Download Daniel Loschacoff: An introduction to smart investment solutions

An introduction to smart
investment solutions: the
case of PPP
Twinning project
Public Agency for Rail
Transport of Republic Slovenia
Daniel Loschacoff
18 January 2005
Content
1. Personal introduction
2. Public Private Partnerships?
3. Evolution of thinking about private sector
involvement
4. The first Dutch PPP: HSL-South Infrastructure
Provider
5. Coffee break
6. Who were involved?
7. What does this imply for the Public sector
Please ask for clarifications !!!
Main message
Always consider for the realisation of
future large rail investments if the
benefits of a PPP approach outweigh
the inherent problems
What is a Public Private
Partnership
?
Characteristics of a PPP:
A. Public control and policy through private
execution
B. Integration of Design, Build, Finance and
Operate/Maintain.
C. Allocation of risk to the party that can best
manage it.
D. The public sector receives a service not a
product.
E. LT (investment life-cycle) relation.
Evolution of thinking
In earlier centuries most infrastructure
was in private hands (Michael Klein)
The nationalisation period
Margaret Thatcher in the UK (80’s)
Private Finance (budget restrictions)
Demand risk to the private sector
Value for money – availability contracts
Why do we do this ?
 Lack of capital ?
 Private Sector is always better ?
 Private competition against a public
benchmark!
But also:
 Project life cycle approach (service approach)
 Use of private sector capabilities (innovations,
incentives, economies of scale)
 Public sector reform ?
The High Speed rail Line
What is HSL-South?
Amsterdam
Schiphol
Rotterdam
Breda
Antwerp
Brussels
London
Paris
Facts and Figures
• 15 million passengers
50% national / 50% international
• Ready 2006/7
contract award civils: 2000
contract award IP: 2001
• Infra: 96 km new track
• State of the art technology
PPP contract characteristics
• Scope: design and build new systems
operate and maintain al new infra
• Terms: 5+25 years
• Size: over 1 billion Euro
• Type: DBFM
• Interfaces: civils works, existing rail
infra, train operations
• Payments are based on availability
Private finance
Infraprovider
Civil works
Government
Transport
Companies
Payment during constr. phase
Transfer
Payment during operations
Availability is key concept
• IP paid on availability of the service; no
payments for products.
• IP receives no payments during
construction.
• Hence: the State procures a service
rather than a product.
Outcomes
HSL will have a 99% availability (output
indicator)
Private investment of > 1 bn.
More budget certainty.
Through innovations and contracting
less expensive than the traditional
alternative
Coffee break
What parties were involved?
A. The State
B. Private parties
C. Advisors
The State = Client (1)
Public service (which needs an initial
investment)
Extensive decision making process
Focus on annual budget and less on
Value for Money through PPP
Averse to risks and responsibilities
Conditionality of scope remains through
out the process
The State = Client (2)
Conditions for success:
 Good preparation, know what you want
 Be a reliable and stable partner
 Have upfront public-public agreements
 Understand where the private sector is
coming from
 Good contracting skills
Contractor/ Maintenance
company
• Contractor is responsible for the Design
and Build (subcontract) to completion
• After that the Operate and Maintenance
company takes over for the whole
contract duration
→Who is for the procurement the most
important?
Contractor versus other
financiers (2)
• The contractor (industrial sponsor) is
sometimes willing to accept lowing
revenues and a higher risk in order to get
the project
• The other investors look for a low risk and
stable high long term revenues
The role of the banks (1)
• Major involvement in bidding process
• Technical, legal and financial due
diligence
• Interest is depending on the cash flows
of the project (project finance)
• Tight financial conditions (ratio’s)
The banks as debt providers (2)
Banks don’t like risk !!!
 No more than 4% of all projects may go wrong.
→ All risks have to be well allocated (back to back)
The advisors
Technical, legal and financial
advisors are necessary !!!
→ Please note: both the Client and the bidders have their
own advisors
What does this imply for the
public sector?
Public sector implications (as a
condition for success):
More focus on the delivery of policies
and less on specifying technical details
Able to understand private sector
objectives and incentives
Be a reliable partner
Enhance PPP and contracting skills
???
Should you consider PPP with
the upcoming Slovenian rail
projects?