IIICE Day 2 Fiscal Support Through Infrastructure Guarantee-Yadi J. Ruchandi

8/3/2019 IIICE Day 2 Fiscal Support Through Infrastructure Guarantee-Yadi J. Ruchandi

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Fiscal Support through Infrastructure Guarantee for

Local Water PPP Projects

Yadi J. RuchandiDirector of Operations, IIGF12 April 2011


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Why guarantees is needed for Water PPP projects...

Sovereign LevelGovernment

Specially MandatedAgencies

Sub-NationalEntities

Investors

Guarantee

Agreement

Recourse

Mandate

A sample of credit enhancement structure in

other countries (Mexico and Columbia)

Local Nature of

Water Projects

Sub-Sovereign

Creditworthiness

Need for Sub-Sovereign Credit

Enhancement

Sound FiscalManagement

Governance &Transparency in

Guarantee Provision

CredibleGuaranteeStructure

Critical Factors for Sub-Sovereign CreditEnhancement

Basis forEstablishment

of IIGFQuality Projects


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What has been the GOI initiative to facilitate the guaranteeeprovision....

Perpres

13/2010

Perpres

78/2010

PMK

260/2010

GoI realizes the importance of improving creditworthiness in PPP projects issues regulations

on guarantee provision & establishes IIGF

Improve Creditworthiness Bankability of PPP projects

Improve Governance & Transparent Process in Provision

of Guarantee

Provide guarantee to well structured PPP

Ring-fence GOI Contingent Liabilities and minimize

Sudden Shock to National State Budget

PrimaryObjective

of IIGF

Single Window Mechanism for

Infrastructure Guarantee


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Hows the IIGF business model works..

CityGovernment ofBandarLampung

PDAM WAY RILAU

PrivateInvestors

TheWorldBank

Concession Agreement

Lenders

Ministry ofFinance

Partial RiskGuarantee

Counterguarantee

IIGF is currently working on a Water Project inBandar Lampung with the support of MoF and the

World Bank

IIGFs business model is consistent with

international practice on sub-sovereign creditenhancements

IIGF provides comfort to investors/lenders throughGuarantee Agreement & ensures its financialsustainability through Recourse Agreement

A sample

businessmodel


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What are the Risks that IIGF Guarantee Covers?

BOT

structure

Concessionstructure

Water projects can take various modalitiesbased on strategic considerations. Each

modalities may involve different risk allocation.

CA Risk: Demand Risk

Absorption Risk Collection Risk

Political Risk

Tariff Risk

Investor Risk: Off-take Risk

Technical & Operational Risk

CA Risk: Political Risk

Investor Risk: Tariff Risk Demand & Absorption Risk

Collection Risk

Technical & Operational Risk


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How IIGF assures risk allocation is properly allocated...

Alligned with

risk allocation

principle ?

Risk defined as

per MOF

regulation ?

Risk

Category

Infrastructure

risks

Yes

Yes

No

No

Shifting risks to private sectormay be resulting in higherrisk premium

Taking back risks forprivate is not nessary

lower the overall costof the projects

Optimal Riskallocationbetween partiesto acheive valuefor money

IIGF has issuedRisk Guideline forsectors as

mandated by thenew MOFregulation

can be consideredto be guaranteed


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Sample of risk allocations in water sector

Complete risk guideline is accessible at IIGF website (www.iigf.co.id)

Operatingrisks

RevenueRisks

PoliticalRisks

Public InvestorShortfall of input quantityShortfall of output quantity

Miscalculate tariff estimatesPeriodical tariff adjustment is delayed

Currency inconvertibilityChange in corporate tax rate


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Pre-FSFinalisation

preparation ofGAP

PPP schemedetermined

Consultation

Screening

Signing of PPP Agreement

GuaranteeAgreement

Recourse Agreement

Negotiation,Award &Signing

Bid

submission&Evaluation

One onone

meetingsSubmission of

GAP

Appraisal

Structuring

Draft RFPreleased

IIGF Guarantee Provision Process

EOI and PQproses

How Does IIGF Process Guarantee?Sample timeline involving CA preparation & transaction &corresponding IIGF guarantee provision process

Final RFP

& Draft GA


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What aspects IIGF looks into when appraises a project...Guarantee Applicationpackage

Appraisalprocess

Viability

Economic

financial &technical viability

Pre-FS, Project

cash flow

Environmental &

social viability

Environmental &

social impact

assessment

Government

support

Description of

government

support

Risk

Risk

management

PPP Structure, PPP

Agreement, Risk

Allocation

Guarantee

coverage

Guarantee

coverage, Cover

letter

Competitiveness Procurementprocess

Procurement Plan

CA capacityCA-related

information


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Potential immediate water PPP projects for guarantees

Estimated time tomarket

ProposedScheme

Status of theprojects

Key facts

WaySekampung- Lampung

BOT

PQ process -on going

Pre-FS onprocess

2011

Umbulan-East Java

5000-8000

L/sec

WTP

70 km pipelinetransmission

BOT

Technicalstudycompletion

PQpreparation

2012Jatiluhur -Jakarta

4000 L/sec

103 kmpipelinetransmission

500 L/sec

WTP &distribution

21 km pipelinetransmission

BOT/Concession

Technicalstudycompletion

EOI and PQpreparation

2011


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Guarantee Provision and Risk Allocation Guidelines

We have recently published two key references for guarantees:

Infrastructure Guarantee Provision Guideline

Risk Allocation Guideline

Document can be downloaded from www.iigf.co.id


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IIICE Day 2 Fiscal Support Through Infrastructure Guarantee-Yadi J. Ruchandi

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