Public-Private Partnerships (PPP)

1. Public-Private Partnerships (PPP) Michel Audigé Lead Port Specialist ECA region – The World Bank Workshop on PPPs in Russia (Moscow - March 3-4, 2005) Port sector

2. The Four Main Russian Gateways to the Global Market

3. Distribution of Roles in The New Ports Era Public Port and Marine Authorities • Provide basic infrastructure (access / protection / connection) • Establish a reliable administrative framework • Traffic Safety and Environment Protection • Technical regulation matters • Promote Port Community dialogue Commercial Terminals (Private Sector) • Handle operational aspects • Manage commercial risks • Propose and implement investment policy • Incentives for high performance and competitive tariffs • Play a crucial role in fostering efficient logistics development

4. Source ADB

5. Definition of PPP Schemes • Very wide spectrum, from work and service contracts to full privatization • Pros and Cons of PPP schemes • In any case, a long – up to 18 months -- and complex [two or three steps] process to ensure success, i.e., resulting from long term “win-win” deals • In each case a “tailor-made” design is required • Size matters, i.e., US$100 million minimum per deal

6. PPPs : Options and Challenges for Success Key Challenges for Success: • Policy Framework (i.e., PPP legislation, institutional capacity, economic regulation and communication program) • Transaction Design (i.e., market structure, cost recovery and affordability) • Financiability (i.e., adequate risk allocation mechanisms) • Public Sector Risk Management (I.e., assessing and monitoring government’s commitments under PPP schemes)

7. PPPs : Pros. and Cons. Reference EBRD 2004

8. Why Seeking for PPPs in Ports? • Mainly for mobilizing private financing, but also • to improve port competitiveness [examples: Antwerp, Mexican, and Laem Chabang ports]; • to strengthen linkage with global market [illustration: Maersk in St. Petersburg (Transib), and Algeciras]; • to boost international trade to/from Russia with the rest of the world [promising development of international container trade, doubled in the present decade.]

9. Developments in The Container Business • Increase in flows of containers; • Increase in maximum vessel sizes; • Growth of ICT and automation; • High performance demands; • Major international players; and • Need for investments in terminal facilities and modern handling equipment.

10. Development of The International Container Trade(Sources: Various)

11. A competitive land bridge for containerized cargo? Source: MOTC Finland - 2005

12. Key Factors for a Successful PPP in Ports • Objectives of the PPP: difficult choice between two extremes: • Maximum revenue for Port Authority versus • Maximum competitiveness for port users]; • Public and transparent tendering process; • Optimal risks’ allocation [2 slides]; • Standard timeframe for a well designed PPP; and • Two-step vs. Three-step approach [3 slides].

13. Optimal Risks’ Allocation (1/2) • Political Risks(Confiscation / Expropriation / Nationalization, Civil Strife / War).Mitigation through International Arbitration and Risk Guarantee (IBRD and MIGA) • Government Performance Risks (Compliance to contractual terms in a Concession Agreement). Mitigation through insurance and guarantees (IBRD and MIGA) • Environment and Safety RisksEnvironmental and safety constraints to be defined in Concession Agreement • Construction RisksRisk generally borne by Concessionaire. Acquisition of land by Government before construction. Issue of geotechnical risks

14. Optimal Risks’ Allocation (2/2) • Technical Operation RisksRisk to be borne by Concessionaire • Revenue Risk in existing facilitiesOften an acceptable risk to be borne by Concessionaire (adequate provision on tariff in Concession Agreement) • Revenue Risk in newly-built facilitiesA major risk (traffic volume, tariff setting, revenue in local currency). Often not possible for Concessionaire to bear all the risk • Financial RisksInconvertibility/Transfer Risk to be insured. Issue of Exchange Risk. Other risks borne by Lenders. World Bank Partial Risk Guarantees.

15. Indicative Transaction Timetable [15-18months]: (Two steps process)

16. Phase I: Strategic Review and Due Diligence [6 months]

17. Phase II: Transaction [9 months]

18. Three Steps Process • Pre-qualification: (Previous experience in port facilities financing and operations, Project finance capacity) • « Technical » Selection: (Essentially on the basis of a detailed Business Plan) using «Pass or Fail» criteria • Financial Selection: (on the basis of unified documentation, i.e., draft lease / concession agreement) – Simple selection criterion, e.g., fixed annual fee plus royalty (per container movement) of service provided by Concessionaire to the port users

19. What Is Eligible for PPP Schemes? • In any case, PPP can only result from economically and financially justified projects • Size does matter [Transaction costs -> minimum project size of US$100 million and more…] • Private sector interest in port business [see ADB graphic]: • Cargo handling, especially containers; and • Marine services (towage, berthing, etc…) • Added Value logistic services • Port/City interface redevelopment for urban purposes past experience in Russia and worldwide

20. List of PPI in The Port Sector in The Region (1992-2003) Source: WB PPI Database 2003

21. List of PPI in The Port Sector Worldwide (1992-2003) Source: WB PPI Database 2003

22. Possible PPPs’ Prospects in Russia … as listed in the Russia Transport Strategy until 2020: • St. Petersburg and Ust Luga railway/ferry services with Kaliningrad; • Transshipment facilities for oil, grain and containers in the port of Novorossiisk; • Vostochnyy/Vladivostok ports and railways access; • Plus logistics services and development of inland waterways: • Astrakhan water transport node; • the Makhachkala port; and • Reconstruction of the Kochetov lock on the Don River.

23. Possible PPPs Prospects in Russia

24. World Bank Group comparative advantages • Close partnership with Russian authorities • Advisory services from either the IBRD and/or the IFC • Skill-mix and worldwide experience • External consultants and experts • Reputation to act as an “honest broker” • Increased confidence of the private sector • Balancing interest of both Public and Private sectors • Transparent and competitive PPP process and more  The Port Reform Toolkit (www.worldbank.org).

25. Hard Currency: Loans (Investment & Policy, IBRD, IDA) On-lending facilities Co-financing schemes (A/B Loans, IFC) Guarantees (IBRD, IDA, IFC, MIGA) Insurance (MIGA) Equity and related products (IFC) Local Currency: Currency Conversion Option (FSL) Currency swap Guarantees WBG: Financial Support for PPP’s Financial Products Advisory Services/1 Institutional Building Capacity: • PPIAF • WSP • BNPP (Bank & Netherlands Partner) • TAF (PIDG) • FIAS Project (transaction) Execution: • DEVCO (IFC Advisory Services) • GPOBA • Cities Alliance • PIDG (EAIF, Guarantco, Infraco – also includes financing products) /1 Includes Partnerships with other donors

26. Next Steps (1/2) • Independent review of the Russian port sector to: • Review the relevance of its current institutional framework and administrative organization • Determine the level of competition intra- and inter-ports as well as the efficiency and relevance of regulatory mechanisms in place • Assess the level of operational performance, tariffs and shippers’ degree of satisfaction for the service provided • Assess current and future port capacity (in volume and by type of cargo) • Intermodalism and value added logistics • Evaluate the prospects for promoting PPP schemes.

27. Next Steps (2/2) • Short/medium term action plan to: • Develop an appropriate regulatory legal framework • Increase port capacity – and efficiency – through PPP schemes • Improve the overall rail, road and inland waterways connection between the ports and their hinterland, especially with Russia’s oil/gas production centers • Introduce modern information and communication technologies • Where necessary, improve port/city interfaces to minimize the impact of port related businesses on the functioning of the city

28. Public-Private Partnerships (PPP) Michel Audigé Lead Port Specialist ECA region – The World Bank Workshop on PPPs in Russia (Moscow - March 3-4, 2005) Спасибо!