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Financing of Healthcare PPP Projects
EBRD Experience in Hospital PPPs
Astana, 28 August 2015
© European Bank for Reconstruction and Development 2014 | www.ebrd.com
1. Financing Facility Management PPPs
2. EBRD Experience in Hospitals PPPs
3. EBRD’s Client Support Approach
4. Conclusion
Outline
2
3
Financing Hospital PPPs
Facility Management PPPs:
Building used by the public sector for delivering services (hospitals,
schools, court house, etc.)
Public sector provides the service (doctors, nurses, diagnosis)
Private sector operates the building, not the service
In some cases, private sector provides supporting services to the
public sector (cleaning, catering, reception, security, laboratory)
Private sector financing of the project involves:
New Project Company (Special Purpose Company or SPV)
Long-term contract (Project Agreement) with the Government
Deploy of equity, and debt into the company
Management of cash flows to pay obligations
4
Project Company /
SPV
Sponsors Lenders
Project-Finance
DebtDebt ServiceDistributions Equity
Sources of
Funding
Public
Authority
Design & Build
Contract
EPC Contract
D&B Contractor Service CompanyMaintenance
Company
Subcontractors
Financing Facility Management PPPs
Structure
Interface Agreement
‘Soft’ Facilities
Maintenance Contract
‘Hard’ Facilities
Maintenance
Contract
Project
Agreement:
- Grants
- Payments UsersSecondary
Payments
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Financing Hospital PPPs
What lenders look in a PPP project:
Project Agreement
Risk allocation and management
Payment structure (availability vs. usage-based payments)
Contract Flexibility
Contract Termination
Grantor
Funding capacity
Fair and transparent procurement
Sponsors
Credit Capacity and credit worthiness
Team (EPC and O&M Contractors)
Business Model
1. Financing Facility Management PPPs
2. EBRD Experience in Hospitals PPPs
3. EBRD’s Client Support Approach
4. Conclusion
Outline
6
PPP Hospital Programme in Turkey
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Turkish Programme:
Expected need for more than 90,000 new hospital beds over the next
ten years.
Provision of hospital beds is low currently, at 2.5 beds per 1,000
people, almost half of the OECD average of 4.8 beds.
Some 50,000 beds are planned to be delivered across 60 new
hospital facilities management PPPs.
The Turkish government’s PPP programme has already commenced
from a procurement standpoint, with 17 tenders
EBRD Framework:
Approved September 2014
Up to 8 projects and €600 million envelop
During 2014, 2015 and 2016
Projects Tendered as PPP
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Adana Integrated Health
Campus.
1,540 Beds
Isparta City Hospital.
750 Beds
Gaziantep Integrated Health
Campus.
1,850 Beds
Izmir Bayrakli Integrated
Health Campus
2,060 Beds
Kocaeli Integrated
Health Campus
1,150 Beds
Bursa Integrated
Health Campus
1,350 Beds
Istanbul Ikitellli Integrated
Health Campus
2,680 Beds
Konya Karatay Integrated
Health Campus
800 Beds
Mersin Integrated Health
Campus
1,250 Beds
Yozgat Education and
Research Hospital
475 Beds
Ankara Etlik
Integrated Health
Campus
3,560 BedsAnkara Bilkent
Integrated Health
Campus
3,660 Beds
Elazig Integrated
Health Campus
1,380 Beds
Manisa
Education and
Research
Hospital
550 Beds
Kayseri Integrated
Health Campus
1,548 Beds
612
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13
15
14
5
11
7
42
3
8
1
10
B
C
D
E
G
HI
JA
Physical
Therapy
Group
4
EBRD project under preparation
Prospective EBRD project
Eskisehir
Health Campus
1,060 Beds
Next tender:
Note: Out of 17 finalised tenders; 15 of them are health campuses
Financing of Turkish Hospital PPPs
EBRD debt size: max 35% of total financing.
A loan: € 50-125 million ticket size.
B loan: depending on syndication to other financial institutions.
Equity investments: where appropriate.
Maturity: up to 18 years (the tenor of the EBRD A-Loan can be max
3 years more than B-Loan tenor or the tenor of parallel loans).
Pricing: market pricing linked to risk level.
Security: concession agreement, physical security, lenders direct
agreement and where possible share pledge.
Due diligence: to be carried out by professional and independent
advisors.
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Hospital PPP Typical Structure
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Scope: Design, financing, construction, equipment and provision of
full set of non-clinical services.
Term:
Design and Construction: 3-4 years
Operation: 25 year
No payment until the hospital is delivered according to specifications.
MoH provides land and services to the site.
Structure is based on UK PFI model adjusted to improve bankability
in the Turkish market.
The first round of projects have gone through negotiation period to
resolve a number of challenges that made lenders uncomfortable
Payment Mechanism
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Services Provided by PPP Company
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The services are also classified as “P1 Services” which are the obligatory services to be provided by
the PPP Company and “P2 Services” which are optional. Broadly, P1 Services are referred to as
Hard Facilities Management Services, which revolve around maintenance of the infrastructure
assets. P2 Services are referred to as Soft Facilities Management Services, which revolve around
the support services of the hospital.
Turkish Typical Payment Stream
13
P2 Services are very relevant and it is difficult to transfer the price risk in
the long term. PPP contract includes a market test adjustment every five
years (price risk retained by the government)
All Payments are adjusted with inflation index or similar
Availability Payments are also adjusted for currency depreciations
In addition, Project Company must operate commercial activities in the
Hospital and use those revenues to partially offset project cost
GROSS REVENUE (EUR'000 / BED)
-
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40
60
80
100
120
140
2015
2016
2017
2018
2019
2020
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2042
P2 Service Payments P1 Service Payments Availability Payments
Financing Issues
The projects are sizable and require significant debt and equity
tickets.
Sponsors expectations are towards aggressive structures:
Over leverage?
Are there prudent cover ratios?
Is equity commitment risk of sponsors addressed?
Calculation of FX risks associated with the tariff mechanism?
Due diligence to be carried out by professional advisors is very
important (legal, technical and financial).
Project Agreements (Direct Agreement) are to be finalised with the
Authorities.
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1. Financing Facility Management PPPs
2. EBRD Experience in Hospitals PPPs
3. EBRD’s Client Support Approach
4. Conclusion
Outline
15
Transition Impact
Sound Banking
EBRD
Addition-ality
Promotes transition to market
economies, private ownership and
good governance with respect for
people and environment
Supports, but does not
replace, private investment
We focus Economic,
Social and Environmental
benefits…
Invests in financially
viable projects, together
with the private sector
Our Principles of Engagement
16
How we deliver results?
Development of
strong institutional
and regulatory
frameworks
-VfM Methodology-
Donor funded technical
cooperation to
overcome barriers and
facilitate
implementation
-Monitoring Unit-
Projects &
Investments
Policy
DialogueTechnical
Cooperation
17
Three-pronged support for Ministry of Health:
Wide range of financing
instruments for public
and private clients
-Contract Best Practice-
EBRD value-added:
Structuring Support to MoH
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FX risk There is a hard currency floor price mechanism for Availability payments.
Payment Liability MoH is liable for Payment of Termination Compensation. MoH liability is backed bycentral budget of Turkey
Termination and
compensation to lenders
Lenders will be fully paid at termination arising from Force Majeure,
expropriation/nationalization, operator's default, MoH default, successful courtchallenges.
Funder’s Direct Agreement (FDA)
Funders are entitled to step-in rights via the FDA. Lenders to terminate in certaincases.
Change in law The concessionaire will be entitled to additional payments as a compensation
against change in law.
Variations are
capped
Any variation above 1% of project cost must be covered by Availability Payment
increase or direct MoH payment.
Delay events and
excusing causes
There is relevant cure periods for variations, MoH's breaches, discovery of antiques,
contamination of land etc.
Uninsurable risks Uninsurable risks are paid by the state.
Governing Law Project Agreements and FDA provides for Turkish law. Loan Agreements are in
English law with appropriate arbitration clauses.
Cap on Deductions Deductions to Service and Availability payments are capped at a level that transfer
risk but guaran
Best Practice PPP Contract:
Objective of the Support: EBRD has been instrumental in refining the PPP
contracts for the first sub-projects (Adana and Etlik), resolving critical bankability
issues, and paving the way for the rest of the programme to reach financial closure
Some examples of key issues addressed by the Bank with MoH:
1. Financing Facility Management PPPs
2. EBRD Experience in Hospitals PPPs
3. EBRD’s Client Support Approach
4. Conclusion
Outline
19
Conclusions
Healthcare PPPs can be privately financed if they are structured in a
bankable and tested manner.
EBRD has successful experience in financing PPP projects in the
sector.
EBRD supports authorities in developing projects. TC grants partially
finance project preparation, implementation and institutional
development.
EBRD offers long term debt and equity financing and takes on the
leading role in financing the private operator.
We have a long term engagement in Kazakhstan and we would like to
be a preferred partner for both public authorities and investors.
20
Contact
Ekaterina Miroshnik
Director – Infrastructure Russia,
Central Asia and Mongolia
t: +7 495 787 1111 [email protected]
21
Janet Heckman
Director – Kazakhstan
t: +77273320010 [email protected]
Moscow Team: Kazakhstan Team:
Svetlana Radchenko
Senior Banker – Infrastructure Russia and
Central Asia
t: +7 495 787 1111 [email protected]
London Team:
Marcos Martinez Garcia
PPP Specialist
t: + 44 207 338 876 [email protected]
Bakhtiyor Faiziev
Principal Banker – Infrastructure Russia and
Central Asia
t: +77273320010 [email protected]
