Fifth Astana Economic ForumFifth Astana Economic Forum

Dr. Anand ChiplunkarDirector, CWUW

Central and West Asia Department

22 May 2012

OutlineOutline

1. Pre requisites for mainstreaming PPPs

2.How to identify projects and create a pipeline?

3. How to develop projects?

4. Financing Options

MAIN STREAMING PPP PROJECTSMAIN STREAMING PPP PROJECTS

Needs Range of InterventionsNeeds Range of Interventions

Facilitating PPPsFacilitating PPPs

Institutional Set-up (PPP Unit, RMU)

Viability Gap Funding as needed

Market Financing Facilities

•Capacity building and training•Quality control and due diligence•Standard PPP documentation•Project pipelines and prioritization•Review of PPP processes

•Grant Support to the Project•Capital or O&M Grants•Funding up to 10-40% of total project costs

• Long term debt funds

• Refinancing of bank loans

• Development of capital markets

Institutional Support is CriticalInstitutional Support is Critical

Dedicated Government PPP units are critical Play multiple roles and act as Government focal

Upstream & downstream work need different skills Use advisors but build internal capacity over time

Unit needs active relationship with stakeholders Investors – understand appetite and terms Advisors, other jurisdictions – learn PPP best practices Ministries – develop buy-in and capacity

Critical to establish credibility with stakeholders

IDENTIFYING PPP PROJECTS FOR IDENTIFYING PPP PROJECTS FOR A PPP PROJECT PIPELINEA PPP PROJECT PIPELINE

ADB Project Prioritization ADB Project Prioritization and Screeningand Screening

Projects

Projects

Projects

Project Screening Prefeasibility study on private

sector content and finance potential

CPS / COBP cycle

Project identification

(based on CPS)

Country Diagnostic

Study

Private + Public FinancePrivate Finance Projects

Public Finance

Project Development (Detailed Feasibility)

Target sectors and projects …Target sectors and projects …

Which have Government buy in for PPP approach – sectors and projects

That have necessary legislation in place

Where private sector involvement offers large benefit

With several potential follow-on projects

Made attractive to investors – alternative investment options with stable cash flows

Creation of PPP Project PipelineCreation of PPP Project Pipeline

Project Feasibility Technical, legal, environmental, social

Economic viability Economic benefits exceeding economic costs

Commercial viability Returns exceed cost plus required return on capital

Affordability Direct and/or contingent liabilities

Value for money assessment

What is Value for Money? Measure for efficient and effective delivery of

public services Best available outcome – taking into account all

benefits, costs and risks over project life Who (public/private) is best suited for improving

quality and reliability of services at lower cost

Caution Needs good public sector data for delivery of

comparable services Public investment gaps may warrant

private sector investment anyway for economic growth

Value for Money (VfM)Value for Money (VfM)

Lessons from PFI, UKLessons from PFI, UK

VfM related recommendation… “…Value for money will be improved through officials

being proactive in:

collecting data to inform decision-making;

ensuring they have the right skills;

establishing effective arrangements to test,

challenge and, if necessary, stop projects; and

using commercial awareness to obtain better

deals…”

DEVELOPING PPP PROJECTSDEVELOPING PPP PROJECTS

Track 1 Site Finalisation Project concept Procurement of

Technical & Legal Consultant

Land acquisition issues

Contracts and Documentation – Bundling/ Unbundling

Track 2 Proposal for

complementary Project Funding from Identified Source(s)

Project Preparation

Project Development ProcessProject Development Process

Govt Pre-clearances, Facilitation and Decision-making

Project development process integrates the parallel steps

• Direct mailers

• Media release

• Establishing a Developer Network

• Facilitate Consortia formation

• Address concerns

Marketing

• Expression of Interest

• Request for Qualification

• Request for Proposal

• Pre-Bid

• Proposal Evaluation

• Finalize Developer

• Finalize Agreements

Developer Search

• Project Bidding• Selection of Operator/

Investors

Procurement

Development

• Identification

• Detailed Feasibility/ Structuring

• Project scheduling

• SPV formation

A Continuous Process

Monitoring

• Compliance with Performance std.

• Regulatory mechanism

• Auditing/Reporting• Project Transfer

Project Delivery ProcessProject Delivery Process

Bankable Project

• Financing Structures• Bidding Structures • Contractual Frameworks• Legal Documentation

FINANCING PPP PROJECT FINANCING PPP PROJECT DEVELOPMENT AND INVESTMENTDEVELOPMENT AND INVESTMENT

Project Development FundProject Development Fund

Setting up PDF

Panel of Transaction

Advisers

Pilot Project Initiative

•Supporting project development costs•Encourage transparent procurements•Ensure well structured projects

• Enable fast access, provision of quality consultancy services•Ensure transparency and Accountability

• Support entire cost of project development•Ensures administrative push •Hand-holding and advise to public entity

Possible co-financing from IFIs and DFIs

Consultancy services get enhanced country

wide

A set of Priority Projects taken as ‘PILOT

CASES’

Pilot CasesPilot Cases

Best projects first – build momentum

Not too big, not too small

Strong revenue generation projects preferable

Government ministries and other stakeholders

committed

Builds expertise and develops the PPP process

Financing PPPsFinancing PPPs

DebtCommercial banks – usually short term, take out

financing may be neededMultilateral and bilateral development banks and

finance institutions Infrastructure bonds Institutional investors such as pension funds – can

come in after project commissioning

EquityPrivate sector and MarketsGovt. may also take enabling equity commitment

Cofinancing and GuaranteesCofinancing and Guarantees

Cofinancing ADB promotes cofinancing, defined as financing

mobilized from sources other than the borrower or project sponsors to augment its own assistance

Funds from (i) commercial financial institutions, (ii) official funding agencies, and (iii) export credit agencies

Guarantees ADB provides partial risk guarantees Enables financing and also lowers cost of financing

Cover commercial and/or political risks

Investor ConsiderationsInvestor Considerations

Early success critical to establish a track record and attract investment

Government sponsored funds can play an important catalytic role (India, etc.)

Investors hate surprises - don’t launch until legal, institutional frameworks ready

Investors love “comparables” – copy successful PPP mechanisms where practicable

Investor base shifting from Europe to Asia

THANK YOU!THANK YOU!