PPP Case Studies General Issues & Comment

PPP Issues
Advantages
off-balance sheet introduces private sector capital into public service provision introduces private sector practices & efficiencies promotes competitive markets [ NB does it??] facilitates innovation

Disadvantages
complex structure & documents [min 25mn?; no IT projects] time-consuming to arrange high up-front costs demands significant senior staff attention Is PSC methodology reliable? difficult to resolve when in default

UK PPPs Early Sector Development

Health
Transport Defence Water & Waste Water Accommodation : Police Accommodation : Education Accommodation : Health Accommodation : Other IT : Education IT : health IT - Other Prisons 11% 6% 4% 6% 4% ) 21% ) = 53% 17% ) 11% ) 1% 3% 12% 4% 100%

[Source: Infrastructure Journal] Aug 2002

PPPs Issues & Problems Arising

employment issues : transfer of staff to the PPP option;

common contractual terms and documents applicable across all sectors?? windfall gains from re-financing : the nature of the Partnership short-term perspective of investors: secondary equity contingent liability of Govt. created by PPP contractual payments EU procurement rules: conflicts with realistic negotiation process. [ Is the use of Competitive Dialogue acceptable?]

PPPs Issues & Problems Arising

lack of skills in utility operations; original investors often sell-out early.

financial strength of bidders?? Only large cos bid. Reduces competition? skills shortage in sponsor Govt. departments and agencies. identity and governance of PPP investors independence of financial advisors and conflicts of interest the benefit of public interest companies : safety v. profits (transport) Govt. political life-cycle often shorter than project maturity of PPPs

PPP Case Studies Municipal: Water, Waste, Property, Urban Transport, Airports

WATER TREATMENT PPPS

The Applications of PPP Water Treatment Projects

Type Project Structures Characteristics:

Water Treatment Plants

Privatised Co.; PPP [BOOT] Concessions. Govt.

Local currency tariffs. Highly regulated. Project finance supported by throughput aggt.? Availability of water sources?

Regional Water Systems

Privatised Co.; PPP [BOOT] Concessions Govt.

High investment costs? Local currency tariffs. Availability of water sources? Private sector monopolies? Low profit margins Political interference? Highly regulated.

Water Distribution

Corporate Projects; PPP [BOOT] Concessions Govt.

Local currency tariffs. Lower investment required. Private sector monopolies? Low profit margins Political interference? Highly regulated.

Desalination Plants As for IPPs

As for power plants.

Case Study: Water Treatment PPP

Project:

APA Nova, Bucharest Water System, 1996/2000. (a) improvement in water supply; (b) Crivina treatment plant 132 million

Value:

Participants:

City of Bucharest (15%); Vivendi (Veolia Env.) (85%)

Funding:

EBRD 75 million loan (private sector loan) - Tariff adjustment by agreement - Intl. competitive bidding for PPP concession - EBRD funding investment - Concessionaire responsible for billing/collection.

Issues:

Typical Contractual Structure of a PPP Water Treatment Plant Scottish Water

[Govt. Agency] Contracting Authority
1: Concession Aggt. 6: Payment for Availability and/or Service Delivery [e.g. per cu. m.]

Shareholders [Thames Water]

3: Share Capital

Concessionaire 4: Loan Agreement

[Seafield]
5: O & M Contract

Lenders Banks

2: Construction Contract

Design/Construction M. Watson & Gleeson

Operator [Thames Water]

Case Study: Water Treatment PPP

Project:

Almond Valley / Seafield & Esk Water Project, Edinburgh, Scotland 135mn. 30 yr. concession.

Value:

Participants:

Thames Water, MJ Gleeson; Montgomery Watson 100mn [+ 10mn] AMBAC wrapped 27.5 yr bond. 4mn equity; 13mn sub-debt. - Limited construction risk; - Govt.-owned service purchaser; - Strong mgt. team; - Local op. precedents.

Funding:

Issues:

Waste Management PPPs

Waste Management Main Issues

Incineration Market 2006: Denmark & Sweden Germany UK [Planning issues] Greece/Ireland 50% 22% 8% <8%

Technical: (a) Incineration has track record over many years (b) Mech. Biological Treatment (MBT), etc.: will it be a long-term success? Fixed off-take PPAs v. merchant power risks? Which is more viable? Planning: EU landfill Directives. Additional Renewables Regulations to be imposed? RO Risk? : EFW & CHP = 1 RO; [EFW = Energy from Waste] Adv. Conversion Tech. (e.g. pyrolysis, gasification, etc.) = 2 RO

Project value minimum? : Project value > 20 mn. in UK (for PFI credits)

Case Study: Waste Management PPP

FCC Dragados

2 Councils
1.: Services Aggt. 2.: Share Purchase Aggt. 3.: Env. Indemnity

Mercia
100% Org. Waste Aggt. O&M Aggt.

Thames Water

Loan

Beacon Waste Ltd

Perf. Agg t. Licences

Bank

Severn Waste Services Ltd.

Tech. Suppor t FOCSA

EA [Govt.]

Urbaser

Case Study: Waste Management

Project: Hereford & Worcester Waste Management Services

Value: Participants: Funding: Issues:

70 85mn. [85 100mn] investment in plant; 2 municipalities; Dragados & FCC (Spain). 55 mn [65mn.] debt. - 0.5 MT of waste per annum per house. - includes collection and mgt. of waste-fill site and new plant; - build waste-to-energy plant; - revenues from: (a) fee per ton collected; (b) fee per ton managed at sites; (c) fee per ton recycled. - Credit-worthiness of municipal counterparts??

PROPERTY PROJECTS & PPP

The Application of PPP Property Projects

Type Project Structures Characteristics: 50/50 debt/equity. Operator (reservations) critical. Political stability? Many new-builds go bust! Conferences business : speculative Local currency business. Govt. can gain cost reductions through PPP, but not necessarily off balance sheet. Funding raised against corporate security & mortgages. Medium-term projects. Govt. can gain cost reductions & flexibility through PPP, but not necessarily off balance sheet. Demand for use erratic. Use for specific tournaments? Often associated with convention centre/hotel for viability NB need for good infrastructure & access Cash business; NB access and infrastructure

Hotels & Tourism

Private companies

Housing

Govt. & PPPs Private Corporate Projects;

Offices; private

Offices: Govt.

Govt. PPP Govt. Private Sector. PPP?

Sports Stadiums

Car Parks

Private; PPP?

PPP Schools

Schools & Colleges, Scotland

Project: Argyle & Bute Schools: 10 schools & non-educational instit. [5 on-site; 2 new site]. Build & maintain PPP. 128mn.(2006 values) = 150 mn. PPP contract = 30 yr. Mansell, Barr Constr, HBG, Mitie (FM)

Value:

Participants:

Funding:

Partners: RBS & Quayle Munro

Issues:

- Not-for-Profit structure [NPDO: Non-Profit Distribution Org]

Government Accommodation PPP

Project:

HM Treasury Building, London: Grade II listed building. Rebuild & maintain over 35 years.
[NAO HC 328 01-02]

Value:

142mn. [ = 160mn.]

Participants:

Funding:

Issues:

Bovis (42.5%); Stanhope (42.5%) Chestertons (15%) - Govt. to pay 14mn pa. [ lifetime = PV 170mn]. - 5% equity; 4.4% mezzanine debt; 90.6% 128mn. 38 yr. bond issue [AMBAC wrapped] - Development of standard documents; - Competitive funding: 28 banks bid; saving = 13mn. PV. - Govt. paid legal/tech./fin/ins. advisers for Govt.; Exchequer; & Funders. - Equity IRR = 16%

Government IT Project

Project:

Lord Chancellors Office Magistrates Courts: IT System (Libra Project)

Value:

350 million [ 400mn.]

Participants:

SPV: ICL & Fujitsu

Issues:

Changes in project specification; Underestimate of R & D for system. Lack of understanding of PPP by both parties Difficulties when problems arose: poor documentation No more IT PPPs in UK!!

PPPs in UK Case Study: Hospitals

Project: Univ. College London Hospital (UCLH): 5 sites one site. 669 beds; 40 critical illness beds; 14 op. th.; 96 cons. Rms. 450 mn.. 32 year concession. Construction and facilities management (cleaning; laundry; food; maintenance) Amec; Balfour Beatty; Building & Property Gp. 270mn. senior debt; 30+ yr. maturity + int. hedge. 90mn. equity and land sales.

Value:

Participants:

Funding:

Issues:

- Project concept (OJEC) : Oct 1995; bids received Oct 1996 - Fin. Close: July 2000 - Special Govt. Bill needed to allow Trusts to contract PPP.

LIFT, UK [e.g. local PPP health centres] [LIFT = Local Improvement Finance Trust]

Property Dev.

Property Mgt.

Constr. & Services

Heath Auth. & Primary Care Trust (PCT).

Local Stakeholders

National JV
[Partnerships UK & Dept. of Health.]

Private Sector Partners

60%

20%

20%

Contract

LIFT [ e.g. Health Centre]

Lease

Services to End-Users [Doctors; Pharmacists; PCTs; Dentists]

PPPs in UK Case Study: Prisons

(a) Project & Value: (b) Project & Value: Bridgend, S. Wales: 90MN [= 100mn].; 800 bed; Seifert & WS Atkins. Fazakerley, Liverpool: 78MN [ = 95mn; 600 bed; Costain & Svenska

Funding:

Issues:

NAO HC 700: 02-03

Debt / equity: (a) = 85/15; (b) 90/10. 18 yr. bank loans - Occupancy risk left with Govt.; - Performance v. cell availability. NB. Food; health; etc. - Spec. changes over concession period; - Efficiency gains shared. 13-19% cost savings; - Tariff indexed to RPI; - HMPS provides malicious damage insurance. - Cells built to HMPS spec. - Refinancing gains [2001]

Case Study: GCHQ

Project: GCHQ, Cheltenham, UK
[HC 65, 2004 & NAO HC 955 2003]

Value:

546 mn. Integrated Accommodation Services (IAS) Carillion (40%); Group 4 (40%); BT (20%) 398mn bond issue 44mn sub debt; Balance IDC & revenues during constr. - Moving from existing sites, etc. - IAS responsible for site security - Group 4 sold its stake to Englefield Capital & Electra Partner Europe

Participants:

Funding:

Issues:

Case Study: National Physical Laboratory, UK

Project: NPL, UK
[HC 1004, 2006]

Value:

275 mn. [est.] Serco Investments; John Laing [50/50) 9Laser

Participants: 82mn senior loan 4.6mn sub debt; Equity: 2.2mn. - High spec. building - Some residential property development possible. - Changes in spec. arose. - Difficulty in meeting specifications. (Project collapse when 50% complete)

Funding:

Issues:

Case Study: GCHQ

Project: GCHQ, Cheltenham, UK
[HC 65, 2004 & NAO HC 955 2003]

Value:

546 mn. Integrated Accommodation Services (IAS) Carillion (40%); Group 4 (40%); BT (20%) 398mn bond issue 44mn sub debt; Balance IDC & revenues during constr. - Moving from existing sites, etc. - IAS responsible for site security - Group 4 sold its stake to Englefield Capital & Electra Partner Europe

Participants:

Funding:

Issues:

Case Study: Wembley Stadium

Project: Wembley Stadium.
[NAO HC 699, 2003] Site purchase Construction (Multiplex) Infrastructure Contingency Dev & Mgt Finance Charges = 106mn = 445mn = 21mn. = 20mn = 86mn = 79mn

Value:

TOTAL Participants: WNSL / FA Equity Sport England LDA & DCMS grants Debt

= 757mn.

Funding:

= 160mn = 120mn = 41mn = 433mn (WestLB)

Case Studies Transport: Roads & Urban

The Application of Private Finance to Transport Projects Roads & Bridges

Type Inter-city Highways Project Structures PFI Concessions (tolls). DBFO Concessions (Availability payts). Privatised Co.; Private Sector Characteristics: Revenues & costs in local currency. Traffic volume risks? Environmental & land issues. Structured as property transactions.

Service Areas & Hotels Urban Roads

Govt.; PPP Concessions???

Difficult to ring-fence the risks. Traffic often low, diffuse & unpredictable. Local currency revenues & costs. Labour intensive. Private sector more flexible & innovative. Traffic risk more identifiable & controlled. Local currency revenues & costs. Many successful intl. precedents.

Road Maintenance Bridges (Toll)

PPP Concessions (?) Govt. PFI Concessions.

PPP Motorway Projects Central Europe

Project Name: Value: Project History:

M1/M15 Budapest Vienna Motorway, Hungary, 1994-98

300 million equiv. Completed as a PPP-type concession by a German-Austrian contractors with Hungarian partners. Promotor: BNP, France. EBRD provided equity, an A loan and gtees for local forint bond issue. 1st toll-road in E. Europe. Deal of the Year 1993-4.

Key MOL; BNP; Caisse des Depots; Strabag; Transroute,; EBRD. Participants: Issues: 1997: After opening, traffic was 30% of expected demand. 1. in 1998 default occurred, but road remains operational; 2. local courts supported claims of high tariffs; 3. local groups sued for environmental damage. 4. project restructured in 2000; Govt. took project responsibility

Lessons

PPP Motorway Projects Central Europe

Croatia:

Bina Istra 1A & 1B: Bouygues-led PPP consortium 1A (1999): 44km new highway plus 36 km of upgrade Cost = 170 million equiv.; US $109 mn. Comm.. bk loan 1B (2004) : Cost = 390 million incl. refinancing Phase 1B. Bond issue unwrapped (BB+) = 210 mn. Comm. Bk loan = 72 mn. Issues: 1: There were toll roads precedents in Croatia; 2: Revenue support mechanism from Govt. via DSRA top-up 3: Tunnel risk (5km.) removed from construction risk 4: Govt. had S & P rating (BBB-)

Croatia

Zagreb Macelj Motorway [2004]: Walter Bau & Strabag (49%) ; RoC (51%) 28 yr PPP concession 312mn commercial bank loan. Contract for gen. concession awarded 1997 ; Fin. Close Jul 2004.

PPP Motorway Projects Central Europe

Slovenia: Precedent for tolls, but Govt. chose conventional funding for 465km motorway.

Hungary: M5 Motorway, Budapest Serbia [97 km], 1994-98; Cost = 380 million. Consortium led by Bouygues. Operator : Intertoll Issues: 1: Optimistic traffic forecasts. Payt. against traffic volumes 2: Unbankable, compounded by devaluation of HUF. 3: Refinanced 2004 against Availability Payts., but not nationalised

PPP PROJECT SUMMARIES TRANSPORT [UK]

Portsmouth Road Maintenance: 1: 750km of principal & secondary roads. 2: 80mn capital expenditure over 6-7 yr. 3: 500 mn maintenance & operational expenditure over 25 yr. concession period. Annual PFI payts by Govt. 350-500mn.

Street Lighting:

M25 Widening.

1: 100km of new lanes to be built. 2: Maintenance of existing highway. 3: Value 1.6 bn. 4: Bid under preparation. As for Portsmouth. Value 2 billion

Birmingham Road Maintenance:

PROJECT SUMMARY Croydon Tramlink, UK

Project Name: Value: Project History:

Croydon Tramlink, UK, 1996

200 million [125 mn Govt. Grant. ] 28 km tramway; 3 routes to/from Croydon, S. London; 24 trams serving 38 stops; 3.5 km on streets; 6.5km on new alignment; 18 km on exheavy rail track. 99 yr concession (DBOMF) Tramtrack Croydon Ltd [RBS 20%; Bombardier 20%; Amey 20%; First Centre West (op.) 20%; Sir R.McAlpine 20%] Completion and traffic risk with concessionaires 1: Financial collapse due to lack of transport integration. 2: Some technical issues. 3: 2008: sold back to Govt. & shareholders paid out

Key Participants: Issues:

Lessons

PROJECT SUMMARY Arlandaban Airport Link, Stockholm, Sweden

Project Name: Value: Project History: Key Participants: Issues: Sweden: Arlandaban Rail Link, 1995 Stockholm Airport City Centre. 600 million equiv. Airport City Centre rail link awarded as a BOT concession. Non-viable extension via Odensala. GEC Alsthom, Mowlem, Swedish Co.s Equity & 15 yr. bank loans & leases. Govt. interest-free loan to cover costs of Odensala extension. 1. Govt. loan subordinate to equity. 2. Govt. loan only repaid when sponsor equity return reaches specified level. 3. Local currency finance used. 4. Success: 2006-7 sold to Private Equity

Lessons

London Underground [LUL] PPP [2001]

Govt. [TfL]

Passengers

LUL

Train & Stn. Planning & Ops. Safety Invest & Maintain Infrastructure

LUL PPP
JNP = Tube Lines Gp. Bechtel; Halcrow Amey; Jarvis Ferrovial

Govt. [TfL]

Passengers
BCV & Sub-Surface = Metronet Bombardier; WS Atkins; Balfour Beatty; Seeboard; Th. Water. 2007

Train & Stn. Planning & Ops. -Safety ---

New LUL Co.

[contracting failures]
[NB role of PPP Arbiter]

Invest & Maintain Infrastructure Infraco 1 Sub-Surface

Circle; District; Metropolitan; E. Ldn & Hamm.; City

Infraco 2 BCV
Bakerloo; Central; City; Victoria.

Infraco 3 JNP
Jubilee; Northern; Piccadilly.

PPP Case Studies Transport: Airports & Ports

The Applications of Private Finance Air Transport

Type Project Structures Characteristics: Hard currency tariffs. ICAO regulated. Need high traffic volumes [ > 2mn pass. p.a.]; Runway costs are high. Few PPP precedents Hard currency revenues possible; Need > 1.5 mn. pass. p.a. to be viable. 40-50% non-air revenues? Shopping mall concept? Hard currency tariffs. Short-term contracts. Market risk? Very long-term asset. High local cost. Minimal maintenance. Short-term contracts. Market risk? Hard currency tariffs. Debt raised against over-flight revenues. Tariffs regulated internationally. Some PPP precedents. Safety v. profit conflict. National security concerns.

Complete Airports Passenger Terminals

Privatised Co.; PPP Concessions. Privatised Co.; PPP Concessions

Cargo Terminals Corporate Projects; PPP Concessions Runways; Aprons Aircraft Maintenance Air Traffic Control Govt.

Corporate Projects. Commercial JVs Govt. PPP Concessions

PROJECT SUMMARY Tirana Airport, Albania [2005]

Project Name:

Mother Teresa Airport Concession (20yr), Albania [2005] [500,000 pass. p.a.; 1800T cargo; 10,500 ATMs; no competition] New pass. & cargo terminal; upgrade of aprons & access rd. (7km) Cost = 46.2 million Equity = 9 mn: Hochtief (47%), DEG/KfW (32%); AAEF (21%) Debt: EBRD 1: 12 mn; 12 yr repayt incl. 3 yr grace EBRD 2: 9 mn; 15yr repayt incl. 3 yr grace (Sovereign Loan) Loan 3: Alpha Bk/DEG/Am Bk of Alb = 12.9mn Hochtief AG; GoA advisers: Deloitte; Halcrow & Allen & Overy 1: Jan 2005: select preferred bidder; Feb 2005: EBRD Approval 2: Payt cascade: (a) O & M; (b) payt of up-front fee to GoA (3mn); (c) debt service on 1996 24mn KfW loan to GoA; (d) gtee fee for sovereign loan; (e) 30% of dividends. 3: derogation of Banks Procurement Rules for road component. 4: aeronautical revenues = 90%; 30% Albanian Airlines

Value:

Project Features & Funding:

Key Participants: Features:

PROJECT SUMMARY Gdansk Container Port [2007]

Project Name: Value: Project History & Funding: DCT Gdansk, Poland, 2007 200 million Greenfield project. Equity : 50%; Macquarie Global Infrastructure Fund II Debt: 100 million; DVB (Ger) 15 yr. 1: 36ha. deep sea(15m) box terminal; ice-free 2: good road & rail connections. 3: 650m berth (3 post-Panamax cranes & 5 RTGs) 4: capacity: 500,000 TEU containers + 150,000 TEU Ro-Ro. 5: expansion to 1 mn TEU by 2010 [1 3.5/4000 TEU ships] 6: open to market competition 7. Construction: Hochtief Dredging: Polish & Dutch cos Project Management: Royal Haskoning Co. Management: UK entrpreneurs 9. strong local support, but competition with Gdynia

Features:

PPP Case Studies Power

PROJECT SUMMARY Vez Svoghe Mini-Hydro Project, Bulgaria [2007]

Borrower: Vez Svoghe OD: [Private] Series of 9 HPPP on River Iskar, a tributary of the Danube. Total capacity = 25.7 MW, with run-of-river plants of 2.5 3.9MW.

Value: Funding:

81 million in three stages Equity 27 mn (33%) : 90% from Sponsors (Petrolvilla & Bartolotti (It); Petrolvilla Intl, Lux ; AE-EW (Mun. of Bolzano & Merano, S. Tyrol, It.); Finest (NE Italy mun) & 10% Mun. of Vez Svoghe (10%). Debt: 54 mn (66%).: EBRD A Loan: 34mn;; B Loan: 20mn

Features:

1: Mandatory offtake at 43/Mwh, reviewed annually.. New Law 2007 setting tariff at min. 80% of household tariff plus 95% of previous yr premium, until 2020. 2: Carbon credits monetized via EBRD-managed Netherlands Emissions Reduction Co-Operation Fund. 3. Licence: no exclusive rights to water.