Developing by Public Private Partnership (PPP):
Risks & challenges for private developers/ investors’ participation.
Vicky D. Kefala
MBA Finance, BA Economics Head, Investments & Development Projects
Consolidated Contractors Company (CCC)
PRESENTATION – DEC. 2015
Developing by Public Private Partnership (PPP):
1. Definition, Characteristics, Structure
2. PPP in Various Sectors
3. Risks & Evaluation Challenges
4. Major Players in PPPs
5. Conclusions & closing remarks
Project Data & Charts throughout
Vicky D. Kefala, BA Econ., MBA FinanceVicky D. Kefala, BA Econ., MBA Finance
Public Private Partnerships – What are they?
• The Public Sector defines the output specifications for an
asset and /or a service and the Private Sector delivers them
• A collective name for projects carried out between public
bodies and private companies
• An alternative way of funding projects by bringing private
finance to public sector projects
Vicky D. Kefala, BA Econ., MBA FinanceVicky D. Kefala, BA Econ., MBA Finance
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PPPs -Main Characteristics
• An arrangement between public and private sector whereby the
private entity implements a project (asset & service) according to
specifications
• Assuming the risks and receiving the benefits (payments and/or
revenues) for a significant period of time
• Αppropriate allocation of resources, risks, rewards, responsibilities
and obligations -> CONCESSION AGREEMENT
Vicky D. Kefala, BA Econ., MBA FinanceVicky D. Kefala, BA Econ., MBA Finance
Typical PPP Structure
Public Sector (ministry, municipality, national road
company)
Special Purpose Vehicle (SPV)
Service providers (Operator or Facility
Manager)Contractors
Equity Funding Banks,
Multilaterals (EBRD, Development Banks)
Partnership Agreement (DBFM)
Shareholders Agreement
Financing Agreements
Design & Construction Agreement Operating (or Facility Management) Agreement
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Vicky D. Kefala, BA Econ., MBA FinanceVicky D. Kefala, BA Econ., MBA Finance
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PPP SECTORS
Transport & Infrastructure• Motorways • Bridges• Tunnels• Railways• Airports• Ports
Fuel, Environment & Energy• Waste Collection• Waste Recycling &
Treatment• Wastewater Treatment• Waste to Energy Plants
Attiki OdosRio - Antirrio
Vicky D. Kefala, BA Econ., MBA FinanceVicky D. Kefala, BA Econ., MBA Finance
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PPP SECTORS
Education• Schools• Universities• University Housing
Health• Hospitals • Treatment Centers
14 +10 Schools in Attica
Vicky D. Kefala, BA Econ., MBA FinanceVicky D. Kefala, BA Econ., MBA Finance
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PPP SECTORS
Public Order• Police Stations• Fire Brigade Stations• Prison Facilities
Defence • Defence Academies• Simulator & Training Facilities
Others • Street Lighting• Recreation & Culture• Telecoms
7 Fire Stations Greece
Vicky D. Kefala, BA Econ., MBA FinanceVicky D. Kefala, BA Econ., MBA Finance
PPPs – Key participation considerations
Country / Sovereign• Ratings (investment grade)• Legal / regulatory framework• Political –instability, restrictive regimes, war• Economic – crisis, inflation, interest rates volatility
Project• Technical difficulty & characteristics• Contractual documentation (obligations, compensation, relief events)
Sponsor (partners)• Partner companies capabilities, structuring (who is leading where), robustness
Financing• Ability to secure funding, terms• Market conditions• Inconvertibility, f/x (country & contractual)
PPP Risks: from start to end
• Land availability• Planning deficiency• Poor public-decision
making / delays• Permit / Approval Risk
• Interest rate volatility• Financial legislation
change• Poor financial Markets• Inflation rate volatility• Poor market interest of
project• Inappropriate capital
structure
• Lack of design flexibility• Design changes• Design deficiency• Completion delay• Construction Cost
overrun• Defects / poor
workmanship• Safety Risk• Interest rate volatility• Inflation rate volatility
• Legislation change• O&M cost overrun• Market demand
fluctuations• Environmental problems• Operator inability• Public opposition to high
prices• Safety problems• Interest rate volatility• Inflation rate volatility
• Handover problems
Source: Adapted from Risk Identification & Assessment in PPP infrastructure projects using fuzzy analytical hierarchy process and life-cycle methodology, Jie Li and Patrick X.W. Zou
Start-up Expenses………..Investment………………………….Dividends….…….…….
PPP Valuation Challenges
Data availability• Large, periodic sample of different infra sectors over their lifecycle• Type of investments financed in the past not representative of today
Term structure of expected returns• Dynamic risk profile – discount factors over time- projects have multiple phases• Sequential resolution of uncertainty• Fixed term
No unique price• No traded equivalent (infra funds vs developers)• Subjective valuation of an asset by different investors• Project and investor characteristics create an equation with 2 unknowns- no direct solution
Source: The Valuation of Privately-Held Infrastructure Equity Investments – Jan 2015 EDHEC-RISK institute
Streams of expected, risky cash flows, occurring for a long period in the future (25-35 yrs) for which there is no absolute comparable
PPP Participation & Evaluation - challenges
Strategic, Overall• Fit, synergies• Country, project, partner risks• Financing available
Risk Mitigation / Cash Flow reliability• Risks - manage best and for least cost• Insurance – typical construction, business interruption, political• Contingencies
Discount Rate, NPV & IRR• What discount rate to use (single rate)• Positive NPV• Free post tax cash flows
Source: The Valuation of Privately-Held Infrastructure Equity Investments – Jan 2015 EDHEC-RISK institute
Vicky D. Kefala, BA Econ., MBA Finance
PPPs in EUROPE
Projects by Value and Number of Projects
EUROPEEUROPE
Source: EPEC Market Update 2014 – Feb. 2015
EUR billion Number of Projects
82 closedvs
80 in 2013 68 in 2012
EUR 18.7 blnvs
EUR 16.3 bln
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Europe: PPPs by Sector for 2014 – Value and Projects
Vicky D. Kefala, BA Econ., MBA FinanceVicky D. Kefala, BA Econ., MBA Finance
23 projects in Transport
63% in Transport
11.8bln
14 projects in Education
Healthcare – 15 deals
SECTOR BREAKDOWN
Source: EPEC Market Update 2014 – Feb. 2015
Μajor corporate, funding and advisory entities:
1. Construction & Development companies
2. Funding institutions (commercial banks, multilaterals,
DFIs)
3. Private equity, infrastructure funds
4. Consultants (financial, technical, legal, insurance)
Public Private Partnerships (PPPs) Major Players
Major PPP Players: 1- Construction & Development companies
Source: Public Works Financing 2013 Survey of Public-Private Partnerships, October 2013
Top 10 PPP Transportation Firms
Company Country (US $B)
1.Ferrovial/Cintra Spain 73.5
2.ACS Group/Hochtief Spain 72.0
3.Vinci/Cofiroute France 70.7
4.Macquarie Australia 48.2
5.Bouygues France 38.6
6.Egis Projects France 26.6
7.Sacyr Spain 21.8
8.John Laing United Kingdom 21.4
9.Global Via Spain 19.8
10.OHL Spain 18.2
Major PPP Players:2- Funding Banks & Institutions
LENDING BANKS / LEAD ARRANGERS
BTMUState Bank of India China Develop. Bank SMBC Mizuho Korea Develop. Bank Credit Agricole Barclays HSBC ING Commonwealth Bank of AustraliaUnicreditDeutsche BankGoldman SachsStandard Chartered
MULTILATERAL / ECAs
•JBIC/Nexi•US Ex-Im•Kexim/K-Sure•IFC/MIGA•China Exim/Sinosure•EIB•EKF•SERV•GIEK
Source: Infrastructure Investor, December 2013, p. 30
Major PPP Players: 3- Infrastructure Funds
RANK FUND NAME BASED US$ B 1 Macquarie Infrastructure and Real Assets Australia $23.34 2 Brookfield Asset Management Canada 18.48 3 Global Infrastructure Partners United States 16.47 4 Borealis Infrastructure (OMERS) Canada 6.78 5 IFM Investors Australia 5.85 6 Alinda Capital Partners United States 5.48 7 Caixa Economica Federal Brazil 5.20 8 Korea Infrastructure Investments South Korea 4.61 9 EQT Sweden 4.1810 SteelRiver Infrastructure Partners United States 4.1611 Morgan Stanley Infrastructure United States 4.0012 ArcLight Capital Partners United States 3.9113 InfraRed Capital Partners United Kingdom 3.8514 JP Morgan Asset Management United States 3.4815 Citi Infrastructure Investors United States 3.4016 Goldman Sachs Principal Investment Area United States 3.3817 Ardian France 3.1618 Meridiam Infrastructure France 2.8819 Infracapital United Kingdom 2.6820 Kohlberg Kravis Roberts United States 2.41
Major PPP Players:4- Consultants
LEGAL ADVISORS
Allen & OveryNorton RoseAshurstPinsent MasonsHogan LovellsChadbourne & ParkLinklatersWhite & CaseClifford Chance Trowers & Hamlins
TECHNICAL ADVISORS
•Mott McDonald•Atkins•Fichtner•Babcock & Brown •Arup•McBains Cooper
INSURANCE ADVISORS
•Marsh•Jardine Lloyd Thompson •ΑΟΝ
FINANCIAL ADVISORS
•Ernst & Young •PwC•KPMG •Credit Agricole •BNP Paribas•SBI Capital•ΗSBC•BTMU•Rothchild•SMBC•Green Giraffe Energy Bankers
• Concession model recognizes the role of private sector
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CONCLUSIONS
• A tool to attract private investment
• A complex investment with many stakeholders – good understanding of structure, risks & challenges
Vicky D. Kefala, BA Econ., MBA FinanceVicky D. Kefala, BA Econ., MBA Finance
• Many projects around the world developed by PPP / BOT-great opportunities
Vicky D. Kefala, BA Econ., MBA FinanceVicky D. Kefala, BA Econ., MBA Finance
• EUROPEAN INVESTMENT BANK (EIB)
http://www.eib.org/epec/about/
• WORLD BANK
http://ppp.worldbank.org/public-private-partnership/
PPP References – EUROPE & GLOBAL
THANK YOU
Vicky D. KefalaMBA Finance, BA Economics
Head, Investments & Development ProjectsCONSOLIDATED CONTRACTORS COMPANY (CCC)
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