PPPs in Central and Eastern European countries

1. PPPs in Central and Eastern European countries Peter HodecekAustrian Waste Management Association (VOEB) / AVE Energie AG Umwelt GmbH Tirana, 21.9.2011

2. Introduction: Who is „ “? • is one of the biggest private waste management companies in CEE: • turnover: 500 MEUR • staff: 5.400 employees • operates 160 locations in 9 countries (A, I, D, CZ, SK, H, RU, UA, MD) • owns a fleet with almost 2.600 trucks and special vehicles • operates more than 50 wholly-owned waste treatment plants which all comply with (higher) Austrian or at least with (lower) EU-standards • handles approx. 6,2 Mio. tons of waste annually • serves 5.665 public (municipal) clients • has successfully realised PPP-models for municipal waste management, even with big cities

3. AVE‘s PPPs in CEE • AVE runs in total 21 PPPs in 6 countries

4. AVE‘s PPPs in CEE

5. general demands for PPPs in CEE • rapidly deteriorating public budgets have a heavy nega-tive impact on public services and infrastructure • common understanding between an (Eastern European) organised public authority and a different (mostly Western European) thinking investor • investor has to be serious and competent, well reputated and especially financially strong • both sides want to create a „win-win-situation!

6. major drivers for PPPs in CEE • no free available / not enough financial funds for proper waste management infrastructure • CEE is facing major investments due to low environmental standards & and increasing preasure to implementate European waste legislation within the next 5-10 years • no coverage of operational costs because of low municipal fees or due to national cost-limitations: • e.g. Czech Republic: max. fee for municipal waste disposal: 20 EUR/capita.year • overstaffed departements • missing / overaged treatment plants (mainly landfills) = inefficient, expensive and low quality public services

7. additional drivers from Western Europe (1) • in 2009 1.642 out of 2.357 municipalities in Austria had a budget deficit • = 70 % of all Austrian municipalities (!) • similar situations in Germany and other Western European countries source: Steinbichler, Alois: Financial report on municipalities 2010. Austrian Kommunalkredit AG, 2010

8. additional drivers from Western Europe (2) • disposalcosts (includingcollection, transportanddisposal) forresidual wastein bigcities in Germany and Austria: (averageanuallywastegenerationofonehousehold (2 persons): 3,12 m3/a or60 l/weekand 52 collections/a) • Berlin: ca. 72 EUR/household.a • Düsseldorf: ca. 187 EUR/household.a • Vienna: ca. 110 EUR/household.a(+27 %within 5 yrs!) • pricesformunicipalwastedisposalarestronglyincreasing: • transportationcosts (fuel), separate collection, incineration,….. • ageingpopulationsdemandmoresophisticatedservices

9. creation of PPPs in CEE 1. public tender: service contract 4. payment to municipality (purchase price): service contract + stake in SPV (longterm) service contract publicauthority 100 % 5. further investments: infrastrukture + equipment SPV VALUE! 2. Winner: mostly through municipalities‘ SPV 3. public tender: stake in SPV (incl. long-term service contract & further investments) 0 - xx % xx % NO value! (old equipment, in-efficient services, etc.) private investor

10. public tenders for PPPs in CEE • typicalassessmentcriteriain a publictenderforselec- • ting an adequate private partneras (thenew) majority shareholder in the (formerwholly-public-owned) SPV are: • purchaseprice • heightoffutureinvestments • type ofguarantee(s) forofferedfunds • references • ……………

11. expectations of a private investor • opening of new markets / further growth • long-term businesses with stable profits / cash-flows • partly share of investment risks • guarantee for long-term agreements • access to EU fundings for new waste management infra-structure • transparency and fair competition / equal treatment during the transaction process • political will for improvement of public services • no extraordinary legal barriers for private sector

12. expectations of a public authority • free available financial funds! • preservation of control • increase of service quality, technological & environmen-tal standards with same or even lower prices for citizens • access to financial ressources in order to modernise waste management infrastructure (logistics, collection yards, administrative and operative buildings, disposal and recycling plants, etc.) • transfer of operational risks to private partner • special minority rights (Management, Supervisory Board, etc.)

13. how to solve leadership private investor: • majority in management • minority in supervisory board public authority: • minority in management • majority in supervisory board operational leadership(finance/sales/technology) controlofre-engineeringprocess „public“ controlof PPP

14. necessary investments1)purchase price • turnover < 3 MEUR: multiples = ca.1,0 • turnover > 3 MEUR: multiples = <<1,0

15. necessary investments2)further future investments oldequipmentandinfrastructurecausesfurther high investments : 1) total investments from private partner into PPP after 5 years of cooperation

16. Buildings & Infrastructure before/after privatisation

17. Logistics before/after privatisation

18. collecting yards & sorting plantsbefore/after privatisation

19. landfills before/after privatisation

20. „Wishes“ • European Commission should remedy the obstacles against PPPs and should promote their use/implementation • change of public meaning of public authorities in Western Europe, like „Magistratsabteilung 48“, Vienna/Austria: • expects a decrease of service quality because of a PPP • counts with a diminishing acceptance of Vienna‘s inhabitants in fact of a PPP between MA 48 and a private investor • calculates no added value in service-efficiency due to massive in-crease of control-, regulation- and guaranty efforts • less bureaucracy – it is still the biggest economically and politically hurddle in CEE

21. Conclusions for successful PPPs in CEE • environmental sound treatment of MSW requires high investments • thus PPP-models in CEE can help forcing: • make public services more cost-effective and efficient • install separate waste collection with modern systems and low-emission trucks • investments into well equipped new landfills • pretreatment of waste for recycling purpose in order to reduce biodegradable waste for landfill • Investment into incineration plants (long-term-view) • „services of general interest“ is a popular but inefficient argument of several Western European public entities against PPPs

22. Thank you very much for your attention!