INTERNATIONAL PPP BEST PRACTICES AND SUCCESS

STORIES

3RD PUBLIC PRIVATE (PPP) GLOBAL CONFERENCE

26TH-30TH OCTOBER 2015

TAKORADI, GHANA

ENG. STANLEY KAMAU– DIRECTOR , PPP UNIT, NATIONAL TREASURY

2

Why PPPs in Africa?

Needs, Challenges, and Prospects

1.Infrastructure is critical to the growth of Africa

2.Service levels are low and costs are high

3.Annual spending needs are US$93 billion

4.Private sector finance is an important source

5.Structural transformation of Africa

Low Service Levels

Normalized Units

SSA low-income

countries

Other low-income

countries

Paved-road density 31 134

Total road density 137 211

Main-line density 10 78

Mobile density 55 76

Internet density 2 3

Generation capacity 37 326

Electricity coverage 16 41

Improved water 60 72

Improved sanitation 34 51Source: AICD, 2010

The World Bank

High Prices and Costs

(End User Prices for SSA

and other regions)

Sub-Saharan

Africa

Other

developing

regions

Power tariffs ($/kWh) 0.02-0.46 0.05-0.10

Water tariffs ($/m3) 0.86-6.56 0.03-0.60

Road freight tariffs ($/ton-km) 0.04-0.14 0.01-0.04

Mobile telephony ($/mo.) 2.60-21.0 9.90

International telephony

($/3min. call to US)

0.44-12.5 2.00

Internet dial-up service ($/mo.) 6.70-148.0 11.00

Source: AICD, 2010

The World Bank

Infrastructure Spending Needs

US$ billion. pa

over 10 years

ICT 7.0 2.0 9.0

Irrigation 2.9 0.6 3.4

Power 26.7 14.1 40.8

Transport 8.8 9.4 18.2

WSS 14.9 7.0 21.9

Total 60.4 33.0 93.3

Capital

expenditure

Operating

expenditureTotal

Source: AICD, 2010

The World Bank

Railway, Airport, Seaport

Solid waste management

NAIROBI: COMMUTER RAIL

Infrastructure Funding Gap of US$ 2-3 Billion Annually

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Ingredients of Successful PPPs

1. Enabling Framework Issues relating to the general investment climate in a country. The areas of

focus include:

a) Macroeconomic Environment

Is there a vision/investment strategy for the country?

b) Business Climate

The attitude of the govt. & lending institutions toward businesses?

Does SL have a business strategy for private sector development?

c) Financial Environment

How are the financial raising markets in SL?

d) Legal and Governance Environment

Are contracts honored by government?

Presence of democratic & stable governance institutions

2. Demystify PPPs

PPPs is selling of Government Assets!

Government losses control!

PPPs only apply to infrastructure!

Government pursues PPPs to avoid debt!

Quality of services will decline under a PPP!

Cost of services will increase!

PPPs are more expensive and lead to excessive profits!

PPPs are a means to cut jobs and labour costs!

When to Use PPPs To close infrastructure funding gap and relieve strained

government budgets

When there is need/demand for the project: This is to attract

private investment

To create efficiency

To facilitate knowledge transfer from the private sector to the

public, (unique and innovative projects)

When there is political and community support to the PPP project

When the allocation of project risks is agreeable to both parties

When to NOT Use PPPs

When there is:

No demand/need for the investment – the project is

economically unviable;

Vendor driven (corruption);

General lack of PPP knowledge in the Public sector

PPP is not for doing BAD PROJECTS

Case of: Lima Metro, Peru (Tren Eléctrico)

The 7-station elevated metro, equipped

with 32 cars, was officially opened in

1990 but never operated, due to poor

demand;

Its operation started only 21 years

later, after enlargement to 16 stations.

Source: WBI

Cost of Cutting Corners - Empirical Evidence

There exists a large track-record of poorly managed projects resulting in;

Poor project selection

High project cost leading to unaffordable tariffs;

Protracted lengthy negotiations -Resolve important business points

before tender, not after;

Insufficient demand and poor cash flows;

Poor governance;

Delays and uncertainty which reduce bidder pool; and

Loss of public support.

Kenya PPP Projects can be initiated in two ways:

Solicited Bids

(Open &

Competitive)

PIIPs

(Unsolicited

Proposals)

Successful PPP Projects

The PPP Act, 2013

Successful PPP

Projects

Public Sector skills are

key in determining the 3

Core tests/principles in

PPP Procurement:

Value for Money;

Affordability; and

Risk Transfer (optimal

allocation).

Solicited/Competitive PPP Process

Project Identification

(Sector Diagnostic Assessments)

Project Proposal

Feasibility Study

PPP Tendering (Evaluation Report)

Negotiations & Contract Award

(Commercial Close)

Financial Close

Project Monitoring

Stages requiring PPP Committee approval

3. P

PP

LIF

E C

YC

LE

So

urc

e:

ww

w.p

pp

.go

v.za

PPP Institutional Framework

CABINET

PPP

Committee

PPP Unit

PPP Node

PPP Project

Clearance

PPP Petition

Committee

Case of: Ciudad Real Airport, Spain

The first private international airport in Spain

Cost €1,100m; 4,000m runway

Capacity: 2,500,000 pass; Demand in 2010: 33,520

Closed in April 2012 after three (3) years in operation. Source: WBI

4.

DEALING WITH UNSOLICITED PROPOSALS

Less or no competition

Low value for money

Less or lack of transparency

Generous terms

Most require fiscal support

Innovation

Knowledge

Financial resources

Capability

Even unsolicited bids can be taken through a competitive process

Swiss

Challenge

Bid

Premium

Developer’s

Fee

Best and

Final Offer

Options

Proponent is

included in the

second Stage

Proponent is

paid a fee either

by Government

or winning

bidder to

compensate for

intellectual

property

Proponent

receives scoring

advantage

during

Proponent has

option to match

winning bid

Country Examples

South Africa Indonesia Argentina

Chile

Korea

Indonesia

Philippines

Peru

Source : PPIAF 2012

Unsolicited proposals

The questions: “Shall we accept them?”

“How should we procure them?”

• Great potential tool for innovation

• Block them, or be ready for addressing them

• “no-cost-to-taxpayer” unsolicited proposals

• Learn from experience

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Case: Canal du Midi / Garonne

Riquet, a local tax collector, presented to Louis XIV this

unsolicited proposal: building a canal connecting the Atlantic

Ocean to the Mediterranean at no cost to the taxpayer or

royal purse

“mettre en risque mon bien et mon honneur à défault de réussite et, par contre-coup,

acquérant un peu de l'un et un peu de l'autre, en cas que j'en sorte heureusement”

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Case:Canal du Midi / Garonne

Riquet was awardeda perpetuousconcession in 1666, with the right to collect a specialpurpose new tax.

The canal, built in 1666-1683, was a success, but the public partner paid two thirds of its cost.

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An exception to the rule and is to be applied only where:

there is an urgent need for continuity;

costs relating to intellectual property in relation to the project design is substantial;

there exists only one person capable of undertaking the project;

there exists any of the circumstances as the Cabinet Secretary may subscribe.

Privately Initiated Investment Proposals (Section 61)

Preparation of Bankable PPP Projects

Hiring of Transaction Advisors:

A “Transaction advisor” is:

A person or persons appointed in writing by an accounting officer or

accounting authority of an institution, who has or have appropriate

skills and experience to assist and advise the institution in

connection with a PPP, including the preparation and conclusion of a

PPP agreement.

Summary of the PPP Pipeline in Kenya

Kenyatta University Hostels

34

Project Details:

Accommodation for 10,000

students

20Yr concession, 50yr life

assets

24 months construction

Undergraduate Ksh.5,945

(9350)

Post graduate sharing Ksh.8,990

(500)

• Post Graduate Bedsitter

Ksh.11,963 (150)

• .

Civil Servants Housing

35

CIVIL SERVICE HOUSING 10,000 units – Starehe -6,036 units at a capex of Ksh

9.3 Billion (Ksh 33,00/sqm): Starehe -1,856 units at Ksh 4.7 B, Ksh 33,627/sqm

Negotiations ongoing

2nd Container Terminal

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LANDLORD MODEL

(a)Container berths No.

20 and No. 21, (Berth

350m)

(b) Investments by KPA

– USD 420m (JICA –

300m, KPA 120m)

(c)Investments by

Concessionaire – 65 m

(d)Technical bid

evaluation complete;

(e)Petition filed b 3

bidders on the

outcome of technical

evaluation

2nd Nyali Bridge Development, operation and maintenance of a Second Nyali Bridge Draft Feasbility Report

under discussion

Detailed engineering, environmental, social and financial analysis on-going.

Final Feasibility Study report - December 2015

US$ Lower Range Upper Range

CAPEX 163 million 236 million

OPEX 1.8 million 2.175 million

NAIROBI –NAKURU- MAU SUMMIT RD

ParticularAlignment Options

Option 1 Option 2 Option 3CAPEX 116484.32 112252.77 116492.9OPEX 46647.02 45745.15 46371.81

PwC

28 July 2015

NAIROBI – MOMBASA ROAD EXPANSION

The National Treasury/PPP Unit •

Project: Involves upgrading and capacity expansionand subsequent operation and maintenance of theNairobi-Mombasa Highway

Profile of Highway: Mombasa–Nairobi Highway(A109) forms part of the Trans-African Highway(Northern Corridor)

Key transport route serving East and CentralAfrican countries from the seaport of Mombasa

Project Length : 482 Km

Estimated Capex: USD 1 BILLION

Feasibility study report submitted by TA (PWC)

RFQ to commence on December 2015

O&M of Nairobi – Thika Road (A2) Nairobi – Thika (50.4 kms)

Upgrading of road completed in Nov

2012 at a cost of USD 350million.

Project structured to recover cost

through tolling(stand alone): Ks.

7.5Bn (i.e. CAPEX – Ks. 2.78Bn and

OPEX - Ks. 4.875Bn)

No alternative road

Traffic at 135,000 vehicles a day.

Challege

O&M of Nairobi Southern Bypass Delay - traffic analysis and modelling

exercise

Assuming a traffic level of 20,000 vpd

with a 5% growth rate, CPCS envision

a 5 yr. O&M contract with a possible 2

yr. extension. Based on the projected

saturation levels, a new tender could

then be launched on the Bypass

(capacity expansion in the middle of

the concession period tends to be more

complicated and messy).

If the above is not the case, then it

might be better to require the

concessionaire to widen the road at

the start of the concession period

CPCS are to determine the full funding

requirements of the project, including

the cost of the $186 Million Chinese

Gov. loan

Other on-going PPP procurements1. 960MW Lamu Coal Fired Power plant – CAPEX $2B

– Project awarded and Environmental and Social Impact Studies on-going

as well as fund raising

2. Nairobi Multilevel Car Park at Sunken 3800 parking, 13

floors, Equity IRR -21% - RFQ

3. Kisumu Sea Port Development – Estimated at USD 200M, a

consultant preparing a feasibility study.

4. Magwagwa and Nandi Forest Multi-Purpose Dams – USD

1.8M

8. Student Accommodation Hostels for Universities i.e.

Moi University, Egerton, SEKU, KTTC and Embu University –

USD 150M- Consultant recruited (50,000 students)

9. Energy Sector projects

– 400MW Menengai:

100MW (Financial Close), 60MW RFQ – USD 480m

– 800MW Menengai Ph 2 - CONCEPT

– 800MW Bogoria-Silali Phase 1 - CONCEPT

– 800MW LNG, Dongo Kundu – CANCELLED

– 560MW Geothermal Project at Olkaria:

140MW under TA phase – USD 500M

– 300MW Geothermal Suswa - CONCEPT

– 40MW Solar at Muhoroni - CONCEPT

– 960MW Kitui Coal – FEASIBILITY STUDY

– Over 300 applications, 83 active and 18 have been approved by ERC and PPA negotiated, (83projects with a 1,611.45MW

10. Off Shore Jetty - TA

Other On-going PPP procurements/…

13. Mombasa Convention Centre –TFC under feasibility by IFC

14. Sports Stadium in Nairobi (Ngong Rd), Mombasa (Shimo La Tewa) and Eldoret – TA is in place.

15. Cancer Centres – IFC in place and feasibility study to be completed in 2 months

16. Police & Prisons Service Housing 130,000 Units:

Phase 1 of 25,000 Units - under Feasibility Study stage $500M

44

45

Cable Car Across Likoni – Capex USD

41m, Equity- USD 26m, Debt – USD 15m,

Ksh 20 per trip

Objective to build new 10,000km of roads in 5yrs to add to current 14,000km

Contractors will design, finance, construct and maintain the roads for 8 years.

Road developers will finance the road works from debt and equity.

contracts awarded on the basis of the lowest annuity payments.

Contractors will complete works within 2yrs.

Government will start paying full annuity payment once the road has been completed to the required standards.

The contractors will be responsible for maintenance of roads for eight (8) years.

PWC hired by Treasury to assist in financial advisory

Road Annuity Programme

.

Too little:

no Value

For

Money

Optimal:

efficient sharing

of risks

Too much:

project

failureRisk Transfer

Risks in Geothermal Power

Total PPP projects …… 500 Existing projects …… 348 New projects …… 152

No. of employees transferred …... 113,440

Savings (RM billion) Annual operating expenditure …… 7.1 Capital expenditure …… 162.1 Proceeds from sale of

government equity …… 6.5

Market Capitalization of Privatized …... 159.1

Entities - 31.5.2004 (RM billion) (24%)

MALAYSIA PPP ACHIEVEMENTS SINCE 1983

ROADS/HIGHWAYS RM21.7 billion

PORTS RM7.8 billion

ENERGY/INDEPENDENT

POWER PRODUCERS RM42.3 billion

LAND DEVELOPEMNT RM13 billion

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NORTH - SOUTH EXPRESSWAY ( 848 KM )

TOLL PLAZAS - OPEN 7 NOS., CLOSED - 60 NOS.

INTERCHANGES - 76 NOS. CON. PERIOD - 42 YRS (5/88-5/2030)

60

NORTH - SOUTH EXPRESSWAY

(BUKIT LANJAN INTERCHANGE)

61

KUALA LUMPUR - KARAK HIGHWAY ( 60 KM )

TOLL PLAZAS (OPEN) - 2 NOS.

CONCESSION PERIOD - 32 YEARS (7/94-7/2026)

62

PENANG BRIDGE (13.5 KM)

TOLL PLAZA - 1 NUMBER

CON. PERIOD - 24 YEARS & 8 MONTHS (9/93-5/2018)

63

PENANG BRIDGE (MAIN SPAN)

64

SHAH ALAM EXPRESSWAY (35 KM)

TOLL PLAZAS (OPEN) - 3 NOS.

CON. PERIOD - 28 YEARS & 9 MONTHS (11/93 - 8/2022)

65

NORTH-SOUTH EXPRESS’Y CENTRAL LINK ( 48 KM)

TOLL PLAZAS (CLOSED) - 7 NUMBERS

CON. PERIOD - 24 YEARS & 1 MONTH (4/94 - 5/2018)

66

MALAYSIAN - SINGAPORE SECOND CROSSING BRIDGE

LENGTH OF EXPRESSWAY - 44 KM, BRIDGE - 2.0 KM

TOLL PLAZAS (OPEN) - 4 NUMBERS

CONCESSION PERIOD - 30 YEARS(7/93 - 7/2023)

67

DAMANSARA - PUCHONG

HIGHWAY ( 40 KM)

CABLE STAYED BRIDGE

TOLL PLAZAS (OPEN) –

4 NUMBERS

CON. PERIOD - 33 YEARS

(8/96 - 8/2029)

68

SG. BESI HIGHWAY

69

AMPANG ELEVATED HIGHWAY

70

WESTERN KL TRAFFIC DISPERSAL SCHEME

(KERINCHI LINK)

71

WESTERN KL TRAFFIC DISPERSAL SCHEME

(PENCHALA LINK)

BRAZIL

Feasibility

studies &

contract

Bidding

process

Roll of

roads

Transport

Ministry

(2 years)

(9 months)

*BNDES Project Finance – National Developing Bank

Usually the funder of any road concession

ANTT &

*BNDES

**Lowest

tariff

SPV setup

and contract signature

(3 months)

**There are no

negotiations

between bidders

and ANTT

concerning the

contract, which

has to be

assumed as

defined by ANTT.

Changes can be

made during the

contract, subject

to equilibrium.

Contract Equilibrium

• Internal Rate of Return (IRR), as proposed by SPV on their financial model, is fixed

• (IRR of current contracts range from 4-20%-per year)

• Variable factors – tariff or duration (special cases)

• ANTT does not interfere on engineering technics but all major projects must be approved by the agency

Legth Tariff/100km(km) (US$)

NOVADUTRA Rio de Janeiro - São Paulo 402 4.87

PONTE Ponte Rio / Niterói 13.2 8.52

CONCER Rio de Janeiro - Juiz de Fora 179.9 7.02

CRT Rio de Janeiro – Teresópolis – Além Paraíba 142.5 1.80

CONCEPA Osório - Porto Alegre 121 4.94

ECOSUL Pólo de Pelotas 623.8 3.23

AUTOPISTA PLANALTO SUL Curitiba – Div. SC/RS 412.7 1.87

AUTOPISTA LITORAL SUL Curitiba – Florianópolis 382.3 0.82

AUTOPISTA RÉGIS BITTENCOURT São Paulo – Curitiba (Régis Bitencourt) 401.6 1.23

AUTOPISTA FERNÃO DIAS Belo Horizonte – São Paulo (Fernão Dias) 562.1 0.86

AUTOPISTA FLUMINENSE Ponte Rio-Niterói – Div.RJ/ES 320.1 1.93

TRANSBRASILIANA Div.MG/SP – Div. SP/PR 321.6 1.85

RODOVIA DO AÇO Div. MG/RJ - Entr.BR-116 (Dutra) 200.4 2.74

2a ETAPA – FASE I: VIA BAHIA Salvador - Div. MG/BA 680.6 1.29

BR-040/DF/GO/MG Brasília – Juiz de Fora 1.95

BR-116/MG Divisa Alegre (MG) – Além Paraíba (MG) 3.23

BR-381/MG Belo Horizonte – Governador Valadares 3.41

BR-101/ES/BA Div. ES/RJ - Entronc. BA-698 (Acesso a Mucuri) 3.71

Concessionaire Segment

1st STAGE

2nd STAGE (PHASES I e II)

3rd STAGE – PHASE II

PPPs: the South African Experience

Public Private Partnerships

“The diverse interests of different sectors can in fact, be harnessed for

the collective good. This is what PPPs are about. The public gets

better, more cost-effective services; the private sector gets new

business opportunities. Both are in the interests of the nation.”

South Africa’s Minister of Finance, Trevor Manuel, August 2004

Key PPP Regulatory Features

• Three tests for a PPP:

– Affordability

– Value for money

– Appropriate risktransfer

• Applied in a set PPP project cycle:

– Inception

– Feasibility

– Procurement

– PPP agreement management

• By the end of 2008, the South African PPP Unit had some 60 PPP projects in the pipeline, at both the national/provincial level and the municipal level, including:– Office accommodation – Management of monies in trust– Clinical services– Airports– Correctional facilities (prisons)– Emergency call centres– Fleet– Pharmaceutical supply chain services– Hospital rehabilitation– Juvenile detention centres– Provincial legislature– Eco-tourism facilities– Private sector use of state land for commercial purposes– Municipal solid waste management– Municipal water services

PPP Project History to Date,

M25 IN UK – CONGESTION – Sept. 2010.

Aug 2, 2011 Biennial Amb Conference 80

CHM and CEOs of MoI Retreat, Msa

CONTACTS

Public Private Partnership (PPP) Unit

National Treasury

P.O BOX 30007 – 00100,Nairobi, KENYA.

Tel: +254 20 - 2252299

Email: info@pppunit.go.ke

Website: www.pppunit.go.ke82