Post on 05-Apr-2018
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A
DBs
PrivateSectorFinancingOptions
Mainstream
ingPPPs
inIndia
Mumbai,2
8-30January
2010
Su
jataGupta
PrincipalIn
vestmentSpecialist
PrivateS
ectorOperations
AsianDevelopmentBank
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Outline
ADBs
privatese
ctoroperations
Privatesectorproducts
Areas
ofoperation
Public
privatepartnership
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ADBsPrivateSector
Operat
ions
Prom
otesprivatesectordevelopment&
catalyzesprivate
financingforinfrastru
cture
&capital/financialmarkettransactions
Providesfinancialsupportthroughequ
ity
inves
tments,
loa
ns&credit
enhancement
productsincludingguarantees
Originates,nego
tiates,structures,executes
&administersprivatesectortransactio
ns
Sharesprojectriskswithpr
ivatesector
inves
tors&financiersno
governmen
t
guarantees
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PrivateSe
ctorOp
eration
s
PovertyreductionisADBsovera
rchingobje
ctive
ThePrivateSectorDevelopmentStrategystates:
TheAsian
experienceshowstha
tgrowthis
the
mostpow
erfulweaponinthefig
htagainst
poverty.
PrivateSe
ctorOperationsallevia
tepoverty
by:
generatingemploy
ment
increa
singthetaxbase
freein
ggovernmen
tresourcesforsocialspen
ding
ImpactofPSODsint
erventionsonpoverty
reduction
areoftenindirectbutsignificant.
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Privat
eSectorFinancingProd
ucts
Developflexible&innovativ
eproductsfor
theuniquefin
ancing&
riskmitigationneedsofour
clientsprojectsinemergingmarkets
EquityI
nvestments
Directly
orindirectly(throughfund
s),
includespreferred
stock,convertibleloa
ns,&otherformsofmezz
anine
financin
g
Lending
Long-term,
dominate
dininternationalorlocalcurrency
Includescorporate&
projectBond
s
ComplementaryFinancingScheme
BLoan
Guarantees
PartialC
redit&PoliticalRiskGuarantee
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0
500
1,
000
1,
500
2,
000
2,
500
2001
2002
2003
2004
2005
2006
2007
2008
Infrastructu
re
Finance
PSO
DFinan
cing2001-2008
($million)
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PSOD
Approva
ls
2008
RenewableEnergy
6%
Energy
Sector
Develo
pment
4%
Transport
11%
Health
2%
ConventionalEnergy
34%
Transmissio
n&
Distribution
18%
Telecommunications
1
0%
BankingSystems
14%
HousingFinance
1%
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PSODsIndicative
Pipeline
FinanceSector
Development
1%
HousingFinan
ce
1%
Trade
30%
CapitalMarkets&Funds
3%B
ankingSystems
1%
Water
12%
Communications
1%
HydropowerG
eneration
1%
RenewableEnergy
21%
ConventionalEnergy
29%
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PrivateSectorInfrastru
ctureFinance
P
ortfoliob
yCountry
46
Total
4
VIE
1
THA
2
SRI
7
PRC
3
PHI
5
PAK
1
NEP
1
MLD
1
LAO
2
INO
12
IND
1
CAM
3
BAN
3
AFG
No.of
Projects
DMC
LAOIN
O
MLD
NEP
IND
CAM
BAN
AFG
VIE
PR
C PHI
PAK
THA
SRI
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RegionalDepartments
Government/SectorDialogue
ADBRDs
PrivateSec
torDevelopment
PrivateSectorInve
stors
OntheGr
oundExperience
AD
BPSOD
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Crowding
Out
Ourcore
nichePu
blicPrivatePartner
ships
(infrastructure,financials
ectors)
P
ublicSector
Pr
ivateSector
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Wha
tprojec
tsdowefavour?
Model(replicable
)projects
Pioneeringprojects(afirst)
Frontiermarkets
Proje
ctsthatinfluencepolicy,f
romthebotto
mup
Proje
ctswithwide
rsector/economicimpac
ts
Proje
ctswithstrongpovertyre
ductionelements
Proje
ctsthatprom
otegoodgovernance
ADB
involvement
iscatalytic
crowdsinoth
ers
Inno
vativestructu
res
Deep
eningfinancial&capitalm
arkets
Bring
privatesectorrigour&m
anagementskills
intopublicsector
services
CPS<SFalignm
ent
Proje
ctsthatarefinanciallystrong!
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HowPSOD
worksw
ithADB
colleagues
RDs/
RMs
OCO
ORM
PSOD
OGC
TD/
CTL
RSD
D
PSD,
leads,
PPPs
c
ofinancing,guarantees
,
syndication
riskratings,
evaluatio
n
legalsupport,
outside
counsel
safegua
rds,CDM
funding,
disbursement
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PSODsPPPInitiatives
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Th
eInve
stmen
tGap
tooris
ky
tooun
predictable
toosm
all
tariffs
toolow
tooop
aque
tooex
pensive
toodifficulttolev
erage
tooha
rdtoexit
toomanybetteropportunitie
s
mycreditpeople!!!
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Projectprepar
ation
insufficientmaste
rplanning
insufficientprojec
tpreparation
biddin
gprocessis
crucial
landis
sueshavetoberesolv
ed
law&
arbitration
havetobe
acceptable
governmentleadership,cons
istency&
staying
powerare
crucial
needtochosethe
bestmode
lprojects
dontbetooambitious
rightr
iskbalance
&governm
entsupport
freedo
mt
oearnadecentreturn
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WaterP
PPissues
costre
covery(sup
pliedbyGod)
politicalsensitivity
offtake
r(status,credit,size,expe
rience)
usage
conflicts
dealsize
deman
dprojections
sector
preparation
regula
tion/oversight
sponsorappetite?
associatedfacilities
interfa
cerisk
landis
sues
forexissue?
environmental/soc
ialissues
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Cha
llenge
s
ULBdelivers
ervices-butmostfiscalauthorityatstatelevel(
=
unfundedma
ndate)
ULBtypically
inchargeofO&
Mbutstateage
nciesincharge
of
capitalinvest
ment
UnabletocoverO&Mcosts(
capitalinvestme
ntforexpansion?)
Limitedgovernmentfinancialresources,lack
oftechnicalexpertise&
inadequatetariffrecovery=
underfunded&
unsustainable
sector
Tariffsnotba
sedoneconom
iccostrecovery
verylowwithno
relationshipt
oactualcosts
Forcustomerswater&sa
nitation=entitlementnotpaya
ble
service
Unsustainablylowprices+poorcollectiongivespooreconom
ic
signals(=waterwasted)
Viciouscycle
oflackoffunds
inULB
poor
servicedelivery
Recognisedn
eedforalternativefinance,management&technical
approaches=
PPP
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Exam
ple:Su
ratNewN.Zo
ne
watersupp
ly
Population(2007)40
0,0
00Proje
ctions-654,000in
2026&
~923,0
00in
2031
Detailed
townplanningschemesindevelopeda
rea
Detailed
ProjectRepo
rt(DPR)app
rovedunder
JNNURM
Grantsavailablefor70%o
fapproved
projectcostof
INR1.6
bn($
33m).Totalcost$50million.
Projectcomponents:
Intakewell,pumphouse,approachb
ridge&pipeline
work;
WTP&EPoint;UGSR
withboosterhouse,
E-Point,W
DS
Headwork&ESRs;Mechanical&Elec
tricalworksatintake
wells&boosterhouse
s;RawWaterT
runkMain&lines;
Distrib
utionNetwork;
Metering
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Propose
dstructu
re
ProjectSPV
Equity
Debt
PrivateOperator
SMC
Build
n
etwork
S
MC
Maintain
Network/
service
levels
Prov
ide
Connections
Meteringa
nd
billing
Reportingbyo
perator
ConnectionsandServicelevels
PaymentstoPrivateoperatorbased
onpriceperKLandvolumeofwaterat
End-customer
level
JNNURMGoI+
GoGGrant50%
SMCgrant-
25%
Consumer
Tariff
Fixation
Retainuser
charges
*CollectiononbehalfofSM
C
Regulationby
Contractthrough
IndependentEngin
eer/IndependentAuditor
&B
idTariffregulationcomm
ittee
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LessonsLearnt
CarefulplanningofPPPre
quired(thorough
professionalFS)
StrongGo
vernmentcomm
itmentchampionwithingovern
ment
Revenue&costestimates
realistic&com
prehensivelyassessed
Solidlega
l/regulatoryPPP
frameworkdesir
able(thoughnotalways
possible)
Contracts
needtobeclear&compliedwith
Procurem
entopen,
transparent&competitive
Publicbuy-inessentialp
ubliccommunica
tion&consultation
Ability
topayisoftennotanissueco
nvertabilityto
willing
ness
Needsofvulnerablegroups
InitialPPPtransactioncostshigher
Projectneedstobesustainableonceestab
lished
Comb
inegrants,proje
ctrevenues(tariff,secondary),soft
loans
Safeguards
incorporated
indesignnotas
afterthought
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Lesso
nsLea
rnt
Needtod
evelopcapacity
ofULBforPPP
projects
Develo
ptechnical&man
agerialcapacitybytraining&hiring
qualifie
dpersonnel
possiblyfromprivate
sector
Completesuccessinsho
rtrundifficultbutfocusonLT
sustain
ability
Needtod
evelopthefinan
cialstrengthof
theULB
Devolu
tionofrevenueraisingability
Tariffson
costrecoveryb
asis
Cleare
conomicsignalfo
rproperallocationofascarceresource
Suddentariffincreasenotpoliticallyaccep
table
phasedapproach
Communicatetopublict
hatwateraservicewhichcostsmo
ney
Innovativefinancialstructuresmayberequired
Financingcannotmakebadprojectgood
Donor/MDBfundingavailablethroughODA,soft/commerc
ialloans
OBAto
incentivisegood
performance
Creditenhancements,T
AfromMDBs
Targetedsubsidiesforsub-components
Municipalbondfinancing
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PRC:Ch
engduWaterw
orksPro
ject
FirstBOTsc
hemeunderco
mpetitive
biddinginth
ePRCwhiche
stablisheda
newwatertreatmentplantw
ithacapacity
of400,000
inChengdu,S
ichuan
Totalcost:U
SD107.6mil
Shareholders:VeoliaEnv
60%
MarubeniCorp
40%
ADB:Loan
-USD26.5mil
Bloan
-USD21.5mil
K
eychallenges/issues:
Credibilityoftheofftaker&
theofftakeguaranteebythe
Chengdugovernment
Foreignexch
angerisk(mis
matchofdebtservice&local
currencyrev
enues)
Completionriskoftransmissionconnectionstobe
constructed
byChengdugovernment
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C
hengdu
Water:C
ontractu
alStructure
PROJECT
COMPANY
CAMPENON
BERNARD
VIVENDI
MUNICIPAL
GOVERNMENT
MUNICIPAL
W
ATERWORKS
COMPANY
Constructio
n
Contract
(fixedprice
,
datecertain
)
Technical
Agreement
(O&M)
O
fftakeAgreement
(takeorpay)
ConcessionAgreement
Primary
Obligor
(underOfftakeAgreement)
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ADBs
upportforChen
gduWa
ter
TAforsp
onsorselection
TAforprojectdocument
preparation
TAforwatertariffs
Financiala
dvisor:
Structured&arranged
financing
Du
ediligence
IMPACTS
Addresse
swatershortage
Privatesectorefficiencies
Majorinv
estmentininlan
dprovince
FirstBOT
waterproject
modelforfutureIWPs
FirstBOT
projectwithoutcentralgovernmentsupport
Ensuredcostrecovery
Catalysed
commercialfunding(Bloan)
Localcurrencyparticipation
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Tha
nkyo
u
Formoreinforma
tion
sgupta@adb.org
PrivateSectorOperations
A
DBsIndia
Resident
Mission
NewDelhi