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Gerardo Gavilanes Director of the Economic Advisory Division Wednesday , 20 th June 200 7

World Bank Study Tour. FINANCING INFRASTRUCTURE IN SPAIN : Budget, State owned Companies, and PPP´s. Gerardo Gavilanes Director of the Economic Advisory Division Wednesday , 20 th June 200 7. THE FINANCING OF SPANISH INFRASTRUCTURE.

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Gerardo Gavilanes Director of the Economic Advisory Division Wednesday , 20 th June 200 7

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  1. World Bank Study Tour FINANCING INFRASTRUCTURE IN SPAIN: Budget, State owned Companies, and PPP´s Gerardo Gavilanes Director of the Economic Advisory Division Wednesday, 20th June 2007

  2. THE FINANCING OF SPANISH INFRASTRUCTURE • AS IN MANY OTHER COUNTRIES, INFRASTRUCTURES IN SPAIN ARE FINANCED BY MEANS OF A RANGE OF VARIANTS THAT GO FROM THE PURELY BUDGETARY PUBLIC FINANCING TO THE PURELY PRIVATE. • THE DEMANDS OF CONTROL ON THE PUBLIC DEFICIT AND THE NECESSITY TO INTRODUCE PRIVATE MARKET APPROACHES HAVE RESULTED IN AN INCREASE OF THE FINANCING BY MEANS OF PPP´s IN THE LAST YEARS. • THE NEW STRATEGIC INFRASTRUCTURE AND TRANSPORT PLAN PEIT) 2005-2020, HAS SET AN OBJECTIVE OF 20% TO BE FINANCED BY THIS SCHEME.

  3. THE PAST

  4. EVOLUTION OF THE INVESTMENT IN TRANSPORT INFRASTRUCTURES OVER TIME State investment in Transport Infrastructure (% GDP) Euro incorporation End of the works for Olimpics Games (1992) Maastricht exam

  5. EVOLUTION OF THE INVESTMENT IN TRANSPORT INFRASTRUCTURES OVER TIME. PUBLIC INVESTMENT AND CONCESSIONS

  6. EVOLUTION OF THE INVESTMENT IN TRANSPORT INFRASTRUCTURES. 1996-2007

  7. PRESENT

  8. COMPARISON OF THE INVESTMENT IN TRANSPORT INFRASTRUCTURES. YEARS 2006 AND 2007

  9. BUDGET. YEAR 2007

  10. EXPENSES IN TRANSPORT INFRASTRUCTURES. YEAR 2007

  11. BUDGET. YEAR 2007

  12. INVESTMENTS. YEAR 2007 Airports Roads Ports Mail Services Other Railways

  13. THE FUTURE

  14. THE FUTURE: DIVERSIFYING FINANCING

  15. THE FUTURE: DECREASING BUDGET IMPORTANCE -14%

  16. PPP´S

  17. EVOLUTION OF THE PERCENTAGE BETWEEN PUBLIC-PRIVATE FINANCING AND TOTAL ONE

  18. EVOLUTION OF THE INVESTMENT IN TRANSPORT INFRASTRUCTURES OVER TIME State investment in Transport Infrastructure (% GDP) Euro incorporation End of the works for Olimpics Games (1992) Maastricht exam

  19. THE 1972 ACT OF TOLL HIGHWAYS • IT HAS FACILITATED MORE PPP´S HIGHWAYS HAVE BEEN BID FOR IN SPAIN THAN IN OTHER COUNTRIES. • THE PREPONDERANCE OF PPP HIGHWAYS IS EXPLAINED BY THE EXISTENCE OF A LAW ESTABLISHED IN 1972 THAT DEFINES A CLEAR AND STABLE LEGAL FRAMEWORK • THE MASTERLINES OF THIS LAW ARE NOW EXTENDED TO ALL MODES OF TRANSPORT AND TO ALL KIND OF INFRASTRUCTURE BY THE NEW ACT OF CONCESSIONS

  20. Transport privateinvestment in Spain : Distribution by Mode

  21. A MODAL UNBALANCE Investments carried out through Concessions depending on the Ministry of Fomento.

  22. WHY PPP´S? • PPP´s is just a tool to provide infrastructure. So it is not better nor worst than other way of doing it. • It has several advantages but also disadvantages, that make advisable to think why are we going to use it before doing so • In Spain PPP´s are being use basically because more infrastructure is needed than budget can afford. And, up on that the extra costs of using PPP´s are less than extra benefits of doing it. • Never forget that a PPP project is more expensive than a traditional one. • In other countries, the drivers for using PPP´s can be totally different.

  23. ADVANTAGES OF CONCESSIONS IN COMPARISON TO BUDGETARY FINANCING MORE AGILITY (FASTER) • THE CONCESSION LET THE HIGHWAY TO BE OPERATING EARLIER • From the definition of the necessity of the highway until its opening to operation • 70 months (average) • With the budgetary traditional system, including the last improvements to reduce terms, at least • 91 months • This means a saving in time of • 21 months

  24. Tenders of the first phase of Toll Highways Plan WEAKNESSES AND STRENGTHS

  25. A NEW FOCUS The group of highways of the first phase of the national plan of toll freeways based the bids on an economic financial study. The performances were divided into two groups: • Those that the studies predicted of a high profitability. It was lessened by adding additional public works, and contemplating more reduced terms. • It is the case of the radial highways of Madrid that have been used to finance the ring Madrid-50. • Those that presented a low profitability. The Ministry improved this by increasing the terms and contributing with public funds. • The funds have been made as grants, participating loans and, in some cases, repayable money advances. • The high concurrence demonstrated that this position was right.

  26. FIRST PHASE OF THE FIRST TOLL HIGHWAYS PLAN

  27. PRELIMINARY ANALYSIS OF THE ECONOMICAL VIABILITY

  28. SOME POINTS • IN SPITE OF THE SUCCESS OF THIS FIRST PHASE, SOME WEAKNESSES WERE DETECTED IN THE BIDDING PROCESS. • Often highways were bid for according to approaches that were opposed. So the term, and the toll prices, and the requested funds were asked for. It is preferable to fix all these parameters within a limited range, increasing thus the efficiency of the bid. • In some cases the winning offer got very reduced terms.In these cases, it may be preferable to give more additional public works, although it increases the duration of the concession. • Too long terms of bidding are not convenient, since its translation in financial profitability is practically null. Also the present financial products in the market don't fit into such long terms.

  29. THE TOLL HIGHWAY "AXIS AIRPORT" A NEW FORMULA FOR INFRASTRUCTURE´S BID

  30. A NEW SYSTEM OF BID (1) MORE TRANSPARENCE • THE CONCESSION OF THE HIGHWAY WAS BID BY MEANS OF A NOVEL SYSTEM OF BIDDING • A first technical approach: the aspects of functional and environmental quality of the highway are valued. • 400 points. • A second approach that measures the solvency and economic viability of the tender: • 250 points. • Anyone who doesn't reach half of the punctuation in each one of the previous sections goes out of the competition, since automatically it divides by three their total punctuation . • Finally a third approach of economic efficiency that ascends to • 150 points.

  31. A NEW SYSTEM OF BID (2) LESS PARAMETERS • THE ECONOMIC PARAMETERS TO BE BID WERE REDUCED • Fixed term of the concession. • 25 years. • With the option to renounce on the year 20 by means of the income of certain quantity from the Administration. • Option to one more term year by the attainment of certain safety and good administration standards during the concession • The prices are not a bid object, being fixed the toll. • Although it is allowed to forfait payment in certain hours.

  32. A NEW SYSTEM OF BID (3) LESS PARAMETERS • The ratios of solvency and capitalization were not valued directly but rather, being demanded superiors to some minima, they were valued as an element that reinforces the Company. • So it is possible to avoid the coexistence of economic parameters that go in different direction • The more term minor rates, the more capitalization smaller financial profitability, etc. • Consequently the only parameter that is bid is the “reversion price”. • It could be a maximum of 36 million €, that means that a payment is requested by the Administration, or if it is negative, that means that it will be paid at the end to the Administration.

  33. FINAL RESULTS • The concessionaire will pay to the Administration at the end of the contract (year 2026 or 2027 if he wins the" bonus") the equivalent to 53 million euro of 2001. The tender that offered more didn´t win it, but indeed it has been an important approach, together with the evaluation of the technical analysis and the solvency. The final advantages for the Administration can be summarized in: • Highway in use in May 2004. • other roads of free use carried out by the concessionaire by an amount of more than 60 million euro. • Possibility to build new performances in 2026 with the final payment.

  34. CONCLUSIONS • As the new system was proved as efficient, five more toll highways were bidden (2003) under the same process. • Results were quite beneficial: • Bidding and awarding processes were carried out in only 5 months. • Only 100 million euro (540 million were available as public funds) were requested. • Only 1 of the 5 highways was not awarded. • The whole process was carried out by a group of only 20 civil servants. • It is preferable the Public Sector to be cautiousto the use of high traffic levels. However, it is necessary to conceive any system that avoids payments from concessionaire to the Administration, what has been proved as inefficient. (Though it is risky to entrust everything to the competitor)

  35. THE BID OF “MALAGA LAS PEDRIZAS" AGAIN LESS PARAMETERS

  36. A NEW SYSTEM OF BID (4) MORE SIMPLIFICATION • THE CONCESSION OF THIS HIGHWAY WAS BID BY CUTTING OF THE EVALUATION OF PUBLIC FUNDING • It was decided not to considered as a basis to award the concession the amount of public funding. • The reason for that is try not to force the bidder to reject the use of a public funding that Administration's studies show as necessary. • Once open the offers, some request for public funding, some others do not. • So, for the evaluation of this concession project, only two criteria remain • 350 points. Technical criterion • 350 points. Economical and financial criterion

  37. THE USE OF QUALITY INDICATORS AS A BASIS FOR CONTRACT BONUSES

  38. WHY A PRIZE FOR A GOOD MANAGEMENT? • The idea of giving prizes to increase the quality of the service given, arise from the unbalanced legislation. • Spanish, and many countries, legislation forces the concessionaire to operate the road according to standard conditions. • This means that, if the service is not given in a proper way, then some penalties are applied, as fines, and also finishing the contract. • In return, there is not a legal possibility to give the opposite “bonuses” to the concessionaire when it carries out much better than standard services. • This resulted in a quality of the service not bad but very ordinary. • With the aim to increase the quality of the service given it was decided to introduce as a part of the contract (in the bid sheets) the possibility of obtaining bonuses for a very good service. • It was used for the very first time during the 5 bids of 2003-2004.

  39. PRIZE FOR GOOD MANAGEMENT. First indicator: heavy traffic • The concession will last for one more year when, simultaneously: • At least 90%of time during the 35 first years of concession, at least 35% of total heavy traffic in the corridor use the highway. • At least 90% of time during the 35 first years of concession, at least 40% of total heavy traffic is in night time.

  40. PRICE FOR GOOD MANAGEMENT. Second indicator: Road characteristics • The concession will last for one more year when, simultaneously: • At least 90%of time during the 35 first years of concession, accident ratio (number of accidents per 100 Million veh*km) and casualty ratio (casualties per 100 Million veh*km) remain lower than 90% of average value of those ratio in Ministry's equivalent(+-5.000 ) highways. • At least 90% of time during the 35 first years, the congestion index remains lower than 100.

  41. PRIzE FOR GOOD MANAGEMENT. Second indicator: Road characteristics • Waiting time at tolls is lower than 15 s, at least 80%of time during the 35 first years of concession, • At least 90% of time during the 35 first years, simultaneously • Sideway force coefficient higher than 0,45 for all length and higher than 0,5 for 90% of length. • International Regularity Index lower than 2m/km for 90% of total length

  42. PRICE FOR GOOD MANAGEMENT. Best of the crop: 2 more years • The concession will last for other 2 years if, in the same way as defined previously: • accident ratio and casualty ratio lower than 75%. • Congestion index lower than 80 • Waiting time lower than 15s 90% of time • IRI lower than 2m/km for 95% of total length • And • Quality service index, remains higher than 80 points (from 0 to 100). • This indicator is obtained by the Ministry taking into account users surveys.

  43. Prize for good management: Sum up • So the concession could last four extra years in the event that all this requirements are fulfilled. • This means an 11% in terms of time • But could mean an extra 25% in terms of income. • And an extra 50% in terms of profit. • So there is a great interest for the contractor to try to provide all this indicators in a right way.

  44. NEW SHADOW TOLL CONTRACTS IN THE MINISTRY OF FOMENTO

  45. WHAT ARE THE “FIRST GENERATION” HIGHWAYS? These highways, which were built in the 80s, present lack of the modern techniques of design , building and funds availability that the highways built in the 90s could enjoy (in most cases, these are actually as current highways but with no toll).

  46. WHAT ARE THE “FIRST GENERATIONS” HIGHWAYS? • They fit in the I to IV “national roads” • 4 Radial Highways (1.500 Km.) so called of “first generation” • Nacional I Madrid-Burgos (350 km.) • Nacional II Madrid-Zaragoza (350 km.) • Nacional III Madrid - Cuenca (250 km.) • Nacional IV Madrid -Sevilla (550 Km.)

  47. SHADOW TOLLS IN THE MINISTRY OF FOMENTO FIRST GENERATION CONTRACTS

  48. THE EVIDENCE OF A PROBLEM: 1999 • CONTRACTS FOR THE MANAGEMENT OF HIGHWAYS (LGPE 1999). • It would be used for redesigning the first generation radial highways (1.500 Km.) , including the maintenance. There were 5 “super contracts” • Nacional I Madrid-Burgos (350 km.) • Nacional II Madrid-Zaragoza (350 km.) • Nacional III Madrid - Cuenca (250 km.) • Nacional IV Madrid -Bailén (300 Km.) • Nacional IV Bailén-Sevilla (250 Km.) • The total amount was estimated in 1.800 millions €.

  49. THE EVIDENCE OF A PROBLEM: 1999 • CONTRACTS FOR THE MANAGEMENT OF HIGHWAYS (LGPE 1999). • “…To solve the problem of the different parameters and technical issues between “first generation” and current highways that demands more security…” (Introduction) • “…Will settle expropriations…” (art.6.b)

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