Market and Regulatory Risk Issues and Challenges in PPP

1. DEVELOPMENT BANK OF TURKEY Kalkınma Market and Regulatory Risk Issues and Challenges in PPP M. SERDAR KABUKÇUOĞLU April 2011 Kyrenia/TRNC

2. PPP in the World - 1999

3. PPP in the World - 2010

4. Private Public • Necessity for construction • Fulfilment of public duties • Solving infrastructure problems • Restricted budgets • Minimizing costs • Pressure to increase efficiency • Management efficiency • Newer technologies • Workplace efficiency • Personnel development

5. Profit • Positive net cash flows • Stable economic environment • Stable political situations Risks/opportunities Management 3 • Better value of many • Budgetary benefit • Efficiency • Additionality • Keeping environment Public Private Contract Management 1 • Transfer of control • Right to use • Services are provided • Building, extending or renovating a facility on behalf of Public Asset Management 2

6. Public Private A public service Project Management 4 • To a certain group • In a certain place • With a certain proposed budged • For a certain time • By constructing and/or operating

7. Stake-holder Analysis 6 7 Regulations • Investers • Funds • Companies • Individual investors • Sponsors • Funds • Banks • IFIs • Regulatory • Ministry of Finance • State Planning Organization • Treasury • Operational • Ministries • Municipalities SPV Special Purpose Vehicle Project Company Public Private Tender & Procurement Management 8 Financial Management SPV/Project Company 5 Investors Financial Institutions

8. Risk Sharing 100% 100% Public Private 0% 0% Privatization Public Assets PPP

9. Main Risks for PPPs Political Risks Project Risks Macro Economic Risks • Complation risks • Environmental risks • Operating risks • Revenue risks • Input supply risks • Inflation • Interest rate risks • Exchange rate risks • Currency convertibility • Expropriation • War and Civil Disturbance • Change of law • Quasi-political risks

10. Project Risks Does the project make overall sense? Can the project be completed on time and on budged? May the project face any environmental problems during the implementation, especially construction? Is the project company capable of operating the project on the proposed cost levels and accessing the finance? How realistic is the operating revenues proposed in the project? Can any raw materials or other inputs be obtained at the projected costs and projected time? Does project contract fit the projected operations and results?

11. Macro-Economic Risks • Inflation • Exchange rate • Appropriate funding conditions • Maturity • Interest rate • Grace period • Guarantees

12. Political Risks • Changes in regulations • Political interference • Cancellation of license • Expropriation • Discriminatory taxes, import restrictions • Transfer of earnings • War and civil disturbance

13. Solutions? PPP is a project (tailored and uniqe) 1 Government is owner of the project, so it is responsible for formulation and designing of the project and it is leader, auditor of the project «Good Governance» 2 3 • Projects should be • Well defined • Viable • Bankable • Clear specifications of outputs • PPP does not make a bad project good

14. Solutions? 4 • These are should be taken in the projects • Legitimacy • Additionality • Value of many • Sustainability 5 • Contracts should take care • Transparency • Competitive dialogue • Risk sharing 6 • Risk evaluation • Risk assesment • Due dilligence • Risk mitigation plan

15. Solutions? • Stakeholders Support • Public sector employees • Labor unions • End users 7 8 Effective procurement process 9 • Govermental incentives/supports • Tariff subsidies • Financial instruments • Tax and custom • Guarantees • Loan guarantees • Sovereign guarantees

16. 9 • A PPP Task Force? • A common policy for PPP • A framework regulation • Realistic targets • Building a market interests • Pricing • Tendering • Project filtering • Project design • Monitoring • Keeping social targets of the project

17. Thank you for your attention

18. Ahmet Keşli, «International Standarts of PPP LawandExperiences of Turkey», PPP Platform of Turkey, ADFIMI Development Forum, 5-6 October 2010, İstanbul Darren Grimsey and Mervyn K. Lewis, “Public Private Partnerships The Worldwide Revolution in infrastructure provisions and Project Finance”,Edwar Elgar Publishing Ltd., 2007 “Europe 2020, A strategy for smart, sustainable and inclusive growth”, Communication From the Commission, Brussels 3.3.2010, COM(2010)2020 E.R. Yescombe, “Principle of Project Finance”, Yescombe Ltd. London-UK,Academic Press,2002. Falko Josef Seliner, “PPP Life Cycle”,Taiex Workshop on PPP, Ankara, 17 March 2010 “Fundamentals and Issues of PPP”, the National Council for Public Private Partnership, www.ncppp.org HalukDoğançay, “A New Project Financing Model for Turkey: Public Private partnership (PPP)”, EFCA Task Force for Project Finance, 9 December 2004 “Never Mind the Balance Sheet”, CEE Bankwatch Network, November 2008 Prof. MaurizioMensi, «PublicPrivatePartnership, The Legal Framework», Academy of Economyand Finance, 16-17 March 2010, Ankara OnurKordel, “Turkey: A Comparative Overview of Public Private Partnerships; With Those in Turkey”, Bener Law Office, 29 July 2008 Prof. Dr. Ralf von Ameln, “Public Private Partnership and Competitive Dialogue” Stephan Harris, “Public Private Partnerships: Delivering Better Infrastructure Services”