New Dimensions of the Public-Private Partnership: Private Equity Options in Developing Countries

1. New Dimensions of thePublic-Private Partnership:Private Equity Options in Developing Countries Alan G. Straus Skadden, Arps, Slate, Meagher & Flom LLP Istanbul November 8, 2006

2. Investigating New Dimensions • Meaning of “infrastructure” • Meaning of “private equity” • Reasonable targets of private investment in a developing economy • How the public sector can assist • Investing in a “bottoms-up” manner instead of from the top down

3. Traditional Private Equity • High-profile financial investor/ major corporation • Taking target operations “private”, no public reporting • Stock market exit at high multiple

4. Infrastructure Investment in Developing Countries Urgently Needed • Infrastructure investment can directly assist the poor by • Enhancing economic activity • Removing bottlenecks in a local economy • Generating distributional effects by increasing the access of the poor to product markets

5. Infrastructure • OECD defines as power, telecoms, roads, and water supply • More really constitutes “infrastructure” that is suitable for PPP investment • Political and social constraints

6. Expanded Infrastructure • Small and medium sized businesses where a relatively small, targeted private equity investment can have a general multiplier effect • More targets for investment • Maintains local ownership of resources in the host country

7. SME-targeted Private Equity Investment • Stresses the importance of small and medium sized enterprises (SMEs) to produce economic growth and human security • Portfolio investment • Jumpstart a business that needs development capital but for various reasons can’t access more traditional capital • Stimulate growth in the SME sector that in itself will be able to have a greater opportunity to expand and build infrastructure, as widely defined

8. SME-Targeted Model • Not a controlling investment • High risk • Ties to Management Training • Usable with Islamic Financing Techniques • Lower Leverage

9. Afghanistan Renewal Fund • Mix of European and Afghan management • $20 million committed • High-net worth individuals • Development finance institutions and donors • Pipeline: over 200 potential deals • Entrepreneurs seeking total investment of $380 million • Deal-pipeline growing at 10-20 deals/month

10. Effective Public Sector Participation • May come in various forms • Public sector participates as investor • Publicly funded development finance institutions can partner with private sector in investing • Public Sector as asset owner • Private sector participates with low capital and investment risk through service or management contracts

11. Effective Public Sector Participation • Public sector participation in the form of financial project support, such as guarantees and insurance, can mitigate investment risk • Public sector participation, through tax or concession incentives, might encourage packaging of investment in infrastructure that has sectoral or regional significance with business licenses for tradable opportunities • Public and private interests to create a fundamental utility (for example, water, power and sewage treatment and development rights) might support