East Asian PPPs in a Global Context Asia-Singapore Infrastructure Roundtable Cledan Mandri-Perrott, Lead Financial Officer...
2 What is the potential for PPPs?
Infra Financing Gap Current Infrastructure Finance Yearly Infra Finance Needs – Developing Countries c. $1 trillion c. $ 1...
Future financing requirements for infrastructure Future investment requirements 2020 EAP (35–50%) ECA (5–15%) LAC (10–15%)...
$125 B $30 B $5 B $58 B $52 B $26 B $11 B Private vs. PPP Priv & Public Debt & Equity Divestitures Telecom Private Equity ...
0 50 100 150 200 250 300 350 400 450 0 50 100 150 200 1990 1995 2000 2005 2010 2011 2012 Private investment in infrastruct...
Cumulative by Country over last 5 years Source: World Bank Infrastructure Policy, PPI Database
Latin American APEC members tend to attract more private investment in infrastructure… Source: World Bank and PPIAF, Priva...
Room for Greater Leverage in EAP 0.0% 0.5% 1.0% 1.5% 2.0% EAP ECA LAC MNA SA AFR PPI % of GDP, 2012 2 14 25 71 111 131 340...
10 How is the risk appetite for investment?
-0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0 10 20 30 40 50 60 70 80 90 FDI/GDP Country Risk Correlation between Country Risk and pr...
PPI and Sovereign Risk -0.003 -0.001 0.001 0.003 0.005 0.007 0.009 0.011 0.013 0 20 40 60 80 100 PPI/GDP Country Risk Corr...
13 New environment – costlier and more uncertain Before the crisis Now Dominated by Banks (US & Europe) Caution by Commerc...
14 - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 Pre-Crisis Crisis & Post-Crisis Equity Bond Loan 18 % 28 % So...
15 What instruments are out there?
16 Risk mitigation - Tools Risk Instrument Availability Convertability, expropriation Political Risk Insurance High – MIGA...
17 Where is support needed? Where do the opportunities lie?
UPSTREAM knowledge strategic advice transaction support financing and guarantees PPP / Infra Data & Trend Analysis M&E / I...
Debt Financing Costs Capital Expenditures / Depreciation Operational Expenditures Dividends / Return on Investment Revenue...
Debt Financing Costs Capital Expenditures / Depreciation Operational Expenditures Dividends / Return on Investment Revenue...
Debt Financing Costs Capital Expenditures / Depreciation Operational Expenditures Dividends / Return on Investment Debt Fi...
Debt Financing Costs Capital Expenditures / Depreciation Operational Expenditures Dividends / Return on Investment Debt Fi...
Assess PPP Prospects WBG Support for Infrastructure Finance Projects Transaction Structuring Implement Tender Bid Award & ...
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East Asian Public-Private Partnerships in a Global Context

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This presentation was given by Cledan Mandri-Perrott, Lead Financial Officer, World Bank, at the OECD Southeast Asia Regional Forum, held March 25-26 in Bali, Indonesia.

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  • Private INV in 2012 =182Telecom $52.4 billionDivestitures $5 billion Remaining INV = 124.6At this point at least 31.5% is private. Based on a survey of Brazil, India and Mexico done for our Brazil ESW for the remaining sectors En. Tr. and Water, Mexico had 38%+5% from = 43% from public sources, Brazil 70%+5% IFI=75% public Our report in India indicates that approximately 80% of debt is from public sources.I realize that I am taking shortcuts and not weighting the AVG, but here you end up with (43+75+80)/3= 66%If we assume a standard D/E ratio of 70:30, then .70 * .66 = .462 or 46.2% of the remainder 124.6 is from public sources. (i.e. 57.5 billion)57.5/182 = 32% from public debt sources or 57.5 billion Without telecom it would be about 46% Public sources may also finance these projects through equity, which has not been included here. In Russia, the percentage of private equity is only about 60%, in China it is 68%.
  • APEC member states in Latin America tend to have greater private participation in infrastructure, particularly in energy, transport and water.LATAM APEC countries have been better at attracting PPI, partly because of better institutional structures coupled with clarity of legal regime (contract enforceability) as well as better developed regulatory structures (gives long term certainty – a critical factor for long term investors)ASEAN APEC countries have a long way to catch up. In some instances (eg China) although public investment has increased as a share of the total infra investments, actual PPI has come down. For example, China:Attracts the lowest share of PPI in APEC (excluding US and Canada). China PPI has been reducing steadily from 4% in 2006 to 0.01% in 2011.Despite PPI reduction, China has rapidly increased its public spending on infrastructure since the financial crisis (possibly crowding out the private sector).
  • We built a panel data of 124 developing countries between1990 and 2010.The Country Risk ratings were obtained from Euromoney and are calculated as follows:• Political risk (25%—non-payment or non-servicing of payment for goods or services, loans, trade-related finance and dividends; and non-repatriation of capital)• Economic performance (25%—GNP per capita, and average from poll of economic projections)• Debt indicators (10%)• Debt in default or rescheduled (10%)• Credit ratings (10%—average of Moody's, S&P and Fitch IBCA)• Access to bank finance (5%)• Access to short-term finance (5%)• Access to capital markets (5%)• Discount on forfeiting (5%) (average maximum tenor for forfeiting and average spread overriskless countries)We also have the (International Country Risk) ICR ratings, and although EM and ICR move in similar directions and are highly correlated, we decided to use Euromoney’s ratings because the sample they offered was larger—it covers countries like Cambodia, Georgia, Rwanda and Tajikistan.These are the results of a random effect model, although the fixed effect model showed similar results.In this specification (with the lag of the explained variable as an explanatory variable) we can see a significant relation between between Country Risk and PPI/GDP, but not between Country Risk and FDI/GDP.The specification with a lag is utilized in the literature as an approach to forecasting. If we want to predict the percentage of investments, the country risk is an excellent predictor in the case of PPI, but not for the case of FDI where the coefficient related to Country Risk is zero.
  • We can see the same story when we breakdown by Greenfield Projects and Concessions Projects. On average the Greenfield projects are more sensitive than Concessions to a change in the country risk, but there are still very different investments for a given country risk, while for the case of Concessions the country risk has a more accurate impact for the whole sample.

    • East Asian Public-Private Partnerships in a Global Context

    1. 1. East Asian PPPs in a Global Context Asia-Singapore Infrastructure Roundtable Cledan Mandri-Perrott, Lead Financial Officer, Infrastructure Policy Singapore Hub The World Bank
    2. 2. 2 What is the potential for PPPs?
    3. 3. Infra Financing Gap Current Infrastructure Finance Yearly Infra Finance Needs – Developing Countries c. $1 trillion c. $ 1 - 1.5 trillion PPI = $182 billion MDBs = c.$40 billion Green Investment Gap c. $ 0.2 – 0.5 trillion
    4. 4. Future financing requirements for infrastructure Future investment requirements 2020 EAP (35–50%) ECA (5–15%) LAC (10–15%) MENA (5–10%) SA (20–25%) SSA (5–15%) $1.8–$2.3 By region 2020 Water (15–30%) Electricity (45–60%) Telecom (10–15%) Transport (15–25%) $1.8–$2.3 By sector Source: “Infrastructure for Development: Meeting the Challenge”, background paper for Brookings-G24 High-Level Seminar, April 11, 2012, Washington, DC. The estimates are based on various World Bank papers and a paper on infrastructure prepared by the MDBs for the G20 in 2011. Note: MENA=Middle East and North Africa; SSA=Sub-Saharan Africa; ECA=Eastern Europe and Central Asia’ LAC=Latin America and Carribean; SA=South Asia; EAP =East Asia and Pacific ($ trillion per year, 2008 constant prices – financing figures in $ billion) 4
    5. 5. $125 B $30 B $5 B $58 B $52 B $26 B $11 B Private vs. PPP Priv & Public Debt & Equity Divestitures Telecom Private Equity Public Equity Public Debt Private Debt PPPs How much of PPI is private? Source: World Bank Infrastructure Policy, PPI Database
    6. 6. 0 50 100 150 200 250 300 350 400 450 0 50 100 150 200 1990 1995 2000 2005 2010 2011 2012 Private investment in infrastructure in low and middle income countries, by region EAP ECA LAC MNA SAR AFR # of projects 2012 US$ billions* Source: World Bank Infrastructure Policy, PPI Project Database. * Adjusted by US CPI How much private infrastructure investment is going into East Asia?
    7. 7. Cumulative by Country over last 5 years Source: World Bank Infrastructure Policy, PPI Database
    8. 8. Latin American APEC members tend to attract more private investment in infrastructure… Source: World Bank and PPIAF, Private Participation in Infrastructure Database 0.00% 0.40% 0.80% 1.20% 1.60% 2.00% China Vietnam Indonesia Malaysia Thailand Chile Philippines Mexico Peru PPI as a % of GDP in Low and Middle Income APEC Economies (excluding telecom)
    9. 9. Room for Greater Leverage in EAP 0.0% 0.5% 1.0% 1.5% 2.0% EAP ECA LAC MNA SA AFR PPI % of GDP, 2012 2 14 25 71 111 131 340 0 50 100 150 200 250 300 350 400 China Indonesia India Russian Federation South Africa Turkey Brazil PPI Investment per person, 2012 Source: World Bank Infrastructure Policy, PPI Database
    10. 10. 10 How is the risk appetite for investment?
    11. 11. -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0 10 20 30 40 50 60 70 80 90 FDI/GDP Country Risk Correlation between Country Risk and predicted value of FDI/GDP FDI/GDP predicted Linear (FDI/GDP predicted) FDI and Sovereign Risk Source: Araya, Schwartz & Andres, World Bank (2013)
    12. 12. PPI and Sovereign Risk -0.003 -0.001 0.001 0.003 0.005 0.007 0.009 0.011 0.013 0 20 40 60 80 100 PPI/GDP Country Risk Correlation between the predicted value of PPI Concessions/GDP and Country Risk PPI concessio ns/GDP predicted Linear (PPI concessio ns/GDP predicted) -0.003 -0.001 0.001 0.003 0.005 0.007 0.009 0.011 0.013 0 20 40 60 80 100 PPI/GDP Country Risk Correlation between the predicted value of PPI Greenfield/GDP and Country Risk PPI green field/GDP predicted Linear (PPI green field/GDP predicted) Source: Araya, Schwartz & Andres (2013) Source: Araya, Schwartz & Andres (2013)
    13. 13. 13 New environment – costlier and more uncertain Before the crisis Now Dominated by Banks (US & Europe) Caution by Commercial Banks: Increase of financing costs & restructuring balance sheets due to Basel III Monoline Insurance for total wrap Disappearance of Monoliners Price (for UK): LIBOR +90bps Price (for UK): LIBOR + 275 bps Term (for UK): 30 years Term (for UK): <7 years
    14. 14. 14 - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 Pre-Crisis Crisis & Post-Crisis Equity Bond Loan 18 % 28 % Source: World Bank Calculations from ProjectWare Database Gearing has decreased
    15. 15. 15 What instruments are out there?
    16. 16. 16 Risk mitigation - Tools Risk Instrument Availability Convertability, expropriation Political Risk Insurance High – MIGA, commercial insurers Breach of contract, Regulatory Change Non-honoring Contractual & Regulatory Cover Partial Risk Guarantee Moderate but increasing WB, MIGA, some private insurers Debt service Partial Credit Guarantee High – WB / IFI’s, private insurers ForEx Cover Devaluation Low to none Construction Ramp-up (early demand) Project Bonds New PPP Structures Under design
    17. 17. 17 Where is support needed? Where do the opportunities lie?
    18. 18. UPSTREAM knowledge strategic advice transaction support financing and guarantees PPP / Infra Data & Trend Analysis M&E / Impact Evaluation Infra Planning & Investment Prioritization Regulatory Framework PPP Units and Regulatory Capacity Best Practices & Standardized Contracts Sector Strategy / Market Structure Project Design/ Feasibility VGF Estimates / Financial Structure Bidding Documents and Transaction Gov’t PPP / VGF Financing DOWNSTREAM Project Pipeline Development Design of New Facilities Design of New Risk Instruments Private Debt & Equity Guarantees Where is support needed
    19. 19. Debt Financing Costs Capital Expenditures / Depreciation Operational Expenditures Dividends / Return on Investment Revenues Costs User Fees, Tariffs or Tolls Closing the Project Viability Gap
    20. 20. Debt Financing Costs Capital Expenditures / Depreciation Operational Expenditures Dividends / Return on Investment Revenues Costs d Rev’s User Fees, Tariffs or Tolls Government Transfers Closing the Project Viability Gap
    21. 21. Debt Financing Costs Capital Expenditures / Depreciation Operational Expenditures Dividends / Return on Investment Debt Financing Cap Ex / Depreciation Op Ex Dividends / RoI Reduce Costs Revenues Costs Costs with Support d Rev’s Cost Reduction Measures User Fees, Tariffs or Tolls Government Transfers Closing the Project Viability Gap
    22. 22. Debt Financing Costs Capital Expenditures / Depreciation Operational Expenditures Dividends / Return on Investment Debt Financing Cap Ex / Depreciation Op Ex Dividends / RoI Reduce Costs Revenues Costs Costs with Support Loan, Partial Risk Guarantee, Partial Credit Guarantee, Political Risk Insurance PRI, PRG, Financing of project preparation Analysis and Research PPP design, regulation, market structure. Equity investment in providers Political Risk Insurance, Partial Risk Guarantee d Rev’s Cost Reduction Measures User Fees, Tariffs or Tolls Government Transfers WBG Tools Closing the Project Viability Gap
    23. 23. Assess PPP Prospects WBG Support for Infrastructure Finance Projects Transaction Structuring Implement Tender Bid Award & Contract Signing Construction & Commercial Operation Date Contract Management 1-2 months 6-9 months 9-12 months 1-2 months 2-3 years 10-30 years Identification Phase 1: Structuring Phase 2: Implementation Project Construction & Operation Project Preparation Active Project IFC PPPAS (Structuring & Tendering Advice) World Bank Policy Advice IFC Equity Investment World Bank / MIGA IFC (Lender) World Bank/MIGA IFC Advisory/Investments World Bank

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