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World Islamic Economic Forum (WIEF) Madinah Institute for Leadership and Entrepreneurship (MILE) 7 th WIEF Roundtable Madinah, Saudi Arabia Promoting Growth.

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Presentation on theme: "World Islamic Economic Forum (WIEF) Madinah Institute for Leadership and Entrepreneurship (MILE) 7 th WIEF Roundtable Madinah, Saudi Arabia Promoting Growth."— Presentation transcript:

1 World Islamic Economic Forum (WIEF) Madinah Institute for Leadership and Entrepreneurship (MILE) 7 th WIEF Roundtable Madinah, Saudi Arabia Promoting Growth through Public Private Partnership : Global Lessons 17 April 2013

2 For presentation purposes: no reliancePage 2 Public Private Partnership ► A Public Private Partnership (“PPP”) is a contractual relationship between a government and a private sector entity ► The private entity finances, builds infrastructure assets and provides operations and maintenance services ► Some key principles of PPPs are: ► Public sector pays for the “service” and not the “asset” ► No payment until asset is operational ► Value for money ► Risk allocation (to the party best able to manage the risk) ► Requires competitive bidding and ► Output specification for services ► Synonyms of PPPs include PSPs (private sector participation), Joint Ventures and Privatizations. ► A typical PPP are BOOT contracts (Build Own Operate Transfer)

3 Page 3 What are PPPs? ► Alternative way of funding projects ► Introduces private finance to public sector projects ► Public Sector defines and buys a service not an asset ► Private Sector delivers the service (and assets as required) ► PPP structure is usually to create a single standalone business, financed and operated by the private sector ► Create the asset and then deliver the service to the public sector client, in return for payment commensurate with the service levels provided Public Sector: Required Services Share operational role Private Sector: Creates assets Shares operational role Service Delivery Payment for Performance

4 For presentation purposes: no reliancePage 4 Pros ► Improved and consistent provision of services ► Certainty over financial outcomes ► Improved risk allocation –i.e. risk transfer ► Improved asset utilization ► Encourage private sector innovation through output based approach ► Competition drives down project cost ► Whole-of-life approach to project costing Cons ► Complex contractually to negotiate ► Longer time to implement than traditional projects ► High implementation costs: ► Finance ► Fees ► Due diligence ► Developer resources Pros and cons of PPPs

5 For presentation purposes: no reliancePage 5 Debt funding ~80-90% Special purpose vehicle Public Authority Equity funding ~10-20% Contractor A Design Operator E Soft FM Operator F Energy Management PFI and PPP structures PPP Structure more commonly shown as.. Note: The high gearing would be typical of an availability based payment mechanism Operation & Maintenance Contracts Operator C Lifecycle Contractor B Build Operator D Hard FM

6 For presentation purposes: no reliancePage 6 PPP Risk Transfer Private Sector RiskPublic Sector Risk DBFOM Public SectorPrivate Sector Risk Transfer Design-Bid-Build Design-Build Build-Operate-TransferDBOM BOO Privatization Build-Transfer-Operate EPC Key: Outsourcing

7 For presentation purposes: no reliancePage 7 Latest challenges surrounding the effectiveness of PPP 1994199619982000200220042006200820102012 1% 2% 3% Illustrative PFI debt margins (UK) Source: UK Treasury Shorter term finance Hard and soft mini perms Club deals over syndication Extended debt tails Increased equity contribution Larger deals bond financed

8 For presentation purposes: no reliancePage 8 PPP Transaction Debt Margins (Q1 2013) Recent loans in the infrastructure sector (2013 Q1) show an average range of 250-350 bps in debt margins globally Source: EY Analysis of Thompson data for the 3 months up to 9 April 2013

9 For presentation purposes: no reliancePage 9 Successful PPP’s in the MENA Region Project cost/ concession period Debt: Equity (%) Debt Margins (bps) Sponsor(s)Banks Financial Close Medinah Airport Expansion (KSA) US$ 1,204.3m 25 years60:40- TAV Airports Holding, Saudi Oger, Al Rajhi groups Arab National Bank, National Commercial Bank, SABB and SMBC July 2012 Qurrayah IPP (Saudi Arabia) US$ 2.975 b 20 years 74:26 -ACWA Power, Samsung C&T, MENA Infrastructure Fund, SEC BSF, NCB, Standard Chartered, HSBC, Samba, SABB, ANB, SMBC and KfW plus equity bridge providers Dec 2011 Muharraq Wastewater STP (Bahrain) US$ 328m 29 years 85:15220 – 275 Samsung Engineering, Invest AD, United Utilities Credit Agricole CIB, Natixis, Sumitomo Mitsui Banking Corp. July 2011 PP11 IPP (Saudi Arabia) US$ 2.1 b 20 years 75:25250 – 340 GDF Suez, Al Jomaih Group, Sojitz, SEC Credit Agricole, Standard Chartered, EDC, KfW, Societe Generale, Intesa, CIC, Alinma Bank, NCB, BSF and Samba June 2010 Shuweihat II IWPP (Abu Dhabi) US$ 2.68 b 25 years 79:21260GDF Suez, Marubeni, ADWEA Bank of Tokyo Mitsubishi UFJ, Sumitomo Mitsui Banking Corp., KfW BankenGruppe plus 10 others Oct 2009 Paris-Sorbonne University (Abu Dhabi) US$ 412m 28 years 85:15200 - 275Mubadala Calyon, Bank of Tokyo Mitsubishi UFJ, SMBC, Royal Bank of Scotland, BNP Paribas, First Gulf Bank Dec 2008 Queen Alia Airport (Jordan) US$795m 26 years 47:53175 Aeroport de Paris Management (AdPM), J&P Overseas, J&P Avax, Abu Dhabi Investment Company (ADIC), Engineering and Development Group, Noor Financial Investments Crédit Agricole Group, Europe Arab Bank, Natixis, Islamic Development Bank, IFC Nov 2007 Zayed University (Abu University) US$1 b 10 years 83: 10 with 7% Mez 290 – 395Mubadala Bank of Tokyo-Mitsubishi UFJ, First Gulf Bank, Crédit Agricole Group, Royal Bank of Scotland, SMBC and BNP Paribas Nov 2009 Source: IJ Online – Inspiratia - MEED

10 For presentation purposes: no reliancePage 10 Effectiveness of PPP Advocacy Decision Making Solid Business Case Operation ConstructionFeasibilityPlanning Concession granted Comments: Advocacy: Visioning for the Project Monitoring of the Concession Decision Making: Agreement to take into transaction phase based in market testing Selection of appropriate SPV Intervention when output specifications not delivered Solid Business Case: Determining the basis for private sector participation Engaging market for best price against service delivered (i.e. Value for Money) Delivery on outline case Procurement Commercial Close Financial Close

11 For presentation purposes: no reliancePage 11 Current strategies in various countries in the region Saudi Arabia No central PPP Unit (Municipalities) Projects closed in waste water and aviation Pipeline: IWPP, transport, city development Egypt Delivered projects in social, utilities, transport Decree No. 238 of 2011 Egypt’s PPP Law Pipeline: Healthcare, Ports Libya All infrastructure sectors PPP model being considered by new government Pipeline: Transport, healthcare, education, power, refineries Jordan Transport, however attempted using PPP on renewable projects Privatisation law in 2000 followed up by PPP regulations in 2008 Pipeline: water, transport Qatar PPP framework under development Healthcare, education, housing, IWPP Pipeline: Education, healthcare, housing, IWPP Kuwait IWPP, social and transport PPP Law, PTB Pipeline: Many PTB projects on hold Bahrain IPP/IWPP/ waste water Privatization committee Pipeline: Social housing UAE IPP/IWPP, Social, transport Abu Dhabi No PPP Legislative framework No defined pipeline Dubai PPP legislation in process Pipeline: Transport Oman Power and water (IPP/IWPP) Regulation comment Pipeline: Education, healthcare, housing

12 For presentation purposes: no reliancePage 12 Global Examples Australia Mature PPP market Pipeline projects in education and transport aligned to the commodity industry South Africa PPP Unit created in 2000 Potential PPP projects in healthcare, waste and water management to improve agricultural sector UK PF2 being rolled out Lack of clear pipeline of future projects, however rail and nuclear appear to be signature projects being carried forward India Political will for PPP and private sector participation is strong 1,965 total PPP projects up to 2011 Opportunities in transport sector Nigeria Closed deal on highway PPP PPP pipeline focused on transport and power (e.g. Lagos Airport) USA Total of 34 states (including Puerto Rico) possessing dedicated P3 legislation All Sectors,, however key sectors include transport (e.g. Chicago Midway Airport), social accommodation, and renewables Canada PPP model supported at both federal and provincial levels 33 operational PPPs Pipeline projects focus is transport Spain Mature PPP market with significant recent volumes of secondary market sales Pipeline projects in transport

13 For presentation purposes: no reliancePage 13 Partnership strategies for successful implementation of PPP Fund raising incentives Expropriation of private land Organization and legal framework Central PPP Unit Government equity stake in the SPV Subsidies e.g. interest accrued on loans Investment grants for construction Coordinating with financial institutions to provide medium/long term financing (i.e. refi-risk, subsidise accrued interest etc) Examples include Egypt Authorities covering changes in base rate but not margins Where necessary, authority expropriate land for use by the private investor Provision of infrastructure ready sites with plots enabled through connections to the utilities grid Examples include Dubai and Bahrain free zones Significant relaxation of regulatory impediments and restrictions Investment in public sector procurement authorities Transparent and consistent tendering process Examples include Kuwait’ Law 2007 with Dubai also drafting a PPP law Captures lessons learnt for future projects Consistent assessment and benchmarking of projects by Higher Committee Fair and transparent approach to procurement Examples include Kuwait’s Partnerships Technical Bureau (PTB) Ultimate form of risk sharing Enables control of the project through regular government intervention Examples include Omani IWPP transactions and latest Treasury advice from UK

14 For presentation purposes: no reliancePage 14 Questions?

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