Fifth Astana Economic Forum Dr. Anand Chiplunkar Director, CWUW Central and West Asia Department 22 May 2012

Outline 1. Pre requisites for mainstreaming PPPs 2.How to identify projects and create a pipeline? 3. How to develop projects? 4. Financing Options

MAIN STREAMING PPP PROJECTS

Needs Range of Interventions Transaction Advisors Advocacy, Capacity Development PDF / VGF Project Financing Project Development PPP Policies, Guidelines & Tool Kits Project Identification & Prioritization Model PPP documents PPP Mainstreaming

Facilitating PPPs Institutional Set-up (PPP Unit, RMU) Viability Gap Funding as needed Market Financing Facilities Capacity building and training Quality control and due diligence Standard PPP documentation Project pipelines and prioritization Review of PPP processes Grant Support to the Project Capital or O&M Grants Funding up to % of total project costs Long term debt funds Refinancing of bank loans Development of capital markets

Institutional Support is Critical  Dedicated Government PPP units are critical  Play multiple roles and act as Government focal  Upstream & downstream work need different skills  Use advisors but build internal capacity over time  Unit needs active relationship with stakeholders  Investors – understand appetite and terms  Advisors, other jurisdictions – learn PPP best practices  Ministries – develop buy-in and capacity  Critical to establish credibility with stakeholders

IDENTIFYING PPP PROJECTS FOR A PPP PROJECT PIPELINE

ADB Project Prioritization and Screening Projects Project Screening Prefeasibility study on private sector content and finance potential CPS / COBP cycle Project identification (based on CPS) Country Diagnostic Study Private + Public Finance Private Finance Projects Public Finance Project Development (Detailed Feasibility)

Target sectors and projects …  Which have Government buy in for PPP approach – sectors and projects  That have necessary legislation in place  Where private sector involvement offers large benefit  With several potential follow-on projects  Made attractive to investors – alternative investment options with stable cash flows

Creation of PPP Project Pipeline  Project Feasibility  Technical, legal, environmental, social  Economic viability  Economic benefits exceeding economic costs  Commercial viability  Returns exceed cost plus required return on capital  Affordability  Direct and/or contingent liabilities  Value for money assessment

 What is Value for Money?  Measure for efficient and effective delivery of public services  Best available outcome – taking into account all benefits, costs and risks over project life  Who (public/private) is best suited for improving quality and reliability of services at lower cost  Caution  Needs good public sector data for delivery of comparable services  Public investment gaps may warrant private sector investment anyway for economic growth Value for Money (VfM)

Lessons from PFI, UK  VfM related recommendation…  “…Value for money will be improved through officials being proactive in: collecting data to inform decision-making; ensuring they have the right skills; establishing effective arrangements to test, challenge and, if necessary, stop projects; and using commercial awareness to obtain better deals…”

DEVELOPING PPP PROJECTS

Track 1  Site Finalisation  Project concept  Procurement of Technical & Legal Consultant  Land acquisition issues  Contracts and Documentation – Bundling/ Unbundling Track 2  Proposal for complementary Project Funding from Identified Source(s) Project Preparation Government Pre- Clearances, Facilitation & Decision Making Project Development Process Govt Pre- clearances, Facilitation and Decision- making Project development process integrates the parallel steps Direct mailers Media release Establishing a Developer Network Facilitate Consortia formation Address concerns Marketing Expression of Interest Request for Qualification Request for Proposal Pre-Bid Proposal Evaluation Finalize Developer Finalize Agreements Developer Search

Project Bidding Selection of Operator/ Investors Procurement Development Identification Detailed Feasibility/ Structuring Project scheduling SPV formation A Continuous Process Monitoring Compliance with Performance std. Regulatory mechanism Auditing/Reporting Project Transfer Project Delivery Process Bankable Project Financing Structures Bidding Structures Contractual Frameworks Legal Documentation

FINANCING PPP PROJECT DEVELOPMENT AND INVESTMENT

Project Development Fund Setting up PDF Panel of Transaction Advisers Pilot Project Initiative Supporting project development costs Encourage transparent procurements Ensure well structured projects Enable fast access, provision of quality consultancy services Ensure transparency and Accountability Support entire cost of project development Ensures administrative push Hand-holding and advise to public entity Possible co- financing from IFIs and DFIs Consultancy services get enhanced country wide A set of Priority Projects taken as ‘PILOT CASES’ Activation of PDF Objectives Outcomes/ Impact

Pilot Cases  Best projects first – build momentum  Not too big, not too small  Strong revenue generation projects preferable  Government ministries and other stakeholders committed  Builds expertise and develops the PPP process

Financing PPPs  Debt  Commercial banks – usually short term, take out financing may be needed  Multilateral and bilateral development banks and finance institutions  Infrastructure bonds  Institutional investors such as pension funds – can come in after project commissioning  Equity  Private sector and Markets  Govt. may also take enabling equity commitment

Cofinancing and Guarantees  Cofinancing  ADB promotes cofinancing, defined as financing mobilized from sources other than the borrower or project sponsors to augment its own assistance  Funds from (i) commercial financial institutions, (ii) official funding agencies, and (iii) export credit agencies  Guarantees  ADB provides partial risk guarantees  Enables financing and also lowers cost of financing Cover commercial and/or political risks

Investor Considerations  Early success critical to establish a track record and attract investment  Government sponsored funds can play an important catalytic role (India, etc.)  Investors hate surprises - don’t launch until legal, institutional frameworks ready  Investors love “comparables” – copy successful PPP mechanisms where practicable  Investor base shifting from Europe to Asia

THANK YOU!