Confederation of International Contractors’ Association Paris November, 17-18, 2014 Presentation...

Confederation of International Contractors’ AssociationParis

November, 17-18, 2014

Presentation by Vincent Piron (PIRON Consulting)

02/3-7/2014 PIRON Consulting 1

Public-Private Public-Private PartnershipPartnership

Usefulness and socio economic Usefulness and socio economic benefitsbenefits

GENERAL ECONOMICS

• Global GDP worldwide is growing slowly• In OECD countries it is growing more slowly than in

Asia• But the GDP is not a adequate parameter:

• Ex: USA, where GDP increases and median salary decreases• Ex: China, where pollutuion and housing are masking reality• Ex: the global problem of urban development• Ex: the environmental question, sea level in cities nearby seas

• Interest rates cannot anymore decrease because they are around zero

• So we have now a new model to develop


WHERE THE MONEY FOR INVESTMENT MAY COME FROM

• It is usually said that the States have no money to invest in housing and infrastructures (I hear this since 45 years)

• But it is a matter of allocation of money because money is there, it has been printed by the central banks

• The Juncker Plan (300 billion €) is just a reallocation of existing budgets, and further support from EIB and private sector. In USA it is the same music.

• But what is new is the idea of coordination and profitability of investment

• « further support » means « profitable investment » in order to reimburse the « additional debt»


WHICH TYPE OF INVESTMENT

• Digital economy, Energy, Transport Infrastructure• Social infrastructure and environment• These last two items practically mean « housing » and

organisation of urban development• Digital economy and Energy are paying the

investment directly through invoicing directly the final client

• For Transport Infrastructure and housing the final client will never repay directly the investment and the State should provide support.


ECONOMIC INDEXES VERSUS TRAFFIC


Household consumption GDP

Manufactured goods

HOW TO PROVIDE SUPPORT

• There are two ways to evaluate the profitablility of a project: financial and socio-economical

• Financial profitability is a clear and well known notion• Socio-economical profitability means that benefits to

be considered are not only monetary benefits but also wellfare, safety, social amenities, better housing,…

• These socio-economic benefits generate indirect GDP growth,

• In there is GDP growth, there is additional renevues from taxes and thus increase of budget



WHICH INFRASTRUCTURE FOR WHICH SERVICE

• Transportation• Water supply• Waste management• District heating• Telecommunications• Education• Health• Recreation

• Roads, airports, rail …• Dams, reservoirs, plants• Incinerator compost u.• Plant, network• Tel exchanges & lignes• Schools, University• Hospitals• Stadia, theatres …

CONDITION TO HAVE WELL PREPARED PROJECTS (CONCESSIONS AND PFI)

• In order to develop this process:• The States have to choose the relevant projects• The States have to be convinced of the fact that additional

revenues « in cash » for their budget will come from the implementation of the project

• Then they will accept to provide grants and subventions, or guaranties for loans

• To help to develop this virtuous process, CICA is working since many years on documents describing the way to select, prepare and implement good projects


9 02/3-7/2014 PIRON Consulting

THE VARIOUS ASPECTS OF PPP’S

• Financial : the most evident and the most spoken of.

• Accounting : difficult, changing and conditioning the very existence of the PPP

• Legal : the most complicated, and often the main issue

• Technical : assumed to be easily solved by contractors

• Economical : supposed to be solved previously by the grantor, but never really discussed and checked

• Political : has always been managed as a matter of feeling and seldom with a scientific approach

TOO MUCH IS TOO MUCH


PPP’S DEFINITION AND EVALUATION

• « PPP » does not cover any legal reality.

• Existence of 2 families of contracts (typology):• Concessions:

• More (concession contract) or less (lease, affermage or service contracts) investment is made by the private party

• The private operator bears demand and industrial risks• PFIs

• Investment is made by the private party• But he does not bear the demand risk. It bears only an availability

risk for which he receives a guaranteed revenue.

• In fact, families are not entirely separate. There is a Continuum of contractual provisions.


PPP’S DEFINITION AND EVALUATION The vertical and horizontal continuum of PPPs


STAKEHOLDERSAND NOTION OF NON WRITTEN AGREEMENTS


POPULATION

FINAL CUSTOMER/END USER(Motorists, truckers, airlines companies, railway companies, airline passengers)

SHAREHOLDERSPurely-financial investorsProject builders investors

OPERATORCONTRACTORConstruction company

CONCESSION-GRANTING AUTHORITY(State, regional/local authority)

LENDERSAllocation of funds

TAXESMinistry of Finance

Concessionaire3

5 6

7

4

12

WHO PAYS, UNDER WHICH STRUCTURE?

Administrative and Contractual Structure Funding

Taxes only Taxes + Toll

Toll only (higher rate)

Public Authority operates by itself

Traditional procurement

Traditional procurement

Contracted out to a public company

Traditional procurement Concession

Concession

Contracted out to a private company

PFI, Contrat de

Partenariat

Concession or PFI or C.

de partenariat Concession

14


REVENUES FROM SOCIO-ECONOMICS

• Revenue generated by the utility of the project• An economically viable construction will generate activity and

therefore fund flows. Such flows will be split between the private-sector actors, commercial or industrial companies, and the public-sector actors.

• Recent research, notably that directed by Professor Rémy Prud’homme have shown it to be possible to estimate budget revenue for the State, which collects taxes and social contributions, at 20% of the annual surplus.

• In the case of local government in France this percentage falls to approximately 3%.


ROLE OF A REAL TOLL POLICY

• On a real tolled infrastructure there is a strong interaction between utility and financing : the toll policy

• Maximizing socio economic benefits is achieved by a low toll level

• This eases the political problem created by the real toll

• But the optimum of revenues for the concessionaire is reached with a rather high toll level

• This minimizes the grant that is requested from the authorities but decreases the socio economic benefits and makes more difficult the political acceptability of the toll


HOUSEHOLD INCOMEDistribution of household income Whole of France

(1994 figures)

0

10

20

30

40

50

60

70

80

90

100

0 100 200 300 400 500 600 700 800

Annual income in FF. (x 1000) for 1994

Dis

trib

uti

on Distribution

Accumulative total (lognormal model)

Cumulated total (INSEEfigures)


COST / VOLUME RELATIONSHIP

Relation entre Trafic et Coût généralisé

0

5

10

15

20

25

30

0 5 10 15 20 25 30 35

Trafic journalier en milliers

Co

ût g

énér

alis

é en

eu

ros

Série1ACi

Ti Tg

Cg C

BCp

Tp

E D

B'

Tp'

MCp'

Surplus

Bitterness

Toll proceeds

Daily traffic in thousands

Generalized costs in euros

ACTIONS BY CICA

• Developing with UNECE a methodology to prepare and implement efficient projects

• Create a « center of excellence » for training decision makers to these rather complicated process of project evaluation, selection, tender and implementation

• Studies with economists about the link between socio-economic development linked to a new project and budgetary resources

• Consider how to developing maintenance of the works already build(main part of the activity now).


EXCELLENCE CENTER


Confederation of International Contractors’ Association Paris November, 17-18, 2014 Presentation...

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