PPP Funds for PPP Funds for Infrastructure Infrastructure InvestmentsInvestments

Istanbul, 8th November 2006Istanbul, 8th November 2006

Alessandro MerloSanpaolo IMI GroupInternational Public and Infrastructure Finance

PPP schemes continue to develop well throughout Europe and United States

Successfully PPP schemes in Europe:

France, Germany, Italy, Spain, Portugal, Greece, etc.

Supported by:

legislative framework

PPP taskforces

governments commitment

Public Private Partnership Public Private Partnership

PPP in ItalyPPP in Italy

Which lesson Which lesson can be can be learned?learned?

A parallelism can be drawn between the Italian development of PPP scheme and the experience in MENA countries

Lack of modern infrastructures

Government Budget restrictions

State providing public services (experience vs. efficiency)

Lack of institutional investors

Lack of capital for local sponsors

Nowadays Italy can be considered one of the most promising market for PPP projects development in Continental Europe

PPP in Italy and MENA countriesPPP in Italy and MENA countries

The last three years (2002 - 2005), thanks to legislative innovations, can be considered as the true start up phase with:

public entities

private companies

banks

That gave the necessary experience and defined operating criteria those will permit to speed up the bidding and structuring procedures

PPP in Italy a long start-up PPP in Italy a long start-up periodperiod

Modifications to the legal framework:

elimination of limits on the concession period

priority right attributed to the promoter

PPP in Italy creating the “legal PPP in Italy creating the “legal framework”framework”

Procedures 2002 2004

tender ex art 19.2 128 280 119%

tender ex art. 37 bis 78 138 77%

206 418 103%

ProceduresProceduresProcedures 200220022002 200420042004

tender ex art 19.2tender ex art 19.2 128128 280280 119%119%

tender ex art. 37 bistender ex art. 37 bis 7878 138138 77%77%

206206 418418 103%103%

are the factors that have determined a boost of projects under PPP schemes.In a three years’ period the number of tenders has doubled (from 206 to 418), while the number of concessions granted has increased by almost 4 times (from 47 to 229).

Data related to projects prometed by public

authorities

Data related to projects promoted by private

companies

PPP in ItalyPPP in Italy

0

500

1.000

1.500

2.000

2.500

3.000

3.500

2000 2001 2002 2003 2004 2005

€/mln

0

50

100

150

200

250

300#

size number of deals

0

500

1.000

1.500

2.000

2.500

3.000

2000 2001 2002 2003 2004 2005

€/mln

0

20

40

60

80

100

120

140

160#

size number of deals

Investors come when revenue stream is supported by a clear regulation.

Financing PPPFinancing PPP

Not only debt Not only debt but also equity but also equity needsneeds

Equity provided by Equity provided by sponsorssponsors

Mezzanine or Equity Mezzanine or Equity provided by PPP fundsprovided by PPP funds

DebtDebt

Project Financing Project Financing provided by banksprovided by banks

Leverage funds PPP funds attract money from long term investors (such as

pension funds, banks, foundations). They inject equity or mezzanine finance in PPP projects

Role of PPP fundsRole of PPP funds

100100

Benefits for investors in PPP funds

Investing in stable cash-flow businesses, with a moderate risk

Help sponsors

PPP funds help sponsors to:

- Structure project financing (making them “bankables”)

- Face equity needs (both through capital increase and mezzanine financing)

- Control costs during construction and operational period

Benefits for public sector

PPP funds stress analysis on economic and financial feasibility of projects in the long term

PPP funds are bynature long term investor, they are not interested in construction revenues

Role of PPP fundsRole of PPP funds

What comes first: PPP development or PPP funds ?

Lesson took from PPP experience in the UK: the growth has been in parallel.

What comes first ? What comes first ?

Geographic FocusItalyItaly

Investment TypeSocial and Public Buildings, Environment projects, Public Social and Public Buildings, Environment projects, Public Utilities networksUtilities networks

Investment Philosophy Investing in greenfield and brownfield PPP projects

Fund S

trate

gy

Fund S

trate

gy

SPONSOR FIN.OPI S.p.A. (SANPAOLOIMI GROUP)

MANAGEMENT COMPANY

Fondaco SGR (controlled by banking foundations)

ADVISOR FIN.OPI S.p.A

FUND TARGET €120 million

INVESTORS SANPAOLOIMI Group, Banking Foundations, International institutional investors

FUND LIFE 12 years (+ 2 years)

Investment Period 6 years

Divestment Period 6 + 2 years

The PPP Italia FundThe PPP Italia Fund

The PPP Italia FundThe PPP Italia FundInvestment strategyInvestment strategy

PUBLIC BUILDING

ENVIRONMENT URBAN DEVELOPMENT

TRANSPORTS

PUBLIC UTILITIES

SIZE of INVESTMENT

MEDIUM-LOW

MEDIUM-HIGH MEDIUM-LOW HIGH HIGH

RISK LOW MEDIUM MEDIUMMEDIUM-

HIGHMEDIUM

YIELD MEDIUM HIGH HIGHMEDIUM-

HIGHMEDIUM

TENORMEDIUM-

HIGHMEDIUM-HIGH MEDIUM HIGH MEDIUM

INVESTMENT POLICY OF THE FUND

50-60% 10-20% 15-20% 5-10% 20%

With such an investment policy PPP Italia, raising €120mln, will in invest in projects for about €1,5bln

Financing PPPFinancing PPP

How to have a How to have a more efficient more efficient use of public use of public and donor and donor fundsfunds

To attract investors Public Authorities and Donors normally gives subsidies to project sponsors

Subsidies are one-off investments Subsidies availability is very restricted Difficult to choose to which projects grant subsidies and in which

amount

Public Authorities and Donors can invest in PPP funds and being able to accept more risk and less return, compared to Private Institutional Investors, they can:

Decrease the cost of equity and mezzanine for infrastructure projects Have a strong leverage effect: up to 1 to 20 (1€ invested in PPP Funds

by Public Authorities can attract additional 2€ from institutional investors and as a result participating to projects for 20€)

Take profit of project analysis and selection made by a dedicated team (fund managers are remunerated based on the success of their investment)

If things goes well Public Authorities and Donors can receives back their investments and participate to extra-performance

Public Investments in PPP fundsPublic Investments in PPP funds

Fideme is a closed-end fund, managed by IXIS CIB, which provides mezzanine finance to renewable energy sector in France

A case study: FIDEMEA case study: FIDEME

Ademe

French Public Agency for Renewables

Institutional Investors

(CDC, Banca OPI, Caisses d’Epargne, …)

FIDEMEFIDEMEProjectProject

30 projects30 projects 320 MW installed320 MW installed € €370mln invested370mln invested

Senior Investor

B share

Junior Investor

A share

€15mln

€30mln

Mezzanine Finance

1. Payment of priority interest to B shares

2. Buy Back of B shares (at nominal value) – reimbursement of invested capital

3. Buy Back of A shares – reimbursement to Public Agency

4. Payment of extra performance, if any, equally divided between A (50%) and B (50%) shares

FIDEME Cash Flow CascadeFIDEME Cash Flow Cascade

All the funds has been invested No default projects (a portfolio analysis shows an better risk profile compared to initial hypothesis) Potential over-performance (current evaluation): €5mln ADEME will be able to re-invest entirely its commitment, … and even more

After four years (2002 – 2006)After four years (2002 – 2006)

Alessandro MerloSanpaolo IMI GroupInternational Public and Infrastructure Finance

Edin & Suner PlazaMeydan Sok. 14/1, AkatlarIstanbul, Turkey

Phone +90 212 3511731Fax +90 212 3511733E-mail a.merlo@sanpaoloimi.com