Experience with PPP projects in Europe Vilnius 22th November 2006

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Experience with PPP projects in EuropeVilnius
22th November 2006

• Dr. Christian Kummert, DEPFA BANK plc

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Advantages and disadvantages of PPPs
from a public sector perspective
Advantages - Risk transfer to private sector
- Date and cost certain - Efficiency and
cost advantages - Off budget - Operator Know
How - Output- and not input
focussed Disadvantages - loss of public sector
control - increased financing costs -
availability of administrative resources -
limited competition over concession period -
economic focus of private investors
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PPPs in Europe
Experience
Long track record
First projects closed
Projects in tender or preparation
No experience
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PPPS in Europe
Pipeline (as of summer 2006)
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PPP Structures
Traditional Structure
Public Authority
Sponsors
Banks
Concession Agreement
Loan Agreement
Equity
Project Company
O M - Contract
Turnkey- Contract
Insurance
Operator
Construction Consortium
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Germany
Purchase of Receivables
Special Purpose Company
Purchase Price NPV of future payments
Concession
Fixed payments
Bank
Purchase of future receivables
Approval Supervisory Authority
Municipality
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Portugal
Hospital Schemes
Portuguese State
Concession
Contractor
Turnkey Construction Contract
Medical Equipment
Supplier
InfraCo
CliniCo
Interface Agreement
FM Contract
Operator
Senior Debt
Equity/Subdebt
Banks
Shareholders
8
Denmark
Oeresund-Crossing, Market Entity-Approach
Denmark
Sweden
50
50
Garanties
SPV ( Market Entity)
User
Lenders
Debt
Toll income
Contracts
Construction
Operation
Maintenance
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Project Risks
Risk Allocation
Risk Allocation in School PFI
Risks Public Project Turnkey OM
Banks Sector Co Contractor
Contractor Planning v v Inflation
v Change of Law v v Insurance
v v Construction v Operations
v Maintenance v Volume / Demand v
v Force Majeure v Termination v v
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Road PPPs
Payment Schemes
Full Toll Shadow Toll Availability Payment Toll
Payment by User by Government by
Government Traffic Risk traffic flow less
traffic flow more no traffic risk predictable pr
edictable Performance no additional penalties sop
histicated Risk penalties possible deduction
schemes Public Sector - no exposure - financial
exposure - financial exposure - low acceptance
- optimal use - optimal use - strong
control Application - few intersections -
many intersections - many intersections - high
traffic - low traffic - political
motivation
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Road PPPs
Banding Structure
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Road PPPs
Cash Flow Profile of Shadow Toll Road
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Road PPPs
Availability Payment Structure A13/UK
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Lenders Requirements
Mitigation of Construction Risks

• Experience Contractors
• Buffer in construction schedule (working shifts,
  winter break, etc.)
• Completion buffer (Construction Contract versus
  Concession Agreement)
• Joint and several liability of turnkey
  contractors
• Completion guarantee by contractors/sponsors
• Liability caps of contractor
• Liquidated Damages for delays in completion
• Advance Payment Bond, Retention Bond, Performance
  Bond
• Warranty periods
• Direct Agreement with Turnkey Contractor

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Lenders Requirements
Cash Flow

• Annual Debt Service Coverage Ratios (ADSCR)
• Loan Life Coverage Ratios (LLCR)
• Project Life Coverage Ratios (PLCR)
• Debt/Equity Ratios
• Concession Tail
• Sensitivities (in particular break even
  scenarios)
• Repayment Profile (annuity, sculpted, ballon,
  bullet, cash sweep)
• Reserve Accounts (Debt Service Reserve Account,
  Major Maintenance Reserve Account)