AECOM International Development Industrial and Commercial Area Development

1. Private Sector Investment in Economic Zone Developments Key Mechanisms and International Trends 19-23 October 2009 ITAP – TOBB Capacity Building Program for Investment Promotion Officials of OIC Member Countries: Private Sector Operated Industrial Zones program - sponsored by the Islamic Development Bank (IDB) Group / The Union of Chambers of Commerce and Commodity Exchanges of Turkey (TOBB) Fari Akhlaghi Director MENA Region Mobile: +971 50 667 3998 I E-Mail: fari.akhlaghi@aecom.com AECOM International Development Industrial and Commercial Area Development

2. AECOM Technology Corporation • 45,000 employees world-wide • Currently working on more than 4,000 projects • US$6.1 billion revenue in 2008-9 • Working in over 100 Countries • Ranked #1 globally in many categories ENR Magazine Top 500 Design Firms Survey (2008) CATEGORY AECOM RANK (2007) (2008) Top Design Firms 3 3 Global Design Firms 4 4 Top 100 Pure Designers 1 1 Transportation 1 1 Mass Transit and Rail 1 1 Highways 1 3 Airports 1 1 General Buildings 1 1 Education 1 1 Government Offices 1 1 Correction Facilities 1 2 Sanitary/Storm Sewers 1 3 AECOM International Development

3. AECOM - 8 Global Business Lines 1. Transportation 2. Building Engineering 3. Energy 4. Water 5. Environment 6. Program Management 7. Planning, Design & Development 8. Government AECOM International Development

4. Industrial & Commercial Area Development- Program Areas AECOM ID has undertaken over 200 SEZ related projects during the past 25 years in over 80 countries in the following areas: • Special Economic Zones • Privatization / Private Infrastructure Provision • Regional Integration, Area Development and Security • Ports and Logistics AECOM International Development

5. Industrial & Commercial Area Development- Main Clients Jebel Ali Free Zone USAID World Bank Asian Development Bank IFC MIGA UNDP CIDA Government Agencies Worldwide Private Corporate Clients The relevance of Special Economic Zones in today’s global trading environment. International competition and the increasing importance of logistical input in production value chains have caused firms to migrate to centers of efficiency close to their marketplace. AECOM International Development

6. Kuwait India Serbia Industrial & Commercial Area Development- Special Economic Zones • Representative Projects include: • Formulation of a National Industrial Parks Strategy, Serbia • Development of Industrial Estate Law, Mali • Establishment of Economic Zones, Kuwait • Dakar Integrated SEZ, Senegal • Kakinada SEZ, India AECOM International Development

7. Industrial & Commercial Area Development- Privatization / Private Infrastructure Projects • Representative Projects include: • Technical Assistance to Aqaba Development Corporation, Jordan • Lesotho Industrial Estates Development and Privatization, Lesotho • Jamaica Free Zones Privatization, Jamaica • Howard Air Force Base, Panama • Institutional Strengthening and Private Sector Support, Iraq Howard Air Force Base, Panama Converted to a Special Economic Zone for Aviation, Business Process Outsourcing, Logistics AECOM International Development

8. Industrial & Commercial Area Development- Regional Integration, Area Development and Security • Representative Projects include: • Promoting Industrial Zones and Investment Mobilization, Palestine • Evaluation of the Philippine Economic Zone Program, Philippines • Thailand Eastern Seaboard • Cagayan-Iligan Corridor, Philippines • Tourist Development Site for the Saudi Supreme Commission for Tourism, Saudi Arabia • Security and Industrial Estate Development, Palestine AECOM International Development

9. US Navy Base, Subic, Philippines Converted to a Freeport for manufacturing, tourism and logistics Industrial & Commercial Area Development- Ports and Logistics • Representative Projects include: • Subic Bay Freeport Due Diligence, Philippines • Bamako-Senou Airport and Industrial Park Improvement Project, Mali • Feasibility Study and Training Needs Assessment for the Misurata Free Zone, Libya • Feasbility Study for the Abu Dhabi International Airport Zone, UAE • Aqaba port, Jordan • Pelabuhan Tanjung Pelapas Free Zone, Malaysia • Port Klang, Malaysia AECOM International Development

10. Port Housing Tourism Industrial Park Area Utilities Commercial Private Sector Participation in Zones - A Clear Trend • 1970s • Public sector development and operation of zones • Zone Authority would develop, own, operate and regulate the zone • Zone Authority has little power over other government bodies • Zone funded by government; typically subsidized services & facilities 1990s • Gradual shift from ad-hoc private-sector licensing to planned, coordinated partnership approach • Private sector involvement in zones has led to improved services, greater product differentiation and non price-based competition New Framework • Private developer develops, owns and operates the zone on a cost-recovery basis • Zone Authority only regulates activities within the zone • Outsourcing of core functions to private sector • Zone enterprise designation extended to developers and service intermediaries The result is multi-market zones that can adapt to rapid change AECOM International Development

11. Public - Private Partnership (PPP) AECOM International Development

12. Public Policy – Private Project . . . • Although Zones are elements of public policy, the real estate development and operation aspect properly belongs in the private sector • It is estimated that 60% of all zones (2000+) are run by private developers/operators on commercial terms • Exceptions: • Market failures in availability of land and backbone infrastructure • High levels of risk brought about by lack of rule of law, post conflict, or economies in transition • Zones that are essentially non-commercial “pump-priming” initiatives that serve as demonstration models AECOM International Development

13. Public/Private Partnerships in Zones Principles: • Two or more parties wish to share risks and rewards associated with Zone development • The Private sector party needs a favorable investment environment to make a return commensurate with the risk he is taking on • The Public sector party needs to achieve public policy objectives – development of common use facilities • There is a business case to begin with – the market – while avoiding direct competition with private sector within or outside of zones. The Goal: • Ultimately, the Government and Operators should have aligned goals, and therefore work together within a national strategy to achieve them. AECOM International Development

14. Country Attraction to Private Sector - Benchmarking Criteria AECOM International Development

15. Aligning Public and Private Interest - Private and Public Sector Roles Public Sector: Public sector’s principal roles are to regulate and facilitate economic development in the national interest. Private Sector: Private sector’s principal roles are to invest capital and implement economic activities in its own interest. Partnership: Partnership based on clearly defined and very different roles between two sectors. • Regulate but not implement • Push, pull, persuade private sector • Promote efficiencies (competition) • Efficient resource allocations • Efficient capital allocations • Responsive to demands Public sector establishes environment for private sector to implement public policy priorities Achieve public policy priorities Take risks, earn rewards Healthy tension AECOM International Development

16. Best Practice SEZ Institutional and Management Framework • Emerging “Best-Practice” SEZ principles favour public sector authorities focusing on zone regulation and administration, while private sector entities concentrate on development, operation and management activities • SEZ regulatory authority is an inherently government function that is legally delegated by the legislative branch to the executive branch in accordance with modern constitutions • Government function is best organized through: Semi-autonomous, independent, adequately funded, sufficiently staffed, and customer oriented “One-Stop-Shop” , often enhanced by adopting an “Accounts Executive” approach AECOM International Development

17. Models of Public - Private Partnerships Highest Degree of Private Sector Involvement Risk and Control Assumed by Private Sector Joint Ventures (open ended) Assets contributed by public sector and cash contributed by private sector into a special purpose vehicle to develop the assets Concessions (20-30 years) Private sector owns and operates under-performing assets under agreement with public sector and generally transfers assets back to public sector at end of term Leases (10-20 years) Private sector pays for use of facilities (e.g., land with infrastructure connections) from public sector under agreement which sets out specific terms of use Management Contracts (5-10 years) Public sector pays the private sector to manage under-performing assets under agreement, usually with some revenue sharing arrangements Highest Degree of Public Sector Involvement Length of Commitment AECOM International Development

18. Zones Business Models AECOM International Development

19. Classic Zone Business Models Sale of Services • Real Estate related services: • Maintenance and security • Common infrastructure • HR facilitation and training • Zone-specific services: • Permits, badges • Registration • Customs Facilitation • External Services • Utilities (water, power, telecoms) to the local market Rent or sale of Land and Buildings • Land sale/lease ratio depends upon: • Market conditions (what customers want and what they will accept) • Legal environment (land sales permitted?) • Business goals of the developer (long term play – hold the assets, or short term play – flip the assets) • Availability and source of finance (project finance or balance sheet finance, rates and tenor) AECOM International Development

20. Developer or Developers ? • A “best-practice” governance framework also authorizes the SEZ administering entity to select multiple developers for each zone site to take advantage of specialized expertise, maximize economic opportunities, guard against private-sector defaults, and avoid monopolistic tendencies. In scenarios in which a private sector developer/operator is granted exclusivity at a particular zone, such a privilege is generally tied to strict economic performance criteria and is further limited to a specific time frame (e.g., 10-30 years). AECOM International Development

21. Sources of Finance & MDRs AECOM International Development

22. What is Being Financed? Characteristics of a Classic Zone: US$m 100ha+ serviced land Land cost (say US$10/m2) US$10m Land servicing internal (say US$400k/ha) US$40m External Infrastructure costs (say US$200k/ha) US$20m Buildings for rent/common facilities (say 100,000m2 @ US$500/m2) US$50m Startup and working capital (say US$10m) US$10m ------------ US$130m Debt (60%) US$78m Equity (40%) US$52m ------------- Cost: (US$130/m2 gross or US$185/m2 net) US$130m AECOM International Development

23. Sources of Finance - Governmental AECOM International Development

24. Non-Governmental Sources of Financing- Advantages/Disadvantages of Various Sources AECOM International Development

25. Grant Financing • Much public financing is in the form of a Grant • Allocation of state resources in accordance with a national plan • Funds the capital expenditure, but care needs to be taken on the ongoing maintenance/servicing costs • Can be subject to the fluctuations in the fortunes of the exchequer – an issue for multi-year programs • Grants come with conditions • Environmental and social impacts • Performance of public services (schools, social amenities, provision of additional utility capacity) AECOM International Development

26. Non-Grant Financing Characteristics • Debt Financing • Tenor: 7-10 Years maximum • Currency: home currency or USD • Grace period: depending on the institution and circumstances. 3-5 years not unusual • Fees: origination fees. Can be 2% • Interest rate: varies and currently not stable. • Balance Sheet backing usually sought • Political risk and other insurance, step-in rights • Equity Financing • Minimum return on investment of 15% • Usually a partnership between Government and private equity provider. Government equity goes in first AECOM International Development

27. Non-Governmental Sources of Financing - Example Political Risk Insurance Source • Many lenders and investors have turned to the Multilateral Investment Guarantee Agency (MIGA) – part of the World Bank Group - to mitigate non-commercial risks in large projects in developing countries. Coverage includes: • Currency inconvertibility and transfer restrictions • Expropriation • War, civil disturbance, terrorism, and sabotage • Breach of contract AECOM International Development

28. Cross-Subsidization and Cross-Financing • Some elements of a Zone project are more profitable than others • Housing, commercial, tourism – any product that is sold directly to individual end-users • Zone developments can be bundled to cross-subsidize or cross-finance from one product to another • This is achievable through use of Minimum Development Requirements (MDRs) in any PPP agreements AECOM International Development

29. Example of MDRs Newco. Newco. AECOM International Development

30. Leveraged Expansion – An Emerging Model AECOM International Development

31. Governmental Sources of Financing- Example ZonesCorp, Abu Dhabi, UAE “Established as a government- backed higher corporation for specialized economic zones, ZonesCorp is directly responsible for the establishment, management and operation of specialized economic zones in Abu Dhabi.” ZonesCorp was set up as a 'commercial' government entity via the investment of: • 400M AED from the government • Transfer of ICAD 1 (Industrial City Abu Dhabi) from the local municipality AECOM International Development

32. Mixed Sources of Financing - Zone Expansion Example • Macquarie Group manages certain investment vehicles such as the ZonesCorp Infrastructure Fund (ZIF) to offer both private and institutional investors the opportunity to access new and existing infrastructure and infrastructure-like assets. • ZonesCorp has provided 75% of the equity with Abu Dhabi Commercial Bank and Macquarie Group (a joint venture established in 2005) has provided the remaining 25%. • ZIF has interests in four projects: ICAD II and ICAD III (expansion of ICAD I); Industrial Effluent Treatment Plant concession for ICAD; and concession for Al Ain Industrial City AECOM International Development

33. Conclusions AECOM International Development

34. Conclusions • Times are tough – many investment decisions are on hold right now • There will be large public infrastructure programs put in place aimed at job creation. This equates to potential public investment in Zone infrastructure • Price reality is re-entering the market, and soon investors will be looking for projects • The current lull in development is a good time to plan for future expansion and do the necessary homework • There are many sources of finance, both public and private. These can be combined for effective risk management AECOM International Development