c.r.e.a.m. ppp business model
DESCRIPTION
PPP, Public Private Partnership, MasterPPPlan, EuroPPP, MasterPPP ILM, Competitive Dialogue, JESSICA, EIB, European Union, Project FinanceTRANSCRIPT
Building Europe Together with Public Private Partnerships07.04.23
1
Concept of a Business Model for the Support of PPP Projects
MasterPPPlanBusiness Model
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OverviewContent
About Us Initial Situation Definition of PPP MasterPPPlan Development Strategy PPP Procurement Procedures Competitive Dialogue Project Finance EuroPPP Initiative MasterPPP ILM MasterPPPlan Business Model Contact Address
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C.R.E.A.M. Europe PPP AllianceAbout Us PPP network for reconstruction and development COMMUNITY REALIZATION EUROPEAN AID MASTERPLAN PPP Think Tank consisting of 8 national PPP associations at present Using PPP as a sustainble regional development strategy PPP project participants, PPP adviser, PPP bidder,
• European and independent• Active in new EU member countries, EU candidate countries and EU third countries• In cooperation with the EU institutions and international PPP competence centres
Link between Western, Central and Eastern Europe• Economy• Science• Politics
Accelerator for EU Enlargement and sustainable regional development• MasterPPPlan – Initiative for European PPP Region• EuroPPP – Initiative for European PPP Bidder• MasterPPPlan Adviser – European PPP Procurement Manager• EuroPPP Adviser – European PPP Bid Manager• MasterPPP ILM – Infrastructure Life Cycle Management for PPPs
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C.R.E.A.M. Europe PPP AllianceNational PPP Associations
Liaison OfficeNational PPP AssociationEuropean PPP AssociationMasterPPP ILM Competence Centre
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Initial SituationGeneral Interests
PPP
Interests• Fast Realization• Better Service for
Citizens• No Debt
But• No Money• No PPP Knowledge• No Lifecycle Approach
Interests• Sustainable Regional
Development• Optimal Usage of EU
GrantsBut
• Competition between Regions
• Competition between Companies
• No Project Development
Interests• New Business• New Markets• New Partners• Access to Capital
But• No Risks• No Partners• No Venture Capital• No PPP Knowledge• No EU Knowledge
Interests• Long-term Investments• Safe Investments• Infrastructure is a new
Asset Class• High Returns
But• Looking for objects in
operation• No Risks
Unites all interests at a right procedure to a Win-Win situation
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Initial Situation Problem Tree
Limited number of PPP projects and questionable efficiency of PPP projects
Problems in regulating PPP projects andStrategic management of PPP programme Lack of interest in PPP projects Difficulties in PPP project implementation
Deficiencies in operating environment andlack of capacity in Governments to promote,Develop, operate and manage PPP projects
Lack of awareness at the policy-making levelconcerning PPP
Lack of institutional mechanism for capacity-building, information sharing and absence of
Project development facility
Lack of easily accessible relevant informationand knowledge on PPPs
Unassessed state ofPPP-readiness
Lack of knowledgeconcerning specific
requirements(legal, financial,regulatory, etc.)
Lack of cooperationbetween agencies
involved inimplementing PPP
projects
Lack of cooperationbetween
governmentagencies and
training institutions
Suitable capacity-buildingmaterials and other training
materials are not readilyavailable
Effects
Causes
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Initial Situation Object Tree
Increased number and investments, in and efficiency of PPP projects
Strategies designed and legal andregulatory regime established to create
conducive environment
Establishment of a regularPPP programme Improved project implementation process
Improved operating environment and enhancedcapacity of Governments to promote, develop
operate and manage PPP projects/programmes
National awareness in creatingconducive environment for PPP
development
Institutional mechanism for capacity developmentthrough networking of PPP units, programmes, training
and academic institutions, and the private sector
On-line PPP capacity-building facility,resources and relevant project information
accessible to all parties
National programmesAction plans
PPP-readiness assessment(in paricipating countries)
PPP Global Alliance(Established through an inter-regional meeting)
National training institutions
Internet-based system development
End
Means
PPP regional Alliance(Established through an regional meeting)
PPP national Alliance(National meetings and capacity-building workshops)
PPP-readiness assessment(in paricipating countries)
System installation
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C.R.E.A.M. Europe PPP AllianceImplementation of PPPs
Using PPP as sustainable regional development strategy Transparent procurement as a Competitve Dialogue Lifecycle approach during project development Project Finance based on projected revenues from the facility Contractual PPP with clear risk sharing
EuroPPP Initiative for Private Side Specialization on facility type with life cycle approach Strategic building of PPP consortia
MasterPPPlan Initiative for Public Side Realization of infrastructure by transparent PPP procurements Competitive Dialogue with standardized procurement packs (output specifications, cashflow models, risk matrix, PPP contracts for different facility types)
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Public Private Partnership Definition
PPP is PPP is notBetter procurementPublic sector reformBetter strategic planningBuilding and maintaining good infrastructureBetter services for the taxpayerSharing of risks between most appropriate partiesPublic and private sectors working together
Free infrastructureJust about financeJust building infrastructureJust about involving the private sectorPrivatisation, simple concessions, outsourcing or property development A method to make a bad project good
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Public Private Partnership Advantages and Constraints
PPP PROs PPP CONsAcceleration of infrastructure provisionFaster implementationReduced whole life costsBetter risk allocationBetter incentives to performImproved quality of serviceGeneration of additional revenues Enhanced public management
Complex structure & documents Time-consuming to arrangeHigh up-front costsDemands significant senior staff attentionProject choice importantPSC methods need refiningDifficult to resolve when in defaultNeeds legal framework
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Public Private Partnership PPP Value Drivers
Less Value Added More Value Added
Fixed price Performance-based payment mechanism: carrots and sticks! Above-par performance should give higher profitability, low performance should trigger penalties.
Performance payments
Input contracting Output specifications: Output-based contracting leaves
room for the private sector to decide how to deliver the envisaged services. This uses the private sector's creativity to deliver the agreed public service at lower costs, or to provide better quality at the same cost to the user.
Output contracting
Risks all placed in one hand
Intelligent risk allocation: a risk should be allocated to the party that is best able to manage that risk. If too many or the wrong risks are held by either the public or private party the PPP will not add value.
Risks with party best able to manage risk
Less project phases in one hand
Lifecycle optimization: integrating different components and phases of a service increases its performance over its lifecycle and minimizes interface problems.
More project phases in one hand
Informal contracts Formal contracting: formal contracting with clear legal
recourse in case of disputes increases clarify and reduces risk.
Formal contracting
Less competition Competition / functioning market: competition from an adequate number of companies increases value-for-money. PPPs without competition are inefficient.
More competition
Public financing Private financing: private financing also results in strong oversight from debt and equity providers which can increase project performance.
Private financing
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MasterPPPlanRegional Development Strategy
MASTERPPPLAN REGIONAL DEVELOPMENT STRATEGY
SUPPORT TO ENTERPRISES HUMAN RESOURCES ATTRACTIVITY OF
THE AREA
Non financial services
InformationAudit / Advice
TrainingAwareness raisingCommon services
Financial services
GrantsLoans
GuaranteesVenture Capital
Factoring - Leasing
Intermediate structures
Development agenciesVenture capital companies
Technology transferagencies
Localinfrastructure
Enterprise centresIncubators
Industrial parksScience parks
First-Stop-Shops
direct indirect
KNOWLEDGE SOCIETY
Education
Training
Employment creation
Integration of less-favoured peopleand minority groups
Territorial pacts
Employment needs`analysis
LOCATIONAL FACTORSInfrastructureEnvironment
Industrial promotionInward investment
Reclamation of derelict landPromotion of the region
TourismClusters
InternationalisationResearch, Innovation and
Technology transferInformation Society
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MasterPPPlanResource Base of a Region
HumanResources
FinancialResources
PhysicalInfrastructure
NaturalResources
Sources of Technology
Institutions Gov`tPolicies
Employed Residents+Skilled+Unskilled+Under-employed
Unemployed
Not in labour force+Retired persons+Youth+Homemakers
Entrepreneurs
Banks
Public finance Programmes
Informal investors
Non-profit loan funds
Venture capital
Other lenders
Transportation+Roads+Air+Rail+Water
Public utilities+Water+Sewerage
Private utilities+Gas+Electric+Telephone
Real estate
Air
Ground water and rivers
Seashore and forests
Plants and animals
Renewable stocks
Non-renewable stocks
Universities and colleges
Federal labs
Private reserach institutions
Corporate reserach centres
Education/ Training
Ecenomic development
Social service
Community based
Religious
Cultural
Environmental
Unions
Regulation Policy+Zoning+Permitting+Environmental
Taxes
Services+Police+Fire+Solid waste
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MasterPPPlan PPP Procurement Procedures
PPP projects have public money (tax money) thus they have to be procured internationally
Besides the standard selection there is the - Negotiation procedure and the - Competitive dialogue
Procedure and dialogue can be used if the public side is very insecure or not experienced about detailed information like:• Technical issues • Legal aspects • Financial conditions • Political reasons
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MasterPPPlanCompetitive Dialogue A Project solution is worked out during the
competitive procedure Avoid an early specification on possibly
suboptimum concepts This kind of procurement is open for
innovative bidder concepts Award criteria must be early determined
(output specifications) European minimum standards are met:
• Guarantee of an adequate publication and transparency• No discrimination of national and EU bidders and non EU countries• Grant sufficient preparation time for bidders from non EU countries• Respect of equal treatment of national and foreign proofs and
certificates during the pre-qualification
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MasterPPPlan Competitive Dialogue
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MasterPPPlanCompetitive Dialogue
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MasterPPPlanOptimal Realization of a Project
No Public Influence
No Public Influence
No Public Influence
Private Investor
Private Investor
Single benefit from sell of the
property
Public Side has great Influence
Public Side has great Influence
Guarantees of Private Investor
Fair Risk Sharing
Private Investor
Sustainable Benefits
Public Side has total Control
Public Side has total Control
Guarantees of General
Contractor
Public Side
Public Side
Sustainable Benefits
Aspects of a Project
Urban Aspect
Realization Speed
Guarantees for the Realization
Market Risks
Financing of a Project
Economical Benefits for Public Side
Realization methods of an Infrastructure ProjectPrivate Project Development
Traditional Procurement
Public Private Partnership
PROs
CONs
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Project FinanceProject Structure and Risks
SPVProject
Company
Shareholders
Lenders /Bondholders
Operator
Construction Contractor
GrantingAuthority
Services Purchaser
Raw MaterialSupplier
Shareholder’s Shareholder’s AgreementAgreement Concession Concession
AgreementAgreement
Purchase Agreement (e.g., Purchase Agreement (e.g., housing purchase agreement)housing purchase agreement)
Supply Agreement (e.g., Supply Agreement (e.g., cement supply agreement)cement supply agreement)
Construction Construction ContractsContracts
Operation & Operation & Maintenance Maintenance Agreement (O&M)Agreement (O&M)
RegulatoryRegulatory RisksRisks
Regulatory and Regulatory and Performance Performance RisksRisks
Completion RisksCompletion Risks
Performance Performance RisksRisks
FX Risks and Refinancing Risks FX Risks and Refinancing Risks
Political and Macroeconomic Risks Political and Macroeconomic Risks
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Project FinanceProject Map
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Project FinanceDifferent Agreements Implementation Agreement Concession Agreement Construction Contract Operations Contract Maintenance Contract Raw Materials Supply Contract Sales Purchase Contract Special-Purpose Company Documents Share Subscription Contracts Loan Agreements Inter-creditor Agreement Escrow Account / Trustee Arrangements Insurance Licences; Permits; Bills & Decrees => Transparent Contract Management
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Project FinanceRisk Matrix = PPP Contract
Risk Type Mitigation
Pre-completion- Cost over-runs- Delays
(a) Fixed price turnkey contracts(b) Warranties / penalties / incentives(c) Fixed project specification(d) Strong contractors
Post-completion- Revenue forecasts- Revenue build-up- Operating costs- Management failure
(a) Committed supply contracts(b) Committed off-take contracts(c) Strong operators(d) Performance guarantees
Technical- Performance- Environmental- Safety
(a) Warranties(b) Proven technologies(c) Public consultation and approval
Financial- Structure: debt/equity ratio, eg. 75/25- Structure: return on capital- Structure: risk / reward ratio- Foreign exchange- Interest rates- Debt service cover- Taxation
(a) Equitable ROE, ( eg. 15-20 %)(b) Acceptable cover ratios ( e.g 1.5 -2.0)(c) Escrow and reserve accounts(d) Dividend constraints(e) Loan syndication(f) Insurance / financial derivatives(g) Standby funding arrangements
Legal- Regulatory framework?- Concession law?
(a) Experienced lawyers.(b) Clear, simple documents
Political- Regime stability- Force majeure aggt.- Political intervention
(a) Clear regulatory regime(b) Investment insurance(c) IFI support
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Project FinanceMasterPPPlan Fund
Equity provided by Equity provided by sponsorssponsors
Mezzanine or Equity Mezzanine or Equity provided by provided by
MasterPPPlan FundsMasterPPPlan Funds
DebtDebt
Project Financing Project Financing provided by banks / provided by banks /
IFIsIFIs
Leverage fund• MasterPPPlan funds attract money from long term investors
(such as pension funds, banks, foundations). • Inject equity or mezzanine finance in PPP projects
100100
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EuroPPP InitiativeOpportunities for Companies financing with EU-Know-How, EU-Grants, Venture
Capital opening new markets in other European countries starting system supply: complex prod. & service
solutions profiting from permanent cashflows (service-
contracts) securing through selling shares in the operation-
phase generating new orders in the core business
through • building new consortia in other PPPs• improved international communication channels
(national platforms)• improved networking to EU (international platform)
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EuroPPP InitiativeOpportunities for Companies
Provider
Investor SystemSupplier
GeneralContractor
Developer
EuroPPPConsortium
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MasterPPP ILM PlatformOverview
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MasterPPPlan Business Model Structure
1. EU-wide, transparent PPP Procurement = Competitive Dialogue
Bidder 1
AwardedBidderBidder 2
Bidder 3
MasterPPPlan Procurement
2. Life Cycle C
osts
3. Project Finance
4. C
ontr
actu
al-P
PP
PPP Bid Management
PPP Bid Management
PPP Bid Management
PPP Procurement Management
Refunding of Bidder Costs
Refunding of Bidder Costs
Integration of Transaction and Bidder Costsin the PPP Life Cycle Costs
PPP Transaction Costs
550
10
10
10
PVLOGPVPVLOGPC
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MasterPPPlan Business ModelAdvantages for the Region
Faster realiziation of PPP projects Support economically the
development of new projects and the regional development through Revolving Funds
Leverage better the effects of grants Increasingly attract private industrial
investors Gather PPP competence in Public
Authorities Goal-oriented regional development
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C.R.E.A.M.How can C.R.E.A.M. Help? Doing PPP awareness Organizing PPP trainings and workshops for capacity building Using PPP as a sustainable regional development strategy Finding the right PPP project participants, PPP adviser, PPP bidder,
• In cooperation with the EU institutions and international PPP competence centres
Accelerator for sustainable regional development• MasterPPPlan – Initiative for PPP Region• EuroPPP – Initiative for PPP Bidder• MasterPPPlan Adviser – PPP Procurement Manager• EuroPPP Adviser – European PPP Bid Manager• MasterPPPlan Fund – Concept for Urban Development Fund• PPP Procurement Fund – Local Partners support PPP Procurement• MasterPPP ILM – Infrastructure Life Cycle Management for PPPs• Standardization of PPP Procurement Packs
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C.R.E.A.M.Closing Remarks
“PPP is not only a profession, PPP is also a passion…”
“It is no longer a question of ‘if PPPs’ ?, but rather ‘when and how PPPs’ ? …”
“PPP is learning by doing…”
“PPP is social entrepreneurship…”
“PPP has 3 success factors: Transparency, Transparency, Transparency…”
Thank you for your attention!
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AddressContact
C.R.E.A.M. Europe PPP AlliancePublic Private Partnership AssociationAvenue de l`Opale 1 Appart. 5B – 1030 Brussels
Fon: +32-2-7366-984Fax: +32-2-7320-795www.cream-europe.eu
NameE-Mail
NameE-Mail
Dipl.-Ing. Zoran [email protected]
M.A. Alexander M. [email protected]
MasterPPP Competence CentreImplerstrasse 11D - 81371 München
Fon: +49-89-95414.127Fax: +49-89-95414.555www.masterppp.eu
NameE-Mail
Peter [email protected]