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APPLICATION ON THE SPANISH CONCESSIONAL MODEL TO CENTRAL AND ESTERN EUROPE

WORLD BANK WORKSHOP ON PPP IN HIGHWAYS: INSTITUTIONAL, LEGAL, FINANCIAL AND TECHNICAL ASPECTS. APPLICATION ON THE SPANISH CONCESSIONAL MODEL TO CENTRAL AND ESTERN EUROPE. Antonio M. López Corral Professor of the Polytechnic University of Madrid Washington, April 3rd, 2006.

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APPLICATION ON THE SPANISH CONCESSIONAL MODEL TO CENTRAL AND ESTERN EUROPE

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  1. WORLD BANK WORKSHOP ON PPP IN HIGHWAYS: INSTITUTIONAL, LEGAL, FINANCIAL AND TECHNICAL ASPECTS APPLICATION ON THE SPANISH CONCESSIONAL MODEL TO CENTRAL AND ESTERN EUROPE Antonio M. López Corral Professor of the Polytechnic University of Madrid Washington, April 3rd, 2006

  2. MOTORWAYS MAP OF SPAIN - 10.000 km of state and regional motorways • 4,400 km of toll motorways - 2,200 km tendered during last 8 years and 600 during last 3 years

  3. 40% FINANCING EXECUTION 60%% 30% Public Budgetary Ministry FF.EE 5% 50% 20% Public Companies 20% European Funds Public non Budgetary FF.EE 15% 20% 20% 20% Private Capital Private Capital Private Sponsors INVESTMENT AND FINANCING TRANSPORT INFRASTRUCTURES OF STATE IN SPAIN Public (Budgetary and not Budgetary) TOTAL FINANCING 2000-2006 : 60.3 BILLION €

  4. PREPARATION OF CONCESSIONAL PROJECTS FOR TENDERING - All the projects to be executed in concession regime will have the same indispensable conditions of maturity that any other project that use any other route of financing • Additionally they will require a feasibility study that will have also to be put under public information • Definition of concessional formula

  5. DEFINITION OF CONCESSIONAL FORMULA (1) • It is reflected in the law of concessions, in the sector law, in some cases, in their regulations decrees and, specially, in the terms of references that considers the feasibility study • Possibility of cross financing • Application of the progress clause

  6. DEFINITION OF CONCESSIONAL FORMULA (2) - Different alternatives to the project • Prizes and penalties associated to quality • Possibility of operating businesses related with the goal of concession • Possibility of public financing • Contract known with few opened clauses, most of them of economic content

  7. TENDERING OF CONCESSIONAL PROJECTS - Normally in the Spanish model the open competition made in a single phase is preferred - Criteria of awarding are transparent and quite objective: they looks for, between the projects of quality in reliable hands, the one that guarantees the best economic conditions for the public interests • It tries to assure the competitive tension in all the process.

  8. TENDERING AND AWARDING RESULTS IN SPAIN (IN MEDIUM TERMS) (1) • Time for maturity: 2 years (4 years to mature the ordinary projects) • Time for bidding and awarding: 7 months - 1 year • Beginning of the construction after the awarding: 4 - 6 months - Costs of participation in a bidding process: 0,5 million €

  9. TENDERING AND AWARDING RESULTS IN SPAIN (IN MEDIUM TERMS) (2) Number of bidders: 6 - 10 Number of alternatives by bidder: 3 Internal Rate of Return offered by the winner: 6,5 - 7,5% Cost of the risks assumed by the concessionaires: 2,5 - 3,5%

  10. TENDERING AND AWARDING RESAULTS IN SPAIN (IN MEDIUM TERMS) (3) • Closing of the financing by the concessionaire: before the six previous months to finish the construction • Cost of the financing of the investment by the concessionaire: 5,0 - 6,5% - Time for execution: 3 years

  11. PPP FUNDING WITH EUROPEAN FUNDS Santiago de Compostela-Alto de Santo Domingo Motorway

  12. RATE OF ERDF COFINANCING Investment 300 Million euros (2/3 sponsor; 1/3 public fund) Public investment 100 Million euros (2/3 Region; 1/3 State) ERDF contribution: 55% of public investment

  13. TEN-T IN EU AND NEIGHBORING COUNTRIES Investments foreseen TEN-T till 2020: • 600 billion € Priority projects: • 230 billion € To be executed as PPP: • 120 billion € Priority projects in EU neighboring countries till 2020: • 45 billion € To be executed as PPP: • 9 billion €

  14. SOME EXPERIENCES IN CENTRAL AND EASTERN EUROPEAN COUNTRIES • Lack of a coherent long-term policy of infrastructures financing • Lack of continuity and broad political consensus on the use of PPPs for roads • Unclear and unstable laws, difficult to interpret • Lack of institutional stability - Insufficient staff (number, capacities)

  15. SOME EXPERIENCES – CONCESSION TENDERS - The whole project preparation process takes up to 10 years - Lack of a feasible project pipeline - Insufficient knowledge of expected results - Long tenders - Long negotiations • No competitive tension during the negotiation process - Tenders are not perceived to be transparent

  16. SOME EXPERIENCES – INSTITUTIONAL WEAKNESSES • Insufficient control in some cases by the Ministry of Infrastructure • Insufficient coordination between different departments in relation to implementation of policy - Lack of long term strategies and plans • Poor relationship between the administration and private partners • No structure for monitoring implementation and ongoing operation of projects

  17. PPP APPLICABILITY IN CENTRAL AND EASTERN EUROPEAN COUNTRIES As a consequence: • Confusing signal for the market • PPP are seen as a source of corruption • PPP are seen as an ineffective way of infrastructure provision and not applicable in Central & Eastern Europe However the problems with correct implementation of Public Private Partnership should not be confused with the PPP instrument itself

  18. MAIN FEATURES OF THE RECOMMENDED SYSTEM - Precise definition of the PPP mechanism by the administration - Use of open tendering procedure • Easy participation in the tendering process to increase competition for the contract • Simplified evaluation of proposals • Bidding proposals can not be negotiated • Financial closure not required before awarding • Fixed deadlines for awarding

  19. RECOMMENDED PPP MECHANISMS AND PILOT PROJECTS IN POLAND A2 Konin - Stryków (Łódź) - Konotopa (Warsaw) motorway + additional Warsaw bypass sections A2 Konin - Stryków (Łódź) [103 km] • delivered by the State to the concessionaire as a payment in kind - a form of public support • O&M by the concessionaire • covered by tolls A2 Stryków (Łódź) – Konotopa (Warsaw) [94 km] • built by the concessionaire • O&M by the concessionaire • covered by tolls

  20. RECOMMENDED PPP MECHANISMS AND PILOT PROJECTS IN POLAND A2 Konin - Stryków (Łódź) - Konotopa (Warsaw) motorway + additional Warsaw bypass sections Additional sections: • S8 Konotopa – Powązkowska [11 km] • S8 Powązkowska – Piłsudskiego [12 km] • S7 Northern Exit from Warsaw [approx. 15 km] All sections: • built by the concessionaire • O&M by the concessionaire • cross-financed from A2 revenues. • free for users

  21. RECOMMENDED PPP MECHANISMS AND PILOT PROJECTS IN POLAND A2 Konin - Stryków (Łódź) - Konotopa (Warsaw) motorway + additional Warsaw bypass sections Because of high financial profitability of the project no public support is required. Concession period may be used as the main bidding variable.

  22. Thank you Antonio M. Lopez Corral Professor of the Polytechnic University of Madrid Tf.: (+34) 91 533 44 96 Fax: (+34) 91 533 44 96 E-mail: alopezcorral@telefonica.net

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