Market and Regulatory Risk Issues Market and Regulatory Risk Issues and and

Challenges in PPPChallenges in PPP

M. SERDAR KABUKÇUOĞLUM. SERDAR KABUKÇUOĞLUApril 2011April 2011

Kyrenia/TRNCKyrenia/TRNC

Kalkınma DEVELOPMENT BANK OF

TURKEY

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PPP in the World - PPP in the World - 19991999

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PPP in the World - 2010PPP in the World - 2010

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Public Public Private

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• Necessity for construction• Fulfilment of public duties• Solving infrastructure problems• Restricted budgets• Minimizing costs• Pressure to increase efficiency

• Management efficiency• Newer technologies• Workplace efficiency• Personnel development

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Public Public Private

11Contract

Management

• Transfer of control • Right to use

• Services are provided• Building, extending or

renovating a facility on behalf of Public

22Asset

Management

• Better value of many• Budgetary benefit• Efficiency• Additionality• Keeping environment

• Profit• Positive net cash flows• Stable economic environment• Stable political situations

33 Risks/opportunities Management

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Public Public Private

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A public service A public service

• To a certain group• In a certain place• With a certain proposed budged• For a certain time• By constructing and/or operating

44Project

Management

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Public Public Private

Regulatory•Ministry of Finance•State Planning Organization•Treasury

Operational•Ministries •Municipalities

SPV/Project Company

Investors

Financial Institutions

55Financial

Management

77 Regulations

88 Tender & Procurement Management

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Investers•Funds•Companies•Individual investors

SPVSpecial Purpose Vehicle

Project Company

Sponsors•Funds•Banks•IFIs

66 Stake-holder Analysis

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Risk SharingRisk Sharing

Public Private

100% 100%

0% 0%

PPP PrivatizationPublic Assets

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Main Risks for PPPs

Project Risks

Macro Economic Risks

Political Risks

• Complation risks• Environmental risks• Operating risks• Revenue risks• Input supply risks

• Inflation• Interest rate risks• Exchange rate risks

• Currency convertibility• Expropriation• War and Civil Disturbance• Change of law• Quasi-political risks

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ProjectProject Risks Risks

1. Does the project make overall sense?2. Can the project be completed on time and on budged?3. May the project face any environmental problems during the

implementation, especially construction?4. Is the project company capable of operating the project on the

proposed cost levels and accessing the finance?5. How realistic is the operating revenues proposed in the project?6. Can any raw materials or other inputs be obtained at the

projected costs and projected time?7. Does project contract fit the projected operations and results?

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Macro-Economic RisksMacro-Economic Risks

1. Inflation

2. Exchange rate

3. Appropriate funding conditions• Maturity• Interest rate• Grace period• Guarantees

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Political RisksPolitical Risks

1. Changes in regulations2. Political interference• Cancellation of license• Expropriation• Discriminatory taxes, import

restrictions• Transfer of earnings3. War and civil disturbance

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PPP is a project (tailored and uniqe)

Government is owner of the project, so it is responsible for formulation and designing of the project and it is leader, auditor of the project«Good Governance»

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3 Projects should be•Well defined•Viable•Bankable•Clear specifications of outputs PPP does not make a bad project good

Solutions? Solutions?

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5 Contracts should take care •Transparency•Competitive dialogue•Risk sharing

Solutions? Solutions?

4 These are should be taken in the projects•Legitimacy•Additionality•Value of many•Sustainability

6 Risk evaluation•Risk assesment•Due dilligence•Risk mitigation plan

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8 Effective procurement process

Solutions? Solutions?

7 Stakeholders Support•Public sector employees•Labor unions•End users

9 Govermental incentives/supports•Tariff subsidies•Financial instruments•Tax and custom •Guarantees

• Loan guarantees• Sovereign guarantees

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9 A PPP Task Force?•A common policy for PPP•A framework regulation•Realistic targets•Building a market interests•Pricing•Tendering•Project filtering•Project design•Monitoring•Keeping social targets of the project

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Thank you Thank you for for

your attentionyour attention

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1.Ahmet Keşli, «International Standarts of PPP Law and Experiences of Turkey», PPP Platform of Turkey, ADFIMI Development Forum, 5-6 October 2010, İstanbul2.Darren Grimsey and Mervyn K. Lewis, “Public Private Partnerships The Worldwide Revolution in infrastructure provisions and Project Finance”,Edwar Elgar Publishing Ltd., 20073.“Europe 2020, A strategy for smart, sustainable and inclusive growth”, Communication From the Commission, Brussels 3.3.2010, COM(2010)20204.E.R. Yescombe, “Principle of Project Finance”, Yescombe Ltd. London-UK,Academic Press,2002.5.Falko Josef Seliner, “PPP Life Cycle”, Taiex Workshop on PPP, Ankara, 17 March 20106. “Fundamentals and Issues of PPP”, the National Council for Public Private Partnership, www.ncppp.org 7.Haluk Doğançay, “A New Project Financing Model for Turkey: Public Private partnership (PPP)”, EFCA Task Force for Project Finance, 9 December 2004 8.“Never Mind the Balance Sheet”, CEE Bankwatch Network, November 20089.Prof. Maurizio Mensi, «Public Private Partnership, The Legal Framework», Academy of Economy and Finance, 16-17 March 2010, Ankara10.Onur Kordel, “Turkey: A Comparative Overview of Public Private Partnerships; With Those in Turkey”, Bener Law Office, 29 July 200811.Prof. Dr. Ralf von Ameln, “Public Private Partnership and Competitive Dialogue” Stephan Harris, “Public Private Partnerships: Delivering Better Infrastructure Services”