Transport sectors projects are very political entities and governments are still held responsible should there be revenue short fall or distressed situation. further modes of transport do compete with each other but in a limited manner, however, global threats nowadays require certain redundancy in transport network, this affects PPP structure! Also experience suggests that negotiations between public authorities and prospective concessionaires are rather asymmetrical, and lead to asymmetric risk sharing. Concessionaires have extraordinary bargaining powers as they know no competition exists after the concession is signed.

1. .

2. Contents
2
1
• Infrastructure PPP Preview
2
• Transports PPPs Characteristics
3
• PPP in Seaports, Airports , Rail & Toll Roads
5
• Final Notes

3. 3

4. Purpose of Public Private Partnerships (“PPP’s”)
PUBLIC PRIVATE PARTNERSHIPS
…have many forms and seek to provide the public sector with a variety of benefits
PROMOTE
Entrepreneurial
Development
CAPITALIZE
Additional Sources of
Private Equity and
Flexible Corporate Debt
Structures
ACCELERATE
High Priority
Projects
TRANSFER
New Technologies and
Engineering Techniques
BENEFIT
From Private Expertise
and Specialized
Management
4

5. Government Procurement PPP Flow Model
5
PPP Sector
Teams /
Ministries
Ministry of
Public Works
Ministry of
Energy
Ministry of
Transport
…..
Local Gov.
Others
Coordination
Entity
Council /
Committee of
Ministers
Central PPP Unit
• Coordinating
Role
• Procurement
Role
• Screening
• Monitoring
• Communication
Ministry of
Finance
Risk
Management
Selection
Criteria
Risk Exposure
Pricing
Monitoring
Documentation
Regulation
Authority
Setting Tariffs
Setting
Service
Quality
Conflict of
Interest
Mechanisms
Safeguarding
from
Monopolistic
Behavior

6. Motivation of Public, Private and Lenders in PPP’s
 Enhancing the ability
to raise capital
 Transferring
responsibilities and
risks
 Improving
infrastructure and
customer service
 Increasing efficiency
of construction and
operation
 Know–how transfer
 Privatisation proceeds
(concession fees, tax
income)
Public Sector
 Proper risk allocation
among the parties
through a balanced
financing structure
 Being repaid
according to schedule
while being
adequately
compensated for the
risks which remain
with the lender
 Assuring competent
management and
market environment
for the project (as part
of risk mitigation)
Lenders
 Strategic objectives
(e.g. market entry)
 Maximizing investor
returns via sustainable
growth, operational
efficiency and
commercial
opportunities
 Limit the project risks
to those which can be
managed by the
private sector
Private Sector
6

7. CLIENT (GRANTOR)
LENDERS
TECHNICAL
ADVISOR
LEGAL
ADVISORS
PROJECT COMPANY
(Subsidiary of Developer)
Developer
CONTRACTOR
Subcontractors Suppliers
Technical
Consultants
3rd Party
Independent
QA/QC
Architect
Author
BOT /
CONCESSION
AGREEMENT
EPC
CONTRACT
Parties in PPP - Typical BOT Scheme
7

8. Operation &
Maintenance
Contract
Design
Build
Design
Build
Operate
Lease
Develop
Operate
Buy Build
Operate
Build
Transfer
Operate
Build
Operate
Transfer/
Concession
Build Own
Operate
Roles, Skill Requirements, and Risks of Private Sector
Low
Fully
Public
Fully
Private
High
PPPs Spectrum
8

9. PPP Duration Versus Ownership
9
Duration
Increasing level of delegation & risk
Service
contracts
Management
Contracts
Leases
Concessions
Divestures100 % non-public
ownership
100 % Public
ownership
5 10 15 20 25 30
BOT
BOO
Governments’
Role
Provider
Enabler/ Regulator

10. Funding PPP’s
Stake Holder Equity Provider Source of Debt
Operators Local Commercial Banks / Pension
Funds
Strategic Investor Foreign Commercial Banks
Line Ministries Export Credit Agencies / Banks (EXIM)
Government Multi Laterals WB, ADB, AfDB, IFC
10
Steps Taken By Governments To Ease Financing Constraints
 Viability Gap Funding (VGF)
 Infrastructure Fund / Initiatives
 Enhanced Annual External Commercial Borrowing ceiling
 Project Bonds reporting and trading platform
 Permission to foreign financial institutions and multilaterals to raise local
currency resources
 Encouraging development of new instruments such as grading of PPP
projects/SPV rating by the major credit rating companies

11. MENA Region Main Funding Sources
11
• Very liquid , Driving pricing lower
• Pressed on tenors, but available for quality assets
• Sibor (Saudi Interbank) hedging market is limited to 5-7 yr.
Local GCC
Banks
• Tight liquidity, Prices are higher, but offset by lower libor
• Tenor is available for quality assets
• Libor hedging is very deeps; 23+ years
International
Banks
• Amount is linked to procurement
• Tenor is mostly limited by OECD consensus
• Some offer direct loans to home companies
Export Credit
Agencies
• Rapidly developing
• Tenors average life are 8-11 years
• Still requires sponsors guarantees
Bonds and
Sukuks

12. Financing Credit Risk in Transport Projects
12
 Lenders often taking a mixture of asset risk, project risk, and corporate risk
 Corporate Finance (balance sheet lending) - One in which there is neither a specific asset nor a specific stream of
income on which the credit decision is based, but rather lenders are relying on the general financial position of
the borrower.
 Project Finance (classical concessions) - A long term financing based on the project cash flow rather than the
balance sheets of project sponsors.
 The income generated by the project is a key factor in the lenders’ credit decision. Project financing structure
involves a number of equity investors, known as sponsors, as well as syndicate of banks / lending institutions
(Investment / Development Banks, Infrastructure Funds). Lead Arrangers / Underwriters provide primary debt
funding.
 The loans can be non-recourse or limited recourse loans by establishing a special purpose vehicle - SPV which
owns project assets and income.
 Asset Mortgage / Title & Lease Finance - Commonly used for financing of rolling stock / planes / ships where the
future value of the VEHICLE / Movable Asset is a key factor in the lenders’ credit risk. Most title financing
arrangements involve the separation of legal ownership or title to an asset from the economic ownership of the
asset (or the commercial risks and rewards that go with ownership such as the risk or reward of loss or gain in
value of the asset).

13. Strong Political will /
stable regulatory
and legal framework
Secure and
Stable
Cash-Flows
Demand for
Project
Environmental
Aspects
Technical
Complexity
Early-
Termination
Regulations
Liability
of Sponsors
Debt Service
Reserve
Government
Support
Optimal Risk
Allocation
Bankability
Issues
Strong revenue
support e.g. through
availability
payment mechanisms
e.g. Step-in Rights,
compensation payments
Solid
Private Partner
and adequate
Equity contribution
“BANKABILITY“ OF TRANSPORT PROJECTS
13

14. Private Sector Major Risk Categories in PPP
14
Country
(Economy) Risks
Currency (Inflation, interest rate
and exchange rate fluctuations)
Political (expropriation, political
violence, currency convertibility &
transfer, decision making)
Regulatory (Government’s default
on contractual obligations, i.e.,
pricing formulas, right of way )
Legal (rule of law, i.e., judicial
system, regulatory procedures and
arbitration)
Project Specific
Risks
Completion /
Complexity
(engineering &
construction cost / time
cost control)
Operational
Performance (technical
& operational know-
how)
Budget / Time (future
liabilities, project
delays, costs overruns)
Credit (project
leverage)
Project & Country
Mutual Risks
Demand (traffic /
use volume)
Pricing Risk
(regulated and
non-regulated)
Environmental
Risk

15. PPPs Risk Management Framework
15
 Risk Allocated to those best able to manage them;
 Allocate risk to the party best able to influence the risk factor (e.g., constructions costs,
completion risk to contractors.)
 Allocate Risk to the part that can deal with at least cost
 Allocate risk to the party that can best anticipate or respond to the risk influence or sensitivity
impact on project value (e.g., adapting size of the facility to demand fluctuations)
 Allocate risk to the party best able to absorb the risk impact.
 Risk Mitigation;
 Mitigate political and regulatory risks
 Use natural hedges (correlation between risk factors and stakeholder assets and liabilities)
 Access to markets offering financial derivatives and insurance, exchange risk for example.
 Access to specialized financial institutions - partial risk guarantees, guarantee funds (IFIs, MLAs,
Donors, etc.)
 Ability to spread the risk among others (shareholders and taxpayers)
 Risk Aversion

16. 16

17. The Economics of Transport Infrastructure
 Infrastructure investments inherently involve huge sunk costs and create assets that are long-lived and are
location-specific and contain elements of natural monopoly.
 Project economics refers to the total costs of project relative to the revenue it generates and has economics of
scale and scope (i.e., size of facilities, adjustment of capacity to demand, long term project completion, etc..).
 Demand is wide spread and difficult to target.
 Revenues are usually in local currency (mismatch if foreign debt financing is used).
 Services have an essentiality component that raise legitimate public policy concerns of affordability &
Willingness to pay. The ability to raise ticket prices (or access charges) when ridership / revenues falls short of
projections is not always possible.
 Full cost recovery is only possible in some situations (i.e., airports, roads and mass transit systems). Very few
railways are financially self-sustainable (mostly freight).
 Most Transport PPPs are major technical and operational successes.
 Transport PPPs generally do not create additional customer / use revenue. What a PPP can do is reduce the
cost of a project by optimizing its design and management and reduce the amount of borrowed debt.
 Transport has big impact on economic growth and allow integration to the global economy / increases
competitiveness
17

18. Specific Risks to Transport PPPs
18
Political
 Lengthy decisions processes may cause scope
deviations Political risk is very high in transport PPPs since
public authorities are involved in many possibly
conflicting ways in the sector; regulation, funding,
infrastructure and incumbent operating company
ownership, definition of public service obligations,
transport planning.
 Failure to execute / interference by public authority
 Political entrepreneur syndrome
 Public and market acceptance
 Involvement in incumbent operating company
 Quality of legal and institutional framework
Complexity
 Long duration , complex integration Complexity related risk is high as transport networks are
complex systems due to the limited flexibility of traffic
management, the high security constraints and the long
lifecycles. PPPs adds organizational complexity to
technical complexity when PPP and conventional networks
are interlocked and bring rigidity as other systems cannot
significantly be altered over the period of concession.
 Structures and ground conditions
 Interaction of a variety of communication systems
 Safety & Security
 Technical / Functional interfaces
Commercial
 Revenue structure Ridership / Traffic risk in Transport PPPs are intrinsically
very high and very hard to mitigate; Demand forecast

19. Notes on Traffic Forecast / Volume
 “Forecasting traffic demand is crucial in transport PPPs since traffic influences both project costs (through
capital and maintenance expenditures) and project revenues, especially if direct user charges, such as tolls, are the
main source of cash flow for the PPP Company.
 Accurate estimation of the future level and composition of traffic volumes is a difficult task ; Governments &
Consortiums seeking finances tend to overestimate actual traffic levels (the “optimism bias”) while traffic forecasts
commissioned by the lending banks are less prone to traffic optimism bias.
 Given such uncertainty, the allocation of traffic revenue risk is a key decision in the design of a transport
PPP contract and the payment mechanism”. The break-even point for Transport projects is high and if such
revenue threshold level is not attained, huge loss would occur.
 Therefore, the project economics is very sensitive to the threshold level of traffic volume, thus proper risk allocation
becomes paramount. It is generally recognized that economic growth will have a direct influence on the
growth of traffic and that the Concessionaire cannot manage or control this element.
 Therefore, traffic risk is allocated to the Concessionaire ONLY in situations of near natural monopoly or when existing
traffic volumes can be measured with reasonable accuracy.
 Usually Authorities provides for extension of the concession period in the event of a lower than expected
growth in traffic. Conversely, the concession period shall be reduced if the traffic growth exceeds the
expected level.
19

20. OPTIONS TO ADDRESS DEMAND RELATED RISK
20

21. Revenues
21
 Where the project is viable without grants, bidders will be asked to make a financial offer to the Government;
 A Flat Concession Fee Per Annum for the concession period
 Availability Payment (Government pays for capacity)
 Sharing Percentage
 (Minimum) Rate of Return / Price CAP Threshold
 Generally, the revenue share quoted for the initial year is increased for each subsequent year (ascending
revenue share) by an agreed percentage (tied to inflation). The same applies to Rate of Return / Price CAP
models were adjustments are carried out periodically.
 The magnitude of the price adjustment depends in part on the price elasticity of demand, i.e. the
responsiveness of demand to a price change. In general demand responsiveness tends to be low for
infrastructure services because as there are few substitutes readily available.
 While a variable revenue policy is essential for managing demand and reducing congestion (like allowing
frequent users discounted rates or having seasonal or off peak discounts) , yet this variability in revenues
which is undesirable!
 Transport project in general has a long start up operating years in loss due to its long dividends.

22. Government Subsidy / Grants (Viability Funding)
 Generally, Bidders seek an appropriate capital grant/subsidy from the Government to
reduce the capital cost to arrive at an acceptable rate of return.
 In the context of a PPP transaction based on pre-stated single financial parameter
competitive bidding, the public sponsor would select the bidder most likely to deliver the
project at the lowest lifecycle cost (least subsidy), thus maximizing value for taxpayers.
 In this bidding type all project parameters such as the concession period, toll rates, fees,
price indexation and technical parameters are clearly stated upfront, and short-listed
bidders will be required to specify only the amount of grant sought by them.
 The project grant sometimes reach up 20% of the project cost, where such assistance is
inadequate for making a project commercially viable, an additional grant can sometimes
be used towards O&M.
 THE MORE Government subsidies, the lesser the program of infrastructure development
will be, thus it is important to rely on cost-effective designs and to combine them with a
phased investment to enable a more efficient and sustainable highway development.
22

23. 23

24. Different Modes BUT!
INTERNATIONAL - Airport to Airport, Air Transport, Small
High Value Loads, Perishable / Non Perishable
INTERNATIONAL - Port to Port, Marine Transport, Heavy
Low / Medium Value Loads, Non Perishables
24
Seaports
Airports
Railways
Roads
Domestic Mostly - Station to Station, Over Land, Heavy Low
/ Medium Value Loads, Non Perishables
Domestic Mostly - Door to Door , Over Land , Small to
Medium Loads, Perishable & Non Perishable
 Modes of Transport DO Compete with each Other in terms of PPP Revenue Context but in a Limited Manner
 Global Threats Nowadays Require Certain Redundancy in Transport Network, This affects PPP exclusivity!

25. PPP Models in Transport
25
Full Divestiture
Technical
Assistance
Service
Contract
Management
Contract
Lease
Contract
Concession
Contract
3-5 yrs
5-15 yrs
1-3 yrs
25-30 yrs
Risktransferredcontractuallytoprivatesector
As the term increases, amount of risk allocated to the private sector is increased
Contract Duration
Limited risk transfer to private sector
Government control
Full risk transfer
No government
control
Substantial risk
transfer
Government
control
Most common
PPP model

26. PPP Groups in Infrastructure Projects
PPP Group Characteristics Government Remuneration
Privatization
(Not PPP)
 100% Sale / IPO  Priority for upfront cash, indefinite Sale
 Framework given by the law
Concession
(Mostly Roads &
Rail)
 Concession defines obligations on
level of service
 Grantor keeps control and looks
for improvement in efficiency and
quality
 Government remuneration can be up-front
payment, or an annual concession fee, or a
combination of both
 Framework given by the concession agreement
 Long term scheme (25 years up to 99 years)
BOT
(Mostly Airports
& Sea Ports)
 Medium term agreement focused
on the immediate implementation
of a capital investment program
 Upfront cash is not a priority
 Annual fee paid to the Government (initial financial
effort is on investment program)
 Framework given by the BOT agreement
 Term is set according to the initial investment
(usually medium term from 15 up to 25/30 years)
with possible extension
JV & Alliance,
etc ( Mostly in O
&M , sub
systems)
 Include a “Public control”
dimension in the company
governance but the Private
Partner remain in charge of
company affairs
 Dividends and Profit Sharing
 Aligns Public and Private economic interests
 Contributes to the cash equity of the company
26

27. Trends in Transport PPPs
27
 Projects are moving from independent comprehensive “all included”
projects (technically innovative stand-alone projects) toward
interlocked sub-systems projects that are integrated with the existing
system / larger system projects.
 Move towards infrastructure/asset only compared to integrated
infrastructure/asset and operation
 Move from traffic-based toward availability-based concessions with
many traffic-based concessions offering commercial risk sharing
mechanisms.
 Move towards low equity participation with the rail sector taking lead
in low self-financing rates. Public funding in traffic-based concessions is
usually near 50%.

28. 28
Seaports

29. Basic Ports Management Models
29
Port Models Infrastructure
& Marine Services
Quay Superstructure
& Equipment
Port
Labor
Other Functions
Public Port Public Public Public Public limited / No role for the
private sector in cargo
handling operations.
Tool Port
(Management
/ Operations
Contract)
Public Public Public Private Investments in port
infrastructure and
equipment (ship/shore )
are decided and provided
by the public sector
Landlord Port
(JV / DBOM /
DBFOM)
Public Public &
Private
Private Private the private sector
executes cargo handling
operations and owns and
operates cargo handling
equipment.
Private Port Private Private Private Private Majority Private

30. Notes on Ports Management Models
30
 Management / Operations Contracts : seen mostly in small ports / terminals for short periods.
 Joint Company Set Up: Observed less frequently but seen in in Middle East , Black Sea; example
Suez Canal ( APM Terminals 65%, Egyptian Government 15%, Egyptian Private Sector 15%).
 Design Build Finance Operate Maintain (DBFOM): Typical contract for long period, global
practice, example Rotterdam.
 100% Private Sector: Observed in UK, example ABP (Associated British Ports).
Port Revenues
Percent of total
charges
Port Tariffs on the Use of Infrastructure 5% - 15%
Berthing Services 2% - 5%
Cargo Handling 70% - 90%
Freight Forwarding 3% - 6%

31. Sea Port Landlord Model (Similar to Cargo Airports)
31 Source : WB PORT REFORM TOOLKIT – Second Edition - Model 3

32. Ports Overlapping Responsibilities
32
Public
Port
Private
Sector State
Joint
Public Port
 Port Planning & Development
 Procure Infrastructure
 Technical Regulation
 Bidding & Contracting
State (Government)
 Economic Regulation
 Customs
 Vessel Clearance
 Road & Rail Access
Private Sector
 Cargo Handling & Storage
 Consolidation and Packaging
 Maintain and Operate Equipment
 Maintain Superstructure
 Procure Mobile Equipment
 Terminal Security
 Mooring Services & Bunkers
Public & Private
 Towage
 Procure Fixed Equipment
 Water, Electricity
 Area Security
Public & Government
 Land Ownership
 Vessel Traffic Control
 Aids to Navigation
 Environmental Regulation
 Safety Regulation
Private & Government
 Infrastructure Construction
JOINT AMONG ALL
 Pilotage
 Channel Maintenance

33. Example; Port of Doqm – Sultanate of Oman
Deep Multi Purpose Port (18m)
33
 50% JV ( Oman Government & Port
of Antwerp Consortium)
 Develop Manage Operate Model With
Usufruct Land Development
 Actual Investment Made by the
Government
 Land Lord part for Petrochemicals &
Minerals
 Adjacent , 2000 km2 Special
Economic Zone, Largest in MENA

34. Example; King Abdullah Port – Saudi Arabia
1st Fully Private Port in MENA
34
 Owned by Ports Development Company
(PDC).
 Regulated by The Economic Cities
Authority (ECA).
 Occupies a total area of 17 square
kilometers
 20 Million TEU (Twenty-Foot Equivalent Unit)
 15 Million MT
 RORO (Roll-on/roll-off – Wheeled Cargo)1.5
Million CEU (Car Equivalent Units)
 55 million m2 Industrial & Logistics Zone,
4.5 million m2 Bonded & Re-Export Zone
 Enjoys close proximity to King Abdullah
Economic City’s Industrial Valley.

35. 35
Airports

36. Growth Factors of Passenger & Cargo Markets –
The Aviation Industry!
36
Passengers;
 Rapidly developing transportation markets
 Growing interests of the Low Cost Carriers, and market stimulation effect
 Passengers Markets Integration
 Participation of national carriers in Alliances
 Seating capacity on international flights continually increasing
Cargo;
 Lessor Cargo Markets Integration. Real intra-continent cargo flows does not exist yet. For example
80 % of inter-continental European air cargo traffic is with Asia and less than 10% with Middle East
countries.
 Huge transit potential, but poor cargo infrastructure at most airports
 Air imports are dominated by IT goods, pharmaceuticals, electronic, machinery parts and textiles
goods

37. Airport PPPs Options
37
O & M PPP Privatization
OPTIONS
 Service Concessions
 Management
Contracts
 Multiple Concessions
 BOT, BOOT, BTO.
 Long Term Leases
 Master Concessions
 Multiple Concessions
 Privatization
 Capital Markets
OWNERSHIP STATE STATE PRIVATE SECTOR
INVESTMENT STATE PRIVATE SECTOR PRIVATE SECTOR
OPERATION PRIVATE SECTOR PRIVATE SECTOR PRIVATE SECTOR
DURATION SHORT MEDIUM TO LONG Long Term
REVENUE Annual fee
A combination of upfront fee
and annual fees
Priority for upfront
payment
BOT = Build-Operate-Transfer; BOOT = Build-Own-Operate-Transfer; BTO = Build-Transfer-Operate; LDO = Lease-Develop-Operate

38. 38
Management Contract –
Cairo International Airport (CIA) – Egypt
 In May 2006, Société Internationale de Télécommunications Aéronautiques (SITA) of Switzerland was
awarded a $7m contract to operate Terminals 1 and 2. Terminal 3 was awarded to Fraport of Germany.
 Fraport Terms; 10 Years. Annual Fee + EBITDA Success Fee. Contract Completed. Fraport is not
required to invest in the either the Egyptian airport company or Cairos airport infrastructure.
 NOW , the airport is administered by the Egyptian Holding Company for Airports and Air Navigation,
which controls four companies: Cairo Airport Company, Egyptian Airports Company, National Air
Navigation Services and Aviation Information Technology, and the Cairo Airport Authority (CAA), which
is the regulatory body.

39. 39
Management Contract – Riyadh - King Khalid &
Jeddah - King Abdulaziz Airports – Saudi Arabia
 EARLIER Management Contract (Fraport) : Annual Fixed Fee + Result Driven Incentives. Started in
June , 2008. Term 6 Years Each.
 Later , Jeddah Airport was 20 YEARS awarded Management Contract in April, 2017 to Changi
Airports International Consortium (Singaporean airport) , but contract cancelled in April 2018.
 The General Authority of Civil Aviation (GACA) shall float new O&M tender for the new KAIA airport.
 GACA awarded a contract to manage and operate Riyadh airport’s new Terminal 5 to Dublin Airport
Authority (DAA) in 2016.

40. PPP - Queen Alia International Airport – Amman ,
Jordan
40
 25 year Build Operate Transfer (BOT) contract and Rehabilitation of existing airport. First phase March
2013.
 Total investment approx. USD 1,200 Mill., Financing from Investors approx. USD 309 Mil (38% Invest
AD, Abu Dhabi, 24% Noor Investments, Kuwait, 18% J&P Cyprus / Greece).
 Lenders: IFC, IsDB, Credit Agricole (CA), CréditIndustrielet Commercial (CIC) , Europe Arab Bank
(EAB), Natixis, Piraeus nd Alfa Bank.
 Grantor (Government of Jordan) receive 54.6 % of Gross Revenue

41. 41
PPP – Prince Muhammad Bin Abdullaziz
International Airport – Medinah, Saudi Arabia
 A 25-year (BTO) concession, Consortuim (TAV Airports of
Turkey and Saudi Oger Limited and Al Rajhi Holding
Group). (SPV TIBAH Airports Development Company
Limited). Same consortium to develop and operate airports
in Yanbu, Qassim and Hail.
 Regulator , Air Traffic Control Operations and Infrastructure
Owner, the Civil Aviation Authority of Saudi Arabia (GACA).
 Financial close on 30 June 2012, US$1.2 billion Shariah
compliant financing package from a club of Saudi Arabian
banks. (NCB, ANB, SABB-HSBC)
 Test Operations April , 2015.
 State-of-the-art 138,000 sqm passenger terminal building
 18 Passenger Boarding Bridges and 20 new remote
stands.
 Awarded Leadership in Energy and Environmental Design
(LEED) Gold certification

42. 42
Railways

43. PPP Examples in Railways - Project Types
43
 Airport Rail Links (ARL): projects typically include not only the construction and
operation of the infrastructure, but also the operation of the dedicated trains that
run between city centers and airports. These PPP trains usually run on pre-
existing conventional networks for part of their trips;
 High Speed Lines: These are usually infrastructure-only projects that connect on
both ends with conventional networks, with open access to train operators. Some
are integrated project (infrastructure and train operation) with no connection to
conventional lines;
 Equipment’s / Rolling Stock: These PPPs may be well suited for the construction
and maintenance of specific equipment’s in order to optimize their lifecycle costs,
such as signaling (GSM-R), power supply and train control or rolling stock;
 Conventional Lines: In lesser numbers, PPPs may be used for the construction and
operation of conventional systems. Such projects are usually less technically
complex and PPPs can add value as in the case of single ownership on cross-
border projects, or increased flexibility for freight corridors or of lack of public
expertise in certain markets.

44. Possible Regional Railway Modes of Operation
44
Single
Operator
Model
• Operate regional services along the cross border mainline
• Can be vertically integrated or would obtain access from single
infrastructure regional manager or national railway companies
Open Access
Competitive
(EU Model)
• Each country rail operator has rights of access to all other
railways in other countries subject to payment of access charge
and available capacity.( access charge issues)
• Requires common rules relating to unfair State subsidies and
competition
• Coordination more difficult, long supply lines
• Volume of goods and passengers in early years may not be
sufficient to support meaningful competition.
Collaborative
Model
• Regional services provided through collaboration between
different railways
• Bilateral agreements for providing services, traction, rolling
stock and train crew
• Revenue sharing system, example joint determination of
services (Particularly passenger)
• Possible cooperation on product development, sales and
marketing, timetable development, passenger fares structure and
ticketing arrangements, etc.
• Possible closer forms of cooperation, e.g. pooling of rolling
stock / other resources or even joint venture

45. Availability Payment Regime
45
 Payment to the Private Sector =
+ Availability + Performance Payments
– Availability Deduction
– Performance Deduction
 Payments based on availability / service quality
 Reward a Concessionaire who makes the railway assets available with full line capacity for the
whole operational day; and
 Reward a Concessionaire who maintains in good condition other assets that do not directly affect
the availability.
 Deductions due to non-availability or deficient assets conditions (below minimum limit)
 Bonus to good condition of other assets that do not directly affect the availability of the railway
 Performance is minority component of the pay structure – a facility can be available, but not or sub
performing (e.g. passengers can not access station, landscaping not maintained to agreement).
 Availability structure creates high quality revenue stream to the concessionaire without demand
risk, thus allowing better access to capital markets.

46. The Shadow Payment Model
46
 Most appropriate for operational contract for rolling stock
 Public partner (tax-payer) pays a rent (leasing) to the concessionaire in proportion to traffic and
infrastructure use based on a previously determined scale / per passenger sum. Public sector
retains control of fares and collection
 Can include hybrid payments with fixed availability payment to cover minimum debt service while
equity return reliant on shadow fares.
 The public authority's payment can also take into account the concessionaire's performance like the
number of trains closed to traffic or safety issues.
 Demand risk on public partner , however, per passenger shadow fare often tapers down with
increased usage to limit public sector exposure and private sector super profits while higher
variable costs with higher usage are accounted for.
 Many of the benefits are retained of both full concession and availability models - flexibility and
concessionaire's financial contribution - without some of the perceived downsides of each.
 Equity return requirement higher than pure availability model but less than concession model.
 Major challenges is for public sector to retain fare flexibility and for private sector to get predictable
cash flow

47. Other Public-Private Arrangements in Railway
47
 Privatization (such as the British Rail track, Japan National Railway or
Canadian National),
 Joint Ventures (such as Russia’s Aero express or Japan’s Sendai Air Link),
 Transport Franchises (such as UK’s Train Operating Companies (TOCs), or
Netherlands’ High Speed Alliance),
 Integrated Operation Concessions (such as Latin America’s freight
networks),
 Rolling Stock Companies (such as UK’s Rolling Stock Companies (ROSCOs),
 Public Concessionaires (such as Fly to get in Norway) or
 Private Projects with Public Regulation (such as Heathrow Express or
Australia’s freight lines).

48. PPP Models Components
Capital Requirements O&M Requirement
48
 Rail Infrastructure
 Rolling Stock
 Systems
 Stations
 Parking
 Rail Infrastructure
 Rolling Stock
 Systems Operations
 Conductors / Fare Collection
 Stations Maintenance / Cleaning
 Parking Revenues
 Parking Maintenance / Cleaning

49. 49
Roads

50. Toll Road BOT Structure – Most Common
50

51. Questions For Tolled Roads Performance Metrics
51
Operations
• Is traffic speeds
satisfactory?
• Traffic Volumes &
Occupancy /
congestion
requirements
• Is pricing dynamic?
– reflects discounts
, time of day, etc.
• Is there violation
enforcement (toll
evasion)
• Maintenance
Targets
Political/
Stakeholder
• What to Do with
Excess Revenue?
• Social equity and
environmental
justice
• Relationship to
transit
• Business rules and
operating policies
Customer
• Does it take me
where I want to go?
• Do I feel safe?
• Is it reliable?
• Is it easy to
understand and
use?
• Does it solve my
problem?
• Value = What else
could I spend my
money on?
Financial
• Will tolls cover
capital and
operating costs?
• Financing
mechanism
• Lender
requirements
• Pricing for
throughput vs.
revenue

52. Toll Charging Concepts
52
 Road tolls were levied traditionally for a specific access (e.g. city) or for a specific
infrastructure (e.g. roads, bridges). The evolution in technology made it possible to
implement road tolling policies based on different concepts.
 The different charging concepts are designed to suit different requirements regarding
purpose of the charge, charging policy, the network to the charge, tariff class
differentiation etc.
Time Based Charges and Access Fees: a road user has to pay for a given period of time in
which he may use the associated infrastructure. For practically identical access fees are
charged, the user pays for the access to a restricted zone for a period or several days.
Motorway / Passage Tolling: Tolling can be used for charging bridges, tunnels, mountain
passes, motorway concessions or for the whole motorway network of a country.
Distance or Area Charging: In a distance or area charging system concept, vehicles are
charged per total distance driven in a defined area. Some toll roads charge a toll in only one
direction like city-bound

53. Public vs. Private Toll Road Structures
53
Public Private (PPP)
Goals
 Improve transportation
 Respond to political environment
 Maximize present value cash flow
 Provide customers a quality product
Tolling/Revenue
Restrictions
 Toll increase typically limited to
covering O&M and debt repayment
 Political pressure
 Toll rate covenant / commitment
 Set tolls at lesser of (1) market level
and (2) concession agreement limitation
 Political Pressure to Public Entity
 Typically no toll rate covenant
Financing
 Government Funding
 International Loans
Tax-Exempt Debt
 Equity (15-30% of financing)
Purpose of Debt
 Finance initial development and
subsequent improvements
 Maximize leverage to minimize cost of
capital/maximize bid price
Traffic/Revenue
Modeling
 Focus on cost recovery/downside  Focus on business approach and
upside for equity
Surplus Revenues
 Fund capital improvements for
facility and other eligible projects
 Fund capital improvements for facility
 Recurring equity dividend payments

54. Options for Existing Toll Facilities
54
Maximum Public Control Maximum Private Control
Management Agreement Long Term Concession Privatization
Management contract up to 15
years
Long term lease (can be up to
99 years). Public maintains title
ownership
Ownership of asset / title
Acquisition
Management contract subject to
termination similar to other vendor
contracts
Public can reclaim revenue and
operations of asset in event of
non-performance or default
Private Entity has
ownership, operating
flexibility and
responsibility
Private Entity manage road and
receives fixed compensation with
limited incentives tied to revenues
Private Entity has operating
risk/management responsibility
No limitation on tolling
Public Entity retains overall
operating risk/management
responsibility
Various types of limits on
possible revenue
Bears full risk

55. Payment Features Of Tolling Models
55
Real Tolls Shadow Tolls
Availability/ Performance
Base Mechanisms
Road users pay for
use of the asset
No actual tolls are collected from public. Total
cost of project falls on public purse.
Concessionaire is paid for making road
available for public use by the Authority.
Sometimes mixed with real tolls
Often some form of
subsidy/ very long
concession period
are needed.
Concessionaire is paid by Authority on road use
– the more the road is used the more the
concessionaire is paid!
The concessionaire pays a non-availability
payment to authority for road or lane
closures out of toll revenue.
Accurate traffic
volumes forecasts
are critical to meet
debt service and
equity return for
sponsors.
Usually a banding mechanism, which applies
different tolls to different levels of traffic is
adopted. Commonly;
Amount of deduction/ non-availability
payment usually determined by reference to
factors including:
Base Case – designed to service senior
debt but not to provide return on equity
Length of project road that is
unavailable
Higher Bands – provide a return on equity Number of lanes affected
Top Band – usually has a toll rate of zero to
cap amount payable to concessionaire
Duration (& time of day) of
unavailability

56. Comparisons Of the Basic Tolling Models
56
Real Tolls Shadow Tolls
Availability/ Performance
Base Mechanisms
Zero cost to the
Government
Can introduce PPP structures where
environment is perceived to be hostile
to real tolls.
Absence of traffic/ revenue risk
simplifies project
Government has fiscal
space to
fund other projects
Prepare way for real-tolled roads by
cultivating an industry to take traffic
risk
Lower level of due diligence needed
Reluctance by investors
to become involved!
Multiple sources of funding can be
drawn on by concessionaire.
Reduces financing risk on
concessionaire – making project
cheaper
High traffic risk to the
concessionaire
Mechanism of traffic risk transfer
(bands) reduce complexity of project
and reduce level of due diligence
required
Removes emphasis on monitoring traffic
flows during operational period
Potential consumer
resistance to paying for
road use
Indirect charge to users like fuel Tax!
No consumer resistance

57. Emerging PPP Toll Models
 New “INCENTIVE” models are being adopted from the utility industry based on the merits that some investors
are attracted to being able to share the project’s upside with the government in return for some protection
from downside demand risk.;
 Also, this is driven in part by the slow growth of project bond markets, Basel III Banking reforms, and
conservatism among senior debt lenders to structure PPPs to mitigate or retain risks that private investors no
longer find acceptable.
 Such models include; “The Rate Of Return Model”, “Price Cap Model”, and “SHARING” models
 The rate of return (RoR) model balances consumer and investor interests by placing a limit directly on the
allowed rate of return on investment, and setting a regulated price on the service which can be adjusted at set
intervals.
 The Price “CAP” Model allows a maximum allowable price, or “CAP”, that would be permitted to increase at a
rate tied to, but below, inflation as measured by for example the Consumer Price Index (CPI).
 The Sharing Model, in this model the Investor is required to share the project’s upside potential with the
government, in turn, provides some protection from demand risk on the downside.
57

58. RoR Model Example
58
For a given level of demand, operations and maintenance cost risk effect is
illustrated by the two lines (Blue & Green) that are parallel to the red line.

59. CAP Model Example
59
 In the price cap model, the incentive is to minimize costs as the focus of regulatory control is price, not profit;
 There is added incentive than the user fee model to improve efficiency and reduce costs beyond the level
required by the productivity factor to boost profit , however, high preset productivity factor may deter bidders.

60. Demand Risk in the CAP Model
60
 Similar to the basic user fee model, under a pure price cap model, demand risk is entirely borne by the private partner.
 If demand falls short or exceeds expectations, the firm’s total revenue will rise or fall proportionately (the dashed black line).

61. 50% Sharing Of High And Low Returns
 The private partner retains all profits in the central range, likely outcomes, while shares profit outside the range.
 The solid blue lines represent the private sector return above and below the negotiated return thresholds.
61

62. Minimum Profit Guarantees & Maximum Profit Cap
 Complete downside protection to the private partner is provided in exchange for a limit on the
upside (The Solid Red Lines).
62

63. TURKY – Eurasia Tunnel
Stakeholders Finance
63
 Grantor: Republic of Turkey Ministry of
Transport, Maritime Affairs and
Communication Guarantor : Republic of
Turkey Under secretariat of Treasury
 Concessionaire : Avrasya Tüneli İşletme
İnşaat ve Yatırım A.Ş. (ATAŞ)
 Equity investors :
 Yapı Merkezi İnşaat ve Sanayi A.Ş. and SK
Engineering & Construction Co. Ltd
 Yapı Merkezi İnşaat ve Sanayi A.Ş. and SK
Engineering & Construction Co. Ltd Joint
Venture (YMSKJV)
 Total Investment: $1.245 billion
 Equity: $285 Million
 Loan: $960 Million
 Concession period :29 years
 Traffic guarantee: 68,000 vehicles per day.
 Concessionaire returns: 30% of revenue
over guarantee to Grantor.
 Toll: $4.00 (+18% VAT) for cars.
 Debt financing
 $500m. Direct loans: EIB, EBRD, Korea
EximBank.
 $210m. Commercial bank loans
guaranteed by Korea Export Insurance
Corporations: Sumitomo Mitsui Banking
Corporation, Standard Chartered Bank,
Mizuho Bank.
 $200m. EIB loan guaranteed by three
Turkish commercial banks.

64. 64

65. Use of PPP in Infrastructure
 Infrastructure whether financed through traditional methods or PPPs relies on funding sources to
repay financing, whether debt, equity, or a combination.
 All infrastructure investments ultimately depend on either user fees, government tax revenues, or a
combination of both.
 Therefore, community and political support for greater investment of government tax revenues or
the imposition of user fees is critical to expanding investment in public infrastructure.
 The challenge is for PPPs to demonstrate overall cost savings and efficiencies that outweigh the
lower-cost financing advantage of traditional procurement.
 Whether government should bear demand risk in transport projects is therefore controversial
 Chile, Colombia, Korea, and Spain, for example, have provided revenue guarantees (often in return for
upside risk sharing).
 Italy and Turkey gave revenue guarantees for privately financed railways in the nineteenth century.
 Australia, Canada, United States have not given guarantees.
65

66. PPP’s : A Win-Win Solution For Infrastructure
Government
Objectives
Private Sector
Goals
Alleviation/removal of
the Government’s role
Injection of private
capital in public services
Increased budgetary
certainty
Introducing private
sector efficiencies
PPP
Maintaining oversight to
ensure quality
Attractive risk weighted
returns
Government guarantees
mitigate certain risks
Long-terms investment
opportunities
Upside from operational
outperformance
To operate under a clear
regulatory framework
66

67. Unaccounted Costs in Public Financing Versus PPP
Capital and operating costs are paid for by the public
sector, including costs related to cost overruns and late
delivery of the infrastructure.
Cost
Overruns
Construction
Phase
Operation & Maintenance
Phase
O&M Cost Overruns
Estimated
Investment
Costs
O&M Costs
100% Public Financing
Delays
Costs
Time
The public sector only pays over the long term once the
infrastructure has been delivered according to contractual
requirements.
Construction
Phase
Operation & Maintenance
Phase
Payment to private sector to cover
fixed and variable costs
(Incl. debt service and equity return)
PPP
Costs
Time
67

68. Major Risks in an Infrastructure Project
68
Risk Category Example of Downside Risk
Design Design flaws
Construction Construction cost overruns, Delays to completion
Operations Higher operations costs
Maintenance Higher maintenance costs
Performance Periods of service unavailability, Lower service quality
Policy New competing capacity
Demand (Revenue) Lower utilization than initially forecasted
Financial Higher interest rates, Less favorable exchange rates
Political Adverse Law Change , New Taxes

69. Successes and Failures of PPP Road Projects
69
By aligning investor
and Government
interests considering
their different risk
preferences and return
expectations, the
potential to increase
the number of PPP
deals and increase the
odds of the projects’
long-term success
becomes bigger.

70. Lessons learned Worldwide in Toll Roads
Success Causes For Failure
70
 Procurement process was
transparent
 Focus on creating public awareness
(tolling culture)
 Government learned as program
developed and made adjustments
 Attracting international firms
brought finance, credibility, know-
how etc.…
 Small contract duration and low
traffic resulted in high tolls.
 Existence of free roads contributed
to financial distress of
concessionaires
 Public resistance (willingness to pay
not assessed)
 Overly optimistic traffic forecasts
studies
 Undefined public contribution of
funds.

71. Key Success Element is Project Planning & Structure!
 PPPs are complex and time demanding structures that required full time dedicated resources from
the public sector entities responsible transport infrastructure development.
 Strong international competition requires to use international best practices in preparing, procuring
and monitoring PPP projects
 Consideration should be given to a Coordinating Transport PPP Unit that should ensure;
 Well planned projects with realistic parameters to promote competitive bidding.
 Highly structured bids; RFP, pre-qualification, bidding, detailed face-to-face negotiations.
 Performance-based Operation , Maintenance and Management Contracts
 Smart tools for public subsidy
 Projects structure to withstand dips in traffic / revenue
 Limitations on Capital Leverage : EBITDA/debt and EBITDA/finance charges
 Built in scheduled renegotiations every 5 years for contract maintenance
 Smart and effective risk mitigation products supporting PPPs if it goes wrong!
71

72. Watch for; Distressed Concessionaires Behaviors
72
 Infrastructure & Transport Sectors projects are very political entities and governments will still be
held responsible by citizens, thus Moral hazard (tax payers bailout) is real and Investors expect part
of the revenue short fall to be compensated by public authorities in distressed situations.
 Prior to contract signing, there is a strong will of the public sector to make the project happen, and
is therefore ready to take more risks, to give more guarantees than intended as follows;
 Ridership / Traffic Guarantees (the public authority providing guarantee floor to commercial revenue between
anticipated and actual)
 Full or Partial Loan Guarantees (the public authority pays part of the financial charges if the concessionaire is
unable to handle them).
 Prime investors in PPPs are usually builders or suppliers and therefore, their maximum loss, once
construction risk is mitigated, is in the range of the equity contribution to the project which is
minimal.
 Experience suggests that negotiations between public authorities and prospective concessionaires
are rather asymmetrical, and lead to asymmetric risk sharing. Concessionaires have extraordinary
bargaining powers as they know no competition exists after the concession is signed.

73. loay.ghz@gmail.com , +973-36711547
73
Loay Ghazaleh, a 1986 Texas A & M
Civil Engineer with MBA 2000
Finance from Thunderbird – Arizona.
Loay, is backed by over 25 years in
PPP's, Infrastructure, Coastal
Property Development, Construction
and Management Consulting
spanning Bahrain, UAE, Jordan,
India, Brazil, Philippines, Saudi
Arabia & Palestine.
Loay for the past 10 years has served
as the Advisor to H.E. Undersecretary
of the Ministry of Works in the
Kingdom of Bahrain.