Cassa depositi e prestiti
Public private partnerships in Italy:
A snapshot of the main issues
Federico Antellini Russo
Cas...
Cassa depositi e prestiti
2
 Overview
 Two sizes, two tales
• The threshold matters
• The “Machiavellian PPPs”
 Big pro...
Cassa depositi e prestiti 3
PPPs in Italy in 2013: an overview
Closing and operating share: 30% ca.
Evolution of PPPs (200...
Cassa depositi e prestiti
4
Two sizes, two tales
Cassa depositi e prestiti 5
The threshold matters
Considering the tenders with a known reserve price (52,8% of the total)…...
Cassa depositi e prestiti 6
The “Machiavellian” PPPs
• higher frequency of PPPs published by Municipalities with higher po...
Cassa depositi e prestiti
7
Big projects, big problems
Cassa depositi e prestiti 8
Main issues
The award is often made on the preliminary blueprint…
The contract is often awarde...
Cassa depositi e prestiti 9
Conclusion
• new provision to regulate PPPs, separated from public contract legislation, compr...
Cassa depositi e prestiti
Backup: Case studies
Cassa depositi e prestiti
11
Case study A: Rome Metro – line D (1/2)
Main features of the tender notice (August 2009)…
Rom...
Cassa depositi e prestiti
12
Case study A: Rome Metro – line D (2/2)
… just two issues!
Construction risk
• any delay in t...
Cassa depositi e prestiti
13
Case study B: TEEM (1/2)
TEEM (public vehicle)
Negotiated procedure for
awarding a Design, Bu...
Cassa depositi e prestiti
14
Case study B: TEEM (2/2)
… just three main features
Construction risk
• The contracting autho...
Upcoming SlideShare
Loading in …5
×

Public-private-partnerships in Italy – Federico Antellini Russo – June 2014 meeting of the Working Party 2 of the Competition Committee

347
-1

Published on

This presentation by Federico Antellini Russo was made during a session on Competition in Public-Private Partnerships held at the 57th meeting of the Working Party 2 of the Competition Committee on 16 June 2014. Find out more at http://www.oecd.org/daf/competition/competition-public-private-partnerships.htm

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
347
On Slideshare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Public-private-partnerships in Italy – Federico Antellini Russo – June 2014 meeting of the Working Party 2 of the Competition Committee

  1. 1. Cassa depositi e prestiti Public private partnerships in Italy: A snapshot of the main issues Federico Antellini Russo Cassa Depositi e Prestiti S.p.A. CASMEF, Luiss Guido Carli Paris | June 16, 2014
  2. 2. Cassa depositi e prestiti 2  Overview  Two sizes, two tales • The threshold matters • The “Machiavellian PPPs”  Big projects, big problems  Main issues  Conclusion  Backup: Case Studies  Case study A: Rome Metro – Line D  Case study B: TEEM Agenda
  3. 3. Cassa depositi e prestiti 3 PPPs in Italy in 2013: an overview Closing and operating share: 30% ca. Evolution of PPPs (2002 – 2013) Source: CRESME, 2014 5,154 2,901 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 500 1,000 1,500 2,000 2,500 3,000 3,500 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Number €/million Contract starting prices Numeber of tenders 19,5% of the total number of tenders 44,2% of the total contract starting amounts • insufficient preliminary analysis • late involvement of banks • credit crunch • lack of technical capacity of contracting authorities • excessive post-award changes Why? In 2013, the building contracts accounted for…
  4. 4. Cassa depositi e prestiti 4 Two sizes, two tales
  5. 5. Cassa depositi e prestiti 5 The threshold matters Considering the tenders with a known reserve price (52,8% of the total)… Value of PPPs, 2013 Below 15 € mln 97% Above 15 € mln 3% Source: CRESME, 2014 Municipalities were the contracting authorities for more than 80% of the tenders below € 15 millions Subject to the Internal Stability Pact Mainly non-complex projects (i.e. cemeteries, parking areas)
  6. 6. Cassa depositi e prestiti 6 The “Machiavellian” PPPs • higher frequency of PPPs published by Municipalities with higher population and lower infrastructural endowment; • preference for a PPP scheme seems to be associated with a lower level of income (of the inhabitants; • “PPP decision” is:  rarely taken after an accurate “feasibility study” (= no estimation of the value for money of the project), and  often not accompanied by any monitoring mechanism; • majority of the contracts:  needs a limited know how and innovation capacities to be performed at a satisfactory level,  faced a limited demand risk; • “evergreen” clauses (i.e. requiring the private contractor to keep the technical standard of a project at the state of the art) and automatic renewal clauses are absent; • choice to use PPPs seems to be mainly determined by critical balance sheet conditions (i. e. the number of PPP tenders increases as public deficit worsen) and the opportunity to write the assets off- balance; • PPPs in which the project revenue stream is totally guaranteed by the users (and not by the public involvement) are “rare birds”. Main results of empirical analysis on the tenders: • contract is often awarded to the promoter; • market is dominated by small operators, often unable to assure a real added value to the project; • full transparency on on-going activities and “customer satisfaction” supervision mechanisms are totally absent; • strong correlation with political cycles. Main results of empirical analysis on the awards:
  7. 7. Cassa depositi e prestiti 7 Big projects, big problems
  8. 8. Cassa depositi e prestiti 8 Main issues The award is often made on the preliminary blueprint… The contract is often awarded on the basis of a preliminary blueprint, which requires additional (and not obvious) bureaucratic steps before becoming definitive (i.e. “conference of service”) If: • all permissions have been obtained before the procurement process, and • concession perimeter, features and timing have been set as clearly as possible before the tender’s beginning (= award on the definitive blueprint), then, there could be: - a reduction of uncertainty ( more defined evaluation of the timing and the costs of the project); - A reduced post-award re-contracting; - a speeding up of process, - a clearer incentive scheme. the engineering of all planned work in earlier stages of design in every detail  the most technically defined phase of the entire design prepared on the basis of the preliminary blueprint, includes the indications of the “conference of services” sets out the profiles and the most significant characteristics of the projects … the risk-sharing is not efficient, or… Preliminary blueprint Definitive blueprint Executive blueprint The grantor bears an improper share of the construction risk and of the demand risk, in order to address the participation constraint. … the cost for the awarding authority/users is higher than it could be • The reserve price for the availability fee and/or for the public contribution are too high; • The tariff cap takes into consideration the probability for blueprint changes.
  9. 9. Cassa depositi e prestiti 9 Conclusion • new provision to regulate PPPs, separated from public contract legislation, comprising concise, clear and stable rules; • legal-economic models compliant with Eurostat rules to avoid financial operations with a complex structure; • ad hoc resources to finance feasibility studies to be undertaken by Public Administrations, which otherwise would not have the necessary human and financial resources; • single management unit with specific skills to be set up by the central Government; • moving from short-medium term public financing to project financing (i.e. until 2003 CDP played an indirect role in financing of investments – by lending money to contracting authority -, currently CDP is directly involved in infrastructures funding through debt and equity). • moving from short-term debt financing to long term financing, through the involvement of institutional investors. • develop a standard benchmark for calls for bids, tendering procedures and contract adjudication. • increase the value of single procurement contracts, by grouping together similar projects from Municipalities. … and in particular, for small-medium projects What could be done in general… Some implications: • bids should ideally be done on the definitive project; • higher skills and competitive dialogue (with an increasing remuneration through stages) could increase the incentive to reveal private information; • scale matters: small projects should be carried out by local authorities through a more traditional approach (= traditional procurement procedures must be considered); • if a project is sustainable (= profitability is coherent with risk and market’s expectations), the funding is not a real issue.
  10. 10. Cassa depositi e prestiti Backup: Case studies
  11. 11. Cassa depositi e prestiti 11 Case study A: Rome Metro – line D (1/2) Main features of the tender notice (August 2009)… Roma Metropolitane S.r.l. (public vehicle) Negotiated procedure (promoter and the two top ranking competitors) for awarding a Design, Build, Finance and Operate contract for a new subway line Awarding authority Procedure & contract 2,13 €/mln for the “Priority Track” + 1,05 €/mln for the “Optional Track” (mainly construction costs). Public partner financial contribution: 14% of the total estimated amount. Estimated amount Awarding criteria Quality Maximum points Technical solutions for reducing the upfront investment 32 Variations of the blueprint 20 Integrated transport system optimization 12 Aesthetic and functional improvements 13 Outflow capacity from stations 3 Architectural features of the interior of the stations 10 Asset service and asset management features 5 Price Maximum points Rebates on the construction cost of the “Priority Track” 15 Total amount of the contribution payable by the grantor for the construction of the “Priority Track” 20 Total amount of the availability fees for the “Priority Track” 15
  12. 12. Cassa depositi e prestiti 12 Case study A: Rome Metro – line D (2/2) … just two issues! Construction risk • any delay in the time schedule or any increase in costs due to changes required in the transition from preliminary design to final design and during the construction period (variants, increase in the labor cost, updates on programming, increased costs resulting from interference with other services, etc.) are mainly borne by the contracting authority. Availability risk & Demand risk • the quarterly availability fee is:  mainly fixed, proposed by the bidders and paid by the contracting authority (which collects its revenue from the users of the integrated transport system);  partially variable, subject to criteria such as the number of kilometers traveled by coaches (regardless of the number of passengers). Risk-sharing Competition • the bidders have to submit a sustainable business plan with respect to the “Priority Track” (⅔ of the contract value) and the “Optional Track” (⅓ of the contract value), but… • … the contracting authority had the right to assign the “Optional Track” in its sole discretion … • … there is no ​​assessments about the bid on the “Optional Track”: the award is made in favor of an offer only limited to the “Priority Track” Blocked by the Authority for the Supervision of Public Contracts
  13. 13. Cassa depositi e prestiti 13 Case study B: TEEM (1/2) TEEM (public vehicle) Negotiated procedure for awarding a Design, Build, Finance and Operate contract for a toll road project linking the A4 Turin-Trieste motorway with the A1 Milan-Bologna motorway. Awarding authority Procedure & contract 1,9 €/bn (including interest during construction). The project company accounts for 220 €/ml paid up share capital. Estimated amount Main features of the concession agreement (March 2009)… 50 years of concession term post completion. Timing TEEM and the EPC Contractor signed on 6 November 2012 a lump sum construction contract. Construction timetable provides for the opening of the “Arco TEEM” by the first half of 2014. The entire infrastructure is scheduled to be operational by May 2015.
  14. 14. Cassa depositi e prestiti 14 Case study B: TEEM (2/2) … just three main features Construction risk • The contracting authority awarded the definitive blueprint: the main share of the construction risk is borne by the bidders . Availability risk & Demand risk • Traffic analysis from independent consultant provides a central case of 51,100 AADT (Annual Average Daily Traffic) in 2015. • Toll adjustment mechanism is fully regulated and provides, especially in the case of greenfield projects, traffic risk is mainly transferred to the concessionaire. Risk-sharing Financial plan On August 2013 the working progress was about 40% on the “Arco TEEM” and about 20% on the entire project. Source & Uses (construction period December 2013 – June 2016): Uses €/mln % Sources €/mln % Capex 1.654,7 86,7% Share Capital 464,9 24,4% Interests during Construction 192,1 10,1% Shareholder Loan 114,8 6,0% Other costs 8,2 0,4% Contributo 330,0 17,3% DSRA 35,0 1,8% Senior Term Loans 936,2 49,1% Other Reserves 18,3 1,0% Operating Cash Flow 62,4 3,3% Cash - - Total Uses (excl. VAT) 1.908,4 100,0% Total Sources (excl. VAT) 1.908,4 100,0% Relevant role of development banks

×