Private Sector Expectations

1

• Private Sector Expectations
• In the PPP project structure

2
To make project attractive to the private sector
(1)

• PPP project must be in line with strategic public
  sector goals
• Unquestionable necessity of the project
• Political approval by cross-parties
• Analysis of alternative schemes and PPP scenarios
  shows better value for money than traditional
  methods
• Qualified approach to potential partners

3
To make project attractive to the private sector
(2)

• Good information to all parties (public and
  private) that may be concerned
• Equal conditions of access to project information
  to all prospective bidders
• Strong Institutions with appropriate resources
• Mitigation and flexibility in managing macro-risks

4
Problems with the PPP process

• Lack of legislation and laws governing PPP
  process and protecting both partners
• Lack of knowledge and approval of the process by
  the civil service
• Inappropriate project selection
• Poorly prepared project
• Private partners interests and risk mitigation
  are not taken under consideration
• Lack of effective public marketing of the PPP
  projects
• Absence of alternative analysis
• Inappropriate risk sharing

5
Private partners expectation

• Fair return
• Compensation for assumed risk
• Risk mitigation mechanism
• Clear legal and regulatory structure
• Ongoing dialogue and involvement of the public
  sector
• Political stability
• Political support

6
Lenders expectations

• Thorough financial analysis
• Conservative cost and revenues assumptions
• Guarantee of state funding and/or support
• Clear legal regulatory structure
• Technical ability of the private partner
• Political stability

7

• Risks implication
• in PPP projects

8
Unavoidable Risks

• Ideological differences between Public and
  Private partners
• Public sector focused on public goods
• Private sector focused on profitability
• Project specific risks
• Lack of flexibility

9
Avoidable Risks

• Unfair competition during the bidding process
• Unclear partner selection procedure
• Inadequate Risks and Liabilities transfer
• Sustainability of profits
• Loss of control by the public sector
• Public resistance
• Develop simple and common communication
  language between partners

10

• Selected mechanisms
• of Risk Mitigation

11
Revenue guarantee

• Failure to achieve the minimum revenue level
  triggers compensation from the public sector.
  Often the lower limit is set with an upper limit
  to mitigate risk for the public sector (i.e. the
  private sector does not get to have downside
  protection along with unlimited upside potential)

12
Modification of the contracts economic balance

• The goal is to re-establish economic balance of
  the concession when IRR is below a minimum IRR
  stipulated in the contract. Compensation can
  include changes in toll or charge levels,
  adjusting contracts lengths, public subsidies.

13
Contract duration

• This matches contract duration to the pre-defined
  revenue target. If full revenue is realized
  earlier than planned, the concession will end
  earlier. When revenue is lower than planned the
  concession will end later. This evens out the
  risk profile of the project. Both the
  concessionaire and public bear the risk of higher
  or lower than projected revenues. This also
  reduces the risk of hard-to-forecast revenue
  streams in certain sectors.

14

• Thank you
• Wojtek Ksiazkiewicz
• SEE Business Advisory Council (BAC)
• Email wojtek.ksiazkiewicz_at_snclavalin.com