Public Private Partnerships, The Rules
OranjestadFebruary 18, 2011
Paul Swanenvleugel
PwC
Member of the PwC PPP expert group
Relevant project experience
• Rail Dutch High Speed Rail PPP
• Ports Port extension Rotterdam, Maasvlakte 2
• Roads Highway PPPs
• Airports Amsterdam Schiphol Airport
February 18, 2011PPP, The Rules
Slide 2
Paul Swanenvleugel
PricewaterhouseCoopers Advisory N.V.
P.O.Box 9616 | 1006 GC | Amsterdam
The Netherlands
Ph: +31 88 792 32 19
Director
PwC
Agenda
1. Public Private Partnerships
2. Structuring your project
3. Project Finance
4. PPP procurement process
5. Case study
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February 18, 2011PPP, The Rules
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Public Private Partnerships
Working together towards a common goal
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PPPs - Generic Definition
Any transaction structure involving both private & public parties working together towards a common goal
1 - Introduction
PUBLIC
PRIVATE
PARTNERSHIP
owns assets, public service
skills, efficiencies and finance
co-operation and risk sharing
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February 18, 2011PPP, The Rules
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Benefits of Partnership
• Ongoing, long term relationship
• not a one-off transaction
• both sides work together
• common aim
• co-operative, not confrontational
1 - Introduction
A change in approach to procurement
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The Concept - PPP Model
1 - Introduction
PRIVATE SECTOR Builds infrastructure Provides services
expertise skills
servicespayments forperformance
expertise
ROADUSERS
PUBLIC SECTOR Specifies requirements
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Structuring your project
some issues to consider
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February 18, 2011PPP, The Rules
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Typical Consortium Structure
Public Authority
SPV
Builder Banks
EquityProviders
Maintenance Services
Services Payment
Funds
Dividends
Interest & Payment
Lend
Build
Services
Payment Payment
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What Drive Consortium Bids?
• Broad knowledge and skill area expertise
• More enlightened attitude to risk through expertise and ability to share
• Enables smaller providers to participate in PPP
• Ability to penetrate foreign markets – investing outside of one’s home market
• Cost effectiveness – share the bid costs
8 - Consortium Structures and Funding
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Invest
Contractors Interests
Build• Profits from construction works• Today PPP is common in
procurements 1
Operate• Operating roles stabilises long
term cash flows• Profits from maintenance works
3
• 10% of finance going in as equity at returns 10%-15% IRR
• Analysts starting to recognise concession value in share price
• Need equity to make and carry investment
2
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Some contractors just doing developer/equity role
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February 18, 2011PPP, The Rules
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Business issues to consider for your consortium
• Exclusivity and admission of new consortium members
• Governance rights among the consortium members –including board representation and voting/veto rights
• Legal documents – consortium agreements
• Selecting advisors – technical, legal, financial, insurance
• Bidding strategy – common vision and philosophy, agreed approach on bidding tactics
• Control of the bidding process – role(s) of each member
• Allocation of bid expenses
• Financing structure
February 18, 2011PPP, The Rules
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8 - Consortium Structures and Funding
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Project Finance
If you want to attract good financiers, you must have a bankable project, aligned to your objectives, and well structured.
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What is PPP Project Finance?
It is Cashflow Based Finance
• Project financing is used typically in long term projects
• Procurement of an asset or “service”
• Security of future cashflows of the project rather than any direct security over assets
• Cost is a factor of project risk and contractual framework
• Long term - typically 20-30 years
February 18, 2011PPP, The Rules
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8 - Consortium Structures and Funding
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Payment Profiles
1 - Introduction
Payment based on
availability
Traditional Government Procurement
Payment profile - traditional Payment profile for the public sector
PPP Procurement
Constructionphase
Operation and
maintenance phase
Running cost overruns
5 10 15 20Years
Estimated
Capital
Cost
Estimated running costs
Tim
e o
verr
uns
Cost
Overruns
Constructionphase
Operation and
maintenance phase
5 10 15 20Years
Nopayments
until
infrastructure
ready
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8 - Consortium Structures and Funding
Funding Example -$100 Million Road
Pure Equity - $1m
Subordinated Debt - $9m(Return approx 12-14%)
Senior Debt - $90m(Return approx 4%-6%,plus margins of 2%+)
90%1%
9%
Blended Equity - $10mProvided by consortium or third partyBlended return approx 12-15%
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PPP procurement process
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February 18, 2011PPP, The Rules
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Infrastructure Procurement in Aruba
Typical process involves expression of interest,
request for proposal during tender stage and
preferred bidder appointment before a contract is
signed and financial close is reached.
Januar 2011
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Expression of Interest
Tender Phase
Preferred bidderappointment,
Contract Close, Financial Close
PwC
Recognise the need to
• Understand Public Authority’s requirements
• Develop ideas
• Explore options
• Discuss solutions
• Agree about risk allocation
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Risks should be allocated to the party best able to manage them
4 - Risk
• Planning permission
• Changes to requirements
• Design
• Construction
• Operating and maintenance costs
• Operating performance
• Technology obsolescence
• Project financing
• Latent defects
• Force majeure
• Inflation
• Regulatory
• Taxation
Public PrivateShared
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Case study
PPP Highway A15 – The Netherlands
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February 18, 2011PPP, The Rules
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Case Study: PPP Highway A15 – The NetherlandsAnd the importance of partnerships
Project Facts:
Location Rotterdam (Netherlands)
Length 39 km
Size EUR 1.5 billion
Close Date 14 December 2010
Sponsors John Laing, Ballast Nedam,
Strabag, Strukton
Banks ABN AMRO Bank,
BNP Paribas, NIBC Bank,
Société Generale, UniCredit,
European Investment Bank
Key contractual Features:
• Term of 25 years (of which 20yrs operate)
• Challenging performance regime that should minimise inconvenience for road users during construction and operation.
• Constructors’ challenges include life traffic and industrial pipeline areas with limited space available for construction activities.
• Challenges to designers include one of the largest moveable bridges in the world.
The single largest infrastructure project that has ever been awarded by the Dutch Ministry of Infrastructure and Environment
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February 18, 2011PPP, The Rules
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Consortium Structure
Public Authority
SPV
Builders Banks
EquityProviders
Maintenance Services
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Architects
Technical advisors
Legal Advisors
Financial advisors
Subcontractors
The structures chosen may make or break a project. Be prepared!
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