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PPPs in Italy

Renegotiations and

accountabilty By Emilia Scafuri

Ministry of Economy and Finance

RGS, Study and Research Division

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Menu:

Introduction

case studies in healthcare sector

Analysis of risks

Accounting issues

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PPPs IN ITALY

The healthcare sector is a key sector for PPP

contracts in Italy.

Very difficult the assessment of risks and

efficiency gains in these contracts

Budget constraints

Financing constraints

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PPPs in healthcare sevices

It is the sector of “cold works”, i.e. the government is the main purchaser of the services supplied even if demand originates from third party users.

(Potential) divergence between private goals (high return on investment) and public goals (health is a public good )

Need to plan in advance the reconciliation of these two goals

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Carachteristics of PFIs in healthcare

Public Funding framework:

Law of 1988 assigned 20 billion euro to be distributed at local level for financing investments in hospitals and healthcare services

Many Regions issued Laws to promote contractual PPP in healthcare

Funds are transferred from the Region to contracting authority

Regional funding comes from own resources or from transfers from the State

Contracting authorities:

Local Health Authorities

Public Hospital Trusts

IRCCS

Foundation Trusts

Services managed by the concessionaire:

non-medical support services (no-core) (maintenance of technology plant and facility management, maintenance of medical structure, operation of canteen for patients, laundry, cleaning, etc. )

Other services (bar, hotel accomodation)

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Problems of PFIs in healthcare

Lack of competition in procedural phase:

For many projects just one competitor

Regulatory framework not sufficiently clear and stable:

Changes in regulations can occur after the awarding of the projects, and can be due also to bodies other than contracting authority

Too long procedures:

Time elapsing from the publication of prior information procedures and the awarding of the project is 12-20 months

Time elapsing from the publication of prior information procedures and the financial close is 12-32 months

Lack of coordination among institutional bodies

Lack of separate reporting in public budgets

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Problems of PFIs in healthcare

Anomalous procedures (sentences of

Administrative Regional Court)

“Weak” feasibility studies

High public contributions in the construction

phase

Risk of consolidation of the total cost of

investment in public budgets

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8

Case studies

Ospedale di Mestre (Veneto)

Spedali Civili di Brescia (Lumbardy)

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Ospedale di Mestre (VE)

Description of the project

Contracting authority: Local Health Unit

Design and engeneering , building and operation of new hospital in Mestre with 680 beds, 25 dyalisis places, 20 cots. Hospital of 39.548 sm including employees kindergarden , Eyes Bank, car parking, green area, etc.

Services managed by concessionaire:

Operation and maintenance of buildings

Maintenance of technology devices, biomedical devices and equipment, information services

Laundry

Waste disposal

Cleaning

Canteen and catering (staff and patients)

Gardening

Car park

Shopping areas

Hotel accomodation

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AZIENDA SANITARIA LOCALE VENEZIANA (VENETO)

Procedure: PFI

Procedure details

publication of prior information procedure January 2001

deadline for proposals June 2001

proposals received two

proposals declared of public interests one: ATI led by Astaldi spa

publication of invitation to tender 2January 2002

concession awarded September 2002

concessionaire ATI led by Astaldi spa

financial close April 2005

start of works January 2006

Completion of works February 2007

Ospedale di Mestre (VE)

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Ospedale di Mestre (VE)

Value of project: 236,700 million euro

Public contribution : 111,533 million euro

Duration of concession: 28,5 years

Annual availability fee : 39,250 million euro

Availabilty and construction risks : on the

private partner with application of penalties

Demand risk : on public partner (except for

commercial activities : car parking, shops, etc.)

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Ospedale di Mestre (VE)

Financial close occurred with a time lag of 32

months from awarding

Long contractual phase in which were made

revisions to:

allocation of concession risks

Term sheets

penalties

step-in rights of the banks

Compensation fees for withdrawal, redemption and

resolution

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Spedali di Brescia

Description of the project

Contracting authority: Hospital Trust

Engeneering , building and operation plus extension of halls of the hospital , operation of bar and shopping area. Delivery was scheduled in two phases : the east wing for June 2004, the west wing for June 2005. The east wing was delivered completed on 2 March 2004.

Value of project : 37, 995 million

Public contribution : 0

Services managed by concessionaire: bar and shops operation. There is no-maintenance of the services but only the operation of bar and shopping area for a time of concession of 19 years

Total financing: 29 billion euro

Rating of the project: A- an insurance monoline company provided guarantee through a credit default swap on the total loan. After granting, the project received a rating of AAA.This speeded up the project and allowed to obtain lower interest rates on loan.

Payments from the public: fixed payments at half-yearly intervals made by the hospital Trust of Brescia

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Spedali di Brescia

Description of the project Contracting authority: Hospital Trust

Renovation of an existing hospital ward and building a new ward. : engeneering , building and operation plus extension of halls of the hospital. Delivery was scheduled in two phases : the east wing for June 2004, the west wing for June 2005. The east wing was delivered completed on 2 March 2004.

Value of project : 37, 995 million

Public contribution : 0

Services managed by concessionaire: bar and shops operation. There is no-maintenance of the services but only the operation of bar and shopping area for a time of concession of 19 years

The financing: an insurance monoline company provied guarantee through a credit default swap(CDS) on the total loan. After granting, the project received a rating of AAA while it had obtained a rating of A-.This speeded up the project and allowed to obtain a cost-saving in terms of lower interest rates

Total financing: 29 billion euro

Annual fee from the public: fixed payments at half-yearly intervals made by the local health authority of Brescia

Other flows : commercial revenues

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15

AZIENDA OSPEDALIERA SPEDALI CIVILI DI BRESCIA (Lombardy)

Procedure: PFI

Procedure details

publication of prior information procedure:

inclusion of works in the authority's three-

year plan January 2000

deadline for proposals June 2000

proposals received one: ATI led by Bovis Lend Lease

proposals declared of public interests one: ATI led by Bovis Lend Lease

concession awarded January 2002

concessionaire ATI led by Bovis Lend Lease

financial close December 2002

start of works January 2003

Operational takeover 11 November 2004

Completion of works 25 February 2005

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Legal framework and future

develompments In Italy the legal framework is provided by the Legislative Decree n.

163/2006, lastly modified in 2008 (third correction Decree)

However, further actions are going to be taken in order to improve coordination among different institutional bodies dealing with PPP at various level (local and national), carrying out strict monitoring procedures and ensuring transparency and coherence across accounts of general governments units

In particular the forthcoming Reform Law of the General Accounting and Public Finance Law will foresee specific provisions as regard:

the monitoring of Private-Public Partnerships

the settings of accounting rules harmonized at european level

Introduction of a “Code of Best Practices”

Introduction of compulsory requirements on public administrations to ensure the transmission of information to PPP Unit