PPPs Lack of contract monitoring capacity Weak judicial system to enforce/uphold contractual obligations Higher political / economic risks increase costs Low ability to transparently deal with unsolicited bids Public disapproval / lack of understanding of PPP Government fear/ anger at loss of control Genuine risk of negative impacts on society and the poor from badly designed contracts
Common Issues with PPPs There are two main issues with PPP before you get to issues of risk allocation: 1. The investment must be profitable 2. Government must decide whether to: a) be proactive and look for investors through a competitive process or b) wait for unsolicited bids
Profitability of Infrastructure Investments There must be a source of revenue such as toll roads Railways are most difficult as the investment in infrastructure is very high and of long life but tariffs are set by competition with the roads on roads provided by the government at no cost Monopolies are easiest: power, ports,... Users will exert political pressure if rates are too high and regulation is needed but tax-payers are willing to pay for good service
Competitive versus Unsolicited Advantages Competitive Best value for government Attracts the best investors Transparent Opportunity to gain wide public support Unsolicited Minimal investment by government Allows for creative ideas from the private sector Disadvantages Government must invest in planning and transaction services Completely non-transparent Government has no way of knowing if it is receiving good value Lack of transparency often leads to long delays High quality international bidders rarely participate
Questions and Discussion Peter Kieran President and CEO T: +1 613 237 2500 x 312 F: +1 613 237 4494 www.cpcs.ca 30