“Different PPP Designs in the MENA Region”:

1. PPPs for Infrastructure Financing in the MENA-Region “Different PPP Designs in the MENA Region”: Establishing an Effective Legal & Contractual Framework Frequently Asked Questions on PPPs: The EIC Response Frank Kehlenbach BIAC Representative / Director of European International Contractors PPPs for Infrastructure Financing in the MENA Region

2. 1 About EIC - Experience • European international contractors take a leading role in developing the world’s TRANSPORT infrastructure, such as toll roads, railroads, ports and airports, but some diversification into other sectors. • European contractors have developed over the past decades expertise not only to build infrastructure facilities, but also to design, operate and finance these structures in industrialised as well as in emerging & developing countries. PPPs for Infrastructure Financing in the MENA Region

3. Bigger Market International Financing Institutions must reserve sufficient funding for infrastructure investments in developing countries Promotion of Public-Private Partnerships Better Market Quality-Based International Competition (due to project life-cycle costing) 1 About EIC - Goals • Fair Market • Balanced Contract Conditions • Effective Dispute Settlement • International Arbitration • Ethical Market • Corruption-free environment • Environmentally sound and sustainable projects PPPs for Infrastructure Financing in the MENA Region

4. PPP Developing Markets Overview World Regions 2 Investment in Infrastructure with Private Participation in Developing Countries(1990 - 2005) by Region WORLD TOTAL:970 billion US$ ”Asian Crisis” Source: World Bank PPI Database PPPs for Infrastructure Financing in the MENA Region

5. 2 PPP Developing Markets Overview Infrastructure Sectors SECTORAL TOTAL:970 billion US$ Source: World Bank PPI Database PPPs for Infrastructure Financing in the MENA Region

6. 2 PPP Developing Markets Overview Focus:MENA Region (excluding Extractive Industries) • In the MENA Region, the dominance of the telecom and the energy sectors is even more obvious than on average (94%). • Around 72% of investments accumulated in only 3 countries, i.e. Morocco (38%), Egypt (17.5%) and Algeria (16.5%). • Projects in the transport sector comprised airports (588 million), seaports (1.300 million) and railroads (182 million). MENA TOTAL:43.5 billion US$ Source: World Bank PPI Database PPPs for Infrastructure Financing in the MENA Region

7. 2 PPP Developing Markets Overview Lessons Learned on PPP Structuring • World Bank statistics suggest that telecomprojects (ca. 50%) are easier to set up in lower income countries, due to comparably lower up-front investment costs. • Many projects in the energy sector (ca. 33%), since there is the possibility of agreeing on long-term off-take agreements a either with a government entity or an independent power producer. This model has triggered criticism from many angles. • Some transportprojects (15%) may be “commercially viable” if they are structured around insulated assets frequented by industrial clients, e.g. airports, seaports, freight rail. • Other transportprojects with socio-economic benefits, such as toll roads, bridges and tunnels and passenger rail, as well as water & sewerage projects apparently are less often structured as a PPP, since they relied in the past on (non cost-covering tariff) payments by private customers and thus were “not commercially viable”. PPPs for Infrastructure Financing in the MENA Region

8. EIC White Book on BOT/PPP Basic Features 3 • Published in April 2003 • Based on the broad experience of EIC member companies as concessionaires in preparing forPPP projects in the transport sector • Advise to Governments, Contr. Acting Authorities and International (Financial) Organisations in structuring PPP projects • Comprises 21 recommendations for the technical and financial implementation of PPP projects PPPs for Infrastructure Financing in the MENA Region

9. 1 GENERAL PRECONDITIONS Ensure true Government Support Create a PPP Task Force Enhance Country Legal Framework(Accounting, Taxes, Procurement) 2 PROJECT PREPARATION Put in place sound procurement strategy Present comprehensive, reliable project documentation Provide for a steady and secure payment mechanism Agree on affordable level of tariffs 3 TENDER PROCESS Use Pre-qualification of bidders Ensure Transparency & Confidentiality throughout process Present clear award criteria Reimburse Bidding Costs Unsolicited Bids ??? (outside EU ) 4 RISK MITIGATION Provide for optimal risk identification & allocation Invite financial risk mitigation through IFIs, ECAs, etc. EIC White Book on BOT/PPP 21 Recommendations 3 PPPs for Infrastructure Financing in the MENA Region

10. EIC on FAQs on PPP Political Arguments on PPP 3 • Value for Money ? – Life cycle approach • Off-balance Financing ? – Not always • Government Flexibility ? – Public duties • Government Control ? – Retained • Public Sector Comparator ? – Reliable? • Complexity & Costs ? – Can be limited • Re-negotiations in PPP ? – 20-30 years • (Increase of) Tariffs ? – Right Blend • State Subsidies ? – non-viable PPPs • Role of SMEs ? - Important • Role of architects & consultants ? - dito • Labour rights ? – state responsibility • Sustainability of PPPs ? – Definitely PPPs for Infrastructure Financing in the MENA Region

11. Challenges for PPPs Public sector skills Legal and regulatory sector-specific framework Steady revenue flows Transaction costs, right blend of public and private funds (Role of IFIs /EU) Political & Economic risks Benefits of PPPs Project life-cycle approach Project completion on time + on budget Project operation according to pre-defined standards Risk transfer to the private sector (e.g. interface risk) Additional private funds Conclusion 4 PPPs for Infrastructure Financing in the MENA Region

12. 4 Conclusion WORLD Bank PPP Working Paper (2003) “Whatever policies countries choose, governments cannot avoid the inescapable realities that infrastructure services have to be paid for, whether provision is public or private. Most of the concerns about the sustainability of private infrastructure really reflect the difficulties governments have in sustaining cost-recovering tariffs and commercial principles in these sectors... The real issue is not public infrastructure versus private infrastructure. Put this way, it is more simple the argument is about less infrastructure versus more.” PPPs for Infrastructure Financing in the MENA Region

13. EIC Contact • Address:EIC Secretariat Kurfuerstenstrasse 129, D - 10785 Berlin, Germany • Phone: ++49 (0)30 /21286-244 • Fax: ++49 (0)30 /21286-285 • E-mail: eicontractors@compuserve.com • Internet: www.eicontractors.de PPPs for Infrastructure Financing in the MENA Region