EBRDEBRD2525thth September 2009 September 2009

SarajevoSarajevo

Public-Private Partnership in Public-Private Partnership in developing municipal developing municipal infrastructureinfrastructure

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AgendaAgenda

Introduction to the EBRD

PPP – definition and rationale EBRD

EBRD Experience in PPPs

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Introduction to EBRDIntroduction to EBRD

International financial institution, promotes transition to market economies in 27 countries from central Europe to central Asia

Owned by 62 countries and two inter-governmental institutions including countries of operation

Capital base of €20 billion

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Introduction to EBRDIntroduction to EBRD

Mandated to finance projects in Central and Eastern Europe and former Soviet Union

AAA rated by Moodys and Standard & Poor’s

Provides debt and equity financing to state and private projects

>London headquarters

>30 Resident Offices in 27 countries

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EBRD Differs from Commercial BanksEBRD Differs from Commercial Banks

Mandate to foster transition from planned to market economies

The EBRD promotes environmentally sound and sustainable development in all its activities

Can finance projects without bank guarantees or sovereign guarantees

Willingness to try new products/structures

Broad market knowledge

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Municipal and Environmental InfrastructureMunicipal and Environmental Infrastructure

Other Municipal

16%

Urban Transport

6% Multi-Sector

4%

Water and Sewerage

72%

Solid Waste

2%

MEI covers all forms of PPP related to municipal infrastructure:

Water/WastewaterWater/Wastewater

Solid WasteSolid Waste

Urban Transport Urban Transport

District Heating District Heating

MEI Investment Portfolio

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Sofia Water System Concession

Bulgaria

€31 million syndicated loan

December 2000Privatisation of Sofiyska Voda

Sofia Water System Concession

Bulgaria

€31 million syndicated loan

December 2000Privatisation of Sofiyska Voda

Brno Waste Water Treatment Plant

Czech Republic€47.5 million syndicated

loan

December 1999 Operation wastewater treatment

plant

Brno Waste Water Treatment Plant

Czech Republic€47.5 million syndicated

loan

December 1999 Operation wastewater treatment

plant

Zagreb Waste Water Treatment Plant

Croatia€55.2 million syndicated

loan

December 2001Construction and operation of

wastewater treatment plant

Zagreb Waste Water Treatment Plant

Croatia€55.2 million syndicated

loan

December 2001Construction and operation of

wastewater treatment plant

Maribor Waste Water Concession

Slovenia€14.8 million

loan

April 1999Construction and operation of

wastewater treatment plant

Maribor Waste Water Concession

Slovenia€14.8 million

loan

April 1999Construction and operation of

wastewater treatment plant

Tallinn Water Limited Privatisation

Estonia€31 million syndicated

loan

October 2001Partial privatisation of AS

Tallinna Vesi

Tallinn Water Limited Privatisation

Estonia€31 million syndicated

loan

October 2001Partial privatisation of AS

Tallinna Vesi

Selected Water and Wastewater ProjectsSelected Water and Wastewater Projects

Budapest Wastewater Services Privatisation

Hungary€13.1 million

equity investment

December 1998Partial privatisation of waste-

water services companies

Budapest Wastewater Services Privatisation

Hungary€13.1 million

equity investment

December 1998Partial privatisation of waste-

water services companies

St Petersburg South-West Wastewater Treatment

Plant

Russian Federation€105 million

loan

November 2002Construction and operation of

wastewater treatment plant

St Petersburg South-West Wastewater Treatment

Plant

Russian Federation€105 million

loan

November 2002Construction and operation of

wastewater treatment plant

Apa Nova Water Treatment Plant

Romania€188.4 million

loan

December 2002Modernisation of the Crivina

Treatment Plant

Apa Nova Water Treatment Plant

Romania€188.4 million

loan

December 2002Modernisation of the Crivina

Treatment Plant

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How do we Define a PPP?How do we Define a PPP?

A PPP is a contractual agreement between a public agency (i.e. municipality) and a private entity

Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public

Each party also shares in the risks and rewards potential in the delivery of the service and/or facility

Agreements between the public and private entities differ in their allocation of risks and responsibilities, in the ownership of the assets and their duration

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Main Options for PPP and Degree of Risk TransferMain Options for PPP and Degree of Risk Transfer

Government

Design-Build

Management Contract

Lease

Concession

Build-Operate-Transfer

Privatisation

Degree of Private Sector Involvement

Deg

ree

of P

rivat

e S

ecto

r R

isk

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PPPs in Transition EconomiesPPPs in Transition Economies

PPPs meet the transition test

– Utilisation of the private sector

– Transparency and competition

– Priority infrastructure investments

– Efficiency and lower costs (public sector comparator)

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Typical Concession StructureTypical Concession Structure

Government

Concessionaire Shareholders

Contractor Operator

Loan Agreement Equity

Concession Contract

Construction Contract

OperationContract

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Pros and Cons of Different PPP StructuresPros and Cons of Different PPP StructuresStructure Service

ContractManagement Contract

Lease Concession BOT

Description Private sector performs specific service. Public sector remains responsible.

Operation and maintenance of utility transferred to private sector.

Private sector leases assets of utility and operates and maintains them.

Private sector has right to use assets, and responsible for operation, maintenance, and investments. Public sector owns assets.

Private party builds and owns asset, then transfers it to public sector.

Pro Private sector expertise for technical tasks. Public sector keeps control.

Allows improvement in management and cost control. Prepares for greater private involvement

Strong incentive for private sector to perform.Prepares for greater private involvement

Passes full responsibility for operations and investments to private sector.

Wholly private funding.

Con No private sector investment. Limited risk sharing.

No private sector investment. Little incentive to reduce costs and improve services.

No private sector investment. Administratively demanding on public sector.

Limited to stable political and economic contexts.

Lengthy process and high development costs.

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How are PPPs in EU Markets Evolving?How are PPPs in EU Markets Evolving?

0

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Time (Years)

More difficult

Interest

Some Projects Implemented

Pathfinder or Single Projects

Belgium

Italy

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5

4

2

0

Spain

Greece

HungaryCzech RepPoland

SloveniaSlovakia

Romania BulgariaCroatia Estonia

Latvia Lithuania

Russia Ukraine KazakhstanKyrgyz Rep Albania Bosnia/Herz

FYR Macedonia Serbia/MontenegroBelarus Moldova Armenia

Azerbaijan Georgia TajikistanTurkmenistan Uzbekistan

Widespread Use of PPPs

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Water supply and wastewater treatmentWater supply and wastewater treatment

Meeting EU water and wastewater standards

Need to increase investments in maintenance and asset renewal

Improve water supply standards

Improve collection and treatment of sewage

Improve operational and financial performance of municipal water and sewerage companies

Investment challenges

EBRD water and sewerage Projects

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Meeting EU waste standards

Efficiency and frequency of collection of waste

Improve adequacy of waste disposal

Prevent groundwater contamination due to inadequate treatment of leachate

Need to organise waste management systems

EBRD in waste management projectsEBRD in waste management projects

EBRD is experienced in structuring waste management projects

Investment challenges

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Key factor in promoting economic growth

Rehabilitation of public transport in urban areas and need to replace ageing and operating equipment

Improve financial performance of transport operators to allow access financing

Need to introduce public service contracts between transport authority and operator

Investment in public transport needed to counter the negative effects of rapid motorisation

EBRD in urban transport projectsEBRD in urban transport projects

Investment challenges

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EBRD offers Several Financing StructuresEBRD offers Several Financing Structures

EquityEquity

Loans Loans

LeasingLeasing

Partial guaranteesPartial guarantees

From pure to portage equity in project company

Limited or non-recourse project financing to public or privately-owned project companies; senior or subordinated debt

EBRD will structure each product according to project needs

Various forms of leveraged leasing structures for creditworthy entities

Partial risk, credit and specified event guarantees

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EBRD investment selection criteriaEBRD investment selection criteria

Financial, economic, legal and technical viability

Creditworthiness of borrower, sponsors and guarantors

Project would need to contribute to structure and extent of markets, institution building, and/or market-based skills and innovation

Legal framework would need to allow PPP arrangement and enforceability of contracts

Technology would need to be appropriate for site and service/performance required

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Some LessonsSome LessonsWhat our experience has taught us…What our experience has taught us…

Establish Dedicated Team

Realistic Expectations

Financial and Contractual Basis

Motivation of Public Sector to “champion” commercially oriented approach

Understand “user pays” and “cost recovery” concepts

Accept possible need for tariff adjustments

Establish clear project parameters up front

Establish all timing obstacles

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Contact detailsContact details

Davor Inđić Davor Inđić Giulio Moreno Giulio Moreno

Principal Banker

Zagreb Resident Office

Miramarska 23/111, 10000 Zagreb

Tel: +385 1 6000 310

Fax: +385 1 6197 218

e-mail: indicd@ebrd.com

Head of Sarajevo Resident Office

Unitic Towers, 15th floor, Tower B

Fra Andela Zvizdovica 1, 71000 Sarajevo

Tel: +387 33 667 945Fax: +387 33 667 950

E-mail: morenog@ebrd.com