PPP International Best Practice and Regional Application

1. PPP International Best Practice and Regional Application Tegucigalpa, Honduras April 23 - 25, 2008 Sponsored by the Spanish Trust Fund

2. Government Readiness for PPP Session 6.3 How the Private Sector see the Market David Stiggers - Independent PPP specialist

3. Session 6.3 Day 2 – Session 6 Readiness of Government Day 1: Session 1.1 Overview of PPP Private Sector View Day 1:Session 1.2 Challenges: Latin America Upstream Policy Day 2- Session 6.3 How Private Sector see the Market Readiness of Government Capacity Building For PPP Day 1:Session 1.3 Considering Private Participation PPP Approach Day 2:Session 5 Case Studies: (1)Highways (2)Water & Sanitation (3) Ports Day 1:Session 2.1 Planning the Process Day 1:Session 3 Case Study: Transmission Day 2 :Session 4.2 Selecting an Operator Day 1:Session 2.3 Involving Stakeholders Day 2 :Session 4.1 Standards, Tariffs, Subsidy, Financials Day 1:Session 2.2 Regulation & Institutions

4. Project Stress Source: WGI from Analysis of Power Projects under stress, 2005, ESMAP, PPIAF

5. Some things to look for: • How will business culture and Political approach affect the PPP business? • Is it a viable business? How will we know we are successful? • What is the situation on Costs and Revenue? • What issues related to Investment & Operation? • Does the contract reflect the real world?

6. Business & Political Culture • Political attitude to PPP • Trinidad Management Contract • Political interference • Caracas, Venezuela • Solid laws & PPP culture • Chile: Concession Law • UK: Mrs Thatcher ‘Let the managers manage’

7. A viable Business • How reliable is the revenue stream? • What data is available? What will it take to get accurate data? Does the contract accommodate this? [Armenia: 1st year targets] • Can we make improvements to the business ? • Operational, technical, commercial. • Work force: Size, ability, attitude to PPP, unions • Constraints from Public Administration? • Jordan: procurement

8. Costs & Revenue (1) • Regulation • What is regulated and by whom? What powers? • Yerevan Lease • How independent is the Regulator? • Costs: • What costs, how complete, what accuracy? • Available data. Collecting data. Due diligence. • Costly exercise!

9. Private Operator Veolia “The Bidder” Contractual Payments Management & Resources Use of Facilities Private Service Provider Yerevan Djur cjsc “The Lessee” SWCS “The Lessor” State Lease Fee Independent Auditors Service Tariff Regulator PSRC Customers Lease Contract: Yerevan

10. Costs & Revenue (2) • Revenue • Is the Tariff enough to cover operating costs? • Is there a program for full cost recovery? • Any subsidy (or lack!). Who pays? What mechanism? • Lagos Water • What is the possible extent of collection improvement? Disconnections?

11. Original Installation Historical Asset Installations $ Millions (Today’s $’s) Projected replacement costs Replacement Expenditureby Asset type 2000 1860 $ Millions (Today’s $’s) 2100 2000 Investment & Operation • Am I expected to bring investment? • Balance sheet issues (French); Time and cost • What is state of infrastructure? • US asset trap • Investment linked to operational improvements • Trinidad & World Bank loan

12. Contract Issues • Is the contract form and structure realistic? Are liabilities and risk appropriate? • Is it comprehensive – what does it leave unsaid? • Does the client have actual power to carry out what he has said (legally or politically)? • Montenegro: Collapse of contract after 2 years

13. AquaMundo Bar AquaRegia Budva DEG AquaRegia Tivat MonteAqua Mercur PC Kotor PPLLC Public Existing KfW Assets Investment Interest Assets Banks 1 Customer contracts (based on German AVB Wasser V) 7 Personnel Transfer Agreement 8 2 Concession agreement Individual Employment Contracts 3 Merging Contract AquaRegia 9 Loan Agreements 4 Shareholders Agreement 10a Loan Agreements 5 O&M contract 10b On - lending Agreements 6 Lease and Purchase Agreement 6a Addendum to 6 for remaining Obligations and Receivables after foundation of Aqua Regia MONTENEGRO: Contracts Customers MonteAqua O & M W. Bank etc. Ltd. 1 8 6a 5 10 a 4 3 7 6 HercegNovi 9 Cetinje 10 b PEW 2 Government of Montenegro CONTRACTS:

14. Contract Issues • Is the contract form and structure realistic? Are liabilities and risk appropriate? • Is it comprehensive – what does it leave unsaid? • Does the client have actual power to carry out what he has said (legally or politically)? • Montenegro: Collapse of contract after 2 years • Is there a way of dealing with poor starting data • Trinidad and others: First year data collection. Built in review and adjustment • Are penalties appropriate and workable? • Tanzania: Bond etc. • Termination:What about follow on bidding? What do we have to do before end of term?

15. Government Readiness for PPP Session 6.3 THANK YOU! How the Private Sector see the Market David Stiggers - Independent PPP specialist

16. Contacts For comments or further details contact: Junglim Hahm jhahm@worldbank.org Richard Cabello rcabello@ifc.org Sabino Escobedo sescobedo@tagfinancialadvisors.com David Stiggers davidstiggers@comcast.net