Cesar Queiroz International Experience With Transport Ppp Projects

7/31/2019 Cesar Queiroz International Experience With Transport Ppp Projects

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International Experience with

Transport PPP Projects

Regional Workshop on Public-Private

Partnership in Transport

Cesar Queiroz

Roads and Infrastructure ConsultantWorld Bank

Transport and Telecommunication Institute

Riga, Latvia, March 6-8, 2007


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Presentation Outline

What is PPP? Why PPP?

Financial close of PPPs

Regional distribution of PPPs

Main global concessionaires

Lessons learned

Optimism bias in highway PPPs Alternative PPP approaches

Some policy implications


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Why PPP?

Financial shortages in the public sector Operating efficiencies inherent to the

private sector

Reduced whole life costs through betterrisk allocation and incentives to perform

Improved quality of service

Generation of additional revenues Enhanced public management


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PPPs in Roads Worldwide

Project Number and Investment 1995-2004 (Cumulative since 1985)

0

100

200

300

400

500

600

700

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Years

N

umberofProects

50,000

100,000

150,000

200,000

250,000

300,000

350,000

CurrentUS$million

Number of Proposed Projects Number of Funded / Completed Projects

Estimated Investment for Proposed Projects Estimated Investment for Funded / Completed Projects

Source: Public Works Financing-Major Project Survey 1995-2004

PPPs are becoming a global business howeverreaching financial close remains a challenge

Only 55% ofproposed projectsreached financing


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PPPs remain concentrated in aselect group of countries

0

50

100

150

200

250

300

350

Developed

World

Latin

America

and the

Caribbean

East Asia

and

Pacific

Europe

and

Central

Asia

South

Asia

Sub-

Saharan

Africa

Middle

East and

North

Africa

Number of Projects

Project Cost ($bn)


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and highly influenced by a few

global concessionaires or sponsors

PPPProjects

undercontract

Awarded

ACS Dragados 45 18MIG / Macquarie Bank 23 4

Laing / Equion 21 1

Ferrovial / Cintra 20 14

Sacyr Vallehermoso 19 13

Albertis / La Caixa 19 2FCC 17 8

OHL 17 1

Cheung Kong Infrastructure 16 22

Vinci / Cofiroute 15 19

Top 10 TransportationDevelopers 2004

Source: PWF Major Project Survey October, 2004 Period: 1985-2004
http://www.cia.gov/cia/publications/factbook/flags/ch-flag.htmlhttp://www.cia.gov/cia/publications/factbook/flags/ch-flag.htmlhttp://www.cia.gov/cia/publications/factbook/flags/sp-flag.htmlhttp://www.cia.gov/cia/publications/factbook/flags/sp-flag.htmlhttp://www.cia.gov/cia/publications/factbook/flags/sp-flag.htmlhttp://www.cia.gov/cia/publications/factbook/flags/sp-flag.htmlhttp://www.cia.gov/cia/publications/factbook/flags/fr-flag.htmlhttp://www.cia.gov/cia/publications/factbook/flags/uk-flag.htmlhttp://www.cia.gov/cia/publications/factbook/flags/sp-flag.htmlhttp://www.cia.gov/cia/publications/factbook/flags/as-flag.htmlhttp://www.cia.gov/cia/publications/factbook/flags/sp-flag.html


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14%

16%

18%

20%

22%

24%

26%

28%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Years

Percentage

All Projects

Concentration of Projects in Top 10

Transport Sponsors


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Successfully concluding a transportPPP is a challenge:

As a result of unrealistic and

aggressive bids, a large number ofprojects face re-negotiation

Government commitment can disappear

in periods of financial stress Historically only 55% of proposed

projects have reached financing

What Have We Learned?


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Cost recovery is a major challenge: Full cost recovery is only achievable in some

transport sub-sectors

Revenue projections often suffer from a bias

towards optimism Access to local currency funding is a

critical success factor for infrastructureprojects with local currency revenues

The vulnerability of PPP projects tochanging political, financial and economiccircumstances is often underestimated

What Have We Learned?


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Rise & fall in developing countriesshows vulnerability in era of financial

shocksTotal Investment in Road Projects with Private Sector Participation 1988-2003

Total Investment Number of ProjectsSource: PPI Database

2

4

6

8

10

12

14

88 89 1990 91 92 93 94 95 96

2003US$billion

-

10

20

30

40

50

60

70

Number

00

97 98 99 2000 01 02 03

Mexican Crisis

Asian Crisis

ArgentineanCrisis


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PPP projects in highways havesuffered from optimism bias

Forecasting errors from poor data or incorrectassumptions in models price elasticity of traffic to tolls

substitute services/intensified competition

Political commitment at too early a stage before appraisal at sufficient depth to allow graceful

exit

project timelines inconsistent with sound biddingpractices

Downplaying vulnerability of PPP projects tochanging political, financial, economic context failure to identify/value political and social costs (e.g.,

toll increases)


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Standard & Poors Research ResultsComparison of Actual/Forecast Traffic

Normal(0.72, 0.32); n = 67X


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0

2

4

6

8

10

12

Cze Pol Ger Fra Gre Ire Fin Por Den Spa Bul

Construction Cost of Motorways(Euro million/km)

Source: EIB Database


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Incentive Schemes

How can the government provide incentivesfor private sector firms to participate?

Cost sharing and pricing arrangements

Incentive payments (or penalties) linked toperformance standards

Support the provision of guarantees(e.g., World Bank Partial Risk Guarantee)


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World Bank Group InstrumentsAvailable to Support PPPs

The World Bank Loans to governments Partial credit and partial risk guarantees Technical assistance

International Finance Corporation - IFC Loans to the private sector Equity investment Technical Assistance

Multilateral Investment Guarantee Agency -MIGA

Political risk insurance


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World Bank Partial RiskGuarantee Structure

Governt

PrivateLenders

ProjectCompany or

Concessionaire

World Bank

LoanAgreement

ConcessionAgreement

CounterGuarantee

World BankGuarantee


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PRG for a Sub-national Project

Concession

PrivateLenders

LoanAgreement

WBGuarantee

CounterGuaranteeFederal

Government

Provincial

Government

Project SPV

LegalFramework

BuysGuarantee


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Coverage of World Bank PRGs Cover specific government obligations

Guarantee payment against default on private debt dueto non-performance of government contractual

obligations

Relevant when there is a high perceived risk of policy

reversal

Coverage examples:

political events, e.g., changes in law, expropriation,

nationalization; contract frustration; obstruction in

arbitration process

certain force majeure events

foreign exchange convertibility/transferability


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Benefits of WB Partial Risk Guarantees for:

Public sector

Catalyze privatefinancing andfacilitate PPP

Reduce governmentrisk exposure byshifting commercialrisk to the private

sector Encourage larger co-

financing

Private sector Reduce risk of private

transactions

Mitigate risks difficultfor the private sector to

manage Open new markets

Lower the cost offinancing and extend

maturities Improve project

sustainability


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A professionally applied, functionoriented, creative and systematicteam management approach, used to

analyze and improve value intransportation projects

Provides a balance of quality,

performance and functionality in aproject, minimizing life cycle costsof construction, operation and

maintenance

Value Engineering


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Anti-Corruption and RoadConcessions

Road concessions are susceptible to corruptpractices:

sole source selection of concessionaries

(unsolicited proposals) or non-transparentcompetitive selection

renegotiations (sometimes tantamount tosole source)

land acquisition

Public disclosure of concession agreements


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Benefits of Public Disclosure ofConcession Agreements

Further check on corruption, which inaddition to its direct benefits canenhance the legitimacy of private sector

involvement in often sensitive sectors

Provision of consumers with a clearer

sense of their rights and obligations,which can facilitate public monitoring ofconcessionaire performance


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Incidence of Renegotiations, LatinAmerica, 1988-2004

Concessions Renegotiated,%

Average timeto renegotiate,years

All sectors 59 2.1

Electricity 21 2.3

Transport 67 3.1

Water 82 1.7

Source: Guasch 2004


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Some Renegotiation Concerns

It may eliminate the competitive effectof the bidding process and questioncredibility of the model

Renegotiation takes place away fromcompetitive pressures in a bilateral(government-operator) environment

Winner may not be the most efficient

operator but the one most skilled inrenegotiations

While some renegotiations are efficient,many are opportunistic and should bedeterred

h f d


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Payment Mechanisms for RoadConcessions

Availability Fee is paid to theconcessionaire by the government basedon the availability of required capacity

(number of lanes in satisfactorycondition)

Shadow Toll is paid to the concessionaire

by the government, not charged tomotorists, on the basis of veh-kmachieved (volume and composition of

traffic)


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Payment Mechanisms BOT(build-operate-transfer)is a scheme

where the government contributes land tothe project and sometimes a financialsupport, while the concessionaire builds,maintains and operates the motorway and

transfer the assets after the concessioncompletion. The commercial risk rests withthe concessionaire, who collects tolls

BOO (build-own-operate)is a scheme

where the concessionaire builds, maintainsand operates the motorway. It does notinvolve the transfer of the assets to thegovernment. The commercial risk rests withthe concessionaire, who collects tolls


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RISK

TO

PUBLIC

SECTOR

RISK TO PRIVATE SECTOR

AvailabilityFee

ShadowTolls

BOODecreasingPublic Risks,

IncreasingPrivate Risks

High

Allocation of Risks by Forms of Concession

BOT

Low

Low

High


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Thank you!


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Some Basic ReferencesWorld Bank (2001). World Bank-Financed Procurement Manual [Draft].Washington, D.C.

http://siteresources.worldbank.org/PROCUREMENT/Resources/pm7-3-01.pdf

Guasch, J. Luis (2004). Granting and Renegotiating Infrastructure ConcessionsDoing It Right. Washington, D.C.: World Bank.http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2004/05/06/000090341_20040506150118/Rendered/PDF/288160PAPER0Granting010renegotiating.pdf

World Bank (2004). Guidelines: Procurement Under IBRD Loans and IDACredits. (May). Washington, D.C.http://siteresources.worldbank.org/INTPROCUREMENT/Resources/Procurement-May-2004.pdf

Queiroz, Cesar (2005). Launching Public Private Partnerships for Highways in

Transition Economies. Transport Paper TP-9. (September). Washington,D.C.: World Bank.

Kerf and et al. (1998). Concessions for Infrastructure: A Guide to TheirDesign and Award. Technical Paper no. 389.

World Bank (1998). Bidding for Private Concessions. The Use of World Bank

Guarantees. RMC Discussion Paper Series, no 120. Washington, D.C.


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WB PPP-related Sites

Toll Roads and Concessionshttp://www.worldbank.org/transport/roads/toll_rds.htm

Toolkit for PPP in Highwayshttp://rru.worldbank.org/Toolkits/PartnershipsHighways/

Port Reform Toolkithttp://www.worldbank.org/html/fpd/transport/ports/toolkit.htm

How to Hire Expert Advice on PPP

http://rru.worldbank.org/Toolkits/Documents/Advisors/Full_Toolkit.pdf

Labor Issues in Infrastructure Reformwww.ppiaf.org/Reports/LaborToolkit/toolkit.html


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Some Key EC References

Guidelines for SuccessfulPublic Private Partnerships

Resource Book on PPP CaseStudieshttp://europa.eu.int/comm/regional_policy/

sources/docgener/guides/pppguide.htm


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Cesar Queiroz

Road and Transport InfrastructureConsultant

Tel +1 202-473 8053Cel +1 301-755 7591Email: [email protected]

[email protected]/highways