[11.07] 04-3. lampung project brief-apn training-nov12
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Lampung PPP Water Supply Project For discussion only
APN Workshop 2012, Seoul, Korea November 2012
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2
Contracting Agency (Ministries, Regional Governments, SOEs)
Investor
PPP Agreement 2
Proposal for Guarantee
Recourse Agreement
1
3a
3b
A
Minister of Finance
MOF
Multilateral Development
Agency / Others
Equity Injection & Guarantee Policy
Coun
ter G
uara
ntee
for M
DA G
uara
ntee
Fac
ility
Credit & Guarantee Facility
B
Note:
will exist only if exist, i.e. when become part
of guarantee structure provided to investor
B A A
IIGFs Business Model
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3
Eight economic infrastructure sectors: water, power, transportation (railway, ports), toll road, waste, irrigation, telecommunication, oil & gas
Awarded through a competitive bidding process
Economically, financially, technically & environmentally viable, socially desirable
Comply with related sector regulations
Prepared by credible experts/consultants
Binding arbitration provision in the Concession/PPP Agreement
Sector
PPP Contract
Project Viability
Regulations
Feasibility Study
Arbitration Clause
Project eligibility criteria for IIGF Guarantees
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4
IIGF Guarantee Provision Process
4. Structuring 2. Screening 3.Appraisal 1. Consultation
CA Role
Seek info on IIGF guarantees &
process
Submit Screening
Form
Submit Guarantee Application
Package (GAP)
Finalize T&C of Guarantee &
Recourse Agreement
IIGF Role
Provide info on guarantee product &
process
Issue Confirmation to
Proceed for eligible project
Issue Letter of Intent
for guarantee provision
Issue In-Principle
Approval to be used for bidding
Screening Form: 1. Cover Letter 2. Project brief
description 3. Outline Business
Case
Guarantee Application Package: 1. Request Letter 2. Pre-feasibility study 3. PPP structure 4. Risk Matrix & Risk Mitigation Plan 5. Draft PPP Agreement 6. Description of Govt support 7. Scope of guarantee required 8. Financial model 9. Env. & social assessment report 10. Project Management Plan 11. CA related information
Overall Process Objective is to ensure Guaranteed Projects are: Feasible Fair in Risk Allocation
Robust in Risk Mitigation Plan Well Structured in terms of Financial Impacts of the Guarantee
Risk Monitoring
of Guaranteed Projects
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5
IIGF guarantee process vs CAs transaction process
Sample timeline involving CA preparation and transaction execution vs corresponding IIGF guarantee provision process
Finalize Pre-FS
Pre FS review &
prepare GAP Use of
Consultant
Decision to go with PPP
1. Consultation
2. Screening
Signing of: PPP Agreement
Guarantee Agreement
Recourse Agreement
Award & Signing
Bid Submission & Evaluation
One on one meetings
Submit GAP (Usulan Penjaminan
3. Appraisal
4. Structuring
Issue Draft RFP
IIGFs Guarantee Process
EOI and PQ Process
Issue Final RFP
Issue In-Principle Approval
Financial Close
Attaching Final Draft of: PPP Agreement Guarantee Agreement
Issue Confirmation to Proceed
Issue Letter of Intent
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Brief Profile of Bandar Lampung City
Capital city of Lampung Province located strategically as the entrance to the
island of Sumatra (45 mins flight from Jakarta) Administratively divided by 13 Districts and 98
Sub-District with a total area of 197.22 km2 One of the most Indonesias rapid growth city
with the population of 873.517 in 2009 and average growth level of 1.55 % per year.
Progress on a number of residential and commercial areas growing rapidly, as well as other public facilities, esp. in the 6 districts located in the northern part (future location of the provincial administration center)
Thus, the availability of infrastructure is critical (especially the water supply).
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BOT of Bulk Water Supply System (intake at 21km from City border, water treatment plant, transmission, and reservoir)
Capacity: 500 liters/ sec or 41 MLD. Develop selected water distribution network(s) to cover the required service area (9 districts).
Target: >300,000 existing population (+/- 30% of citys population, at greenfield with the high growth potential.
The Project Features (1)
Singapore
Malaysia
Sumatra Bandar Lampung city
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Est. project cost: US$ 60-100 mio Concession Period: 25 Years (start operation in 2014/2015) Land is already acquired at the intake location: 3.5 Ha, and at reservoir 2 Ha Will be the 1st case of:
IIGF guarantee supported project in water sector Viability Gap Fund (VGF) for PPP project
The Project Features (2)
Bandar Lampung city
Location of intake facility
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Why need this project?
The city seeks to achieve MDG target of 80% coverage for clean water supply by 2015 intense requests from its citizens for such service due to availability constraints in case of
other sources of water supply (i.e. groundwater). Currently, only 26% of the population in Bandar Lampung is served by the clean water
network, which is developed and managed by the local water utility (PDAM).
The current service is however supply-constrained, as a result, existing customers are receiving non-continuous water supply, and expansion of network to new customers become even more difficult
In order to expand the coverage of clean water supply, the municipality has launched the Way Sekampung Clean Water Supply Project involves the sourcing of raw water from the Way Sekampung river, the treating of water to drinking water standard as well as transmitting and distributing to the
population in the northeastern part of the city (where most of them currently are located outside the existing network)
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Parties involved in the Project
BPPSPAM
Financial Legal Technical
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Project Scoping
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Proposed Project Structure*
It is recommended to have: - PPP1: as bulk water provider - PPP2: O&M distribution network
Bandar Lampung
City
PPP1 (Build, operate bulk water facilities, build distribution network)
Bulk Water Purchase Agreement (25 years)
PPP2 (Marketing, operate, meter reading and
training) Availability & Output Payments
O&M Agreement ( 5- 10 years)
Management Fee & Incentives
IIGF
Recourse Agreements
* As discussed and proposed to the CA & MoF
Risk mitigation measure
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Aspects to be appraised Project-basis vs CA-basis
Guarantee Application Package
Appraisal Process
Viability
Economic, Financial & Technical Viability Pre-FS, Project Cash Flow
Environmental & Social Viability
Environmental & Social Impact Assessment
Government Support Description of Government Support
Risk
Risk Management PPP Structure, PPP Agreement, Risk Allocation
Guarantee Coverage Guarantee Coverage
Competitiveness Procurement Process Project Management (Procurement) Plan
CA Capacity CA-related Information
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IIGF Assessment on Project Feasibility, Risks and Guarantee Eligibility
The city seeks to achieve MDG target of 80% coverage for clean water supply by 2015 intense requests from its citizens for such service due to availability constraints in case of
other sources of water supply (i.e. groundwater). The municipality has submitted a Guarantee Application Package (GAP)
as part of its intention to receive guarantee from IIGF. The guarantee is needed in order to enhance creditworthiness of the municipality as the CA,
as well as the sole off-taker of the project. The absence of such guarantee is believed to compromise the bankability of the project.
IIGF appraisal criteria, includes, among others: technical, economic, and legal feasibility as well as social and environmental desirability; certainty of government support (if needed); proper risk allocation and mitigation plans; capacity of Contracting Agency; and robust project management plan, including procurement plan (ensuring competition and
value for money)
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IIGF Appraisal Process Guarantee Application Package (GAP)
Is prepared with the assistance of advisors, which includes: technical feasibility report, social cost benefit analysis (including economic assessment), legal review, initial environmental examination, financial model, project PPP structure, CA fiscal capacity assessment, and project management plan.
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Risk Appraisal & Structuring Risk Allocation and Risk Coverage
Evaluation of other aspects
Evaluation of Guarantee Impact
GUARANTEE PROVISION PROCESS BY IIGF
Evaluation of other aspects
1. Consultation and Guidance 2. Screening 3. Appraisal 4. Structuring
Evaluation of Risk AspectGuarantee Application
Package (GAP)
Risk Matrix and Risk Mitigation Plan
PPP and Infrastructure Guarantee Regulatory FrameworkPerpres 67/2005 j.o. 13/2010 j.o
56/2011 (PPP Infrastructure)
Perpres 78/2010 (Infrastructure
Guarantee)
Not covered
IIGF Risk GuidelinePPP Risk Category & PPP Risk Matrix
Based on Risk
Allocation Principles
Yes
No
Risk Allocation Principles
Risk coverage considered to be
guaranteed by IIGF
PMK 260/2010 (Manual of Perpres
78/2010)
Draft PPP Agreement
Evaluation on proposed risk coverage
Guarantee Viability Analysis
Not viable
Risk coverage for guarantee structure
evaluationViable
Guarantee Capacity Analysis
IIGF Risk Coverage
Co-guarantor Risk Coverage
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Transport
Waste Water
Toll Roads
Water Supply
Electircity
Sect
ors:
As
per P
resi
dent
ial R
egul
atio
n No
. 67/
2005
**
Selected Oil & Gas
Irrigation
Selected Telecom
IIGF Guarantee Coverage CAs Obligations which have been allocated to CA under PPP Agreement
**) as has been ammended by Presidential Regulatian No. 13/2010 and No. 56/2011
Allocation of Risks in a PPP Agreement an Illustration
Examples : CA Payment
Obligations 9 Inability to Pay 9 Unwillingness to Pay
Early Termination /
Other Payment Obligations due to Government Actions / Inactions, such as:
9 Change in Law 9 Expropriation 9 Currency
Inconvertibility / Non Transfer
9 Force Majeure Affecting CA
PC Shared CA A
B* C
D
E * F
G * H *
Possible IIGF
Guarantee Coverage
PC : Project Company CA : Contracting Agency
*) Risk that leads to certain financial obligation of the bearer
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IIGF Appraisal Process Highlighted Project Risks
Quality Risk Risk that the quality of raw water will deteriorate resulting in inability or required intensification
of water treatment process Quantity Risk:
Risk that stemming from insufficient flow of raw water in the intake during the project life, resulting in insufficient or no water output that can be produced
Distribution risk (non revenue water) The risk of leakages in the network due to physical and non-physical reasons By evaluating existing utilitys performance and benchmarking with other water utilities
Demand Risk Insufficient water consumption will be experienced resulting in revenue shortfall
Land Acquisition risk Permits and licenses risk Other political risks (change of law risk, expropriation risk)
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IIGF Appraisal Process Conclusion
In overall, the project is concluded to be: 1. technically feasible given the availability of water source and workability of technical scope; 2. financially feasible assuming there is government support; 3. economically feasible given the social benefits; 4. legally feasible given the conformance to prevailing laws and regulations; 5. environmentally desirable given no significant environmental risks identified; 6. socially desirable given the minimum adverse impact to the people and the benefit in terms
of improved health and productivity; 7. available government support inline with VGF mechanism from MoF; 8. risks allocated to the municipality are those better borne by the public sector (i.e. offtake,
raw water risk); 9. fiscal space in the municipality is sufficient to cover its payment obligations; 10. project timeline is realistic and the procurement process is sufficiently competitive and
robust.
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Implementing PPP Transaction
The project was exposed at 2011 Indonesia International Infrastructure Conference and Exhibition received overwhelming response from major international developers The result of pre-qualification are four international consortiums (shortlisted bidders)
The RfP has been released and subsequent consultation sessions have been held to obtain input concerning: project technical specification, commercial structure, transaction
process/tender process, and the viability gap fund mechanism The input from RfP process will also form the basis for the MoF for VGF mechanism
Possible bid parameter: the bulk water price or the amount of VGF required. Spread of end user tariff and bulk water price to be conform with the projected O&M cost of
distribution network
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Main Priority
IIGF Guarantee MDA/Other
Financial / Gtee Institutions
IIGF Guarantee
Or
+
Last Priority
IIGF Guarantee MDA/Other
Financial / Gtee Institutions
+ Government Guarantee +
Can be due to reasons of capital inadequacy from IIGF or other strategic reasons from IIGF
Due to capital inadequacy from IIGF and if:
There is no cooperation with third party; or
There is cooperation but it remains insufficient
Possible Guarantee Structures for IIGF
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Thanks Kamsamnida
Q&A
Andre Permana a.permana@iigf.co.id
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