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Experience with PPP projects in Europe Vilnius 22 th November 2006

Experience with PPP projects in Europe Vilnius 22 th November 2006. Dr. Christian Kummert, DEPFA BANK plc. Advantages and disadvantages of PPPs. from a public sector perspective.

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Experience with PPP projects in Europe Vilnius 22 th November 2006

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  1. Experience with PPP projects in EuropeVilnius 22th November 2006 Dr. Christian Kummert, DEPFA BANK plc

  2. Advantages and disadvantages of PPPs from a public sector perspective Advantages - Risk transfer to private sector - Date and cost certain - Efficiency and cost advantages - Off budget - Operator Know How - Output- and not input focussed Disadvantages - loss of public sector control - increased financing costs - availability of administrative resources - limited competition over concession period - economic focus of private investors

  3. PPPs in Europe Experience Long track record First projects closed Projects in tender or preparation No experience

  4. PPPS in Europe Pipeline (as of summer 2006)

  5. PPP Structures Traditional Structure Public Authority Sponsors Banks Concession Agreement Equity Loan Agreement Project Company O & M - Contract Turnkey- Contract Insurance Operator Construction Consortium

  6. Germany Purchase of Receivables Special Purpose Company Purchase Price: NPV of future payments Concession Fixed payments Bank Purchase of future receivables Approval Supervisory Authority Municipality

  7. Portugal Hospital Schemes Portuguese State Concession Contractor Turnkey Construction Contract Medical Equipment Supplier InfraCo CliniCo Interface Agreement FM Contract Operator Senior Debt Equity/Subdebt Banks Shareholders

  8. Denmark Oeresund-Crossing, Market Entity-Approach Denmark Sweden 50% 50% Garanties Lenders SPV (= Market Entity) User Debt Toll income Contracts Construction Operation Maintenance

  9. Project Risks Risk Allocation Risk Allocation in School PFI Risks Public Project Turnkey O&M Banks Sector Co Contractor Contractor Planning √ √ Inflation √ Change of Law √ √ Insurance √ √ Construction √ Operations √ Maintenance √ Volume / Demand √ √ Force Majeure √ Termination√ √

  10. Road PPPs Payment Schemes Full Toll Shadow Toll Availability Payment Toll Payment by User by Government by Government Traffic Risk traffic flow less traffic flow more no traffic risk predictable predictable Performance no additional penalties sophisticated Risk penalties possible deduction schemes Public Sector - no exposure - financial exposure - financial exposure - low acceptance - optimal use - optimal use - strong control Application - few intersections - many intersections - many intersections - high traffic - low traffic - political motivation

  11. Road PPPs Banding Structure

  12. Road PPPs Cash Flow Profile of Shadow Toll Road

  13. Road PPPs Availability Payment Structure A13/UK

  14. Lenders‘ Requirements Mitigation of Construction Risks • Experience Contractors • Buffer in construction schedule (working shifts, winter break, etc.) • Completion buffer (Construction Contract versus Concession Agreement) • Joint and several liability of turnkey contractors • Completion guarantee by contractors/sponsors • Liability caps of contractor • Liquidated Damages for delays in completion • Advance Payment Bond, Retention Bond, Performance Bond • Warranty periods • Direct Agreement with Turnkey Contractor

  15. Lenders‘ Requirements Cash Flow • Annual Debt Service Coverage Ratios (ADSCR) • Loan Life Coverage Ratios (LLCR) • Project Life Coverage Ratios (PLCR) • Debt/Equity Ratios • Concession Tail • Sensitivities (in particular break even scenarios) • Repayment Profile (annuity, sculpted, ballon, bullet, cash sweep) • Reserve Accounts (Debt Service Reserve Account, Major Maintenance Reserve Account)

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