C.R.E.A.M. PPP Business Model


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PPP, Public Private Partnership, MasterPPPlan, EuroPPP, MasterPPP ILM, Competitive Dialogue, JESSICA, EIB, European Union, Project Finance

Published in: Real Estate, Business

C.R.E.A.M. PPP Business Model

  1. 1. Concept of a Business Model for the Support of PPP Projects MasterPPPlan Business Model
  2. 2. Overview Content <ul><li>About Us </li></ul><ul><li>Initial Situation </li></ul><ul><li>Definition of PPP </li></ul><ul><li>MasterPPPlan Development Strategy </li></ul><ul><li>PPP Procurement Procedures </li></ul><ul><li>Competitive Dialogue </li></ul><ul><li>Project Finance </li></ul><ul><li>EuroPPP Initiative </li></ul><ul><li>MasterPPP ILM </li></ul><ul><li>MasterPPPlan Business Model </li></ul><ul><li>Contact Address </li></ul>
  3. 3. C.R.E.A.M. Europe PPP Alliance About Us <ul><li>PPP network for reconstruction and development </li></ul><ul><li>C OMMUNITY R EALIZATION E UROPEAN A ID M ASTERPLAN </li></ul><ul><li>PPP Think Tank consisting of 8 national PPP associations at present </li></ul><ul><li>Using PPP as a sustainble regional development strategy </li></ul><ul><li>PPP project participants, PPP adviser, PPP bidder, </li></ul><ul><ul><li>European and independent </li></ul></ul><ul><ul><li>Active in new EU member countries, EU candidate countries and EU third countries </li></ul></ul><ul><ul><li>In cooperation with the EU institutions and international PPP competence centres </li></ul></ul><ul><li>Link between Western, Central and Eastern Europe </li></ul><ul><ul><li>Economy </li></ul></ul><ul><ul><li>Science </li></ul></ul><ul><ul><li>Politics </li></ul></ul><ul><li>Accelerator for EU Enlargement and sustainable regional development </li></ul><ul><ul><li>MasterPPPlan – Initiative for European PPP Region </li></ul></ul><ul><ul><li>EuroPPP – Initiative for European PPP Bidder </li></ul></ul><ul><ul><li>MasterPPPlan Adviser – European PPP Procurement Manager </li></ul></ul><ul><ul><li>EuroPPP Adviser – European PPP Bid Manager </li></ul></ul><ul><ul><li>MasterPPP ILM – Infrastructure Life Cycle Management for PPPs </li></ul></ul>
  4. 4. C.R.E.A.M. Europe PPP Alliance National PPP Associations Liaison Office National PPP Association European PPP Association MasterPPP ILM Competence Centre
  5. 5. Initial Situation General Interests PPP <ul><li>Interests </li></ul><ul><li>Fast Realization </li></ul><ul><li>Better Service for Citizens </li></ul><ul><li>No Debt </li></ul><ul><li>But </li></ul><ul><li>No Money </li></ul><ul><li>No PPP Knowledge </li></ul><ul><li>No Lifecycle Approach </li></ul><ul><li>Interests </li></ul><ul><li>Sustainable Regional Development </li></ul><ul><li>Optimal Usage of EU Grants </li></ul><ul><li>But </li></ul><ul><li>Competition between Regions </li></ul><ul><li>Competition between Companies </li></ul><ul><li>No Project Development </li></ul><ul><li>Interests </li></ul><ul><li>New Business </li></ul><ul><li>New Markets </li></ul><ul><li>New Partners </li></ul><ul><li>Access to Capital </li></ul><ul><li>But </li></ul><ul><li>No Risks </li></ul><ul><li>No Partners </li></ul><ul><li>No Venture Capital </li></ul><ul><li>No PPP Knowledge </li></ul><ul><li>No EU Knowledge </li></ul><ul><li>Interests </li></ul><ul><li>Long-term Investments </li></ul><ul><li>Safe Investments </li></ul><ul><li>Infrastructure is a new Asset Class </li></ul><ul><li>High Returns </li></ul><ul><li>But </li></ul><ul><li>Looking for objects in operation </li></ul><ul><li>No Risks </li></ul>Unites all interests at a right procedure to a Win-Win situation EUROPE PUBLIC PRIVATE FINANCE
  6. 6. Initial Situation Problem Tree Limited number of PPP projects and questionable efficiency of PPP projects Problems in regulating PPP projects and Strategic management of PPP programme Lack of interest in PPP projects Difficulties in PPP project implementation Deficiencies in operating environment and lack of capacity in Governments to promote, Develop, operate and manage PPP projects Lack of awareness at the policy-making level concerning PPP Lack of institutional mechanism for capacity- building, information sharing and absence of Project development facility Lack of easily accessible relevant information and knowledge on PPPs Unassessed state of PPP-readiness Lack of knowledge concerning specific requirements (legal, financial, regulatory, etc.) Lack of cooperation between agencies involved in implementing PPP projects Lack of cooperation between government agencies and training institutions Suitable capacity-building materials and other training materials are not readily available Effects Causes
  7. 7. Initial Situation Object Tree Increased number and investments, in and efficiency of PPP projects Strategies designed and legal and regulatory regime established to create conducive environment Establishment of a regular PPP programme Improved project implementation process Improved operating environment and enhanced capacity of Governments to promote, develop operate and manage PPP projects/programmes National awareness in creating conducive environment for PPP development Institutional mechanism for capacity development through networking of PPP units, programmes, training and academic institutions, and the private sector On-line PPP capacity-building facility, resources and relevant project information accessible to all parties National programmes Action plans PPP-readiness assessment (in paricipating countries) PPP Global Alliance (Established through an inter-regional meeting) National training institutions Internet-based system development End Means PPP regional Alliance (Established through an regional meeting) PPP national Alliance (National meetings and capacity-building workshops) PPP-readiness assessment (in paricipating countries) System installation
  8. 8. C.R.E.A.M. Europe PPP Alliance Implementation of PPPs <ul><li>Using PPP as sustainable regional development strategy </li></ul><ul><ul><li>Transparent procurement as a Competitve Dialogue </li></ul></ul><ul><ul><li>Lifecycle approach during project development </li></ul></ul><ul><ul><li>Project Finance based on projected revenues from the facility </li></ul></ul><ul><ul><li>Contractual PPP with clear risk sharing </li></ul></ul><ul><li>EuroPPP Initiative for Private Side </li></ul><ul><ul><li>Specialization on facility type with life cycle approach </li></ul></ul><ul><ul><li>Strategic building of PPP consortia </li></ul></ul><ul><li>MasterPPPlan Initiative for Public Side </li></ul><ul><ul><li>Realization of infrastructure by transparent PPP procurements </li></ul></ul><ul><ul><li>Competitive Dialogue with standardized procurement packs (output specifications, cashflow models, risk matrix, PPP contracts for different facility types) </li></ul></ul>
  9. 9. Public Private Partnership Definition <ul><li>Free infrastructure </li></ul><ul><li>Just about finance </li></ul><ul><li>Just building infrastructure </li></ul><ul><li>Just about involving the private sector </li></ul><ul><li>Privatisation, simple concessions, outsourcing or property development </li></ul><ul><li>A method to make a bad project good </li></ul><ul><li>Better procurement </li></ul><ul><li>Public sector reform </li></ul><ul><li>Better strategic planning </li></ul><ul><li>Building and maintaining good infrastructure </li></ul><ul><li>Better services for the taxpayer </li></ul><ul><li>Sharing of risks between most appropriate parties </li></ul><ul><li>Public and private sectors working together </li></ul>PPP is not PPP is
  10. 10. Public Private Partnership Advantages and Constraints <ul><li>Complex structure & documents </li></ul><ul><li>Time-consuming to arrange </li></ul><ul><li>High up-front costs </li></ul><ul><li>Demands significant senior staff attention </li></ul><ul><li>Project choice important </li></ul><ul><li>PSC methods need refining </li></ul><ul><li>Difficult to resolve when in default </li></ul><ul><li>Needs legal framework </li></ul><ul><li>Acceleration of infrastructure provision </li></ul><ul><li>Faster implementation </li></ul><ul><li>Reduced whole life costs </li></ul><ul><li>Better risk allocation </li></ul><ul><li>Better incentives to perform </li></ul><ul><li>Improved quality of service </li></ul><ul><li>Generation of additional revenues </li></ul><ul><li>Enhanced public management </li></ul>PPP CONs PPP PROs
  11. 11. Public Private Partnership PPP Value Drivers
  12. 12. MasterPPPlan Regional Development Strategy MASTERPPPLAN REGIONAL DEVELOPMENT STRATEGY SUPPORT TO ENTERPRISES HUMAN RESOURCES ATTRACTIVITY OF THE AREA Non financial services Information Audit / Advice Training Awareness raising Common services Financial services Grants Loans Guarantees Venture Capital Factoring - Leasing Intermediate structures Development agencies Venture capital companies Technology transfer agencies Local infrastructure Enterprise centres Incubators Industrial parks Science parks First-Stop-Shops direct indirect KNOWLEDGE SOCIETY Education Training Employment creation Integration of less-favoured people and minority groups Territorial pacts Employment needs`analysis LOCATIONAL FACTORS Infrastructure Environment Industrial promotion Inward investment Reclamation of derelict land Promotion of the region Tourism Clusters Internationalisation Research, Innovation and Technology transfer Information Society
  13. 13. MasterPPPlan Resource Base of a Region Regulation Policy +Zoning +Permitting +Environmental Taxes Services +Police +Fire +Solid waste Education/ Training Ecenomic development Social service Community based Religious Cultural Environmental Unions Universities and colleges Federal labs Private reserach institutions Corporate reserach centres Air Ground water and rivers Seashore and forests Plants and animals Renewable stocks Non-renewable stocks Transportation +Roads +Air +Rail +Water Public utilities +Water +Sewerage Private utilities +Gas +Electric +Telephone Real estate Banks Public finance Programmes Informal investors Non-profit loan funds Venture capital Other lenders Employed Residents +Skilled +Unskilled +Under-employed Unemployed Not in labour force +Retired persons +Youth +Homemakers Entrepreneurs Gov`t Policies Institutions Sources of Technology Natural Resources Physical Infrastructure Financial Resources Human Resources
  14. 14. MasterPPPlan PPP Procurement Procedures <ul><li>PPP projects have public money (tax money) thus they have to be procured internationally </li></ul><ul><li>Besides the standard selection there is the - Negotiation procedure and the - Competitive dialogue </li></ul><ul><li>Procedure and dialogue can be used if the public side is very insecure or not experienced about detailed information like: </li></ul><ul><ul><li>Technical issues </li></ul></ul><ul><ul><li>Legal aspects </li></ul></ul><ul><ul><li>Financial conditions </li></ul></ul><ul><ul><li>Political reasons </li></ul></ul>
  15. 15. MasterPPPlan Competitive Dialogue <ul><li>A Project solution is worked out during the competitive procedure </li></ul><ul><li>Avoid an early specification on possibly suboptimum concepts </li></ul><ul><li>This kind of procurement is open for innovative bidder concepts </li></ul><ul><li>Award criteria must be early determined (output specifications) </li></ul><ul><li>European minimum standards are met: </li></ul><ul><ul><li>Guarantee of an adequate publication and transparency </li></ul></ul><ul><ul><li>No discrimination of national and EU bidders and non EU countries </li></ul></ul><ul><ul><li>Grant sufficient preparation time for bidders from non EU countries </li></ul></ul><ul><ul><li>Respect of equal treatment of national and foreign proofs and certificates during the pre-qualification </li></ul></ul>
  16. 16. MasterPPPlan Competitive Dialogue
  17. 17. MasterPPPlan Competitive Dialogue
  18. 18. MasterPPPlan Optimal Realization of a Project No Public Influence No Public Influence No Public Influence Private Investor Private Investor Single benefit from sell of the property Public Side has great Influence Public Side has great Influence Guarantees of Private Investor Fair Risk Sharing Private Investor Sustainable Benefits Public Side has total Control Public Side has total Control Guarantees of General Contractor Public Side Public Side Sustainable Benefits Aspects of a Project Urban Aspect Realization Speed Guarantees for the Realization Market Risks Financing of a Project Economical Benefits for Public Side Realization methods of an Infrastructure Project Private Project Development Traditional Procurement Public Private Partnership PROs CONs
  19. 19. Project Finance Project Structure and Risks SPV Project Company Shareholders Lenders / Bondholders Operator Construction Contractor Granting Authority Services Purchaser Raw Material Supplier Shareholder’s Agreement Concession Agreement Purchase Agreement (e.g., housing purchase agreement) Supply Agreement (e.g., cement supply agreement) Construction Contracts Operation & Maintenance Agreement (O&M) Regulatory Risks Regulatory and Performance Risks Completion Risks Performance Risks FX Risks and Refinancing Risks Political and Macroeconomic Risks
  20. 20. Project Finance Project Map
  21. 21. Project Finance Different Agreements <ul><li>Implementation Agreement </li></ul><ul><li>Concession Agreement </li></ul><ul><li>Construction Contract </li></ul><ul><li>Operations Contract </li></ul><ul><li>Maintenance Contract </li></ul><ul><li>Raw Materials Supply Contract </li></ul><ul><li>Sales Purchase Contract </li></ul><ul><li>Special-Purpose Company Documents </li></ul><ul><li>Share Subscription Contracts </li></ul><ul><li>Loan Agreements </li></ul><ul><li>Inter-creditor Agreement </li></ul><ul><li>Escrow Account / Trustee Arrangements </li></ul><ul><li>Insurance </li></ul><ul><li>Licences; Permits; Bills & Decrees </li></ul><ul><li>=> Transparent Contract Management </li></ul>
  22. 22. Project Finance Risk Matrix = PPP Contract Risk Type Mitigation Pre-completion - Cost over-runs - Delays (a) Fixed price turnkey contracts (b) Warranties / penalties / incentives (c) Fixed project specification (d) Strong contractors Post-completion - Revenue forecasts - Revenue build-up - Operating costs - Management failure (a) Committed supply contracts (b) Committed off-take contracts (c) Strong operators (d) Performance guarantees Technical - Performance - Environmental - Safety (a) Warranties (b) Proven technologies (c) Public consultation and approval Financial - Structure: debt/equity ratio, eg. 75/25 - Structure: return on capital - Structure: risk / reward ratio - Foreign exchange - Interest rates - Debt service cover - Taxation (a) Equitable ROE, ( eg. 15-20 %) (b) Acceptable cover ratios ( e.g 1.5 -2.0) (c) Escrow and reserve accounts (d) Dividend constraints (e) Loan syndication (f) Insurance / financial derivatives (g) Standby funding arrangements Legal - Regulatory framework? - Concession law? (a) Experienced lawyers. (b) Clear, simple documents Political - Regime stability - Force majeure aggt. - Political intervention (a) Clear regulatory regime (b) Investment insurance (c) IFI support
  23. 23. Project Finance MasterPPPlan Fund <ul><li>Leverage fund </li></ul><ul><ul><li>MasterPPPlan funds attract money from long term investors (such as pension funds, banks, foundations). </li></ul></ul><ul><ul><li>Inject equity or mezzanine finance in PPP projects </li></ul></ul>Equity provided by sponsors Mezzanine or Equity provided by MasterPPPlan Funds Debt Project Financing provided by banks / IFIs 100
  24. 24. EuroPPP Initiative Opportunities for Companies <ul><li>financing with EU-Know-How, EU-Grants, Venture Capital </li></ul><ul><li>opening new markets in other European countries </li></ul><ul><li>starting system supply: complex prod. & service solutions </li></ul><ul><li>profiting from permanent cashflows (service-contracts) </li></ul><ul><li>securing through selling shares in the operation-phase </li></ul><ul><li>generating new orders in the core business through </li></ul><ul><ul><li>building new consortia in other PPPs </li></ul></ul><ul><ul><li>improved international communication channels (national platforms) </li></ul></ul><ul><ul><li>improved networking to EU (international platform) </li></ul></ul>
  25. 25. EuroPPP Initiative Opportunities for Companies Provider Investor System Supplier General Contractor Developer EuroPPP Consortium
  26. 26. MasterPPP ILM Platform Overview
  27. 27. MasterPPPlan Business Model Structure 1. EU-wide, transparent PPP Procurement = Competitive Dialogue Bidder 1 Awarded Bidder Bidder 2 Bidder 3 MasterPPPlan Procurement 2. Life Cycle Costs 3. Project Finance 4. Contractual-PPP Refunding of Bidder Costs Refunding of Bidder Costs Integration of Transaction and Bidder Costs in the PPP Life Cycle Costs PPP Transaction Costs PPP Bid Management PPP Bid Management PPP Bid Management PPP Procurement Management
  28. 28. MasterPPPlan Business Model Advantages for the Region <ul><li>Faster realiziation of PPP projects </li></ul><ul><li>Support economically the development of new projects and the regional development through Revolving Funds </li></ul><ul><li>Leverage better the effects of grants </li></ul><ul><li>Increasingly attract private industrial investors </li></ul><ul><li>Gather PPP competence in Public Authorities </li></ul><ul><li>Goal-oriented regional development </li></ul>
  29. 29. C.R.E.A.M. How can C.R.E.A.M. Help? <ul><li>Doing PPP awareness </li></ul><ul><li>Organizing PPP trainings and workshops for capacity building </li></ul><ul><li>Using PPP as a sustainable regional development strategy </li></ul><ul><li>Finding the right PPP project participants, PPP adviser, PPP bidder, </li></ul><ul><ul><li>In cooperation with the EU institutions and international PPP competence centres </li></ul></ul><ul><li>Accelerator for sustainable regional development </li></ul><ul><ul><li>MasterPPPlan – Initiative for PPP Region </li></ul></ul><ul><ul><li>EuroPPP – Initiative for PPP Bidder </li></ul></ul><ul><ul><li>MasterPPPlan Adviser – PPP Procurement Manager </li></ul></ul><ul><ul><li>EuroPPP Adviser – European PPP Bid Manager </li></ul></ul><ul><ul><li>MasterPPPlan Fund – Concept for Urban Development Fund </li></ul></ul><ul><ul><li>PPP Procurement Fund – Local Partners support PPP Procurement </li></ul></ul><ul><ul><li>MasterPPP ILM – Infrastructure Life Cycle Management for PPPs </li></ul></ul><ul><ul><li>Standardization of PPP Procurement Packs </li></ul></ul>
  30. 30. C.R.E.A.M. Closing Remarks “ PPP is not only a profession, PPP is also a passion…” “ It is no longer a question of ‘ if PPPs ’ ?, but rather ‘ when and how PPPs ’ ? …” “ PPP is learning by doing…” “ PPP is social entrepreneurship…” “ PPP has 3 success factors: Transparency, Transparency, Transparency…” Thank you for your attention!
  31. 31. Address Contact Dipl.-Ing. Zoran Jelic [email_address] M.A. Alexander M. Schmitt-Geiger [email_address] Name E-Mail Name E-Mail C.R.E.A.M. Europe PPP Alliance Public Private Partnership Association Avenue de l`Opale 1 Appart. 5 B – 1030 Brussels Fon: +32-2-7366-984 Fax: +32-2-7320-795 www.cream-europe.eu MasterPPP Competence Centre Implerstrasse 11 D - 81371 München Fon: +49-89-95414.127 Fax: +49-89-95414.555 www.masterppp.eu Name E-Mail Peter Becker [email_address]