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IFC PPP Transaction Advisory Experience and Lessons

IFC PPP Transaction Advisory Experience and Lessons. Georgi Petrov Regional Business Line Leader – Infrastructure Europe and Central Asia Astana III Economic Forum July 1, 2010. Outline:. IFC - An overview Financing Services PPP Transaction Advisory IFC’s PPP Success Stories

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IFC PPP Transaction Advisory Experience and Lessons

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  1. IFC PPP Transaction Advisory Experience and Lessons GeorgiPetrov Regional Business Line Leader – Infrastructure Europe and Central Asia Astana III Economic ForumJuly 1, 2010

  2. Outline: • IFC - An overview • Financing Services • PPP Transaction Advisory • IFC’s PPP Success Stories • An IFC Perspective and Lessons

  3. IFC is a Member of the World Bank Group MIGA Multilateral Investment and Guarantee Agency IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation Est. 1945 Est. 1960 Est. 1956 Est. 1988 Role: To promote institutional, legal and regulatory reform Governments of member countries with per capita income between $1,025 and $6,055. - Technical assistance - Loans - Policy Advice To promote institutional, legal and regulatory reform Governments of poorest countries with per capita income of less than $1,025 - Technical assistance - Interest Free Loans - Policy Advice • To promote private and commercial sector development • Private companies in 179 member countries • - Equity/Quasi-Equity • Long-term Loans • Risk Management • - Advisory Services To reduce political investment risk Foreign investors in member countries - Political Risk Insurance Clients: Products: Shared Mission: To Promote Economic Development and Reduce Poverty

  4. Enterprise Assistance Public-Private Partnerships Environment & Social Sustainability Business Environment Access to Finance Advisory Services and Financing IFC Overview: Two Distinct Products IFC also provides advice to governments and businesses Advisory services to governments and businesses World’s largest multilateral provider of financing for private enterprises $30+ billion in outstanding investment commitments

  5. Outline: • IFC - An overview • Financing Services • PPP Transaction Advisory • IFC’s PPP Success Stories • An IFC Perspective and Lessons

  6. IFC Financing in infrastructure • Infrastructure • Created in 1992 to address a market need • Current portfolio: $ 5.56 bn • FY09 Commitments: Approx $1.8 bn • 100+ dedicated professionals in Washington and 8 regional hubs Power Generation, Transmission, Distribution Renewable Energy Utilities Water, Waste, Gas Distribution, Privatized Public Services Transportation ServicesLogisticsShippingAirlines Transportation InfrastructureAirportsPortsRoads

  7. Total IFC Infrastructure Portfolio By Sector, in US$ Billions By Region, in US$ Billions $5.56 billion (December 31, 2009) 16% of IFC Total

  8. IFC Value Added • Long Term Financing • Corporate / Project / Acquisition • Foreign / Local currencies • Equity / Quasi-equity • Carbon Finance Industry knowledge Relationship with / understanding of local authorities • Capital Mobilization • B loan program • Credit enhancement (Partial Credit Gurantee) • Pre-IPO stamp of approval IFC’s Products Expertise in emerging markets Advisory Services

  9. Outline: • IFC - An overview • Financing Services • PPP Transaction Advisory • IFC’s PPP Success Stories • An IFC Perspective and Lessons

  10. IFC’s PPP Transaction Advisory Services • Undertaken more than 200 infrastructure projects since its establishment. • Since 1995, mobilized more than $3 billion in private capital in more than 20 countries. • Specializing in following sectors: • Roads, railroads, airports, airlines • Water and sanitation • Power generation and distribution, off-grid power • Urban transport • Mining • Health and education • Pioneering transactions • First, difficult, political, reform-based, innovative • Since 1989, over 140 advisory assignments in more than 80 countries

  11. Infrastructure PPP Projects – IFC Track Record

  12. What we offer… • Objectivity and transparency • Independence, no links to potential investors • Separation between advisors and investors within IFC (“Chinese Wall”) • Transparency and credibility of the bidding process • Focus on development results • As development institution, attaches importance to social and development objectives • Transactions structured to be sustainable and bankable • Staying the course with our clients • Knowledge of investors’ market • Broad expertise of private sector transactions • Regular contacts with leading companies • Marketing on behalf of our clients • Synergies within the WB Group • Access to experts and coordination of institutional reforms • Search for public financing / guarantees, when needed • Ability to mobilize best expertise and search for public financing and guarantees, when needed, through partnership and synergies with the WB Group

  13. Phase 1: Analysis Phase 2: Implementation Legal/Inst. framework Payment mechanism Risk allocation Investment program Info memo Road show Pre-qualification Data room Service standards Performance targets Payment procedures Penalties Monitoring Technical evaluation Financial evaluation Select winner Contract effectiveness & assumption of service obligations PPP Transaction Process Typical transaction (10-16 months)

  14. Recent PPP transactions • Benin: port • Montenegro: road • Albania: hydropower • Brazil: road, hospital • Albania: distribution system privatization • Philippines: off grid power generation • Lesotho: hospital • Egypt: wastewater plant • Kenya: telecoms privatization • Panama: special economic zone

  15. Currently active mandates (46) • Ports: Mauritius, Niger • Roads: Colombia, Egypt, India, Brazil, Jordan • Power: Vietnam, Indonesia, Philippines, Liberia, Zambia, Montenegro, Pakistan • Mine/ore deposit: Tajikistan • Hospitals/clinics: Egypt, Uzbekistan, Romania, Moldova • Airports: Maldives, Saudi Arabia • Telecoms: Botswana, Comoros • Airlines: Vanuatu, Jamaica • Waste: India, Maldives • Grain silos: India

  16. Outline: • IFC - An overview • Financing Services • PPP Transaction Advisory • IFC’s PPP Success Stories • An IFC Perspectives and Lessons

  17. Albania ASHTA • IFC IA appointed as Lead Advisor to the Ministry of Economy, Trade and Energy of Albania • Ashta HPP implemented within the scope of IFC’s Albania Advisory mandate: • Redrafting of the Concession Law, to facilitate the transparent and efficient mobilization of PSP in infrastructure; • Establishing of a Concession/PPP Unit; • Structuring and implementing one pilot PPP projects in Albania’s energy sector. • Concession contract with a private partner for the construction and operation of a hydroelectric power plant (“HPP”) in Ashta. • GoA announced Verbund (Austria)as the winning bidder – key elements of their Offer:

  18. Albania ASHTA - Project Results • PPP that consists of a long-term concession contract with a private partner for the construction and operation of a hydroelectric power plant (“HPP”) in Ashta. • Bid price achieved: • 5.9 eurocents per kWh • Investments: • 166M Euros. • Installed capacity: • 48.2 MW.

  19. Albania ASHTA • The new power plant will: • Increase the renewable power generation capacity of Albania by almost 50 MW; • Lower dependence on imports and thus have a long lasting positive effect on the country’s trade balance; • Improve the delivery and reliability of electricity supply in the country. • Key Impact Indicators: * Impacts above are much higher than originally estimated by the team 5.9 Euro of funding will provide delivery of electricity to 1 citizen of Albania.

  20. Bucharest Water, Romania • IFC hired as advisor to the City of Bucharest to structure and mandate a transaction to achieve • EU level of services at lowest tariff • Create a privatized system which is efficient, financially independent and sustainable • Secure public support • Meet the privatization timetable • Challenges • Largest water sector privatization in Central and Eastern Europe (by population , 2.3ml) • High losses: unaccounted for water = 50% • Poor water quality and pressure • Insufficient financial resources • Low tariffs (US cents 17/m³) • Strong labor unions

  21. Bucharest Water • Veolia, the world leading company in water services and water treatment, was selected in the competitive tender process. • Post- tender - sustainable results and public support: • Investment of more than €70 million in modernizing services • Major project to construct a new water treatment plant launched • Water losses reduced • Drop in total demand for water following the introduction of metering, combined with leakage reduction, has led to a drop in total demand for water. • Tariffs have been adjusted periodically in accordance with the concession contract, but remain among the lowest in Europe. • First water PPP in Romania and one of the first such transactions for water/sanitation services in Europe. • IFC’s involvement provided assurances to international operators and the Municipality itself about the potential success of this pioneering transaction. • IFC played a key role in structuring the transaction to ensure sustainable benefits and affordable tariffs.

  22. Outline: • IFC - An overview • Financing Services • PPP Transaction Advisory • IFC’s PPP Success Stories • An IFC’s Perspectives and Lessons

  23. LESSONS • Buy services (not equipment/assets) • PPPs can transform the role of governments from providers to purchasers of services • Greater risk transfer Greater potential public benefits • Private sector participation in infrastructure can improve efficiency and quality, if PPP properly structured and enforced • PFIs are not necessarily easier to structure/implement – but have fewer potential benefits • Choose projects which: • Are affordable to the government (in terms of the required payment to PPP operator) • Meet a real need in infrastructure and increase access for the poor • Can attract operators/investors • Monitoring and effective dispute resolution are essential • Independent “expert panel” can be useful • Public expectations are higher – so quality is important • The public are more likely to tolerate low quality under public management than under a PPP

  24. IFC’s continued support for infrastructure PPPs in Kazakhstan: • Continued strong commitment to highest government level to introduce PPPs on specific projects in Kazakhstan – as part of World Bank Group: • Strengthening institutional capacity • Help prepare well structured transactions to ensure optimal risk allocation between private and public sectors – through IFC’s PPP Transaction Advisory Services • Make available tailored financing solutions leveraging IFC’s global expertise and track record in cooperation with other regional institutions

  25. Contacts

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