debt assumption commitments in turkish ppps - hulya pasaogullari, turkey

Hulya PASAOGULLARI

Head of Department, PPP Undersecretariat of Turkish Treasury

March 24th, 2015 Paris

OECD 8th Annual Meeting of Senior PPP & Infrastructure Officers

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MINISTRY OF

HEALTH

MINISTRY OF CUSTOMS

AND TRADE

MINISTRY OF TRANSPORT

IMPLEMENTING INSTITUTIONS

TRANSPORT EDUCATION ENERGY CUSTOMS HEALTH

MINISTRY OF ENERGY

MINISTRY OF EDUCATION

TREASURY MINISTRY OF DEVELOPMENT

MINISTRY OF FINANCE

AUTHORISING BODY

RELATED INSTITUTIONS

HIGH PLANNING COUNCIL (HPC)

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Commercial risks

Supply risk Construction risk Operational risk

Financial risk Demand risk

Legal framework Regulatory framework

Dispute resolution Government policy, taxation

Expropriation & nationalisation

Legal & Political risks

Authority default

SPV default

Force majeure

PPP Contracts

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Compensation payment methodology Book value compensation Market value approach Financing-based compensation Debt approach Net present value approach

Main principals fairness incentive for the SPV and its lenders bankability

◦ Revieving PPP prefeasibility studies by Turkish Treasury Ministry of Finance Ministry of Development ◦ Providing debt assumption commitments and

investment sovereign guarantees

◦ Monitoring PPP related contingent liabilities

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Treasury’s role in PPP

Revenue Guarantees by procuring institutions Traffic guarantee Lease payment Conditional specific compensations

Treasury Investment Guarantees Guarantee for payment obligations of input purchasing

commitments and non-performance of its supply commitments

Guarantee for repayment obligations of the public institutions or the appointed company assuming the foreign debt or bridge loans in case of contract termination

Debt Assumption Commitment

Exemption from VAT, Stamp taxes and duties

Debt Assumption Investment Guarantee Applicable for the projects undertaken by general budget institutions and special budget institutions

In case of termination of IC and transfer of the Facility to the Implementing Public Authority, Treasury assumes foreign debt Treasury will be the primary obligor of foreign debt

Used to enhance the loan quality

Applicable for sub-sovereign institutions (i.e. SOEs, municipalities and special budget institutions) In case of non-payment/ default of the guaranteed public institution, Treasury will pay the defaulted amount on behalf of that institution. Public institution will be the primary obligor of foreign debt

Used to enhance the creditworthiness of non-central government institutions

Presenter

Presentation Notes

After brief explanation of Treasury Debt Assumption and Treasury Investment Guarantee, I would like to point out the main differences among these two tools In fact the main rationale behind Treasury Debt Assumption and Treasury Investment Guarantee is same. However, although both of these two tools are government support to incentivize the private sector and lenders to participate in PPP projects, there are some differences in substance. First of all Treasury Debt Assumption is used to ensure that the lenders will be paid the full amount or pre-agreed portion of the outstanding debt at the date of contract termination. This structure enhances the credit quality of the senior loans. In other words, Debt Assumption means that Treasury becomes the borrower in case of termination of the Contract. But Debt Assumption is not a guarantee instrument under which Treasury guarantees the lenders against the failure of the project company's repayment obligation. And most importantly, Treasury Debt Assumption will be applicable only if the contract terminates. Treasury Investment Guarantee scheme is used to enhance the creditworthiness of the public institutions. With Treasury Investment Guarantees, the creditworthiness of public institutions becomes equal to that of Treasury for the concerned project. If the non-central government institution defaults on its guaranteed payment obligation, Treasury intervenes and honours the repayments on behalf of that institution.

Parallel to international applications: debt approach in case of early termination of the contract

Debt assumption commitments in case of an early termination

provided that the project assets are taken over by the public administration By authority default & force majeure: % 100 of outstanding

debt is assumed with the financing costs By company default: % 85 of outstanding debt is assumed

with the financing costs

Recent Legistlation: Regulation Regarding Debt Assumption to be Realized by the Undersecretariat of Treasury (April 2014)*

*:Press Release: http://www.treasury.gov.tr/default.aspx?nsw=iqmgQocZByo=-

SgKWD+pQItw=&id=5&nm=731#

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• Only for foreign financing • Partial debt assumption option • Only for PPPs implemented with

• BOT model by general budget and special budget administrations (transportation, highway, customs)

• BLT model for health and education • A threshold for the investment amount

• for BOT projects > 1 billion TL • for BLT projects > 500 million TL

• Subject to a budgetary limit – annual 3 billion $ (@ 2015) • Hedging cost limit of debt assumption: up to 10% of senior loan

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Before the tender stage • Public Administrations are liable to send their draft IC to

Treasury with a written request for debt assumption before publishing the procurement notice

• Treasury assesses the draft IC clauses which are directly related with debt assumption and gives its affirmative opinion if it deems appropriate

• Issuance of Council of Minister’s decision determining Treasury as the authorized institution to negotiate scope, elements and payment conditions of debt assumption

• Public Administration calls for tender after the Council of Ministers’ decision

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After the tender is finalized • Treasury assesses the draft IC clauses which are directly related

with debt assumption and gives its affirmative opinion if it deems appropriate

• Treasury, SPV and lenders negotiate the project documents including debt assumption agreement (DAA)

• Treasury submits the agreed terms of debt assumption to Council of Ministers

• After the issuance of Council of Minister’s decision, DAA is executed along with the other agreements of the financial package (IC Direct Agreement, Facility Agreement, etc.)

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(*) For the 1st and 2nd phase of project

Project Name Total Project Cost

Loan Amount

Eurasia Tunnel USD 1,2 Billion USD 960 Million

Gebze-İzmir Motorway* USD 6,3 Billion USD 2 Billion

3rd Bosphorus Bridge USD 2,9 Billion USD 2,3 Billion

• A long standing experience in PPP Model

• Sector and model specific laws for PPP models implemented

Build-Own-Operate • (Law No. 3096 dated 1984; energy sector) • (Law No. 3465 dated 1988; highways and roadside fac. ) • (Law No 3996 and Council of Ministers Decree dated

26.04.2011; various sectors)

Transfer of Operating Rights • (Law No. 4046 dated 1994; various sectors)

Build-Own • (Law No. 4283 dated 1997; energy sector)

Build- Lease- Transfer • (Law No. 6428 dated 09.03.2013; health sector) • (Decree Law No. 652 dated 25.08.2011; education sector) • (By-Law dated 08.09.2012; education sector)

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Thank you

Hulya PASAOGULLARI Head of Department, PPP

Turkish Treasury [email protected]

+90 312 204 73 63

debt assumption commitments in turkish ppps - hulya pasaogullari, turkey

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