Tender Process for PPP Projects - Synergy Consulting · 2020. 8. 27. · SINGLE STAGE TENDERING TWO STAGE TENDERING THREE STAGE TENDERING •Request for Qualifications (RFQ) and Request

1Private and Confidential: For Limited Circulation Only

Tender Process for PPP Projects

August 2020


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# SECTION NAME PAGE

1 Introduction to PPP 4

2Key Considerations for Project

Procurement8

3 Key Stages of Project Procurement 17

TABLE OF CONTENTS


Introduction to

PPP1


INTRODUCTION TO PUBLIC PRIVATE PARTNERSHIP

• Public Private Partnership (PPP) in the field of Project Finance is an arrangement under which private sector developer collaborates

with public sector (Government) for delivering services

PUBLIC

ENTITY

PRIVATE

DEVELOPERPARTNERSHIP

• Purchaser/ user of the output

• Provides legal and regulatory

framework

• Typically assumes social,

environmental, political risks,

market risk (as applicable)

• Design, construct, operate and

maintain the project

• Assume financing, construction,

O&M risks, market risk (as appl.)

• Adhere to Key Performance

Indicators (“KPIs”)

• Integrates the abilities of the both

public and the private sectors

• Enables equitable risk allocation

between public and private sector

• PPP model operates on a DBFO(O)T basisD B F O O T

Design Build Finance Own Operate TransferKEY FEATURES

OVERVIEW

FINANCING

• Private sector raises financing

• Frees up public sector funds for other

key sectors with limited participation of

private players

OPERATIONS

AND

MANAGEMENT

(O&M)

• Private developer performs O&M

activities

• Private player to adhere to agreed

operating KPIs/ standards

DESIGN AND

CONSTRUCTION

(EPC)

• Private developer assumes the design

and construction responsibilities

• Responsible for timely completion

adhering to agreed EPC standards

RISK

ALLOCATION

• Typically shared between public and

private sector entities

• Well defined approach is to allocate

risk to a party best suited to handle it


PUBLIC PRIVATE PARTNERSHIP – KEY DRIVERS

BENEFITS OF PPP

Enhanced End-user

Service Level

Value for Money

Optimal usage of Budget

Innovation

Output Focus

Risk Management

1 Owing to vast experience of private sector entities, PPP ensures

delivery of optimum quality services together with substantial cost

savings compared to traditional procurement process

Since compensation is based on performance/output delivered, it

ensures timely availability of services and adherence to pre-defined

performance standards

4

6

Private sector entity brings along

the experience, innovation and

best practices, that result in

higher efficiency thereby

enhancing the end-user service

level

Provides long term value to Grantor

through appropriate risk transfer to

private sector entity from design and

construction to operation and

maintenance

Under PPP structure, Grantor doesn’t

incur upfront cash outflow but makes

periodic payments which results in

usage of the government budget for

other projects

2

35

Private sector entity, having

experience of implementing

similar projects, has higher

possibility of bringing in

technical innovation and

management best practices


PRE-REQUISITES FOR SUCCESSFUL PPP TENDER PROCESS

Legislative Framework

2

Capacity

Building

4

Political

Commitment

1

Regular

Deal Flow

3

Streamlined Process

5

• The procurement

team should have

clarity on their role

and responsibilities

in the project,

within the PPP

framework

• The procurement

team needs to be

well staffed and

trained to ensure

proficiency in

dealing with

advisors and other

stakeholders

involved in the

project

• The procurement

process should be

transparent,

unbiased and fair in

order to generate

interest for the

project

• It should adhere to

pre-defined

timelines to ensure

smooth execution

of the process

within the allocated

budget

• Regular deal flow

demonstrating

government’s

commitment and

thus ensuring

interest from

private sector

entities

• Also, it ensures that

the process is

efficient as the PPP

models &

documentation can

be easily replicated

• The Grantor should

ensure that the

required legislative

framework is in

place for

safeguarding the

interests of the

stakeholder

• It should define,

among other things,

the procurement

and arbitration

process and

remedial actions in

case of default and

bankruptcy

• The PPP program

needs to be in line

with the current

polices and the

development

targets set by the

government to

provide directional

clarity to all the

stakeholders

involved

• The government

should

demonstrate its

commitment to the

program by

providing required

policy support


Key

Considerations

for Project

Procurement

2


KEY STRUCTURING CONSIDERATIONS

BUILDING STAKEHOLDER CONSENSUS

TYPES OF STAKEHOLDERS

• Critical to successful implementation of a PPP project is to have a considerate and proactive approach to

building consensus among internal and external stakeholders

• It is therefore important to identify all internal & external stakeholders, their interface areas, responsibilities,

interest areas in the project and their preferred way of communication

• The aim should be to manage the expectation of stakeholders by understanding the interface level for each

stakeholder and the influence which they may have on the project

OBJECTIVES

METHODOLOGY

• Identify all stakeholders (based on experience of precedent projects and any new stakeholder)

• Specify their interface areas

• Analyze the level of influence of each stakeholder based on their power and interest

• Identify their preferred method of communication & frequency

• Regularly monitor stakeholder's expectation and prepare a stakeholders management plan

Grantor/ Off-taker/

Grantor

Project Co./ Bidder/

Investors/ Lenders

Project Development

Team

Internal Approvals

CommitteeTechnical Committee

Other parties with

direct interest in the

project

Government

Authorities1Regulatory Agencies

Utility (electricity,

water, etc.)

Companies

Local Communities Local Media

Other parties with

indirect interest in

the project

Internal Stakeholders External Stakeholders

1. Ministry of Finance (MoF), Ministry of Housing (MoH), Ministry of Commerce and Industry (MoCI), Ministry of Environment and Climate Affairs (MECA), etc.



BID PROCESS DESIGN (1/2)

OVERVIEW

• There are various types of bid processes that can be adopted by the Grantor to procure a competitively tendered project – single stage

process and multi-stage processes

• Key considerations for finalization of an appropriate bid process are as follows:

o How well defined are the project scope and requirements?

o How well defined (and interested) are the potential bidders?

o How much overall process efficiency the selected method ensures?

TYPES OF BIDDING PROCESSES

SINGLE STAGE TENDERING TWO STAGE TENDERING THREE STAGE TENDERING

• Request for Qualifications (RFQ) and

Request for Proposal (RFP) are

integrated into one document and the

tender is open to all potential bidders

• Statement of qualifications (SOQs) are

requested along with proposals

• Bidding process with 2 steps:

o Step-1: RFQ is released to all

interested parties and the eligible

applicants are shortlisted (based on

a pre-defined technical and financial

criteria)

o Step-2: RFP is issued to the

shortlisted applicants (which are

notified) for submission of bids

• RFQ is typically a pass/ fail stage and

the preferred bidder is selected based

on their proposal (technical and

commercial) submitted in Step-2

• Multi stage bidding process with 3 steps:

o Step-1: Expression of Interest (EOI)

stage to identify a list of interested

firms (No shortlisting at this stage)

o Step-2: RFQ is released to applicants

who submitted response to EOI; the

eligible applicants are shortlisted

(pre-defined technical and financial

criteria) – pass/ fail stage

o Step-3: RFP is issued to the

shortlisted applicants for submission

of bids (preferred bidder identified

based on technical and commercial

proposal)



BID PROCESS DESIGN (2/2)

Parameters Single Stage: RFP Two Stage: RFQ + RFP Three Stage: EOI + RFQ + RFP

Definition of

Project Scope

and Structure

• Suitable when project scope and

structure is clear and well-defined

• Suitable for projects with widely

accepted project structure and

successful precedent transactions

• Relevant for projects with no/

limited precedent transactions -

discussions/ feedback needed from

stakeholders to refine the project

structure

• Considered for large and complex

PPP projects or projects with limited

precedents in the country

• Relevant for projects with no/

limited precedent transactions

• Extensive discussions/ feedback

required from stakeholders to

decide and finalize the project

scope and structure

• Considered for large and complex

PPP projects or projects with limited

precedents in the country

Clarity on

potential bidders

• Preferred when interested and

potential bidders are known and

identified (and limited in number)

• Considered when potential bidders

are known and identified, however,

the number of interested bidders

may be large

• Suitable when there is uncertainty

about the level of interest in the

project - unknown if interest is large

or limited

• Opportunity to modify project

scope/ structure based on EOI

response

Process

Efficiency

• Significant effort may be required

for addressing queries and

evaluating bids in case the potential

bidder universe is large

• RFQ is useful to restrict the number

of bidders, thus ensuring high

quality of bids submission

• Also, reduces the effort for

responding to queries and

evaluating the bids

• EOI is useful to identify interested

bidders and evaluate level of

interest; RFQ further helps reduce

the number of bidders, if necessary

• Overall effort higher than two stage

process due to an additional step

Timelines

• Bid timelines could be shorter in

comparison to multi-stage

processes

• However, in case the number of

bids received are high, the

evaluation process could stretch

longer than anticipated

• Longer timelines due to an

additional stage; however, the

evaluation could potentially be

faster (than single stage process)

due to lower number and high

quality of bids

• Multiple evaluation stages typically

increases the procurement

timelines (longer than two stage

process)



MINIMUM ELIGIBILITY REQUIREMENTS

• For two stage or three stage tendering processes involving pre-qualification of the applicants, the Grantor is required to define pre-

qualification criteria for selection of technically sound and financially strong pre-qualified applicants (individual or consortium)

• The Grantor may utilize one or more of the following to assess the technical and financial strength of the applicants

TECHNICAL MERs FINANCIAL MERs

• The applicants are required to showcase their technical

competency and expertise in following areas:

o Development Experience

― Demonstrate strong track record of successfully

developing i.e. acting a bidder for [x]1 number of projects

of similar size and nature in last [y]1 years for both local

and international markets

o Operational (O&M) Experience

― Possess experience of operating and maintaining [x]1

number of projects of similar size and nature for a period

of [y]1 continuous years in both local and international

markets

o Ownership Experience

― Must meet a cumulative ownership threshold in previous

projects in local market to demonstrate their ability to

manage the external stakeholders of the project

• Well defined technical MERs are generally seen for projects with

sufficient precedent transactions

• The applicants are required to showcase their strong financial

standing as they are to own equity in the project. Key

parameters to evaluate financial strength are as follows:

o Tangible Net Worth (TNW)

― Must have a minimum tangible net worth of USD [x]2 MN in

past [y]1 years as evidenced by its audited financial

statements

o Financing Experience

― Demonstrate their ability to fund similar size projects with

equity and raise non-recourse debt for [x]1 number of

projects in last [y]1 years

― Demonstrate carrying out debt repayments of projects in

accordance with loan agreements

― Must have x% equity stake at financial close of project

o Turnover/ Net Profit

― Demonstrate a turnover and/ or net profit of USD [x]2 MN

in last [y] years

o Credit Rating

― Demonstrate an investment grade credit rating issued by a

qualified rating agency in last [y] years

1. Dependent on the number of precedent transactions in the market

2. Dependent on the estimated project cost/ equity contribution required of the applicant


KEY TECHNICAL CONSIDERATIONS

• Technical Advisor lays down various technical aspects of the project that serves the purpose of outlining the

main features of the project from a technical point of view

• List down minimum necessary requirements for the project which are deemed essential to be described in

the RFP in the form of the minimum functional specification for the project

OBJECTIVE

ASPECTS COVERED

• The technical considerations lay emphasis on the following aspects of the project:

o Plant/ Project description

o Capacity and size

o Required design specifications for the facility and their compliance with local regulations including

environmental norms

o Site description and results of various studies performed to determine the suitability of the site for

construction

o Quality of materials to be used for construction

o Technology to be utilized

o Equipment warranties and guarantees desired

o Possible interfaces for utility supply

o Requirement of ancillary infrastructure

o Experience of EPC and O&M contractors including their HSE track record

o Tentative implementation schedule

o Others


KEY FINANCIAL AND COMMERCIAL CONSIDERATIONS

SOURCES OF FINANCING (1/2)

Equity

Debt

Project Cost Funding

Equity Bridge Loan

Shareholder’s Loan

Cash Equity

Long Term Loan Mini Perm

CREDIT SUPPORT


KEY FINANCIAL AND COMMERCIAL CONSIDERATIONS

SOURCES OF FINANCING (2/2)

EQUITY

FINANCING

Equity Bridge

Loan (EBL)

• Short-term facility raised to cover Sponsors’ equity investment in a project; typically Shareholder

Loans are infused to repay the EBL (at the end of EBL facility’s tenor)

• Sponsors typically fund a portion/ entire equity investment in a project by way of an Equity

Bridge Loan in order to enhance their IRR

Shareholder

Loans

• Shareholder’s Loan is a subordinated and unsecured loan provided by the equity holders to the

Project Company

Cash Equity• Contribution by shareholders to fund the development and construction cost of the project; can

be upfront, pro-rata, partial pro-rata or back-ended as agreed in the financing documents

DEBT

FINANCING

Long Term

Loan

Mini – Perm

• Long-Term Loans are offered by the lenders to finance an infrastructure project, with the term

of the loan (tenor) typically dependent on the concession term

• Lenders may require at least a 7-8 year tail period on a conservative basis for a market risk

project; the tail would be significantly lower for an availability based or minimum revenue

guarantee project

Lenders, however, require a firm commitment from Sponsors demonstrating that the equity funding is in place at the time of financial

close; in all cases, the equity (EBL or Shareholders’ Loan or Cash Equity) will be subordinated to the senior debt provided by lenders

• Mini-Perm financing is utilized by the bidders in order to take an aggressive stand on the

project; Mini-Perm being a short/medium term (7-8 years) is usually priced lower by the banks

compared with an amortizing long term facility (which is aligned with the concession term)

• There is an Initial Maturity Date (IMD) post which the facility needs to be refinanced (thus

exposing the project and Concessionaire to refinancing risk very early in the concession term)

• Banks usually have restrictive covenants and a higher interest rate post IMD, to incentivize the

Concessionaire to refinance (Soft Mini-Perm); Further, there could be an event of default in

case the Concessionaire fails to refinance prior to IMD (Hard Mini-Perm)


KEY LEGAL CONSIDERATIONS

Project Company/ SPV

(Concessionaire)O&M ContractorEPC Contractor

EPC

agreement

Grantor

Lenders

O&M

agreement

Debt

Financing

agreementSponsor/

Shareholders

Shareholders

agreement

Equity

Right of way/

Site

agreement

Concession

agreement

Payment Agreement

Tariff

Payments

Lenders direct agreement

Lenders direct agreement

EPC Payments O&M Payments

• In a PPP model, the Concessionaire offers a one-stop shop solution to the Grantor where the Concessionaire is responsible to design,

build, finance and maintain the project over the concession term and transfer the asset to the Grantor at the end of concession term

• Concessionaire and Grantor are bound by terms of concession agreement and payments from/to Grantor and Users are based on

concession agreement and vary according to type of PPP model selected

• Lenders enter into direct agreements with the Grantor and third-party contractors (EPC, O&M or any key contract counterparties).

These direct agreements enable step in rights to the lenders, in case the Project Company is unable to fulfill its obligations

TYPICAL CONTRACTUAL STRUCTURE

RISK ALLOCATION FRAMEWORK


Key Stages of

Project

Procurement

3


BID PROCESS OVERVIEW – PROCURER PERSPECTIVE

Phase 1 - Development PhasePhase 2 – Tender Process and Bid

Submission

Phase 3 – Preferred Bidder

Selection and Financial Closure

• Project Prefeasibility Studies

o Project identification

o Techno-commercial feasibility

o Advisor appointment

o Site investigation

• Structure Finalization

o Preliminary commercial and

transaction structure

o Initial risk matrix

o Development of Financial

model

o Legal and regulatory

framework and technical and

operational aspects

• Market Sounding & Feedback Analysis

o Stakeholder discussions

o Project structure

enhancement

o Project market sounding and

feedback

• EoI Process

• RFQ Process & Prequalification

o Preparation and issue of RFQ

o Pre-qualification of bidders

• RFP Preparation & Issuance

o Detailed risk allocation matrix

o Project agreements & RFP

documentation drafting

o Bid evaluation

criteria/strategy finalization

o RFP issue to prequalified

bidders

• Bid Preparation and Submission

o Site Visit and Pre-bid Meeting

o Tender clarification process

o Issue of addendums, if

required

• Preliminary Bid Evaluation

o Evaluation of bids for

compliance/completeness

• Post-bid Clarifications

• Preferred Bidder Selection

• Negotiations and Finalization of Financing Agreements

o Grantor review of close to

final version of agreements

o Negotiations typically

managed by bidder

• Finalization and Signing of Agreements

o Finalization and execution of

project agreements with the

preferred bidder

• Conditions Precedent Fulfillment

o Support, as required under

the off-take agreement and

shareholder agreement

Phase #

Key Activities

Timeline1 4-5 months 3-6 months7-9 months

1. The proposed timeline is Indicative in nature and will vary on a case by case basis


c

BID PROCESS OVERVIEW – DEVELOPER PERSPECTIVE (1/2)

Project

Prefeasibility

Studies

PROJECT MILESTONES

Market Sounding

and Feedback

Analysis

RFQ Process and

Prequalification

P

h

a

s

e

1

RFP Preparation

and Issuance

Bid Preparation &

Submission

▪ Project scouting

▪ Preliminary project information from the market

▪ Relationship building with potential partners

▪ Preliminary project analysis using gathered info.

▪ Project development budgeting & JDA execution

▪ RFQ review, preparation & response submission

▪ Shortlisting of sub-contractors and advisors

▪ Initiation of market sounding

▪ Review of the RFP and key project documents

▪ Defining the bid strategy

▪ Site visit; pre-bid clarification meetings

▪ Finalization of EPC and O&M contractors

▪ Discussion for formation of lending group

▪ Drafting, mark-ups to term sheets & agreements

▪ Financial model, assumptions book finalization

▪ Bid optimization and structuring

▪ Finalization & commitment from lending group

Developer

▪ Potential partner scouting

▪ Set-up development team for bid submission

▪ Finalization of JDA terms with selected partner

▪ Preparation of project budget

P

h

a

s

e

2


c

Post-bid

Clarifications

PROJECT MILESTONES

Preferred Bidder

Selection

Negotiations and

Drafting of

Agreements

Finalization and

Signing of

Agreements

Conditions

Precedent (CPs)

Fulfillment

▪ Finalization of lending group and roles of banks

▪ Completion of lenders’ due diligence process and final credit approvals

▪ Documentation negotiations and finalization:

• Project agreements (EPC, O&M etc.)

• Financing agreements (facility agreements, fee letters etc.)

▪ Preparation of final execution copies of all agreements

▪ Obtaining competitive hedging solution

▪ Post hedge tariff finalization (if applicable) and document updating

▪ Fulfilling the CPs to achieve Financial Close

Developer

▪ Meetings with procurer (if required)

▪ Clarification response preparation

▪ Discussion with off-taker for markups to project agreements

▪ Negotiation and discussions with procurer

▪ Preferred bidder letter signing

▪ Appointment of other lenders’ advisors

▪ Initial negotiation with lenders and contractors

FINANCIAL CLOSE

P

h

a

s

e

3

BID PROCESS OVERVIEW – DEVELOPER PERSPECTIVE (2/2)

21

Private and Confidential: For Limited Circulation Only

CONTACT INFORMATION

2

GAJENDRA YADAVSynergy Consulting Inc.

PHONE

Tel: +91 11 4980 8244

Mob: +91 95600 03435

EMAIL

[email protected]

1

KRISHNA SINGHSynergy Consulting Inc.

PHONE

Tel: +91 11 4980 8210

Mob: +91 88600 52345

EMAIL

[email protected]

Documents

Tender Process for PPP Projects - Synergy Consulting · 2020. 8. 27. · SINGLE STAGE TENDERING TWO STAGE TENDERING THREE STAGE TENDERING •Request for Qualifications (RFQ) and Request