“How the Financial Crisis has Changed the Market for Public Private Partnerships (PPPs)” Filip Drapak, Senior Specialist, World Bank Institute Andy Wynne, Public Sector Financial Management Specialist The panelists will describe the current context for PPP, outlining the key issues arising as a result of the financial crisis and providing guidance on what to do now and looking forward. The moderator will open the floor to an open discussion to address questions such as: What is the role of infrastructure and PPPs in economic renewal? Is private sector investment in public infrastructure now a viable alternative to direct public investment? How does risk profile change as a result of the financial crisis? What is the role of development agencies? What actions should countries take now to capitalize on PPP opportunities?

1. How has financial crises changed PPP market? World Bank Institute May 200 9 Filip Drapak

2. “ Recent review of infrastructure projects for the last six months, including social projects, statistics revealed that 50% were unaffected by the global financial crisis, 25% had had substantial increases and 25% had been cancelled.” Tadesse Admassu, Development Bank of Southern Africa (DBSA) international division executive vice-president, April 2009 "Infrastructure offers significant investment opportunities for long-term investors, even in a time of global crisis" Ngozi N. Okonjo-Iweala, Managing Director, World Bank, December 2008

5.  Implications for the VfM (a) Projects less likely to achieve VfM - Increased cost of equity - Increased role of equity and proportion of equity financing - Increased cost of debt (offset by lower interest rates?) (b) Fiscal space implications to VfM (c) Some governments more rigorous on VfM and can be more keen on litigation PPP economics have changed Ernst & Young’s P3 team in the UK infrastructure reports that the average margin for availability payment-based P3s, increased from 82bps to 94bps between May and August 2008. Volume based payment P3 projects had average margins of 155bps in August 2008, which is increase of 50bps since credit crunch. Ernst&Young’s UK infrastructure report

13. D1 and R1 in Slovakia  Financing of PPP without development banks not feasible “ The crisis has narrowed the financing opportunities from banks,” the Construction Ministry wrote about the impact of the unfavorable financial market on PPP projects, as cited by the TASR newswire. “The liquidity shortage has a much bigger impact on the banks’ decision-making than the quality of the projects or the financial standing or rating of the Slovak Republic.” The ministry is looking for ways to finance the PPP projects from the European Investment Bank and the European Bank for Development and Reconstruction. The Slovak Spectator, 2009

15. Policy and Governance implications: introducing DFC  As one of potential policy measures to improve the financing of PPP projects UK government used so called DFC (Debt Funding Competition) What is a DFC? A DFC is an initiative that has been employed in the UK a number of times since 2000 and has been championed by the UK HM Treasury as a mechanism for government to induce competition and thereby obtain more favorable debt funding terms. When using a DFC, government selects a preferred bidder and that preferred bidder, in consultation with government, then goes to the debt market seeking the best price for the debt funding for the project. The objective for the UK government was to increase the competitiveness of the lending market with a view to reducing the overall cost of the project.1 We are now in a very different market where the primary focus of the DFC would be to source sufficient debt funders willing to lend to the project. David Lester and Chris Keane, 2009

16. How to mitigate the impact of the financial crisis on PPPs2009 The French Institute for PPP (IGD - Institute de la Gestion Déléguée) released in November its proposals to mitigate the impact of the financial crisis on PPPs in France. IGD suggests to address the issue of lack of liquidity through the delinking of the duration of contracts and the duration of loans that would allow the short-term financing of projects and its long-term refinancing when market conditions will be more favorable, and the creation of a special public vehicle that would be entitled to collect and provide long-term resources to support banks activities. IGD also proposes to reduce the impact on costs through a special state warranty on local authorities’ projects, and calls for a broader public support through investment subsidies when construction periods are important. Pierre Van de Vyver, 2009 Policy and Governance implications: introducing new institutions and guarantee support mechanisms  The solutions often suggest new institutions, from US discussion regarding the Infrastructure bank, ideas of setting up national guarantee instruments to the discussion on a new role of multilateral and development institutions.