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The Greek Experience Providing Important Lessons for Road PPP Transactions in other Cohesion Fund Countries John Deighton Director, Private Finance Halcrow.

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Presentation on theme: "The Greek Experience Providing Important Lessons for Road PPP Transactions in other Cohesion Fund Countries John Deighton Director, Private Finance Halcrow."— Presentation transcript:

1 The Greek Experience Providing Important Lessons for Road PPP Transactions in other Cohesion Fund Countries John Deighton Director, Private Finance Halcrow Group Conference November 2006 Vilnius, Lithuania

2 Background Greece started the development of PPPs in the early 1990’s. Athens International Airport and Attiki Odos were the first two major PPPs. Since Attiki Odos, the Greek State has worked very hard to eliminate some of the early problems encountered. The current Greek Motorway PPP programme reflects this desire to improve the process.

3 Thessaloniki Tunnel Attiki Odos Greek Road PPPs

4 Halcrow has been involved in the following Greek PPP projects Attiki Odos Maliakos – Kleidi Motorway Thessaloniki Submerged Tunnel Corinth – Kalamata Motorway Ionian Motorway Corinth – Patras Motorway Either as Banks’ Technical, Banks’ Traffic or Sponsor’s Traffic Adviser

5 The lessons learned in Greece provide useful guidance to other EU Cohesion Fund countries considering PPP, such as Lithuania. This presentation provides some of the key lessons.

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7 Utilising Cohesion Funds We all know that we need good infrastructure to promote economic development. We also know that until there is economic development often the projects cannot be made economically viable. This creates a dilemma.

8 Attiki Odos

9 Attiki Odos Motorway

10 The PPP project was made viable by the injection of 33% of construction cost as a State Grant. 50% of this Grant was funded by the EU Cohesion fund.

11 Appropriate Risk Allocation The original Attiki Odos Concession Agreement had inappropriate Risk allocation. The negotiations to reach an acceptable balance of risk delayed the project implementation. The latest Greek Concessions include a process allowing risk allocation to be discussed during bid stage. The key lesson is that the Risk allocation should be appropriate from the outset.

12 Expropriation Delays

13 Archaeology Delays the Project

14 Delay in Power Cable Removal

15 Relocated Archaeology – A Success

16 Typical Risk Allocation PROJECT OWNER Expropriation Environmental Archaeology Permits Service Diversions SPONSOR Design Construction Weather Ground Conditions Financing

17 Involve the EIB at an early stage

18 EIB are focused on supporting EU projects such as Trans European Networks (TENS). EIB can provide advice on different financing structures. EIB is owned by EU Members – it is your money. EIB financing structures are evolving – do not assume what was valid last year still applies – check.

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20 Think ahead about Syndication Most projects require a number of Banks to participate through the Syndication process. The Lead financial centre for PPP is London. Although documents should be prepared in the language of the country of project delivery, consider from the outset having all documents also in English, the language of the PPP Banks. This investment, at an early stage, will pay dividends later in the process and enhance the attractiveness of the project to Bank investors.

21 Avoid Legal Challenges to the award of the Project Greece used to award Concessions on a Quality – Price basis. This led to Legal challenges on the Quality marking. Competence now only considered at Pre-qualification stage. Concession Tenders now assessed purely on tender Financial model and on the lowest NPV for Operation subsidy required by the bidder. Approach significantly mitigates risk of Legal challenge to the award of the project.

22 Why PPP ? In Greece they originally used Cohesion Funds to build Motorways under Traditional Procurement Result was Design & Construction was awarded on lowest bids No consideration of whole life cost in design Delays, cost overruns, claims, often poor quality work Serious concerns expressed by the Cohesion Fund Brussels imposed international project management Ongoing maintenance delegated to Municipalities through which motorways ran but no extra money. Result – Little or no maintenance

23 Why PPP ? Attiki Odos changed the Greek Approach. Contractors appreciated they were responsible for 23 years Quality significantly improved Whole life costing considered in the Design Investments made in construction to reduce Operation costs Operation carried out in line with highest European standards Ongoing maintenance financial obligations “ring – fenced” in the Financial model Stringent asset hand back provisions at the end of the Concession And provided a way of delivering the project financially with limited state funding Now adopted for all Motorway programme

24 Traditional Procurement £ t Capex Operating & Maintenance Costs This is what is supposed to happen

25 Traditional Procurement £ t Capex Operating & Maintenance Costs This is what actually happen s Cost & time overrun s

26 PPP Costs £ t Capex Operating & Maintenance Costs

27 Lenders Letter of Support with Bid After the delays in closing the Attiki Odos transaction, the Greek Government now require a Lenders letter of Support to be submitted with the bids This letter indicates that should the bidder be successful there will be no commercial arguments on financing the transaction and due diligence has been carried out on the project.

28 Advantages Faster process to Financial close, commencement and project delivery Tests project bankability Due Diligence check on Bidders model assumptions prior to bid Minimises State – Bidder negotiations after award

29 Disadvantages If there are delays between bid and award market conditions may change, successful bidder may be able to secure better terms than his contract with Lenders who supported its bid. From real experience Bid stage Due diligence is a nightmare – information is always provided late – need to shadow the bid team – and everything changes in the last 24 hours prior to bid submission! Notwithstanding this, it looks like Letter of Support is now the way of the world in PPP transactions.

30 State Project Management State project management is an essential ingredient. The State needs a suitably qualified and experienced team to manage the Risks and administration allocated to it under the Concession Agreement. Needs a powerful leader focused on ensuring that the obstacles to the success of the project are removed in the least possible time.

31 State Leadership The Leader should not be politically appointed. The Leader should command the respect of all political parties. This mitigates the risk of State culpable project paralysis in the event of elections leading to a change of government. This mitigates the damage to State PPP credibility and the financial contractual cost caused by change of project leadership.

32 State Project Management State team need to actively manage: Expropriation Permits Archaeology Services relocation Interfaces with other adjacent projects e.g. Railways & Metros And all the other State stakeholders affected by the project such as other Ministries, Municipalities, elected representatives, Public Utilities. Although it will be inevitable there will be State culpable delays, good State project management can keep these delays to a minimum !

33 It is not just about construction ! Just as a PPP is about the whole life of a Project Construction + Operation. The State Project Management team should be established for the whole life of the project Construction – Operation. State Project Management during Operation is very important.

34 FINAL LESSON FINALLY IF YOU WANT A REAL CHALLENGE THEN PUT YOUR NAME FORWARD FOR…

35 Olympic Games An immovable Deadline 13/8/2004 Attiki Odos completed 24/6/2004 Just in Time !

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42 Contact details John Deighton Director, Private Finance Halcrow Group Burderop Park SWINDON Wiltshire SN4 0QD United Kingdom Tel +44 (0) John Deighton, Director of the International Project Finance Association

43 The industry’s only international, independent, non-profit making organisation dedicated to promoting and representing the interests private sector companies involved in Private Finance Initiative’s (PFI), Public Private Partnership’s (PPPs) and project finance for major infrastructure projects in the world. Visit us at For all of the latest industry news, articles and reports from around the world Contact: Rachel Dawes Head of IPFA Services International Project Finance Association Tel: +44 (0) Fax: +44 (0)


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