Citycsape Jeddah<br />Effective Partnerships <br />Structuring “win-win” Public-Private Partnerships (PPP) in real estate ...
What is PPP?<br /><ul><li>A method of providing public services, not simply for buying infrastructures.
It should contain
an expectation of service improvement
a commitment to transparency
the dismantling of monopolies and the reform of public services
A PPP project typically involves a long-term arrangement in which the public sector will contract with the private sector ...
Maintenance Concession<br />BOOT Concession<br />Design-build<br />Design-build-operate-transfer<br />Asset Capitalisation...
A cardinal principle behind the PPP <br /><ul><li>Intended to transform government departments from being owners and opera...
What are public services?<br /><ul><li>Previously been considered as services delivered by government employees to members...
Public services must be defined in terms of their intrinsic nature, rather than how they are delivered.  A more appropriat...
BOT – Typical projects in Middle East<br /><ul><li>Repayment profile depends upon each particular debt tranche.  Typically...
an ECA tranche
a conventional tranche
an Islamic tranche
an equity bridge tranche
All projects are different but a typical repayment profile might be as follows:
Conventional and Islamic term facility ; 20 years
ECA facility; 14 years
EBL-bullet payment, repayable 5 years after FC
Working Capital facility ; revolving credit facility</li></ul>www.altracapital.com<br />
Upcoming SlideShare
Loading in...5
×

Cityscape jeddah jun 2011

276

Published on

This is the presentation that I made at Cityscape Jeddah in June this year. Some comments are available on several Middle East web sites such as Arab News link attached http://arabnews.com/economy/article453469.ece )

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
276
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
3
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • An agreed drawdown schedule is agreed to cover the initial EPC costs over a construction period of say 2-3 years. Once the construction phase has been completed and the facilities fully drawn down, you move into the operations phase. During the operations phase debt service repayments are made from dividend receipts on a fairly uniform basis over the remaining tenor of the relevant facility.
  • The difficulty is that in some emerging economies and/or economies in transition such principles are often ignored at the time when PPP appears to the government as an alternative to the public financing of infrastructure due to some misconceptions. The most frequent misconceptions are the following:Contracts are sufficient for getting started In PPPs, only a strong contract between the parties is needed. Putting in place the overall legal, policy and institutional framework can wait: In an effort to start a PPP programme quickly, governments have been under a wrong assumption that it was sufficient to put in place a strong contract with the private sector and that establishing the legal, policy and institutional framework could begin afterwards. This misconception has resulted in insufficient attention to policy, legal and institutional frameworks in PPPs. Projects once started often unravel. Such a practice cannot work if governments wish to develop a deal flow. The success or failure of PPPs can often be traced back to the initial design of PPP policies, legislation and guidance or the lack thereof. PPPs are all embracing panaceas that can be implemented all at once irrespective of the competence, knowledge and skills on the part of governments: PPPs are very complex but Governments have been eager to start as quickly as possible without pacing themselves. Such a myth lead to countries with no experience of PPPs to launch numerous projects before they have the capacity and knowledge, leading them often to repeat the mistakes of those who started earlierPPPs provide a number of infrastructure assets, roads, bridges, power plants etc., to Governments either free or little cost and no risk: Often sponsors have tended to ‘over sell ‘the promise of PPPs to countries and to hide the extent to which governments share risks and provide support to projects. The misconception that the private sector can do everything itself leads to a poor understanding of the Government’s own role in PPPs, which is critical. Governments do need to share costs and accept certain risks with the private entity. Such a perspective can induce poor risk optimization, which in turn will lead to higher costs of projects PPPs are sophisticated technical financial transactions. PPPs are certainly highly technical. However the risk is that governments view them solely as financing instruments when in fact they represent a very different way of working. This sometimes leads to a failure to ask whether the project is acceptable to the public. Do they want it? People tend to be overlooked and projects go ahead with it being assumed that the projects will be socially acceptable. Policy makers need to give emphasis to shareholder returns but must also focus on improving the delivery of essential services to the general public. Using a PPP can bring private money into public coffers and be an additional source of payment for government departments. In countries with weak experience of mixing private funding with public funding, there is sometimes little understanding on the need of governments to let the private sector obtain a return on their investments. The funding provided is not a fund to be used either part or in whole for public civil servants. The financing provided has to earn a return for the private sector. It is not an extra fund for public sector use untied to specific projects. This myth has been the basis for corruption
  • Cityscape jeddah jun 2011

    1. 1.
    2. 2. Citycsape Jeddah<br />Effective Partnerships <br />Structuring “win-win” Public-Private Partnerships (PPP) in real estate and infrastructure projects<br />11 June 2011<br />John Davie<br />Chairman, Altra Capital Limited<br />Past Chairman, UK Government PPP Advisory Group<br />Member, Saudi British Joint Business Council<br />
    3. 3. What is PPP?<br /><ul><li>A method of providing public services, not simply for buying infrastructures.
    4. 4. It should contain
    5. 5. an expectation of service improvement
    6. 6. a commitment to transparency
    7. 7. the dismantling of monopolies and the reform of public services
    8. 8. A PPP project typically involves a long-term arrangement in which the public sector will contract with the private sector to deliver a service in exchange for regular performance-based payments</li></ul>www.altracapital.com<br />
    9. 9. Maintenance Concession<br />BOOT Concession<br />Design-build<br />Design-build-operate-transfer<br />Asset Capitalisation<br />Design-Build-Finance-<br />Maintain-Operate<br />Design-bid-build<br />Turnkey Delivery<br />Divestiture<br />Traditional<br />Public Sector<br />Procurement<br />Build-Operate-<br />Transfer<br />(BOT)<br />Private Finance<br />Initiative (PFI)<br />UK PPP Model<br />Build-Own-Operate<br />(BOO)<br />Public Owner/<br />Operator/<br />Financier<br />Public Owner/<br />Financier<br />Public Owner<br />Private<br />Concessionaire<br />Operator<br />Operator<br />Contractor<br />Operator<br />Contractor<br />Contractor<br />Engineer<br />Engineer<br />Engineer<br />Operator<br />Contractor<br />Engineer<br />What is PPP?<br /><br /><br />Private Sector Leading<br />Public Responsibility<br />Private Sector<br />Privatisation<br />Private Owner<br />www.altracapital.com<br />
    10. 10. A cardinal principle behind the PPP <br /><ul><li>Intended to transform government departments from being owners and operators of assets into purchasers of services from the private sector</li></ul>www.altracapital.com<br />
    11. 11. What are public services?<br /><ul><li>Previously been considered as services delivered by government employees to members of the public.
    12. 12. Public services must be defined in terms of their intrinsic nature, rather than how they are delivered. A more appropriate definition is....</li></ul>‘… any service provided for large numbers of citizens, in which there is a potentially significant market failure (broadly interpreted to include equity as well as efficiency), justifying government involvement – whether in production, finance or regulation’<br />www.altracapital.com<br />
    13. 13. BOT – Typical projects in Middle East<br /><ul><li>Repayment profile depends upon each particular debt tranche. Typically, there is:
    14. 14. an ECA tranche
    15. 15. a conventional tranche
    16. 16. an Islamic tranche
    17. 17. an equity bridge tranche
    18. 18. All projects are different but a typical repayment profile might be as follows:
    19. 19. Conventional and Islamic term facility ; 20 years
    20. 20. ECA facility; 14 years
    21. 21. EBL-bullet payment, repayable 5 years after FC
    22. 22. Working Capital facility ; revolving credit facility</li></ul>www.altracapital.com<br />
    23. 23. Direct<br />Agreement<br />Government<br />Fee to SPC<br />for use of Facility<br />based on<br />Performance/<br />Payment<br />Collateral or subvention<br />Equity – 20% - 35%<br /><ul><li> contractor
    24. 24. operator
    25. 25. bank</li></ul>Insurance/<br />Guarantees<br />Project Company<br />(SPC)<br />Operations<br />(Soft Services)<br />Holding<br />Company<br />Senior Debt<br />Equity<br />Service/Operator<br />Charge<br />Build/Renew/<br />Maintenance Costs<br />Equity<br />Construction &<br />Maintenance<br />(Hard Services)<br />How PPP Works<br />Loan<br />Agreement<br />Concession/<br />Project<br />Agreement<br />Debt<br />Repayment<br />Debt<br />Equity and<br />sub-debt<br />Sub-contractors<br />Sub-contractors<br />www.altracapital.com<br />© Altra Capital Limited 2011<br />
    26. 26. Total nominal cash flow<br /> 100%<br />PFI - % Total cash flows to equity partners<br />80%<br />% Remaining<br />60%<br />PFI - % Total payments <br />remaining<br />40%<br />20%<br />DBMO - % Total payments remaining<br />0%<br />0 3 6 9 12 15 18 21 24 27 30 <br />Time<br />Percentage of total nominal cash flow remaining in a typical DBMO and PFI model and percentage of total cash Flows to equity remaining in a PFI model<br />
    27. 27. UK – signed PFIs by financial year<br />www.altracapital.com<br />
    28. 28. UK – signed PFIs by financial year<br />www.altracapital.com<br />
    29. 29. Some lessons learnt<br /><ul><li>Stable long term policy commitments if changes are to be made across markets
    30. 30. Scrutinise the deliverability of a project before real engagement with the market.
    31. 31. Project Governance
    32. 32. Programme delivery platforms
    33. 33. Mix of mandatory procedures and support
    34. 34. Proper attention paid early on to the operational phase of projects
    35. 35. A view about what you want the market to look like in 5 -10 years’ time.</li></ul>www.altracapital.com<br />
    36. 36. History<br /><ul><li>Saudi Arabia has a history of being very innovative in its approaches to privitasation.
    37. 37. 2002 the SEC approved a series of measures aimed at promoting the activities of the private sector with the aim of achieving greater national economic growth.
    38. 38. 80s /90s UK initiatives brought private sector into activities once considered preserve of Government
    39. 39. first privatizing state-owned industries,
    40. 40. then private sector management and funding for public sector projects – the Private Finance Initiative</li></li></ul><li>Saudi Arabia - strengths<br /><ul><li>capital market is relatively large
    41. 41. the monetary system is stable
    42. 42. government commitment is strong
    43. 43. government movement toward private sector and investors to participate in the development process is encouraging
    44. 44. experience of local and international banks in funding projects has been successful
    45. 45. willing to participate in future projects, provided they have an assurance of project viability and profitability.</li></li></ul><li>The Misconceptions<br /><ul><li>Contracts are sufficient for getting started In PPPs, only a strong contract between the parties is needed. Putting in place the overall legal, policy and institutional framework can wait
    46. 46. PPPs are all embracing panaceas that can be implemented all at once irrespective of the competence, knowledge and skills on the part of governments
    47. 47. PPPs provide a number of infrastructure assets, roads, bridges, power plants etc., to Governments either free or little cost and no risk
    48. 48. PPPs are sophisticated technical financial transactions
    49. 49. Using a PPP can bring private money into public coffers and be an additional source of payment for government departments</li></ul>www.altracapital.com<br />
    50. 50. An Ethical Thought<br /><ul><li>The genius of the UK PPP model for PPPs is the creative tension induced by private capital at risk
    51. 51. To mirror this simply by eliminating interest is missing an opportunity
    52. 52. Islamic finance cannot be reduced to its economic components
    53. 53. Islamic finance carries ethical, social, political and religious dimensions that informs its structure.
    54. 54. Islamic financial institutions should foster social justice as well as generate wealth
    55. 55. Similar to the wider objectives of many of the commissioning agents of PPP projects</li></ul>www.altracapital.com<br />
    56. 56. Government<br />Direct<br />Agreement<br />Performance/<br />Payment<br />Equity – 20% - 35%<br /><ul><li> contractor
    57. 57. operator
    58. 58. bank</li></ul>Insurance<br />Concessionaire/<br />SPV<br />Debt/Equity<br />Funders<br />Operations<br />(Soft Services)<br />Loan Agreement<br />Securitypackage<br />Service/Operator<br />Charge<br />Build/Renew/<br />Maintenance Costs<br />Construction &<br />Maintenance<br />(Hard Services)<br />How PPP Works<br />Hiba – gift?<br />Ijara – lease?<br />Istisna – custom manufacturing?<br />Musharaka – partnership ?<br />www.altracapital.com<br />
    59. 59. Government<br />Direct<br />Agreement<br />Performance/<br />Payment<br />Collateral or subvention<br />Equity – 20% - 35%<br /><ul><li> contractor
    60. 60. operator
    61. 61. bank</li></ul>Insurance<br />Concessionaire/<br />SPV<br />Debt/Equity<br />Funders<br />Operations<br />(Soft Services)<br />Loan Agreement<br />Securitypackage<br />Service/Operator<br />Charge<br />Build/Renew/<br />Maintenance Costs<br />Construction &<br />Maintenance<br />(Hard Services)<br />How PPP Works<br />www.altracapital.com<br />
    62. 62. Government<br />Direct<br />Agreement<br />Performance/<br />Payment<br />Equity – 20% - 35%<br /><ul><li> contractor
    63. 63. operator
    64. 64. bank</li></ul>Insurance<br />Concessionaire/<br />SPV<br />Debt/Equity<br />Funders<br />Financing SPV<br />Mudarib<br />Operations<br />(Soft Services)<br />Loan Agreement<br />Investors / Subscribers<br />Rabb Al-Mal<br />Securitypackage<br />Service/Operator<br />Charge<br />Build/Renew/<br />Maintenance Costs<br />Construction &<br />Maintenance<br />(Hard Services)<br />How PPP Works<br />Mudaraba<br />www.altracapital.com<br />
    65. 65. Government<br />Direct<br />Agreement<br />Performance/<br />Payment<br />Insurance<br />Concessionaire/<br />SPV<br />Financing SPV<br />Mudarib<br />Operations<br />(Soft Services)<br />Loan Agreement<br />Security package<br />Service/Operator<br />Charge<br />Build/Renew/<br />Maintenance Costs<br />Construction &<br />Maintenance<br />(Hard Services)<br />How PPP Works<br />Mudaraba<br />Investors / Subscribers<br />Rabb Al-Mal<br />www.altracapital.com<br />
    66. 66. Government<br />Direct<br />Agreement<br />Performance/<br />Payment<br />Return on <br />Investment<br />(no interest)<br />Financing SPV<br />Mudarib<br />Insurance<br />Project SPV<br />Sponsor/Developer<br />Operations<br />(Soft Services)<br />Investors / Subscribers<br />RabbAl-Mal<br />Service/Operator<br />Charge<br />Build/Renew/<br />Maintenance Costs<br />Construction &<br />Maintenance<br />(Hard Services)<br />How PPP Works<br />Debt & Equity<br />(Muharaba, Istisna<br />Salem, etc)<br />Mudaraba<br />www.altracapital.com<br />
    67. 67. Thank Youwww.altracapital.comLondon : jamesdavie@altracapital.com Abu Dhabi: aimanarbab@altracapital.com<br />
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×