ExperiencewithEfW projectprocurementin UK · ExperiencewithEfW projectprocurementin UK SUEZ ENVIRONMENT -2010 KEY FIGURES SALES TURNOVER €13,9 Bn ... the National Audit Office estimated

SITA experience in procurement by PPP model

Experience with EfW

project procurement in UK

SUEZ ENVIRONMENT - 2010 KEY FIGURES

SALES TURNOVER

€13,9 Bn

GROSS OPERATING RESULT

€2,3 Bn

79 554 employees -70 nationalities

42%

27%

28/11/2012 2

€2,3 Bn31%

73%6%

6%

15%

EUROPE : 67 303

AMERICA : 3 580

AFRICA & THE MIDDLE EAST : 4 375

ASIA & OCEANIA : 4 296

TOTAL : 79 554

WASTE Management Business Lines

Key Figures

More than 400,000 industrials and commercial clients

42 millions tons of waste treated

1,024 waste treatment and reuse/recovery/recycling

sites, including :

28/11/2012

sites, including :

252 sorting centre116 composting platforms146 open landfills133 hazardous waste platform48 non-hazardous Energy from Waste units11 hazardous Energy from Waste units9 medical waste treatment sites312 transfer stations

Overview of UK Waste PFI Market

Local authority funding – PFI projectsIn 2003, the National Audit Office estimated that 73% of procurement under traditional methods of procurement was delivered over budget and 70% was late.

UK Government has chosen to encourage investment in new waste treatment infrastructure by employing the PFI (Private Finance Initiative) previously used in UK to fund schools, hospitals, roads…

Government make capital contribution available to local Authorities who

28/11/2012 > SUEZ ENVIRONNEMENT - 4

Government make capital contribution available to local Authorities who invite competitive bids from the Private Sector on a DBFO basis

£2 billion in Waste Infrastructure (WI) Credits (formerly PFI credits) has been allocated to 32 projects.

Paid over the 25 year operating life of each plant and, when adjusted for interest, Defra will pay £4bn

23 PFI closed (incl. 10 fully operational), 9 projects still in procurement, 5/6 PPP projects to come to market

Above projects expected to deliver sufficient capacity to meet 2020 Landfill Diversion Target

Financing by the Private Partner

PP to raise the necessary financing that the public sector may be unable to provide: through corporate funds or Project Finance

Lenders to undertake detailed project “due diligence” by ensuring that the following is fit for purpose:

� Technical design and deliverability

�Cost assumptions and financial model


�Allocation of project risks

�Conditions of contracts

�Contractors delivering the required services (EPC / O&M) with the appropriatesecurity package

Lenders to appoint complete team of experience advisors covering all key aspects of the project: legal / financial / technical / insurance / tax

The UK PFI Model

Long-term 25Y contract

Central Governmentcontribution: PFI grants

Financing

Expertise TransferThe UK

28/11/2012

contribution: PFI grants

Standard Conditions of Contract (SoPC4/WIDP)

Exclusivity and/or Minimum Guaranteed Tonnage

Expertise Transfer

Risks TransferSingle point of responsibility

Services providedas per KPI

The UK PFI Model

PFI Project typical Risk Allocation

Risks to sit where best placed = with the party having a real influence (either by managing them or mitigating them)

RISKSPublicSector

Private Partner

Site identification and planningpermission

XPrivate Partner

only committed to “ARE” All Reasonable Endeavours

Site ConditionsX

Subject to sufficient surveys being performed

28/11/2012

being performed

Composition and volume of the waste stream

XPublic sector to offer Minimum guaranteed

tonnage (MGT)

XPrivate Partner to take CV risk subject to collection strategy not

changing significantly

Market for recycled/ residual materials

Xsubject to Market Testing /

Benchmarking

Design/Construction timing and cost uncertainties

X

Change in Law X

Force Majeure X

PFI Project Development Timelines

Stage Kirklees Cornwall NCCNorthumberland

Suffolk

Tender Advert(OJEU)

Jan1997

Oct2003

May2004

May 2008

PBPreferred Bidder

Dec1997

Jan2006

Aug2006

May2010

Building Permit Granted

May2011

Jul2011

ContractSignature

Apr1998

Dec2011

Dec2006

Oct2010

28/11/2012

Signature 1998 2011 2006 2010

Start of Construction

Mar2000

Aug2013

Dec2011

Start of Operation

Jan2002

Apr2016

May2009

Oct2014

Cornwall: SITA Consortium voted best private sector consortium at the Public Private Finance Awards 2007

Suffolk: National Award - Outstanding Achievement in Procurement

ST&W: Project Finance Magazine - "European Waste Deal of the Year"

PFI Project Development Timelines

28/11/2012

STW Project Development Timelines

28/11/2012

PFI and Competitive Dialogue

PQQPre-

Qualification

ISDSDetailed

Solution

ISFTFinal

Tender

PBPreferred

Bidder

Service

Commencement

South Tyne & Wear Project Timeline


15

ISOSOutline

Solution

10 4 2 1

CFTCall for Final

Tender

2

ISRSRefined

Solution

4/3

FCFinancial

Close

1 1

Oct 2008

Feb 2010

Aug 2010

Sept 2010

April 2011

Feb 2014

Apr 2009

Oct 2009

PFI Typical Bid Evaluation Criteria at FT

Technical, Delivery & Sustainability (60%)

� Suitability of Technical Proposals

�Deliverability of solution

�Environmental, sustainability and social impact

�Planning and Regulation

Financial & Commercial (20%)

�Economic Cost


�Economic Cost

�Affordability

�Deliverability of the funding package, Financial Robustness of the bid and Funder due Diligence requirements and time table

�Corporate Structure and Security

Legal and Contractual (20%)

PP Recommendation : Public Sector should Focus on Objectives to bereached rather than on Technical Means

Typical Contracting Structure

Contract

Agreement

Authority

Gateshead/Sunderland/S

outh TynesideSPV

ITOCHU SITA UK CLL

28/11/2012

D&B (WTS)

Subcontracts

BLL

PPA

GDF SUEZ

Suez

Environment

O&M

Contract

SITA UK

EPC (EfW)

Sub-Contract

EPC Project

Management

SITA UKHitachi Zosen

Inova

Procurement Key IssuesDeliverability

Political certainty and local support / opposition

Experienced transaction team

Land Availability and

Bankability

Waste composition and volume (Authority MGT)

Markets for process outputs

Third party revenues

Changes in LawLand Availability and Adequacy

Planning (NIMBY) and Permitting

Changes in Law

Lenders’ Step-in Rights

Early Termination and compensation

Deal complexity / Riskallocation

EPC Security Package


Procurement Key Issues

Project Finance Market and Bankability Issues

Debt markets in financial turmoil, pricing, hold levels and tenors present funding challenges

Waste PFI still seen as a good asset class but lenders facing liquidity issues

Balance to be found between top-up capacity in order to deliver VFM to Authority and Lenders’ discomfort with “merchant’” element revenues in base case

Uncertainty on planning and permitting requires certain minimum


Uncertainty on planning and permitting requires certain minimum contractual protections against delay and failure leading to contract termination

Lenders require proven technologies backed up by EPC contractors with strong balance sheets

Volume and composition risk needs to be manageable

Long-term pricing issues for recyclates and process products/residues: market testing / benchmarking as the preferred VfM option

Change in law protections needed to protect the contractor's revenue stream

THANK YOU FOR YOUR ATTENTION


Documents

ExperiencewithEfW projectprocurementin UK · ExperiencewithEfW projectprocurementin UK SUEZ ENVIRONMENT -2010 KEY FIGURES SALES TURNOVER €13,9 Bn ... the National Audit Office estimated