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Prespectives in financing PPP Projects in Transportation sector

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Title: Prespectives in financing PPP Projects in Transportation sector


1
Prespectives in financing PPP Projects in
Transportation sector
Istanbul, November 2012
2
Transport Finance
  • Historically budgetary resources from the
    governments have been the major source of
    financing for infrastructure such as
    transportation projects.
  • However, growth in the traffic requires
    continuous investment and improvement in the
    transportation network.

3
Difficulties of Transport Finance
  • It requires large and long-term investment of
    capital, (i.e.construction, maintenance, overhead
    expenses)
  • Financing through state budget is not only costly
    but also cumbersome
  • Long procurement procedures create delays and
    cost overruns
  • Private sectors interest is low due to the
    complexity of the sector and long payback period

4
How does PPP work
  • PPP is a generic name for long term contracts
    between private and public sector where public
    and private resources are posted and
    responsibilities are divided so that the partners
    compliment each other.
  • It takes several forms like
  • BOT
  • BOO
  • Joint Venture
  • Leasing
  • Operation or Management Contracts

5
Why PPPs
  • Governments prefer PPPs
  • To avoid financing large capital costs directly
  • To deliver such projects without cost overruns
    encountered in public procurement
  • Private sector brings sharp business focus and
    expertise in the project

6
Why PPPs
  • PPPs also
  • Facilitate the project to be implemented on time
    and within budget.
  • No service / no pay principle ensures that the
    private partner is incentivized for timely
    delivery and operation of project assets.
  • Better overall governance by private sector
    entities.

7
Why PPPs
  • Under PPP contracts, commercial and technical
    risks such as construction, operation,
    maintenance, traffic revenue, land acquisition,
    permit / approval, force majeure, political
    risks, and toll collection risks are shared
    between the concessionaire and the granting
    authority.
  • Governments need to provide inducements,
    guarantees, and subsidies to privatize and
    support development of transport systems

8
Public Involvement is required because of
  • Rate of return maybe inadequate for private
    sector
  • There might be significant positive or negative
    externalities that require control and regulation
  • Long term financing may not be available
  • Such projects are usually smaller parts of
    integral perspectives

9
How does PPP work
  • The specifications of the project are decided by
    the public entity
  • The SPV has the right to build and operate the
    assets for a specified time period
  • SPV is a private entity, which borrows the funds
    needed, constructs and purchases the assets, and
    is then paid by the public sector client to
    operate the assets as agreed under a contract.

10
How does PPP work
  • However depending on the cash generation of the
    project, the payments may flow the other way
    around, (from the Concessionaire to the Public
    Entity)
  • The public entity starts paying once the assets
    are fully operational, can withhold or reduce
    payments of the SPV fails to meet the agreed
    specifications.
  • Payments from clients are used to remunerate the
    SPVs borrowings, pay the operator, and residual
    profit goes to the shareholders of the SPV.

11
How does PPP work
  • Normally 20 to 30 years.
  • During the contract period assets are owned by
    the SPV.
  • At the end of the PPP the assets are transferred
    to the public entity.
  • Financiers lend directly to the SPV.
  • SPV shareholders may provide some guarantees to
    the lenders through their mother companies.
  • The government body provides certain comforts to
    the lenders like minimum tarrifs, minimum traffic
    levels etc.
  • Step-in rights given to lenders are important
    components of PPP agreements

12
In typical PPP projects
  • The private partner takes design, construction,
    operation, maintenance and financial risks
  • The public partner takes legal, political and
    environmental risks.
  • The demand and revenue risks are usually shared
    between the partners.

13
Transport PPPs in European Market
In the European PPP market, in 2011, out of 66
projects, transportation represents more than
half of the volume
Healthcare 3
Housing, energy etc. 2
Education 6
Environment 14
Public order and Safety 12
Transport 58
General Public Services, 11
Source EPEC PPP database
14
PPPs require
  • Since public interest is involved
  • There should be political consensus on the
    project
  • The project should have positive economic rate of
    return, and sound economic and developmental
    basis
  • Creation of necessary policy and legislative
    basis, so that it permits PPP initiatives at
    national and municipal level (especially
    regarding step-in rights)
  • Legislation needs to be clear and consistent and
    flexible

15
PPPs require
  • The deliverables should be clearly defined, the
    realistic cash-flow projections should be made
  • The projects should be assessed within the
    framework of the overall transport infrastructure
    of the country
  • Public subsidy and public funding should be
    determined as it will be necessary to cover the
    costs
  • As safety and technical aspects are crucial, all
    parties involved should have necessary expertise
    and competence to discharge their
    responsibilities
  • PPP contract should be clear, fair, unambiguous
    and comprehensive.

16
Black Sea Trade and Development Bank
  • Started operations in 1999
  • A regional development bank
  • Authorized share capital SDR 3.0 billion
  • Provides financing for public and private
    investments including PPPs in the shareholding
    countries
  • Headquarters in Greece (Thessaloniki)

17
Black Sea Trade and Development Bank Shareholders
  • Shareholders of the Black Sea Trade and
    Development Bank (BSTDB)
  • Albania
  • Armenia
  • Azerbaijan
  • Bulgaria
  • Georgia
  • Greece
  • Moldova
  • Romania
  • Russia
  • Turkey
  • Ukraine

BSTDB
18
Priority sectors
  • Transport
  • Municipal infrastructure
  • Telecommunications
  • Energy
  • General Industries

19
BSTDB Financing Transport Infrastructure
  • No concessional lending
  • Financing through
  • Direct senior loan
  • Co-financing
  • Syndication
  • A/B Lending
  • Technical Assistance Fund

20
Medium and Long Term Loans
  • Amount
  • For sovereign and sub-sovereign loans no ceiling
  • For private entities maximum EUR 40 million,
    minimum EUR 5 million
  • Maturity
  • Maximum 15 years, exceptionally longer
  • Decided on a case-by-case basis
  • Grace period normally up to 4 years
  • Flexible pricing policy

21
What has BSTDB achieved so far? (signed
operations)
  • TOTAL EUR 2.065 million

Project and corporate finance EUR 1.156 million
SME finance EUR 700 million
Trade finance EUR 125 million
Equity EUR 61 million
uarantee EUR 23 million
As of end October 2012
22
Financing Provided by sectors
Mining
2
Mining 1
Construction 2
Telecommunications 5
Services and Real Estate 3
Public Utilities and Transport 11
Financial institutions
Financial Institutions 44
35
General Industries
Manufacturing 21
Energy 13
Energy
17
23
Financing Provided Examples Adana Light Rail
Transportation System
  • Scope of the operation
  • Construction of 13.6 km bi-directoral light
    rail system for inner-city transportation under a
    turn-key contract.
  • Total Project cost USD 667 million
  • BSTDB participation USD 45 million
  • Maturity 10 years

24
Financing Provided Examples Adana Light Rail
Transportation System
  • Borrower Adana Metropolitan Municipality
  • Guarantor 95 sovereign guarantee
  • Co-Financiers Several ECAs and international
    commercial banks like SEB, ING, UBS, Nordic
    Investment Bank, Societe Generale, West LB and
    Vakifbank
  • Contracters ABB, Bombardier and Alarko

25
Financing Provided Examples Istanbul Metro
Otogar Olympic Village Line
  • Scope of the operation Extension of the
    existing metro system between Otogar Bagcilar
    and Olympic Village with 17.6 km long
    double-track system
  • Total Project cost USD 532 million
  • BSTDB participation USD 21 million
  • Borrower Istanbul Electric Tramway and Tunnels
    Administration
  • Guarantor Istanbul Metropolitan Municipality
  • Co-Financiers Several international banks and
    ECAs
  • Contracters Gulermak Dogus Consortium
  • Maturity 8 years

26
Financing Provided Examples Istanbul Metro
Kadikoy - Kartal Line
  • Scope of the operation Construction of a
    double track system metro line of 21,020 m. to
    serve seventeen stations along the D-100 highway
    between Kadikoy and Kartal
  • Total Project cost EUR 751 million
  • BSTDB participation EUR 50 million
  • Borrower Istanbul Metropolitan Municipality
  • Co-Financiers Other Club banks Fortis, Dexia,
    Calyonbank, Societe Generale, Unicredito, West
    LB, Vakifbank
  • Contracters Astaldi Makyol Gulermak Joint
    Venture
  • Maturity 10 years

27
Financing Provided Examples Ukrainian Railways
  • Scope of the operation Syndicated medium term
    loan facility for general corporate purposes,
    including renovation of rolling stock,
    modernization of track, upgrade and renovation of
    railway stations, depots and bridges
  • Total Project cost USD 300 million
  • BSTDB participation USD 36 million
  • Borrower Several Ukrainian State Railway
    Enterprises
  • Guarantor State Administration of Rail Transport
    of Ukraine

28
Financing Provided Examples Port of Poti
Oil Terminal
  • Scope of the operation Building a new
    terminal in Port of Poti, which is the least-cost
    export route for oil products from Caspian Sea to
    the black Sea, for trade of oil products between
    Caspian and Mediterranean countries
  • Total Project cost USD 33 million
  • BSTDB participation USD 10 million
  • Borrower Channel Energy Ltd (Georgia)
  • Sponsors Tower Holdings (Luxemburg), Delta
    Petrol Group (Turkey)
  • Other Financiers EBRD with USd 13 million
  • Contracters Ustay Construction Ltd (Turkey)

29
Financing Provided Examples Port of Ilyichevsk
  • Scope of the operation Establishing and
    financing of a grain terminal in the Port of
    Ilyichevsk, to serve as a leading grain handling
    facility in Ukraine
  • Total Project cost USD 27.2 million
  • BSTDB participation USD 9 million
  • Borrower East Agro Investment BVI
  • Guarantor Estron Corporation, Nicosia
  • Maturity 7 years

30
BSTDB Operations Ankara Esenboga Airport
  • Scope of the operation
  • Construction, operation and financing of a new
    domestic and international terminal at the
    Esenboga Airport in Ankara
  • Total project cost
  • EUR 196 million
  • BSTDB participation
  • EUR 18 million
  • Co-financiers
  • Proparco and other Commercial Banks

31
BSTDB Operations Sabiha Gokcen Airport
  • Scope of the operation
  • Provision of a project finance facility for
    construction of a new international terminal
    building
  • Total project cost
  • EUR 451 million
  • BSTDB participation
  • EUR 29 million
  • Co-financiers
  • A syndication of banks led by RBS and Yapi ve
    Kredi Bankasi A.S.

32
BSTDB Operations Pulkovo Airport Development
  • Scope of the operation
  • Provision of a project finance facility for
    expansion, operation and maintenance of Pulkovo
    Airport in St. Petersburg
  • Total project cost
  • EUR 1,193 million
  • BSTDB participation
  • EUR 15 million
  • Co-financiers
  • A Syndication of Banks including VEB, EBRD,
    IFC, NiB, Eurasian Development Bank and others

33
Transport initiatives with involvement of BSTDB
  • BSTDB takes part also in some initiatives that
    aim at facilitating transportation and trade in
    the greater Black Sea Region

34
Transport initiatives with involvement of
BSTDB Black Sea Ring Highway
  • Initiated by BSEC
  • Aims at linking the transport system of Central
    and South Eastern Europe to the Black Sea and
    Asia, accelerating construction of connection
    between Black Sea countries as alternative to the
    sea routes and parallel to the new energy
    networks.
  • It includes several elements like
  • Preparation of socio economic cost benefit
    analysis
  • Road management and maintenance
  • Road safety
  • Financing under PPPs scheme
  • Environmental issues

35
Transport initiatives with involvement of
BSTDB Development of BakuTbilisiTrabzon Model
Highway
  • This is a model for a larger scale road facility
    project.
  • The purpose is to improve the road with modern
    ancillary infrastructure and support roadside
    facilities, designed and built jointly by
    national governments, international financial
    institutions, international organisations and the
    business community to demonstrate the economic
    potential of inter regional road transportation
    in Black Sea Region.
  • It includes
  • implementation of institutional reforms
  • development of the ancillary infrastructure along
    main road arteries
  • Introduction of state-of-art practices and
    technologies at border crossings and customs
    posts
  • Foundation of a multilateral financial mechanism

36
Whom to contact
  • Orhan Aytemiz Director
  • Tel (30 2310) 290 439
  • Fax (30 2310) 290 469
  • E-mail oaytemiz_at_bstdb.org
  • info_at_bstdb.org
  • Web site www.bstdb.org
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