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PPP International Best Practice and Regional Application. Tegucigalpa, Honduras April 23 - 25, 2008. Sponsored by the Spanish Trust Fund. Government Readiness for PPP Session 6.3. How the Private Sector see the Market. David Stiggers - Independent PPP specialist. Session 6.3. - PowerPoint PPT Presentation
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PPP International Best Practice and Regional Application
Tegucigalpa, HondurasApril 23 - 25, 2008
Sponsored by the Spanish Trust Fund
How the Private Sector see the Market
Government Readiness for PPPSession 6.3
David Stiggers - Independent PPP specialist
Private Sector View
Session 6.3
PPPApproach
Day 1: Session 1.1Overview of
PPPDay 1:Session 1.2
Challenges: Latin America
Day 1:Session 1.3Considering
Private Participation
Day 1:Session 2.1Planning the
Process
Day 1:Session 2.3Involving
Stakeholders
Day 1:Session 3Case Study:
Transmission
Day 2:Session 5Case Studies:(1)Highways
(2)Water & Sanitation(3) Ports
Day 2 :Session 4.1Standards,
Tariffs, Subsidy, Financials
Day 2 :Session 4.2Selecting an
OperatorDay 1:Session 2.2
Regulation & Institutions
UpstreamPolicy Readiness
ofGovernment
CapacityBuildingFor PPP
Day 2 – Session 6Readiness of Government
Day 2- Session 6.3
How Private Sector see the Market
Source: WGI from Analysis of Power Projects under stress, 2005, ESMAP, PPIAF
Project Stress
Some things to look for:
How will business culture and Political approach affect the PPP business?
Is it a viable business? How will we know we are successful?
What is the situation on Costs and Revenue?
What issues related to Investment & Operation?
Does the contract reflect the real world?
Business & Political Culture
• Political attitude to PPP• Trinidad Management Contract
• Political interference• Caracas, Venezuela
• Solid laws & PPP culture• Chile: Concession Law• UK: Mrs Thatcher ‘Let the managers manage’
A viable Business
• How reliable is the revenue stream? • What data is available? What will it take to get
accurate data? Does the contract accommodate this? [Armenia: 1st year targets]
• Can we make improvements to the business ? • Operational, technical, commercial.
• Work force: Size, ability, attitude to PPP, unions
• Constraints from Public Administration?• Jordan: procurement
Costs & Revenue (1)
• Regulation– What is regulated and by whom? What
powers? • Yerevan Lease
– How independent is the Regulator?• Costs:
– What costs, how complete, what accuracy?– Available data. Collecting data. Due diligence.
• Costly exercise!
Lease Contract: YerevanPrivate
OperatorVeolia
“The Bidder”
Customers
Private Service ProviderYerevan Djur cjsc
“The Lessee”
Regulator PSRC
Payments
Management& Resources
TariffService
Independent Auditors
SWCS“The Lessor”
Contractual
State Lease Fee
Use of Facilities
Costs & Revenue (2)
• Revenue– Is the Tariff enough to cover operating costs?– Is there a program for full cost recovery?– Any subsidy (or lack!). Who pays? What
mechanism?• Lagos Water
– What is the possible extent of collection improvement? Disconnections?
Investment & Operation
• Am I expected to bring investment?• Balance sheet issues (French); Time and cost
• What is state of infrastructure?• US asset trap
• Investment linked to operational improvements
• Trinidad & World Bank loan
$ M
illio
ns
(Tod
ay’s
$’s
)
20001860
Historical Asset Installations
Original Installation
2000 2100
Replacement Expenditure
by Asset type
Projected replacement costs
$ M
illio
ns
(Tod
ay’s
$’s
)
Contract Issues• Is the contract form and structure realistic? Are
liabilities and risk appropriate?• Is it comprehensive – what does it leave unsaid?• Does the client have actual power to carry out
what he has said (legally or politically)?– Montenegro: Collapse of contract after 2 years
6a
Government of Montenegro
AquaMundoAquaRegiaDEGMercur MonteAqua
PPLLC
Investment Assets
AquaRegiaPC
PublicInterest
ExistingAssetsKfW
Banks
Customers
MonteAquaO & MLtd.
BarBudvaTivatKotor
CetinjeHercegNovi
PEW
Loan AgreementsLoan AgreementsOn-lending Agreements
910a10b
Merging Contract AquaRegiaShareholders AgreementO&M contract Lease and Purchase AgreementAddendum to 6 for remaining Obligations and Receivables after foundation of Aqua Regia
34566a
Individual Employment Contracts8Concession agreement2Personnel Transfer Agreement7Customer contracts (based on German AVB Wasser V)1
MONTENEGRO: Contracts
4
9
1
7
6
3
2
85
W. Bank etc.
10 a
10 b
CONTRACTS:
Contract Issues• Is the contract form and structure realistic? Are liabilities
and risk appropriate?• Is it comprehensive – what does it leave unsaid?• Does the client have actual power to carry out what he
has said (legally or politically)?– Montenegro: Collapse of contract after 2 years
• Is there a way of dealing with poor starting data– Trinidad and others: First year data collection. Built in review and
adjustment• Are penalties appropriate and workable?
– Tanzania: Bond etc.• Termination: What about follow on bidding? What do we have to do
before end of term?
How the Private Sector see the Market
Government Readiness for PPPSession 6.3
David Stiggers - Independent PPP specialist
THANK YOU!
Contacts
For comments or further details contact:
Junglim Hahm [email protected] Cabello [email protected] Escobedo [email protected] Stiggers [email protected]
