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Bucharest, April 4, 2006Bucharest, April 4, 2006
Black Sea Energy ConferenceBlack Sea Energy Conference
Public-Private Partnership in CEE Public-Private Partnership in CEE
2
World Bank Group and Energy Sector
Introduction to IFC’s Advisory Services
3
The World Bank GroupThe World Bank Group
WORLD BANK
GROUP
WORLD BANK
GROUP
ICSIDICSID
IDAIDA MIGAMIGA
«World Bank»
CASCAS
IFC IFC IBRDIBRD
Our Department
4
WBG in ECA – Selected Current ActivitiesWBG in ECA – Selected Current Activities
US$14.6 billion World Bank active portfolio in ECA region, of which:
US$4.4bn in 95 projects in infrastructure and energy
US$4.4 billion IFC active projects in ECA region, of which:
US$350m in infrastructure
US$160m in energy
US$5.0 billion FY05 World Bank program for the region, of which:
US$600m for Romania alone
US$1.3bn for infrastructure and energy
In 2004/05 IFC invests in the region approximately:
US$600m in infrastructure projects, of which
US$500m in power and gas projects
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IFC Global Portfolio - Private EnergyIFC Global Portfolio - Private Energy
Gas Power TOTAL
No. of Active
Projects
17 61 78
Countries 12 30 33
IFC Investment
(US$ mm)
1,921 2,550
Syndicated Loans (US$
mm)119 2,111 2,229
Project Cost (US$ mm)
3,253 11,729
14,982
629
78 active projects in the energy sector in 33 countries
Financed US$15.0bn total project cost
Invested US$2.5bn in debt and equity
Syndicated US$2.2bn loans
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Constraints to Attracting Private Constraints to Attracting Private International CapitalInternational Capital
International power companies have more or less withdrawn from emerging markets in recent years
Issues in Developed country markets:– Enron collapse– California crisis– Trading and accounting scandals– Negative perception of international investments by
stockmarkets– Stock market downturn– Access to debt and equity capital limited
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Constraints to Attracting Private Constraints to Attracting Private International Capital (contd)International Capital (contd)
Issues in Developing country markets:
– Latin America: Argentine crisis, Brazil devaluation/power rationing/sector uncertainty, Mexican political deadlock, Chilean gas import restrictions
– East Asia: Slowdown after 1997 crisis, no progress in sector reform
– South Asia: Dabhol cancellation, limited sector reform
– Europe: Focus on EU accession– Africa: Opportunities are smaller and riskier
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12
Investment needs too large for Governments
Slow earnings growth in EU will draw investors out
Big EU corporates will lead – will hit financial limits
Region is building record of strong economic growth
Missed the PF Boom: no legacy of large losses Countries in this region are first place to look Acquisition costs a fraction of what they paid elsewhere
Big progress made on tariffs, regulation etc.
Current Context in SEECurrent Context in SEE
Strong grounds for optimism: few projects…
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Key Success FactorsKey Success Factors
Sector Fundamentals
Contractual Arrangements
Government Support
Legal Framework
Regulatory Framework
Adequate tariff levels and consumer payment discipline
Balanced contractual arrangements and high standards of transparency
Government commitment to performance of the off-taker and other contractual undertakings
Legal framework enforceable and conducive to private sector activities
Independent and transparent regulatory institutions
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New Models NeededNew Models Needed
Must change risk / reward balance in some sectors
Where regulatory framework unproven :World Bank’s Partial Risk Guarantee
Where regulatory framework inadequate:Concessions with regulation through the contract
Where economic & commercial returns diverge:PPPs: to reduce risk and/or raise returns to investor
Longer term, incentivised Management Contracts Where uncertainty is so great required return too high
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Why are PPPs taking front stage?Why are PPPs taking front stage?
Availability of public capital remains constrained due to deficits and/or prudent fiscal management
Availability of private capital also constrained: investors generally more risk-aware than previously and less willing to take risks in emerging markets
Yet huge capital needs remain in infrastructure, education and health care, for development and for competitiveness
Efficiency gains from private sector involvement are believed to be considerable.
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Rationale for PPPsRationale for PPPs
Can make projects viable where economics and risk are more difficult
Bring private sector efficiency in sectors/project which do not achieve cost recovery
Better use of “hard earned” Public Money, i.e.:– More projects for given amount of funds– Focus on more social projects / complex risks
Value for Money
13Partial Government Subsidy Can Be Partial Government Subsidy Can Be ImportantImportant
PPPs in some areas will increasingly need some degree of government subsidy to:– Avoid ‘rate shocks’ for consumers– Share financial risk with investors – Kick start major projects in difficult investor
environment Success of future PPPs will depend on structuring
public subsidy in a manner which:– Secures political and public support– Is fiscally feasible and sustainable– Eases transition to full cost recovery rates for public
services
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Today’s Challenges for PPPsToday’s Challenges for PPPs
Cautious investors, and little appetite for project finance risk
Need solutions to regulatory uncertainty Mobilise local investors and financing Newly emerging generation of failed attempts to
introduce PPP Overcoming public resistance More attentive Trade Unions Media more alert and playing a political role
BUT GOING BACK TO THE PAST IS NOT AN OPTION
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PPPs and IFCPPPs and IFC
World Bank and Energy Sector
Introduction to IFC’s Advisory Services
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Advisory Services to Governments Advisory Services to Governments to structure and implement PPPsto structure and implement PPPs
Dedicated Department specialized in providing advice on the structuring and implementation of PPPs in infrastructure worldwide.
We have been at the forefront of advisory services in the transportation, water, municipal infrastructure, power, telecommunications sectors.
Our staff are transaction specialists. They are all experienced in the key elements of PPP transactions, and in planning and managing the transaction process.
We undertake pioneering transactions– First, difficult, political, reform-based, innovative
– Over 100 advisory assignments in more than 67 countries
– Capital mobilized post-transaction since 1995: US$4 billion
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PEP-SE infrastructurePEP-SE infrastructure
IFC’s Advisory Services’ structure dedicated to South East Europe with support by donors
Operating in: Albania, Bosnia Herzegovina, Bulgaria, Croatia, Macedonia, Romania and Serbia & Montenegro
Funding commitment from:– Austria, Italy, the Netherlands, Norway, Switzerland,
USA and IFC Mandate: development of infrastructure in the
region via the increased participation of the private sector PPPs
Spanning all types of infrastructure Started operations in July 2005
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Advisory TeamAdvisory Team
Technical/MarketConsultants
Local/Intl. Legal Consultant(s)
PEP SE Infrastructure
Accounting/Tax Consultant(s)
Social/PR Consultant(s)
ProjectCompany
Civil Society &Other Stakeholders
Government
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A Difficult Balancing Act Between A Difficult Balancing Act Between StakeholdersStakeholders
Government
FinancingSources
Investors/ Operators
Consumers
Advisor
Communication
Transparency
Competition
Efficiency
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A Structured ApproachA Structured Approach
Phase I: Preparation Phase II: Implementation
Step 1
Team
Mobilization
Step 2
Options
Strategy
Step 3
Framework
Reforms
Step 4
Closing
Transaction
Institutional Building
Institutional Building
Institutional Building
Communication-----Communication-----Communication----Communication
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Public Funding of PPPs : ExamplesPublic Funding of PPPs : Examples
With Different Approaches to Public Funding
Consumers: SPUG, Philippines
IDA and donors: Pamir, Tajikistan
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An Example: Philippines SPUGAn Example: Philippines SPUG
New PrivateProviders
Electricity Cooperative
RevenuePower
Energy Regulatory
Commission
Regulatesrates & services
Rates set at affordable level - the Socially Acceptable Generation Rate (SAGR) -
and increasing in real terms
Selected on a competitive basis – True Cost Generation Rate (TCGR) = lowest bid price
Improved reliability - Supply standards contractually agreed + performance
guarantees
Surcharge
Power Sector Asset and Liabilities Mgmt
Corporation
Output BasedSubsidy
All End-Users
Sets
No DeficitSubsidy = TCGR - SAGR
PowerSupply
Agreement
Agha Khan Foundation for
Economic Development
Swiss Govt.
Govt. of Tajikistan
$10mil., 40 years, at 0.75%
Pamir Energy
Co.
IDA Spread Account
Swiss Grant Account
Lifeline tariff of .25cents/kWh
Average tariff of 2.1cents/ kWh instead of 4.65cents/ kWh
$4.5mil., 10 years,
$8.2mil. equity
$3.5mil. equity
Example: Tajikistan, Pamir Private Power Project
Residential Consumers
$4mil.
IFC
IDA
$10mil., 20 years, at 6.00%Output-based Financing of
Lifeline Tariffs $5mil. grant
Consumers
Average subsidy of 1.85cents/kWh per month for 50 kWhs in summer and 200 kWhs in winter
24
What is needed to succeed What is needed to succeed
Understanding of public interests and ability to balance public/private issues
Capacity building of governments to increase their capacity in structuring and managing PPPs
Transparency and Communication Oriented towards development objectives – e.g.
social focus Knowledge of investors’ market & confidence of
investors Integrated approach / synergies within the other
players Leverage international experience elsewhere Public Dissemination and PR campaigns
25
PEP SE Infrastructure: Contact PEP SE Infrastructure: Contact DetailsDetails
THANK YOU
Contact Details:Angelo Dell’Atti, General Manager
PEPSE InfrastructureInternational Finance Corporation
World Bank Group
Tel: +359 2 9697207Fax:+359 2 9697222
E-mail: [email protected]