EBRD 25th September 2009 Sarajevo Public-Private Partnership in developing municipal infrastructure EBRD 25th September 2009 Sarajevo 1

Agenda Introduction to the EBRD PPP – definition and rationale EBRD EBRD Experience in PPPs

Introduction to EBRD International financial institution, promotes transition to market economies in 27 countries from central Europe to central Asia Owned by 62 countries and two inter- governmental institutions including countries of operation Capital base of €20 billion

Introduction to EBRD Mandated to finance projects in Central and Eastern Europe and former Soviet Union AAA rated by Moodys and Standard & Poor’s Provides debt and equity financing to state and private projects >London headquarters >30 Resident Offices in 27 countries

EBRD Differs from Commercial Banks Mandate to foster transition from planned to market economies The EBRD promotes environmentally sound and sustainable development in all its activities Can finance projects without bank guarantees or sovereign guarantees Willingness to try new products/structures Broad market knowledge

Municipal and Environmental Infrastructure MEI Investment Portfolio MEI covers all forms of PPP related to municipal infrastructure: Water/Wastewater Solid Waste Urban Transport District Heating

Selected Water and Wastewater Projects Zagreb Waste Water Treatment Plant Croatia €55.2 million syndicated loan December 2001 Construction and operation of wastewater treatment plant Tallinn Water Limited Privatisation Estonia €31 million syndicated loan October 2001 Partial privatisation of AS Tallinna Vesi Sofia Water System Concession Bulgaria €31 million syndicated loan December 2000 Privatisation of Sofiyska Voda Brno Waste Water Treatment Plant Czech Republic €47.5 million syndicated loan December 1999 Operation wastewater treatment plant Maribor Waste Water Concession Slovenia €14.8 million loan April 1999 Construction and operation of wastewater treatment plant Budapest Wastewater Services Privatisation Hungary €13.1 million equity investment December 1998 Partial privatisation of waste- water services companies St Petersburg South-West Wastewater Treatment Plant Russian Federation €105 million loan November 2002 Construction and operation of wastewater treatment plant Apa Nova Water Treatment Plant Romania €188.4 million loan December 2002 Modernisation of the Crivina Treatment Plant

How do we Define a PPP? A PPP is a contractual agreement between a public agency (i.e. municipality) and a private entity Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public Each party also shares in the risks and rewards potential in the delivery of the service and/or facility Agreements between the public and private entities differ in their allocation of risks and responsibilities, in the ownership of the assets and their duration

Main Options for PPP and Degree of Risk Transfer Privatisation Build-Operate-Transfer Concession Degree of Private Sector Risk Lease Management Contract Design-Build Government Degree of Private Sector Involvement

PPPs in Transition Economies PPPs meet the transition test Utilisation of the private sector Transparency and competition Priority infrastructure investments Efficiency and lower costs (public sector comparator)

Typical Concession Structure Government Concession Contract Loan Agreement Concessionaire Equity Shareholders Construction Contract Operation Contract Contractor Operator

Pros and Cons of Different PPP Structures Service Contract Management Contract Lease Concession BOT Description Private sector performs specific service. Public sector remains responsible. Operation and maintenance of utility transferred to private sector. Private sector leases assets of utility and operates and maintains them. Private sector has right to use assets, and responsible for operation, maintenance, and investments. Public sector owns assets. Private party builds and owns asset, then transfers it to public sector. Pro Private sector expertise for technical tasks. Public sector keeps control. Allows improvement in management and cost control. Prepares for greater private involvement Strong incentive for private sector to perform. Prepares for greater private involvement Passes full responsibility for operations and investments to private sector. Wholly private funding. Con No private sector investment. Limited risk sharing. No private sector investment. Little incentive to reduce costs and improve services. No private sector investment. Administratively demanding on public sector. Limited to stable political and economic contexts. Lengthy process and high development costs.

How are PPPs in EU Markets Evolving? Time (Years) 9 Widespread Use of PPPs Spain 7 Czech Rep Hungary Greece Poland Slovakia Some Projects Implemented Slovenia Romania Bulgaria 5 Italy Croatia Estonia Pathfinder or Single Projects Latvia Lithuania Russia Ukraine Kazakhstan 4 Interest Kyrgyz Rep Albania Bosnia/Herz FYR Macedonia Belgium Serbia/Montenegro 2 Belarus Moldova Armenia More difficult Azerbaijan Georgia Tajikistan Turkmenistan Uzbekistan

Water supply and wastewater treatment Investment challenges Meeting EU water and wastewater standards Need to increase investments in maintenance and asset renewal Improve water supply standards Improve collection and treatment of sewage Improve operational and financial performance of municipal water and sewerage companies EBRD water and sewerage Projects

EBRD in waste management projects Investment challenges Meeting EU waste standards Efficiency and frequency of collection of waste Improve adequacy of waste disposal Prevent groundwater contamination due to inadequate treatment of leachate Need to organise waste management systems EBRD is experienced in structuring waste management projects

EBRD in urban transport projects Investment challenges Key factor in promoting economic growth Rehabilitation of public transport in urban areas and need to replace ageing and operating equipment Improve financial performance of transport operators to allow access financing Need to introduce public service contracts between transport authority and operator Investment in public transport needed to counter the negative effects of rapid motorisation

EBRD offers Several Financing Structures EBRD will structure each product according to project needs Limited or non-recourse project financing to public or privately-owned project companies; senior or subordinated debt Loans Equity From pure to portage equity in project company Various forms of leveraged leasing structures for creditworthy entities Leasing Partial guarantees Partial risk, credit and specified event guarantees

EBRD investment selection criteria Financial, economic, legal and technical viability Creditworthiness of borrower, sponsors and guarantors Project would need to contribute to structure and extent of markets, institution building, and/or market-based skills and innovation Legal framework would need to allow PPP arrangement and enforceability of contracts Technology would need to be appropriate for site and service/performance required

Some Lessons What our experience has taught us… Establish Dedicated Team Realistic Expectations Financial and Contractual Basis Motivation of Public Sector to “champion” commercially oriented approach Understand “user pays” and “cost recovery” concepts Accept possible need for tariff adjustments Establish clear project parameters up front Establish all timing obstacles

Contact details Giulio Moreno Davor Inđić Principal Banker Zagreb Resident Office Miramarska 23/111, 10000 Zagreb Tel: +385 1 6000 310 Fax: +385 1 6197 218 e-mail: indicd@ebrd.com Head of Sarajevo Resident Office Unitic Towers, 15th floor, Tower B Fra Andela Zvizdovica 1, 71000 Sarajevo Tel: +387 33 667 945 Fax: +387 33 667 950 E-mail: morenog@ebrd.com