ADB Financing

7/31/2019 ADB Financing

1/26

A

DBs

PrivateSectorFinancingOptions

Mainstream

ingPPPs

inIndia

Mumbai,2

8-30January

2010

Su

jataGupta

PrincipalIn

vestmentSpecialist

PrivateS

ectorOperations

AsianDevelopmentBank


2/26

Outline

ADBs

privatese

ctoroperations

Privatesectorproducts

Areas

ofoperation

Public

privatepartnership


3/26

ADBsPrivateSector

Operat

ions

Prom

otesprivatesectordevelopment&

catalyzesprivate

financingforinfrastru

cture

&capital/financialmarkettransactions

Providesfinancialsupportthroughequ

ity

inves

tments,

loa

ns&credit

enhancement

productsincludingguarantees

Originates,nego

tiates,structures,executes

&administersprivatesectortransactio

ns

Sharesprojectriskswithpr

ivatesector

inves

tors&financiersno

governmen

t

guarantees


4/26

PrivateSe

ctorOp

eration

s

PovertyreductionisADBsovera

rchingobje

ctive

ThePrivateSectorDevelopmentStrategystates:

TheAsian

experienceshowstha

tgrowthis

the

mostpow

erfulweaponinthefig

htagainst

poverty.

PrivateSe

ctorOperationsallevia

tepoverty

by:

generatingemploy

ment

increa

singthetaxbase

freein

ggovernmen

tresourcesforsocialspen

ding

ImpactofPSODsint

erventionsonpoverty

reduction

areoftenindirectbutsignificant.


5/26

Privat

eSectorFinancingProd

ucts

Developflexible&innovativ

eproductsfor

theuniquefin

ancing&

riskmitigationneedsofour

clientsprojectsinemergingmarkets

EquityI

nvestments

Directly

orindirectly(throughfund

s),

includespreferred

stock,convertibleloa

ns,&otherformsofmezz

anine

financin

g

Lending

Long-term,

dominate

dininternationalorlocalcurrency

Includescorporate&

projectBond

s

ComplementaryFinancingScheme

BLoan

Guarantees

PartialC

redit&PoliticalRiskGuarantee


6/26

0

500

1,

000

1,

500

2,

000

2,

500

2001

2002

2003

2004

2005

2006

2007

2008

Infrastructu

re

Finance

PSO

DFinan

cing2001-2008

($million)


7/26

PSOD

Approva

ls

2008

RenewableEnergy

6%

Energy

Sector

Develo

pment

4%

Transport

11%

Health

2%

ConventionalEnergy

34%

Transmissio

n&

Distribution

18%

Telecommunications

1

0%

BankingSystems

14%

HousingFinance

1%


8/26

PSODsIndicative

Pipeline

FinanceSector

Development

1%

HousingFinan

ce

1%

Trade

30%

CapitalMarkets&Funds

3%B

ankingSystems

1%

Water

12%

Communications

1%

HydropowerG

eneration

1%

RenewableEnergy

21%

ConventionalEnergy

29%


9/26

PrivateSectorInfrastru

ctureFinance

P

ortfoliob

yCountry

46

Total

4

VIE

1

THA

2

SRI

7

PRC

3

PHI

5

PAK

1

NEP

1

MLD

1

LAO

2

INO

12

IND

1

CAM

3

BAN

3

AFG

No.of

Projects

DMC

LAOIN

O

MLD

NEP

IND

CAM

BAN

AFG

VIE

PR

C PHI

PAK

THA

SRI


10/26

RegionalDepartments

Government/SectorDialogue

ADBRDs

PrivateSec

torDevelopment

PrivateSectorInve

stors

OntheGr

oundExperience

AD

BPSOD


11/26

Crowding

Out

Ourcore

nichePu

blicPrivatePartner

ships

(infrastructure,financials

ectors)

P

ublicSector

Pr

ivateSector


12/26

Wha

tprojec

tsdowefavour?

Model(replicable

)projects

Pioneeringprojects(afirst)

Frontiermarkets

Proje

ctsthatinfluencepolicy,f

romthebotto

mup

Proje

ctswithwide

rsector/economicimpac

ts

Proje

ctswithstrongpovertyre

ductionelements

Proje

ctsthatprom

otegoodgovernance

ADB

involvement

iscatalytic

crowdsinoth

ers

Inno

vativestructu

res

Deep

eningfinancial&capitalm

arkets

Bring

privatesectorrigour&m

anagementskills

intopublicsector

services

CPS&LTSFalignm

ent

Proje

ctsthatarefinanciallystrong!


13/26

HowPSOD

worksw

ithADB

colleagues

RDs/

RMs

OCO

ORM

PSOD

OGC

TD/

CTL

RSD

D

PSD,

leads,

PPPs

c

ofinancing,guarantees

,

syndication

riskratings,

evaluatio

n

legalsupport,

outside

counsel

safegua

rds,CDM

funding,

disbursement


14/26

PSODsPPPInitiatives


15/26

Th

eInve

stmen

tGap

tooris

ky

tooun

predictable

toosm

all

tariffs

toolow

tooop

aque

tooex

pensive

toodifficulttolev

erage

tooha

rdtoexit

toomanybetteropportunitie

s

mycreditpeople!!!


16/26

Projectprepar

ation

insufficientmaste

rplanning

insufficientprojec

tpreparation

biddin

gprocessis

crucial

landis

sueshavetoberesolv

ed

law&

arbitration

havetobe

acceptable

governmentleadership,cons

istency&

staying

powerare

crucial

needtochosethe

bestmode

lprojects

dontbetooambitious

rightr

iskbalance

&governm

entsupport

freedo

mt

oearnadecentreturn


17/26

WaterP

PPissues

costre

covery(sup

pliedbyGod)

politicalsensitivity

offtake

r(status,credit,size,expe

rience)

usage

conflicts

dealsize

deman

dprojections

sector

preparation

regula

tion/oversight

sponsorappetite?

associatedfacilities

interfa

cerisk

landis

sues

forexissue?

environmental/soc

ialissues


18/26

Cha

llenge

s

ULBdelivers

ervices-butmostfiscalauthorityatstatelevel(

=

unfundedma

ndate)

ULBtypically

inchargeofO&

Mbutstateage

nciesincharge

of

capitalinvest

ment

UnabletocoverO&Mcosts(

capitalinvestme

ntforexpansion?)

Limitedgovernmentfinancialresources,lack

oftechnicalexpertise&

inadequatetariffrecovery=

underfunded&

unsustainable

sector

Tariffsnotba

sedoneconom

iccostrecovery

verylowwithno

relationshipt

oactualcosts

Forcustomerswater&sa

nitation=entitlementnotpaya

ble

service

Unsustainablylowprices+poorcollectiongivespooreconom

ic

signals(=waterwasted)

Viciouscycle

oflackoffunds

inULB

poor

servicedelivery

Recognisedn

eedforalternativefinance,management&technical

approaches=

PPP


19/26

Exam

ple:Su

ratNewN.Zo

ne

watersupp

ly

Population(2007)40

0,0

00Proje

ctions-654,000in

2026&

~923,0

00in

2031

Detailed

townplanningschemesindevelopeda

rea

Detailed

ProjectRepo

rt(DPR)app

rovedunder

JNNURM

Grantsavailablefor70%o

fapproved

projectcostof

INR1.6

bn($

33m).Totalcost$50million.

Projectcomponents:

Intakewell,pumphouse,approachb

ridge&pipeline

work;

WTP&EPoint;UGSR

withboosterhouse,

E-Point,W

DS

Headwork&ESRs;Mechanical&Elec

tricalworksatintake

wells&boosterhouse

s;RawWaterT

runkMain&lines;

Distrib

utionNetwork;

Metering


20/26

Propose

dstructu

re

ProjectSPV

Equity

Debt

PrivateOperator

SMC

Build

n

etwork

S

MC

Maintain

Network/

service

levels

Prov

ide

Connections

Meteringa

nd

billing

Reportingbyo

perator

ConnectionsandServicelevels

PaymentstoPrivateoperatorbased

onpriceperKLandvolumeofwaterat

End-customer

level

JNNURMGoI+

GoGGrant50%

SMCgrant-

25%

Consumer

Tariff

Fixation

Retainuser

charges

*CollectiononbehalfofSM

C

Regulationby

Contractthrough

IndependentEngin

eer/IndependentAuditor

&B

idTariffregulationcomm

ittee


21/26

LessonsLearnt

CarefulplanningofPPPre

quired(thorough

professionalFS)

StrongGo

vernmentcomm

itmentchampionwithingovern

ment

Revenue&costestimates

realistic&com

prehensivelyassessed

Solidlega

l/regulatoryPPP

frameworkdesir

able(thoughnotalways

possible)

Contracts

needtobeclear&compliedwith

Procurem

entopen,

transparent&competitive

Publicbuy-inessentialp

ubliccommunica

tion&consultation

Ability

topayisoftennotanissueco

nvertabilityto

willing

ness

Needsofvulnerablegroups

InitialPPPtransactioncostshigher

Projectneedstobesustainableonceestab

lished

Comb

inegrants,proje

ctrevenues(tariff,secondary),soft

loans

Safeguards

incorporated

indesignnotas

afterthought


22/26

Lesso

nsLea

rnt

Needtod

evelopcapacity

ofULBforPPP

projects

Develo

ptechnical&man

agerialcapacitybytraining&hiring

qualifie

dpersonnel

possiblyfromprivate

sector

Completesuccessinsho

rtrundifficultbutfocusonLT

sustain

ability

Needtod

evelopthefinan

cialstrengthof

theULB

Devolu

tionofrevenueraisingability

Tariffson

costrecoveryb

asis

Cleare

conomicsignalfo

rproperallocationofascarceresource

Suddentariffincreasenotpoliticallyaccep

table

phasedapproach

Communicatetopublict

hatwateraservicewhichcostsmo

ney

Innovativefinancialstructuresmayberequired

Financingcannotmakebadprojectgood

Donor/MDBfundingavailablethroughODA,soft/commerc

ialloans

OBAto

incentivisegood

performance

Creditenhancements,T

AfromMDBs

Targetedsubsidiesforsub-components

Municipalbondfinancing


23/26

PRC:Ch

engduWaterw

orksPro

ject

FirstBOTsc

hemeunderco

mpetitive

biddinginth

ePRCwhiche

stablisheda

newwatertreatmentplantw

ithacapacity

of400,000

inChengdu,S

ichuan

Totalcost:U

SD107.6mil

Shareholders:VeoliaEnv

60%

MarubeniCorp

40%

ADB:Loan

-USD26.5mil

Bloan

-USD21.5mil

K

eychallenges/issues:

Credibilityoftheofftaker&

theofftakeguaranteebythe

Chengdugovernment

Foreignexch

angerisk(mis

matchofdebtservice&local

currencyrev

enues)

Completionriskoftransmissionconnectionstobe

constructed

byChengdugovernment


24/26

C

hengdu

Water:C

ontractu

alStructure

PROJECT

COMPANY

CAMPENON

BERNARD

VIVENDI

MUNICIPAL

GOVERNMENT

MUNICIPAL

W

ATERWORKS

COMPANY

Constructio

n

Contract

(fixedprice

,

datecertain

)

Technical

Agreement

(O&M)

O

fftakeAgreement

(takeorpay)

ConcessionAgreement

Primary

Obligor

(underOfftakeAgreement)


25/26

ADBs

upportforChen

gduWa

ter

TAforsp

onsorselection

TAforprojectdocument

preparation

TAforwatertariffs

Financiala

dvisor:

Structured&arranged

financing

Du

ediligence

IMPACTS

Addresse

swatershortage

Privatesectorefficiencies

Majorinv

estmentininlan

dprovince

FirstBOT

waterproject

modelforfutureIWPs

FirstBOT

projectwithoutcentralgovernmentsupport

Ensuredcostrecovery

Catalysed

commercialfunding(Bloan)

Localcurrencyparticipation


26/26

Tha

nkyo

u

Formoreinforma

tion

[email protected]

PrivateSectorOperations

A

DBsIndia

Resident

Mission

NewDelhi

Documents

ADB Financing