CICA PPPWG Importance of Infrastructure Gap closing: PPP schemes advantages

1. CICA PPPWGImportance of Infrastructure Gap closing:PPP schemes advantages Fernando Lago Cámara Argentina de la Construcción FIIC Board Member April 2018 1 1

2. The infrastructure gap grows all over the world. Importance of Infrastructure Gap closing 2 2

3. PPPs can complement public resources, They alleviate public accounts, allowing to reallocate public resources to social action PPPs prevent public debt growth. PPP schemes advantages 3 3

4. User or State and payments are made when the Community is already receiving the project benefits. Private participation improves efficiency in the resources allocation and reduces the project total cost, considering its entire life cycle. PPP schemes advantages 4 4

5. Unification of responsibilities of D, B, F, O & M is a powerful incentive for Efficiency PPP creates (or anticipates) fiscal return generated by the project to Governments (Corporate taxes, VAT, Property taxes…). PPP creates (or anticipates) social and environmental benefits of the project PPP schemes advantages 5 5

6. Successful Practices: UK National Audit Office Comparison PFI vs Public Works. Time and Budget On time In Budget On time and in Budget delivery On time In Budget PUBLIC WORK PFI Delivered Project Performance as a % of Total Projects Sources National Audit Office – GB Parliament – Expendeture Auditor

7. The UK Audit Office found a reduction of 70 percent of project budget overrun counts and 65 percent reduction in project schedule overruns deploying a P3 model. • An Australian study of 54 projects showed that only 1 percent went over budget; they also beat the schedule on average by 3 percent, while traditional approaches were on average 24 percent late. The rising advantage of public-private partnerships. Michael de la Rocca McKinsey & Company, June 2017

8. PPI World Evolution • Far from “close the gap” needed investment: 4 a 6 % of GDP 8 8

13. Opportune time for Private participation in financing. Infrastructure assets attractive for investors who need: a stable income stream medium to long term protection against future inflation i.e: Pension Funds, Insurance Companies, Souvereign Funds PPP schemes characteristics II 13 13

14. 2013 Financial Assets,Stock = 208 % World GDP 14 14

15. Moody’s 20 years data about 6100+ Infrastructure projects around the world Moody’s analize default (as defined by Basel II) and post- default credit recovery. Infrastructure projects by región Comparison with corporate financing ratings PPP vs non PPP PPP schemes are sure for investors 15 15

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19. Comparison with Corporate Bonds Performance

20. Comparison with Corporate Bonds Performance: Default Rate

21. PPP Compared with Corporate Bonds Performance: Default Rate

22. Recovery Rate

23. PPP Recovery Rate - Extract

24. Another performance analysis • EDHEC Infra Singapore • “Benchmarking Private European Infrastructure Debt 2000-2016” • Infrastructure debt indices key metrics, broad market, senior project, and corporate infrastructure debt, Europe (14), fully hedged • 16 years, 1089 debt instruments, Euro 106,1 billions, Europe 14

27. Latin-America PPP contracts situation

28. Very low Institutional Investors participation Green-field or Brown field? PPP or non PPP? A problem to solve 28 28

29. WB PPI Data Base: 2011-H1 2017 Contribution of Institutional investors EMDEs

32. No sizeable Project pipeline • Limitedtechnicalcapacity in InstitutionalInvestors • Perception of High risk. Low? (but late) return • Informationasymmetry WB PPI Data Base: 2011-H1 2017 Contribution of Institutionalinvestors Challenges to Institutional Investors flow to infrastructure

33. Bonds Versus Bank Debt A new trend Source: IJ Global

34. Bonds Versus Bank Debt Source: IJGlobal Bank lending has historically had a robust role in infrastructure finance. That said, bonds are easier to trade

35. It is important to develop a performance data base: MDBs GIH CICA …………… PPP data 35 35

36. PPP Perspective 2018 After some years of decline: • A better 2017 first semester performance • G20 Argentina 2018, central point: • Infrastructure as an asset class 36 36

37. Successful practices • Develop Subnational projects • Project size or module, adapted to local market • Intelligent guarantee policies • Infrastructure Funds for PPP funding or guarantee • Infrastructure recycling 37 37

38. Successful Projects • Urban development • Public Lighting and WiFi access • Tourism • Public Buildings • Public Transportation 38 38

39. Successful Projects II • Transport • Water and sanitation • Irrigation • Health Care • Eolic Energy Generation • Alternative energy generation 39 39

40. Considere that O&M is included in the PPP contract price Considere that financial costs are included in PPP price. Compare NPVs. (Explain what NPV is!!) If comparing private financing cost with sovereing financing, be sure wheter sovereign financing is available (EEA: Maastrich limits to national indebitness, EMDEs: financial markets limitations) Considere fiscal, social and environmental benefits produced by an anticipated project When comparing with a non PPP tender 40 40

41. CICA PPPWG Objectives • Advocate for the system before Governments, Multilateral Organizations, media and markets. • Disseminate current regulatory frameworks, successful models and lessons learned to all stakeholders in the sector. • Contribute to the strengthening of thecapacity to manage projects in Public Agencies and private companies • Contact with MDBs and IFIs: about technical resources, sindicated loans, guarantees 41 41

42. Conclusions • Development and poverty reduction in each country need infrastructure investment • Private sector should be an essential part • PPP schemes can contribute • Imagination and action is required • CICA can lead the process 42 42

43. Thanks to you! 43 43