Financing PPPs - UNDP | Europe


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Financing PPPs - UNDP | Europe

  1. 1. Session 6 Financing PPPs <ul><li>Sources of financing </li></ul><ul><li>Cost recovery strategies </li></ul>PPPUE/Capacity 2015 Public-Private Partnership training
  2. 2. 1. Sources of financing <ul><li>The key processes of financing PPP include: </li></ul><ul><ul><li>Defining investment options / sources of funds </li></ul></ul><ul><ul><li>Business valuation </li></ul></ul><ul><ul><li>Bankability assessment </li></ul></ul><ul><ul><li>Investment management </li></ul></ul>
  3. 3. A. Sources of funds <ul><li>Equity - ownership in a private company or project </li></ul><ul><li>Debt - public or private obligation to repay loan </li></ul><ul><li>Grants - moneys that do not need to be repaid </li></ul><ul><li>Guarantees - third-parties protecting against specified risks </li></ul>
  4. 4. Equity <ul><li>Share in profits, if any – dividends, capital gains </li></ul><ul><li>Say in major decisions, access to internal information </li></ul><ul><li>Who? </li></ul><ul><ul><li>Private companies </li></ul></ul><ul><ul><li>Developers of the project (to share the risks), including IFIs </li></ul></ul><ul><ul><li>Funds: infrastructure, pension, venture capital funds </li></ul></ul>
  5. 5. Debt financing <ul><li>Commercial banks (WB/Croatia SMM) </li></ul><ul><li>Multilateral lending agencies – subsidized loan </li></ul><ul><ul><li>World Bank <> </li></ul></ul><ul><ul><ul><li>International Finance Corporation (IFC) <> </li></ul></ul></ul><ul><ul><li>European Bank for Reconstruction and Development (EBRD) <> </li></ul></ul><ul><ul><li>European Investment Bank (EIB ) <> </li></ul></ul><ul><li>Bonds (municipal) </li></ul><ul><li>Syndicated loan - a pull of investor to finance a big project </li></ul>
  6. 6. Grants and subsidies 1/2 <ul><li>National/sub-national government </li></ul><ul><li>Ear-marked environmental funds </li></ul><ul><ul><li>National </li></ul></ul><ul><ul><li>International </li></ul></ul><ul><ul><ul><li>Phare – an instrument to assist the applicant countries of Central and Eastern Europe in their preparations for joining the European Union. </li></ul></ul></ul><ul><ul><ul><li>ISPA - Instrument for Structural Policies for Pre-Accession (after recent accession only Ro and BU remain eligible for ISPA funding) </li></ul></ul></ul><ul><ul><ul><li>CARDS - Community Assistance for Reconstruction, Development and Stabilisation, focuses on the Balkan and SEE countries: for investments, institution building, and capacity development </li></ul></ul></ul><ul><ul><ul><li>Tacis programme focuses on the EECCA region </li></ul></ul></ul><ul><li>IFIs : WB, EBRD, EIB </li></ul><ul><ul><li>Investment project preparation work </li></ul></ul>
  7. 7. Grants and subsidies 2/2 <ul><li>Bilateral donors - technical assistance </li></ul><ul><ul><li>Usually to improve public administration, strengthen democratic institution, enhance capacity of civil societies, etc. </li></ul></ul><ul><ul><li>Municipal projects: </li></ul></ul><ul><ul><ul><li>United Kingdom: DFID – Department for International Cooperation </li></ul></ul></ul><ul><ul><ul><li>USA: USAID - United States Agency for International Development </li></ul></ul></ul><ul><ul><ul><li>Germany: GTZ - Gesellschaft fur Technische Zusammenarbeit and KfW , Kreditanstalt für Wiederaufbau </li></ul></ul></ul><ul><ul><ul><li>Denmark: DANIDA, DEPA </li></ul></ul></ul><ul><ul><ul><li>Italy: ICA – Italian Cooperation Agency </li></ul></ul></ul><ul><ul><ul><li>Sweden: SIDA – Swedish International Development Agency, </li></ul></ul></ul><ul><ul><ul><li>Japan: JICA – Japan International Development Agency </li></ul></ul></ul>
  8. 8. Guarantees <ul><li>Contract performance </li></ul><ul><li>Political risks (war, expropriation) </li></ul><ul><li>MIGA – WB’s Multilateral Investment Guarantee Agency </li></ul><ul><li>“ take-or-pay” contracts – end users pay a pre-established amounts for products/service, whether or not they are actually received </li></ul>
  9. 9. 2. Cost recovery strategies <ul><li>How are cost recovered? </li></ul><ul><li>The key processes for cost recovery </li></ul>
  10. 10. How are cost recovered? <ul><li>Capital (infrastructure) costs include building assets used for service and products production and in some cases costs for buildings and grounds. </li></ul><ul><li>Operational and maintenance (O&M) costs – the cost of actually operating and maintaining the system in order to produce and distribute service. </li></ul><ul><li>Connection costs – the cost of connecting an individual household to the system. </li></ul>
  11. 11. The key processes for cost recovery <ul><li>Establishing cost recovery strategy </li></ul><ul><li>Tariffs and charges structuring </li></ul><ul><li>Subsidizing </li></ul><ul><li>Billing and collection </li></ul>
  12. 12. 1. Aspects of the cost recovery strategy <ul><li>tariff and fee structure </li></ul><ul><li>f orming an appropriate and feasible payment scheme (usually monthly charge) </li></ul><ul><li>designing appropriate payment options </li></ul><ul><li>increase or change payment points </li></ul><ul><li>work with a community group to collect money </li></ul><ul><li>customer relations/education </li></ul><ul><li>rewards and punishments, e.g. random prize drawing for houses that pay or service cut-off for non-payment </li></ul><ul><li>c ommunity mobilization and participation and communal billing, etc. </li></ul>
  13. 13. 2. Basic types of water tariff structures <ul><li>Single-part tariff (single-tariff pricing) - a consolidates rates across multiple service territories owned and operated by a multisystem utility that may or may not be contiguous or physically interconnected. </li></ul><ul><li>Two-part tariffs - users pay a fixed sum for access to a service and pay another charge for each unit of the service they consume. </li></ul>
  14. 14. Single-part tariff <ul><li>Fixed charge - monthly water bill is independent of the volume consumed (not based on measured water use) </li></ul><ul><li>Volumetric charge - made for the volume of water which is measured through a supply point </li></ul><ul><ul><li>Uniform price volumetric tarif f (unblocked) all units of water billed at same price. </li></ul></ul><ul><ul><li>Increasing block structures - two or more prices, each applies to use within a defined segment (block) of monthly use- unit charge is constant over a specified range of water use and then shifts as use increases </li></ul></ul><ul><ul><li>Decreasing block pricing (or declining-block pricing) – a pricing structure, in which both the average and marginal price per unit decreases as consumption increases. </li></ul></ul>
  15. 15. Volume, l Price, € Volume, l Price, € Volume, l Price, € Uniform price volumetric tariff Increasing block structures Decreasing block pricing
  16. 16. 3. Subsidizing <ul><li>Many public services projects need to be subsidized </li></ul><ul><li>Decision makers then need to decide: </li></ul><ul><ul><li>What they prioritize for subsidy </li></ul></ul><ul><ul><li>What element/stage/aspect of the service to subsidise </li></ul></ul><ul><ul><li>How the subsidy should be delivered </li></ul></ul><ul><ul><li>Who the recipients of the subsidy should be </li></ul></ul>
  17. 17. Subsidies come in two forms <ul><li>Direct subsidisation used to cover the shortfall in supply costs by the injection of finance from outside the sector or industry </li></ul><ul><ul><li>E.g. the financing of solid waste services or donor support to government undergoing sectoral reform </li></ul></ul><ul><ul><li>Advantages: direct subsidies are transparent, explicit, and minimize distortions in the behaviour of utilities and their customers. </li></ul></ul><ul><ul><li>Drawbacks: difficulty of defining suitable eligibility criteria as well as the administrative cost entailed in identifying eligible households. </li></ul></ul><ul><li>Cross-subsidisation used to cover costs by shifting the burden from one consumer group to another within that sector or industry. </li></ul><ul><ul><li>between different social, economic or regional groups of users </li></ul></ul><ul><ul><li>e.g. cross-subsidy of the poor, by charging richer users more </li></ul></ul>
  18. 18. 4. Billing and collection <ul><li>This is usually the most significant change introduced by private companies. </li></ul><ul><li>It is a technically and managerially simple process to create a comprehensive and up-to-date database of users, and issue invoices for the amounts owed. </li></ul><ul><li>Collection constraints: </li></ul><ul><ul><li>Demand, e.g. of the poor </li></ul></ul><ul><ul><li>Income level </li></ul></ul><ul><ul><li>Affordability/willingness to pay </li></ul></ul>