Tender Process for PPP Projects - Synergy Consulting · 2020. 8. 27. · SINGLE STAGE TENDERING TWO...
Transcript of Tender Process for PPP Projects - Synergy Consulting · 2020. 8. 27. · SINGLE STAGE TENDERING TWO...
1Private and Confidential: For Limited Circulation Only
Tender Process for PPP Projects
August 2020
2Private and Confidential: For Limited Circulation Only
0 DISCLAIMER• This presentation (“Presentation”) has been prepared by Synergy Consulting Infrastructure and Financial Advisory
Services Inc. (“Synergy”) to provide helpful information on the subjects discussed for educational purpose only.
• Synergy will not regard any person (whether a recipient of this Presentation or not) as a Client and will not be
responsible for providing any advice or protections to any such person.
• No representation or warranty, express or implied, is or will be given by Synergy or their respective directors,
affiliates, partners, employees or advisors or any other person as to the accuracy, completeness or fairness of this
Presentation and no responsibility or liability whatsoever is accepted for the accuracy or sufficiency thereof or for
any errors, omissions or misstatements, negligent or otherwise, relating thereto.
• Synergy does not undertake, and is under no obligation, to provide any additional information, to update this file, to
correct any inaccuracies or to remedy any errors or omissions in this Presentation.
• The Presentation should not be regarded as constituting an opinion on the situations discussed in the Presentation,
nor relied upon as a basis to proceed, or not to proceed, with any specific action or remedy.
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# SECTION NAME PAGE
1 Introduction to PPP 4
2Key Considerations for Project
Procurement8
3 Key Stages of Project Procurement 17
TABLE OF CONTENTS
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Introduction to
PPP1
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INTRODUCTION TO PUBLIC PRIVATE PARTNERSHIP
• Public Private Partnership (PPP) in the field of Project Finance is an arrangement under which private sector developer collaborates
with public sector (Government) for delivering services
PUBLIC
ENTITY
PRIVATE
DEVELOPERPARTNERSHIP
• Purchaser/ user of the output
• Provides legal and regulatory
framework
• Typically assumes social,
environmental, political risks,
market risk (as applicable)
• Design, construct, operate and
maintain the project
• Assume financing, construction,
O&M risks, market risk (as appl.)
• Adhere to Key Performance
Indicators (“KPIs”)
• Integrates the abilities of the both
public and the private sectors
• Enables equitable risk allocation
between public and private sector
• PPP model operates on a DBFO(O)T basisD B F O O T
Design Build Finance Own Operate TransferKEY FEATURES
OVERVIEW
FINANCING
• Private sector raises financing
• Frees up public sector funds for other
key sectors with limited participation of
private players
OPERATIONS
AND
MANAGEMENT
(O&M)
• Private developer performs O&M
activities
• Private player to adhere to agreed
operating KPIs/ standards
DESIGN AND
CONSTRUCTION
(EPC)
• Private developer assumes the design
and construction responsibilities
• Responsible for timely completion
adhering to agreed EPC standards
RISK
ALLOCATION
• Typically shared between public and
private sector entities
• Well defined approach is to allocate
risk to a party best suited to handle it
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PUBLIC PRIVATE PARTNERSHIP – KEY DRIVERS
BENEFITS OF PPP
Enhanced End-user
Service Level
Value for Money
Optimal usage of Budget
Innovation
Output Focus
Risk Management
1 Owing to vast experience of private sector entities, PPP ensures
delivery of optimum quality services together with substantial cost
savings compared to traditional procurement process
Since compensation is based on performance/output delivered, it
ensures timely availability of services and adherence to pre-defined
performance standards
4
6
Private sector entity brings along
the experience, innovation and
best practices, that result in
higher efficiency thereby
enhancing the end-user service
level
Provides long term value to Grantor
through appropriate risk transfer to
private sector entity from design and
construction to operation and
maintenance
Under PPP structure, Grantor doesn’t
incur upfront cash outflow but makes
periodic payments which results in
usage of the government budget for
other projects
2
35
Private sector entity, having
experience of implementing
similar projects, has higher
possibility of bringing in
technical innovation and
management best practices
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PRE-REQUISITES FOR SUCCESSFUL PPP TENDER PROCESS
Legislative Framework
2
Capacity
Building
4
Political
Commitment
1
Regular
Deal Flow
3
Streamlined Process
5
• The procurement
team should have
clarity on their role
and responsibilities
in the project,
within the PPP
framework
• The procurement
team needs to be
well staffed and
trained to ensure
proficiency in
dealing with
advisors and other
stakeholders
involved in the
project
• The procurement
process should be
transparent,
unbiased and fair in
order to generate
interest for the
project
• It should adhere to
pre-defined
timelines to ensure
smooth execution
of the process
within the allocated
budget
• Regular deal flow
demonstrating
government’s
commitment and
thus ensuring
interest from
private sector
entities
• Also, it ensures that
the process is
efficient as the PPP
models &
documentation can
be easily replicated
• The Grantor should
ensure that the
required legislative
framework is in
place for
safeguarding the
interests of the
stakeholder
• It should define,
among other things,
the procurement
and arbitration
process and
remedial actions in
case of default and
bankruptcy
• The PPP program
needs to be in line
with the current
polices and the
development
targets set by the
government to
provide directional
clarity to all the
stakeholders
involved
• The government
should
demonstrate its
commitment to the
program by
providing required
policy support
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Key
Considerations
for Project
Procurement
2
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KEY STRUCTURING CONSIDERATIONS
BUILDING STAKEHOLDER CONSENSUS
TYPES OF STAKEHOLDERS
• Critical to successful implementation of a PPP project is to have a considerate and proactive approach to
building consensus among internal and external stakeholders
• It is therefore important to identify all internal & external stakeholders, their interface areas, responsibilities,
interest areas in the project and their preferred way of communication
• The aim should be to manage the expectation of stakeholders by understanding the interface level for each
stakeholder and the influence which they may have on the project
OBJECTIVES
METHODOLOGY
• Identify all stakeholders (based on experience of precedent projects and any new stakeholder)
• Specify their interface areas
• Analyze the level of influence of each stakeholder based on their power and interest
• Identify their preferred method of communication & frequency
• Regularly monitor stakeholder's expectation and prepare a stakeholders management plan
Grantor/ Off-taker/
Grantor
Project Co./ Bidder/
Investors/ Lenders
Project Development
Team
Internal Approvals
CommitteeTechnical Committee
Other parties with
direct interest in the
project
Government
Authorities1Regulatory Agencies
Utility (electricity,
water, etc.)
Companies
Local Communities Local Media
Other parties with
indirect interest in
the project
Internal Stakeholders External Stakeholders
1. Ministry of Finance (MoF), Ministry of Housing (MoH), Ministry of Commerce and Industry (MoCI), Ministry of Environment and Climate Affairs (MECA), etc.
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KEY STRUCTURING CONSIDERATIONS
BID PROCESS DESIGN (1/2)
OVERVIEW
• There are various types of bid processes that can be adopted by the Grantor to procure a competitively tendered project – single stage
process and multi-stage processes
• Key considerations for finalization of an appropriate bid process are as follows:
o How well defined are the project scope and requirements?
o How well defined (and interested) are the potential bidders?
o How much overall process efficiency the selected method ensures?
TYPES OF BIDDING PROCESSES
SINGLE STAGE TENDERING TWO STAGE TENDERING THREE STAGE TENDERING
• Request for Qualifications (RFQ) and
Request for Proposal (RFP) are
integrated into one document and the
tender is open to all potential bidders
• Statement of qualifications (SOQs) are
requested along with proposals
• Bidding process with 2 steps:
o Step-1: RFQ is released to all
interested parties and the eligible
applicants are shortlisted (based on
a pre-defined technical and financial
criteria)
o Step-2: RFP is issued to the
shortlisted applicants (which are
notified) for submission of bids
• RFQ is typically a pass/ fail stage and
the preferred bidder is selected based
on their proposal (technical and
commercial) submitted in Step-2
• Multi stage bidding process with 3 steps:
o Step-1: Expression of Interest (EOI)
stage to identify a list of interested
firms (No shortlisting at this stage)
o Step-2: RFQ is released to applicants
who submitted response to EOI; the
eligible applicants are shortlisted
(pre-defined technical and financial
criteria) – pass/ fail stage
o Step-3: RFP is issued to the
shortlisted applicants for submission
of bids (preferred bidder identified
based on technical and commercial
proposal)
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KEY STRUCTURING CONSIDERATIONS
BID PROCESS DESIGN (2/2)
Parameters Single Stage: RFP Two Stage: RFQ + RFP Three Stage: EOI + RFQ + RFP
Definition of
Project Scope
and Structure
• Suitable when project scope and
structure is clear and well-defined
• Suitable for projects with widely
accepted project structure and
successful precedent transactions
• Relevant for projects with no/
limited precedent transactions -
discussions/ feedback needed from
stakeholders to refine the project
structure
• Considered for large and complex
PPP projects or projects with limited
precedents in the country
• Relevant for projects with no/
limited precedent transactions
• Extensive discussions/ feedback
required from stakeholders to
decide and finalize the project
scope and structure
• Considered for large and complex
PPP projects or projects with limited
precedents in the country
Clarity on
potential bidders
• Preferred when interested and
potential bidders are known and
identified (and limited in number)
• Considered when potential bidders
are known and identified, however,
the number of interested bidders
may be large
• Suitable when there is uncertainty
about the level of interest in the
project - unknown if interest is large
or limited
• Opportunity to modify project
scope/ structure based on EOI
response
Process
Efficiency
• Significant effort may be required
for addressing queries and
evaluating bids in case the potential
bidder universe is large
• RFQ is useful to restrict the number
of bidders, thus ensuring high
quality of bids submission
• Also, reduces the effort for
responding to queries and
evaluating the bids
• EOI is useful to identify interested
bidders and evaluate level of
interest; RFQ further helps reduce
the number of bidders, if necessary
• Overall effort higher than two stage
process due to an additional step
Timelines
• Bid timelines could be shorter in
comparison to multi-stage
processes
• However, in case the number of
bids received are high, the
evaluation process could stretch
longer than anticipated
• Longer timelines due to an
additional stage; however, the
evaluation could potentially be
faster (than single stage process)
due to lower number and high
quality of bids
• Multiple evaluation stages typically
increases the procurement
timelines (longer than two stage
process)
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KEY STRUCTURING CONSIDERATIONS
MINIMUM ELIGIBILITY REQUIREMENTS
• For two stage or three stage tendering processes involving pre-qualification of the applicants, the Grantor is required to define pre-
qualification criteria for selection of technically sound and financially strong pre-qualified applicants (individual or consortium)
• The Grantor may utilize one or more of the following to assess the technical and financial strength of the applicants
TECHNICAL MERs FINANCIAL MERs
• The applicants are required to showcase their technical
competency and expertise in following areas:
o Development Experience
― Demonstrate strong track record of successfully
developing i.e. acting a bidder for [x]1 number of projects
of similar size and nature in last [y]1 years for both local
and international markets
o Operational (O&M) Experience
― Possess experience of operating and maintaining [x]1
number of projects of similar size and nature for a period
of [y]1 continuous years in both local and international
markets
o Ownership Experience
― Must meet a cumulative ownership threshold in previous
projects in local market to demonstrate their ability to
manage the external stakeholders of the project
• Well defined technical MERs are generally seen for projects with
sufficient precedent transactions
• The applicants are required to showcase their strong financial
standing as they are to own equity in the project. Key
parameters to evaluate financial strength are as follows:
o Tangible Net Worth (TNW)
― Must have a minimum tangible net worth of USD [x]2 MN in
past [y]1 years as evidenced by its audited financial
statements
o Financing Experience
― Demonstrate their ability to fund similar size projects with
equity and raise non-recourse debt for [x]1 number of
projects in last [y]1 years
― Demonstrate carrying out debt repayments of projects in
accordance with loan agreements
― Must have x% equity stake at financial close of project
o Turnover/ Net Profit
― Demonstrate a turnover and/ or net profit of USD [x]2 MN
in last [y] years
o Credit Rating
― Demonstrate an investment grade credit rating issued by a
qualified rating agency in last [y] years
1. Dependent on the number of precedent transactions in the market
2. Dependent on the estimated project cost/ equity contribution required of the applicant
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KEY TECHNICAL CONSIDERATIONS
• Technical Advisor lays down various technical aspects of the project that serves the purpose of outlining the
main features of the project from a technical point of view
• List down minimum necessary requirements for the project which are deemed essential to be described in
the RFP in the form of the minimum functional specification for the project
OBJECTIVE
ASPECTS COVERED
• The technical considerations lay emphasis on the following aspects of the project:
o Plant/ Project description
o Capacity and size
o Required design specifications for the facility and their compliance with local regulations including
environmental norms
o Site description and results of various studies performed to determine the suitability of the site for
construction
o Quality of materials to be used for construction
o Technology to be utilized
o Equipment warranties and guarantees desired
o Possible interfaces for utility supply
o Requirement of ancillary infrastructure
o Experience of EPC and O&M contractors including their HSE track record
o Tentative implementation schedule
o Others
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KEY FINANCIAL AND COMMERCIAL CONSIDERATIONS
SOURCES OF FINANCING (1/2)
Equity
Debt
Project Cost Funding
Equity Bridge Loan
Shareholder’s Loan
Cash Equity
Long Term Loan Mini Perm
CREDIT SUPPORT
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KEY FINANCIAL AND COMMERCIAL CONSIDERATIONS
SOURCES OF FINANCING (2/2)
EQUITY
FINANCING
Equity Bridge
Loan (EBL)
• Short-term facility raised to cover Sponsors’ equity investment in a project; typically Shareholder
Loans are infused to repay the EBL (at the end of EBL facility’s tenor)
• Sponsors typically fund a portion/ entire equity investment in a project by way of an Equity
Bridge Loan in order to enhance their IRR
Shareholder
Loans
• Shareholder’s Loan is a subordinated and unsecured loan provided by the equity holders to the
Project Company
Cash Equity• Contribution by shareholders to fund the development and construction cost of the project; can
be upfront, pro-rata, partial pro-rata or back-ended as agreed in the financing documents
DEBT
FINANCING
Long Term
Loan
Mini – Perm
• Long-Term Loans are offered by the lenders to finance an infrastructure project, with the term
of the loan (tenor) typically dependent on the concession term
• Lenders may require at least a 7-8 year tail period on a conservative basis for a market risk
project; the tail would be significantly lower for an availability based or minimum revenue
guarantee project
Lenders, however, require a firm commitment from Sponsors demonstrating that the equity funding is in place at the time of financial
close; in all cases, the equity (EBL or Shareholders’ Loan or Cash Equity) will be subordinated to the senior debt provided by lenders
• Mini-Perm financing is utilized by the bidders in order to take an aggressive stand on the
project; Mini-Perm being a short/medium term (7-8 years) is usually priced lower by the banks
compared with an amortizing long term facility (which is aligned with the concession term)
• There is an Initial Maturity Date (IMD) post which the facility needs to be refinanced (thus
exposing the project and Concessionaire to refinancing risk very early in the concession term)
• Banks usually have restrictive covenants and a higher interest rate post IMD, to incentivize the
Concessionaire to refinance (Soft Mini-Perm); Further, there could be an event of default in
case the Concessionaire fails to refinance prior to IMD (Hard Mini-Perm)
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KEY LEGAL CONSIDERATIONS
Project Company/ SPV
(Concessionaire)O&M ContractorEPC Contractor
EPC
agreement
Grantor
Lenders
O&M
agreement
Debt
Financing
agreementSponsor/
Shareholders
Shareholders
agreement
Equity
Right of way/
Site
agreement
Concession
agreement
Payment Agreement
Tariff
Payments
Lenders direct agreement
Lenders direct agreement
EPC Payments O&M Payments
• In a PPP model, the Concessionaire offers a one-stop shop solution to the Grantor where the Concessionaire is responsible to design,
build, finance and maintain the project over the concession term and transfer the asset to the Grantor at the end of concession term
• Concessionaire and Grantor are bound by terms of concession agreement and payments from/to Grantor and Users are based on
concession agreement and vary according to type of PPP model selected
• Lenders enter into direct agreements with the Grantor and third-party contractors (EPC, O&M or any key contract counterparties).
These direct agreements enable step in rights to the lenders, in case the Project Company is unable to fulfill its obligations
TYPICAL CONTRACTUAL STRUCTURE
RISK ALLOCATION FRAMEWORK
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Key Stages of
Project
Procurement
3
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BID PROCESS OVERVIEW – PROCURER PERSPECTIVE
Phase 1 - Development PhasePhase 2 – Tender Process and Bid
Submission
Phase 3 – Preferred Bidder
Selection and Financial Closure
• Project Prefeasibility Studies
o Project identification
o Techno-commercial feasibility
o Advisor appointment
o Site investigation
• Structure Finalization
o Preliminary commercial and
transaction structure
o Initial risk matrix
o Development of Financial
model
o Legal and regulatory
framework and technical and
operational aspects
• Market Sounding & Feedback Analysis
o Stakeholder discussions
o Project structure
enhancement
o Project market sounding and
feedback
• EoI Process
• RFQ Process & Prequalification
o Preparation and issue of RFQ
o Pre-qualification of bidders
• RFP Preparation & Issuance
o Detailed risk allocation matrix
o Project agreements & RFP
documentation drafting
o Bid evaluation
criteria/strategy finalization
o RFP issue to prequalified
bidders
• Bid Preparation and Submission
o Site Visit and Pre-bid Meeting
o Tender clarification process
o Issue of addendums, if
required
• Preliminary Bid Evaluation
o Evaluation of bids for
compliance/completeness
• Post-bid Clarifications
• Preferred Bidder Selection
• Negotiations and Finalization of Financing Agreements
o Grantor review of close to
final version of agreements
o Negotiations typically
managed by bidder
• Finalization and Signing of Agreements
o Finalization and execution of
project agreements with the
preferred bidder
• Conditions Precedent Fulfillment
o Support, as required under
the off-take agreement and
shareholder agreement
Phase #
Key Activities
Timeline1 4-5 months 3-6 months7-9 months
1. The proposed timeline is Indicative in nature and will vary on a case by case basis
19Private and Confidential: For Limited Circulation Only
c
BID PROCESS OVERVIEW – DEVELOPER PERSPECTIVE (1/2)
Project
Prefeasibility
Studies
PROJECT MILESTONES
Market Sounding
and Feedback
Analysis
RFQ Process and
Prequalification
P
h
a
s
e
1
RFP Preparation
and Issuance
Bid Preparation &
Submission
▪ Project scouting
▪ Preliminary project information from the market
▪ Relationship building with potential partners
▪ Preliminary project analysis using gathered info.
▪ Project development budgeting & JDA execution
▪ RFQ review, preparation & response submission
▪ Shortlisting of sub-contractors and advisors
▪ Initiation of market sounding
▪ Review of the RFP and key project documents
▪ Defining the bid strategy
▪ Site visit; pre-bid clarification meetings
▪ Finalization of EPC and O&M contractors
▪ Discussion for formation of lending group
▪ Drafting, mark-ups to term sheets & agreements
▪ Financial model, assumptions book finalization
▪ Bid optimization and structuring
▪ Finalization & commitment from lending group
Developer
▪ Potential partner scouting
▪ Set-up development team for bid submission
▪ Finalization of JDA terms with selected partner
▪ Preparation of project budget
P
h
a
s
e
2
20Private and Confidential: For Limited Circulation Only
c
Post-bid
Clarifications
PROJECT MILESTONES
Preferred Bidder
Selection
Negotiations and
Drafting of
Agreements
Finalization and
Signing of
Agreements
Conditions
Precedent (CPs)
Fulfillment
▪ Finalization of lending group and roles of banks
▪ Completion of lenders’ due diligence process and final credit approvals
▪ Documentation negotiations and finalization:
• Project agreements (EPC, O&M etc.)
• Financing agreements (facility agreements, fee letters etc.)
▪ Preparation of final execution copies of all agreements
▪ Obtaining competitive hedging solution
▪ Post hedge tariff finalization (if applicable) and document updating
▪ Fulfilling the CPs to achieve Financial Close
Developer
▪ Meetings with procurer (if required)
▪ Clarification response preparation
▪ Discussion with off-taker for markups to project agreements
▪ Negotiation and discussions with procurer
▪ Preferred bidder letter signing
▪ Appointment of other lenders’ advisors
▪ Initial negotiation with lenders and contractors
FINANCIAL CLOSE
P
h
a
s
e
3
BID PROCESS OVERVIEW – DEVELOPER PERSPECTIVE (2/2)
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CONTACT INFORMATION
2
GAJENDRA YADAVSynergy Consulting Inc.
PHONE
Tel: +91 11 4980 8244
Mob: +91 95600 03435
1
KRISHNA SINGHSynergy Consulting Inc.
PHONE
Tel: +91 11 4980 8210
Mob: +91 88600 52345