EBRD Public Private Partnerships (PPPs)

Transport Sector Experience

Contents

1. Introducing Public Private Partnerships (PPPs)

2. Key Requirements for PPPs

3. EBRD’s PPP Experience in Transport Sector

4. Potential PPP Pipeline in the Region

Introducing Public Private Partnerships (PPPs)

PPPs are long-term contracts with theprivate sector to provide services to,for or on behalf of the government

A PPP is a method of procurementand a complex structure requiring anefficient sharing of risk betweenprivate sector and government

Not all PPPs are successful and IFIsmay not be able to participate if thefundamental principles are not met

EBRD participated in its first road PPPin 1993 in Hungary, and been involvedin 15 PPP projects in the transportsector.

Public Private Partnerships (PPPs) – Key

Success Factors

An appropriate legal framework protecting the interests of all parties, including financiers

Experienced advisers on all sides, particularly on the Government side

Feasible project, which has widespread political support

Open and transparent tendering of the PPP contract

Efficient allocation of risk

Early engagement with IFIs on environment and social issues

Realistic timeframes for tendering and achieving financial close

Key Requirements: Legal Framework

Sound Legal Framework is Key

Government policy on PPPs is the cornerstone of a sound legislative and regulatory framework

Legislation needs be clear & consistent, avoiding loopholes & conflict with other legislation

Flexibility is needed to allow for alternative approaches where appropriate

Legislative framework should also be predictable, stable and fair

Key Requirements: Experienced Advisers

All sides require legal, technical and financial advisers

Assist with development of legal framework

Guide project selection, cost-benefit analysis & public

sector comparator

Prepare Independent traffic forecast

Identify risk allocation in line with international best

practice

Assist with tender process, evaluation of tenders &

negotiation of concession agreement and financing

arrangements

Monitor implementation and compliance

Transfer skills, particularly to public sector

Key Requirements: Project Selection

Choosing the right project

Project should be feasible, with a sound economic basis

Support Government’s development objectives

Based on rigorous cost/benefit analysis

Positive economic internal rate of return

Have political consensus

Achieve right balance between environmental concerns & development needs

Key Requirements: PPP Rationale

What are key Government’s objectives?

Faster improvement of transport networks by

mobilising private capital (off-balance sheet)

Removal of transport bottlenecks to support

economic development

Minimum cost to government by harnessing

private sector efficiency and efficient risk

allocation

Low environmental impact

Key Requirements: Public Sector Comparator

Value for Money of PPP Approach

Calculation of a public sector comparator

Cost to the public sector over the contract

period (inc. historic cost overruns & net

present value of costs)

Private sector cost, net present value over

life of contract

Key Requirements: Procurement Process

Key Elements and Requirements:

Consistent legal framework allowing competitive procurement

Open and transparent tendering in line with international best practice to maximise competition and ensure IFIs involvement

Clear specification of requirements to encourage

compatible bids

Risk allocation included in draft agreement

Realistic timetable for tendering and financial close

Key Requirements: Lenders Security Issues

Rights of Substitution and Step In

Whose money?

– 90% Banks/10% Sponsors

The Banks must be able to address

problems before the Project is at risk

Unilateral change or termination to be

balanced by economic compensation –

even if termination grantee’s fault

Key Requirements: Dispute Resolution

Disagreements – what happens?

Private partner is likely to be a

Special Purpose Vehicle Company

set up under domestic law.

Requirement for international

arbitration by persons familiar with

PPP structures

Key Requirements: Developing a Sustainable

PPP Programme

Making use of lessons learned

Establish PPP unit at central government

level

Maintain know-how

Introduce standardisation

Clarity in market

Speed in repeat transactions

Consistent government position

EBRD PPP experience in the Transport Sector

Op ID Operation Name Sector Country Total

Project

Value

EBRD

Finance

Signing

Date

674 M1-M15 Motorway Project Road HUNGARY 243.5 68.9 23 Dec 93

1318 M5 Concession Motorway B.O.T. Road HUNGARY 309.2 61.0 11 Dec 95

11846 JSC Channel Energy Poti Port Port GEORGIA 28.5 9.5 19 Mar 02

24998 Hungary M5 Refinancing Road HUNGARY 221.3 67.5 10 Mar 04

35047 M5 Phase II Road HUNGARY 900.0 100.0 21 Sep 04

34573 Grandi Stazioni Ceska Republika Rail CZECH REPUBLIC 31.3 3.8 15 Dec 04

34052 Tirana Airport Privatisation Project Aviation ALBANIA 78.3 31.6 23 Mar 05

35264 M6 Motorway Road HUNGARY 404.2 25.3 18 Jul 05

36566 M6 Motorway Refinancing Road HUNGARY 482.0 32.0 31 Mar 06

36385 Tbilisi International Airport Aviation GEORGIA 96.9 21.1 17 May 06

36013 Armenia International Airport - Passenger Terminal Aviation ARMENIA 51.3 16.3 13 Jul 06

38376 M6-M60 Motorway Road HUNGARY 966.2 75.0 30 May 08

39432 R1 Motorway - Slovakia Road SLOVAK REPUBLIC 1,257.4 199.8 27 Aug 09

39334 Armenia International Airport Phase II Aviation ARMENIA 141.1 32.6 23 Dec 09

39029 Pulkovo Airport Concession Finance Aviation RUSSIAN

FEDERATION

1,230.5 100.0 28 Apr 10

EBRD PPP Experience in the Transport Sector

Hungary : M5 Motorway

Low traffic volumes: Bank’s timely

refinancing puts concessionaire on sound

financial footing

Government wanted rapid abolition of tolls

to bring motorway into vignette system

Bank provided interim finance to avoid

nationalisation & allow negotiation of

availability payments based concession

Bank participated in renegotiation of

concession to ensure bankable document.

Bank requested by investors to act as

underwriter for refinancing as construction

nears completion

EBRD PPP Experience in the Transport Team

Hungary: M6 Motorway

First PPP tendered as an

availability payments

concession in Bank’s countries

of operation

Because of competitive

tender, sponsors brought in

EBRD after award of the

concession

Sponsors recognised value

added of Bank’s presence at

an intermediate level before

general syndication

EBRD PPP Experience in the Transport Team

Slovakia : R1

The first project in the

country to be implemented

under a Public Private

Partnership (PPP) scheme

Early example of a major

infrastructure undertaking

that was concluded in

Europe in 2009 after the

onset of the crisis without

direct state support.

EBRD PPP Experience in the Transport Sector

EBRD support to Government & advisers

at an early stage; tender successful &

compliant with Bank’s standards

EBRD combined state guaranteed &

private funding for construction of access

road in addition to funding for rehabilitation

of airport terminal

Much interest raised by well-structured

project, American Albanian Bank, Alpha

Bank & DEG are participating

Excellent example of a complex project

properly run with strong demonstration

effect

Albania: Mother Teresa International Airport, Tirana

EBRD PPP Experience in the Transport Sector

Bank’s first equity investment in a

transport PPP. Bank relies on

dividend income not equity exit

Project involves rehabilitation &

commercial exploitation of Prague

Main, Marianske Lazne & Karlovy

Vary stations

Czech national railways tendered

30-year concession in line with

the Bank’s standards

Local commercial banks provide

the long-term debt financing

Grandi Stazioni

EBRD Potential Future PPP Projects

Pipeline is Difficult to Predict

Slovakia, D1 Phase II

Romania, Sibiu-Pitesti motorway

Bulgaria, motorways/railway stations

Latvia, E77/A2 Expressway

Turkey, Istanbul – Izmir motorway

Turkey, ports and regional airport

Russia, WHSD

Croatia, Zagreb Airport?