PPPs for Italian Hospitals:

The Case of Mestre (Venice)

Luciano G. Greco

CRIEP – University of Padua

The Use of PPPs for Infrastructure Investments in Urban Areas

III Annual Meeting on Public-Private Partnerships

OECD Conference Center

Paris, April 12th-13th 2010

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Outline

• Basics on Italian PPPs

• The Project of Mestre Hospital

(“Ospedale dell’Angelo”)

• Why a PPP for Mestre Hospital?

• Challenges

• Lessons

• References

Basics on Italian PPPs

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…The Italian Way(s) to PPPs

• Public initiative (art. 144 Code of Public Contracts) 1. Feasibility study

2. (Healthcare) Public Works Program

3. Preliminary planning

4. Call for tender

• Private initiative (art. 153 Code of Public Contracts) 1. Feasibility study

2. (Healthcare) Public Works Program

3. Prior information notice

4. Proposals of preliminary planning (by promoters)

5. Declaration of public interest

6. Call for tender

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NHS PPPs

• Italian PPPs

market 11% of

EU market

(UK 49%)

• NHS PPPs

where 18% of

total value of

Italian PPPs

(UK 17%)

The Project

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Location

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Infrastructures

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Technical Features

• Area: 260.000 sq.mt

• Buildings: 117.600 sq.mt – 350 rooms / 680 beds

– 72 day-hospital beds / 24 intensive-care beds / 34 dialysis beds / 20 cradles

– 16 surgery rooms

– Eye bank (5.000 sq.mt)

– Stem cells lab

• Auditorium (450 seats)

• Nursery (for employees)

• Parkings: 535 employees + 557 visitors

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Economic Features

• Investment

– Total cost 238,7 mil. €

– Timing (6,8 years)

• Planning (initial procedures – concession): 01/01 – 10/02

(22 months)

• Design (concession – works): 10/02 – 03/04 (18 months)

• Building: 03/04 – 09/07 (42 months)

• Operation

– Timing: 06/08 – …

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Financial Features

• Investment – Total cost: 238,7 mil. €

– Total financing (accrual): 255,9 mil. € • Public (accrual): 119 mil. €

• Private: 136,9 mil. € – Equity: 20,5 mil. €

– Subordinated debt: 7,7 mil. €

– Senior debt: 108,4 mil. €

• Operation (tentative) – Expected revenues:

• first year 45 mil. € / average growth 1,5% per year over 25 years

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PPP structure

• Awarding authority: – Venetian Local Health Authority

• Contract: – Art. 153 procedure

• 2 promoters’ proposals

– BOT

• Concessionaire: – Veneta Sanitaria Finanza di Progetto (VSFP) Spa, owened

mainly by building operators (led Astaldi Spa)

• Arrangers: – ABN Ambro, Banca Antonveneta, Interbanca, Banca Intesa

– BEI (refinancing facility after 3 years of operation)

Why PPP?

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Why PPPs? Venetian LHA

• Investment efficiency

– timing

– all-inclusive investment

• Operation efficiency

– global service

• performance fees and quality control

– efficient risk allocation

• transfer of building financial risks

• Financial (i.e. debt) savings

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Privately-managed Services

Challenges

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Investment Phase

• Project changes

– Law changes & Project errors

– Eye bank & Stem-cells lab:

• +30 mil. € investments (completely publicly funded)

• Financial close

– One of private partners failed

– Insufficient financial planning (ADSCR, LLCR,

PLCR)

• Who paid?

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Financial Close

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Operation Phase

• Project errors – Air conditioning in the hall area

• Financial planning errors (related to transportation issues) – Parking

• Political risk: complaints by Trade Unions, Consumer Associations, …

• Market risk: Auchan free parking

– Lab and Diagnostic services • Market risk: travel cost reduces private demand

• New spaces vs Work organization

• Who is going to pay and how?

Lessons

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Private or Public planning?

• Private initiative PPPs (in 2001 Italian

style) crowds out public programs

– Urban / Territorial Planning

• Public Transport Network are crucial to PPPs

– NHS / RHS Planning

• interaction between Mestre Hospital and

healtcare service network

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Public Sector Capacity

• Weak planning is a bad for public and

(healthy) private partners

– experience and skills within public sector

are crucial (e.g. capacity to carry out

feasibility studies, monitoring, …)

– fiscal risks

– Statistics are crucial! All data should be

public, easily available and free

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A Market of PPPs

• Timing

– First • strengthen top-level public-sector management

• set up public finance control

• enforce competition

– Then • foster a market of PPPs

• Industrial structure

– too much builders in PPP consortia?

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References

• Reports and public documents – 2007/2008 Finlombarda Surveys on Project Finance in

Healthcare sector

– Regione del Veneto: government decision no. 3715/2004

• Papers – Jeffrey Delmon, 2010, Understanding Options for Public-

Private Partnerships in Infrastructure. The World Bank, Policy Research Working Paper no. 5173

– Anita Delflorio, 2007, Il partenariato pubblico-privato nella sanità: il caso dell’ospedale di Mestre. Politiche Sanitarie

• Interviews – Public officers

– Trade unions local leaders