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Bucharest, April 4, 2006 Black Sea Energy Conference Public-Private Partnership in CEE.

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Presentation on theme: "Bucharest, April 4, 2006 Black Sea Energy Conference Public-Private Partnership in CEE."— Presentation transcript:

1 Bucharest, April 4, 2006 Black Sea Energy Conference Public-Private Partnership in CEE

2 2 World Bank Group and Energy Sector Introduction to IFCs Advisory Services


4 4 WBG in ECA – Selected Current Activities WBG in ECA – Selected Current Activities US$14.6 billion World Bank active portfolio in ECA region, of which: US$4.4bn in 95 projects in infrastructure and energy US$4.4 billion IFC active projects in ECA region, of which: US$350m in infrastructure US$160m in energy US$5.0 billion FY05 World Bank program for the region, of which: US$600m for Romania alone US$1.3bn for infrastructure and energy In 2004/05 IFC invests in the region approximately: US$600m in infrastructure projects, of which US$500m in power and gas projects

5 5 IFC Global Portfolio - Private Energy GasPowerTOTAL No. of Active Projects 176178 Countries 12 3033 IFC Investment (US$ mm) 1,9212,550 Syndicated Loans (US$ mm) 1192,111 2,229 Project Cost (US$ mm ) 3,253 11,72914,982 629 78 active projects in the energy sector in 33 countries Financed US$15.0bn total project cost Invested US$2.5bn in debt and equity Syndicated US$2.2bn loans

6 6 Constraints to Attracting Private International Capital International power companies have more or less withdrawn from emerging markets in recent years Issues in Developed country markets: – Enron collapse – California crisis – Trading and accounting scandals – Negative perception of international investments by stockmarkets – Stock market downturn – Access to debt and equity capital limited

7 7 Constraints to Attracting Private International Capital (contd) Issues in Developing country markets: – Latin America: Argentine crisis, Brazil devaluation/power rationing/sector uncertainty, Mexican political deadlock, Chilean gas import restrictions – East Asia: Slowdown after 1997 crisis, no progress in sector reform – South Asia: Dabhol cancellation, limited sector reform – Europe: Focus on EU accession – Africa: Opportunities are smaller and riskier

8 8 12 Investment needs too large for Governments Slow earnings growth in EU will draw investors out Big EU corporates will lead – will hit financial limits Region is building record of strong economic growth Missed the PF Boom: no legacy of large losses Countries in this region are first place to look Acquisition costs a fraction of what they paid elsewhere Big progress made on tariffs, regulation etc. Current Context in SEE Strong grounds for optimism: few projects…

9 9 Key Success Factors Sector Fundamentals Contractual Arrangements Government Support Legal Framework Regulatory Framework Adequate tariff levels and consumer payment discipline Balanced contractual arrangements and high standards of transparency Government commitment to performance of the off-taker and other contractual undertakings Legal framework enforceable and conducive to private sector activities Independent and transparent regulatory institutions

10 10 New Models Needed Must change risk / reward balance in some sectors Where regulatory framework unproven : World Banks Partial Risk Guarantee Where regulatory framework inadequate: Concessions with regulation through the contract Where economic & commercial returns diverge: PPPs: to reduce risk and/or raise returns to investor Longer term, incentivised Management Contracts Where uncertainty is so great required return too high

11 11 Why are PPPs taking front stage? Availability of public capital remains constrained due to deficits and/or prudent fiscal management Availability of private capital also constrained: investors generally more risk-aware than previously and less willing to take risks in emerging markets Yet huge capital needs remain in infrastructure, education and health care, for development and for competitiveness Efficiency gains from private sector involvement are believed to be considerable.

12 12 Rationale for PPPs Can make projects viable where economics and risk are more difficult Bring private sector efficiency in sectors/project which do not achieve cost recovery Better use of hard earned Public Money, i.e.: – More projects for given amount of funds – Focus on more social projects / complex risks Value for Money

13 13 Partial Government Subsidy Can Be Important PPPs in some areas will increasingly need some degree of government subsidy to: – Avoid rate shocks for consumers – Share financial risk with investors – Kick start major projects in difficult investor environment Success of future PPPs will depend on structuring public subsidy in a manner which: – Secures political and public support – Is fiscally feasible and sustainable – Eases transition to full cost recovery rates for public services

14 14 Todays Challenges for PPPs Cautious investors, and little appetite for project finance risk Need solutions to regulatory uncertainty Mobilise local investors and financing Newly emerging generation of failed attempts to introduce PPP Overcoming public resistance More attentive Trade Unions Media more alert and playing a political role BUT GOING BACK TO THE PAST IS NOT AN OPTION

15 15 PPPs and IFC World Bank and Energy Sector Introduction to IFCs Advisory Services

16 16 Advisory Services to Governments to structure and implement PPPs Dedicated Department specialized in providing advice on the structuring and implementation of PPPs in infrastructure worldwide. We have been at the forefront of advisory services in the transportation, water, municipal infrastructure, power, telecommunications sectors. Our staff are transaction specialists. They are all experienced in the key elements of PPP transactions, and in planning and managing the transaction process. We undertake pioneering transactions – First, difficult, political, reform-based, innovative – Over 100 advisory assignments in more than 67 countries – Capital mobilized post-transaction since 1995: US$4 billion

17 17 PEP-SE infrastructure IFCs Advisory Services structure dedicated to South East Europe with support by donors Operating in: Albania, Bosnia Herzegovina, Bulgaria, Croatia, Macedonia, Romania and Serbia & Montenegro Funding commitment from: – Austria, Italy, the Netherlands, Norway, Switzerland, USA and IFC Mandate: development of infrastructure in the region via the increased participation of the private sector PPPs Spanning all types of infrastructure Started operations in July 2005

18 18 Advisory Team Technical/Market Consultants Local/Intl. Legal Consultant(s) PEP SE Infrastructure Accounting/Tax Consultant(s) Social/PR Consultant(s) Project Company Civil Society & Other Stakeholders Government

19 19 A Difficult Balancing Act Between Stakeholders Government Financing Sources Investors / Operators Consumers Advisor Communication Transparency Competition Efficiency

20 20 A Structured Approach Phase I: Preparation Phase II: Implementation Step 1 Team Mobilization Step 2 Options Strategy Step 3 Framework Reforms Step 4 Closing Transaction Institutional Building Institutional Building Institutional Building Communication-----Communication-----Communication----Communication

21 21 Public Funding of PPPs : Examples With Different Approaches to Public Funding Consumers: SPUG, Philippines IDA and donors: Pamir, Tajikistan

22 22 An Example: Philippines SPUG New Private Providers Electricity Cooperative Revenue Power Energy Regulatory Commission Regulates rates & services Rates set at affordable level - the Socially Acceptable Generation Rate (SAGR) - and increasing in real terms Selected on a competitive basis – True Cost Generation Rate (TCGR) = lowest bid price Improved reliability - Supply standards contractually agreed + performance guarantees Surcharge Power Sector Asset and Liabilities Mgmt Corporation Output Based Subsidy All End-Users Sets No Deficit Subsidy = TCGR - SAGR Power Supply Agreement

23 Agha Khan Foundation for Economic Development Swiss Govt. Govt. of Tajikistan $10mil., 40 years, at 0.75% Pamir Energy Co. IDA Spread Account Swiss Grant Account Lifeline tariff of.25cents/kWh Average tariff of 2.1cents/ kWh instead of 4.65cents/ kWh $4.5mil., 10 years, $8.2mil. equity $3.5mil. equity Example: Tajikistan, Pamir Private Power Project Residential Consumers $4mil. IFC IDA $10mil., 20 years, at 6.00% Output-based Financing of Lifeline Tariffs $5mil. grant Consumers Average subsidy of 1.85cents/kWh per month for 50 kWhs in summer and 200 kWhs in winter

24 24 What is needed to succeed Understanding of public interests and ability to balance public/private issues Capacity building of governments to increase their capacity in structuring and managing PPPs Transparency and Communication Oriented towards development objectives – e.g. social focus Knowledge of investors market & confidence of investors Integrated approach / synergies within the other players Leverage international experience elsewhere Public Dissemination and PR campaigns

25 25 PEP SE Infrastructure: Contact Details THANK YOU Contact Details: Angelo DellAtti, General Manager PEPSE Infrastructure International Finance Corporation World Bank Group Tel: +359 2 9697207 Fax:+359 2 9697222 E-mail:

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