1. Ministry of Finance The Division of PPP Projects Public Private Partnership Division Inbal Insurance Company Ltd. September 2011 PPP projects in Israel

2. Ministry of Finance 2 The Division of PPP Projects Vision  Investments in infrastructure would enable to sustain Israel’s economy growth  Private sector’s involvement would improve level of government’s supplied services  Optimizing risk allocation between the public and the private sectors would contribute to public wealth

3. Ministry of Finance 3 The Division of PPP Projects Industries under Focus  Railroads/Mass Transit Systems  Roads  Water desalination and sewage treatment  Construction  Energy (IPP; LNG; Solar) The government has decided to focus primarily on the following industries:

4. Ministry of Finance 4 The Division of PPP Projects PPP PPP/PFI – Major issues PPP/PFI – Major issues PPP/PFI In Israel PPP/PFI In Israel

5. Ministry of Finance 5 The Division of PPP Projects Governmental body Authorities Involved Along the Process Inter-Ministerial Tender Committee Inter-Ministerial Tender Committee The Tender Steering Committee Designated Company Concession Agreement Management Ministry of Finance Relevant Government Ministries Inbal – The Division of PPP External Consultants WDA, JPTA, CTA Cross Israel Highway, Tel Aviv Mass Transit

6. Ministry of Finance 6 The Division of PPP Projects Contractual Framework (Limited or Non-Recourse Structure) Government Project vehicle (SPC( Operating Agr. (O&M ( Construction Agr. (EPC) Lender(s) Financial Facility Sponsor(s) Equity

7. Ministry of Finance 7 The Division of PPP Projects Project Feasibility Study Project is economically feasible Project meets PPP/PFI criteria Phase 1 - economic feasibility study: Cost/benefit analysis Phase 2 - prior to and during tender process Phase 3 - decision & implementation No Yes Project will not be implemented Public sector implementation using alternative method החלטת ממשלה Analyzing the bids compared to the PSC Yes Signing a concession agreement & Controlling its execution Business environment fits PPP/PFI No Yes

8. Ministry of Finance 8 The Division of PPP Projects PPP/PFI – Pros & Cons Pros  Long term project Integration  Optimal Risk Allocation and thus better risk mitigation  Efficient use of property (extra revenues)  Sustain economic growth  Privatization  Improvement of market competition  International experience & know- how  Implementing advanced methods & technology Cons  High Cost of tender process  Financial Costs  Private sector’s control over Government Property  Budgetary constraints

9. Ministry of Finance 9 The Division of PPP Projects Typical Risk Allocation Optimal Risk Allocation – each sector is responsible for the risks he can better mitigate SharedPrivate PublicRisk Technology Land acquisition & Expropriation Detailed design Cost overruns Completion delay (mainly Public) Archaeological findings O&M costs Collection risk Force Majeure Discriminatory change in laws and legislation Political risk Market/Demand risk

10. Ministry of Finance 10 The Division of PPP Projects Typical PPP/PFI project Time Frame Excluding legislative related delays Project stageme Frame (Months) Project stage Time Frame (Months) Appointing Tender Committee/Consultants 1 PQ Documents 3-4 Bidding the PQ 3 List/Short List after PQ 1 Tender documents 2 Bidding of Tender 4-6 Tender process1-2 Best & Final 1-2 Sub Total16-20 Financial close 8-12 Total 24-32

11. Ministry of Finance 11 The Division of PPP Projects Improvements in the Tender Rules Changes and improvements in the Tender Rules in order to facilitate the implementation of the projects: to facilitate the implementation of the projects:  Unified accounting principles (based on IASB).  Easing of tax treatment  Interest rate changes protection  Various indexation and protection options in accordance, to risks at the different project stages Steps to encourage institutional investors to participate in the PPP financing Steps to encourage institutional investors to participate in the PPP financing :  Indicative Rating to the projects (by Israeli rating co.)  Refinance option after Construction phase

12. Ministry of Finance 12 The Division of PPP Projects Encouraging foreign Participation Why foreign participation is needed? Single borrower limitation (15%)Single borrower limitation (15%) Low competition (2 major banks)Low competition (2 major banks) –Equity: NIS 54B for the big 5; NIS 37B for the big 2. –ROE: 13.1% - 22% (9/2006 - big 5) 7-8 major groups participating in all government projects7-8 major groups participating in all government projects Improvements in order to facilitate the participation of foreign bidders and foreign Lenders:  Foreign interest rate changes protection.  Foreign currency changes protection.  Various indexation and protection options in accordance, to risks at the different project stages  Payments to Concessionaire in foreign currency

13. Ministry of Finance 13 The Division of PPP Projects Foreign Entities participation Technical Know-How  Bring professional expertise and experience.  Bring advanced technologies.  Bring more efficiency in the planning and execution of projects.  Improving the capability of Israeli entities. Investment  Partnership between Israeli and foreign entrepreneurs.  Enlargement of foreign investments.

14. Ministry of Finance 14 The Division of PPP Projects Foreign Entities Involvement Financing  Israel’s sovereign rating ( A – A + ) attractive for international finance entities.  Improvements in Tender Rules encourages foreign participation : financing in USD / Euro with interest rate protection, various indexation protection at the different project stages.  Help to enlarge number of financing entities (single borrower limits for Israeli banks).  Stimulate competition – reduce financing costs  Offer new financing tools and solutions

15. Ministry of Finance 15 The Division of PPP Projects PPP PPP/PFI – Major issues PPP/PFI – Major issues PPP/PFI In Israel PPP/PFI In Israel

16. Ministry of Finance 16 The Division of PPP Projects Volume of Operation by Sectors Construction costs Transport: $ 6.3 billion Water: $ 2.0 billion Construction: $ 0.3 billion Energy : $ 1.4 billion Total $ 10 billion

17. Ministry of Finance 17 The Division of PPP Projects Railways Cross Israel Highway (H-6) Carmel Tunnels Roads No 431 + 531 Fast lane Desalination facilities Prison, Police National Academy Solar Plants, LNG Main PPP Projects in Israel LRTs Army Training Basis City

18. Ministry of Finance 18 The Division of PPP Projects Status of PPP Projects Foreign Entities Involvement StatusTransportation Projects Both in the operation and in the financng of the project. In operationCross-Israel Highway - Central Section Financing of construction phase: HSBC (together with 3 Israeli banks) In operationHighway 431 Both In the operation part and in finance part Construction – work began in June 2007 and is expected to be completed by September 2009. Cross-Israel Highway – Section 18

19. Ministry of Finance 19 The Division of PPP Projects Status of PPP Projects Foreign Entities Involvement StatusTransportation Projects “Siemens” is a subcontractor responsible for the unique toll system Construction – Construction work began in August 2007 and is expected to be completed by the first quarter of 2010. Tel Aviv and Jerusalem Fast Lanes A French company (“ALSTOM”) holds 20% share in consortium Construction – Construction work began in August 2006 and is expected to be completed by the third quarter of 2010. Jerusalem LRT “Siemens” is part of the concessionaire. Financing of construction phase: RBS, Bayerische LB, KFW Financial Closing – expected to be completed in April 2009. Tel Aviv LRT

20. Ministry of Finance 20 The Division of PPP Projects Status of PPP Projects Foreign Entities Involvement StatusTransportation Projects A Chinese company (“CCECC”) is involved in the tunneling works Construction –work began in November 2006 and is expected to be completed by the end of 2010. Carmel Tunnels Financial Close –to be completed in July 2009. Highway 531

21. Ministry of Finance 21 The Division of PPP Projects Cross Israel Highway 531 Tel Aviv Ayalon HW-20 Geographic location: The ring roads around the Tel Aviv metropolitan area : North - 531 East - Cross Israel (Hw 6) South - 431 West - Ayalon (Hw 20) 431

22. Ministry of Finance 22 The Division of PPP Projects Status of PPP Projects Foreign Entities Involvement Status Desalination Projects A French company (Veolia Water ) is part of the consortium(50%) In operationAshkelon (100 m 3 /year) In operationPalmachim (30 m 3 /year) Financing of the project : Calyon Bank, EIB, Espirito Santo Bank, Dexia Bank, KFW. Construction - construction of the facility will be completed by the end of 2009. Hadera (100 m 3 /year) Foreign companies are part of bidding groups RFP released in January 2009. Proposals to be submitted in June 2009 Sorek (150 m 3 /year)

23. Ministry of Finance 23 The Division of PPP Projects Development of sea water desalination plants in Israel along the national system (100) (30) (100) Tendering stage Full production Since 12/05 Construction phase. Production at 12/09 (150) Sorek Full production Since 9/07 Tendering stage Hadera Palmachim Ashdod Ashkelon

24. Ministry of Finance 24 The Division of PPP Projects Status of PPP Projects Foreign Entities Involvement Status Energy Foreign companies are part of bidding groups.  RFP for 2 Thermal power plants released in March 2009  PQ for Photovoltaic plant expected to be released in April 2009. Solar Power Plants in the Negev Desert PQ to be released pending Government approval. LNG

25. Ministry of Finance 25 The Division of PPP Projects Status of PPP Projects Foreign Entities Involvement Status Construction Projects The operational company is going to be foreign Construction - construction of the facility will be completed by June 2009. Beer Sheva Prison In operationCourts, Government Center Parking Lot, Knesset expansion Foreign participant part of bidding group. PQ –bids were submitted in June 2008. RFP expected to be released in Q3/09 Training Center for The Israeli Police PQ – bids were submitted in December 08. RFP expected to be released in Q2/09 Ashdod Hospital

26. Ministry of Finance 26 The Division of PPP Projects Expected additional Projects  Additional Roads & LRT lines (Tel-Aviv) including T/K & Build/Design projects  Additional Desalination Facilities  Hospitals (Including hotels, parking areas, shopping malls)  International Airport in Megido  Education (school PFI) Peace Corridor  An international airport and the Peace Corridor projects (Coordination with Jordan)  Additional renewable energy projects  Protection of the Environment ( a committee has been appointed to make a preliminary study of potential projects )

27. Ministry of Finance 27 The Division of PPP Projects Thank you for your attention

28. Ministry of Finance 28 The Division of PPP Projects Contacts Mr. Abraham Tenne Head of Desalination Division and chairman of the WDA Tel : 972-3-6369688/676 Mobile : 972-50-6221342 E-mail :abrahamt@water.gov.il