Transport, PPP Projects

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Transport, PPP Projects MinistryMinistryMinistry ofofof TransportTransportTransport andandand RoadRoadRoad SafetySafetySafety 1 WhatWhat isis PPP?PPP? It is all about Partnership… A Partnership that utilizes the benefits of Public and Private sectors. A Partnership that wisely allocates risks between parties who better mitigate those risks. A long term, leveraged, project finance activity. 2 WhatWhat isis PPP?PPP? Non/limited recourse legal framework. PPPs in the past has been poorly understood. Frequently governments looked at PPPs as the answer to their budgeting limitations. Benefits in terms of quality, management and creativity for network development, in the past were not sufficiently appreciated. 3 PPPPPP TodayToday Today, PPP is becoming an integral part of international Economic Public Policy. PPP is being implemented in the USA, Canada, Asia, Eastern and Western Europe and in the Middle East. 4 CRITERIACRITERIA FORFOR EXAMININGEXAMINING PPPPPP PROJECTPROJECT IMPLEMENTATIONIMPLEMENTATION SUITABILITYSUITABILITY Ability to transfer responsibilities/risks to private sector Suitable size/scope of project Significant operation and maintenance component Independent projects integrated into a comprehensive network Physical boundaries and clear responsibility 5 Highly complex logistics and technologies CRITERIACRITERIA FORFOR EXAMININGEXAMINING PPPPPP PROJECTPROJECT IMPLEMENTATIONIMPLEMENTATION SUITABILITYSUITABILITY Flexibility in detailed planning of the project, room for innovation Public sector’s lack of experience, or failure Opportunity to exploit advantages of size and input Ability to create an effective payment mechanism for measuring service On-hand legal and planning cover/foundation A sufficient number of candidates from the 6public sector (effective competition). MAINMAIN CHARACTERISTICSCHARACTERISTICS -- PPPPPP PROJECTSPROJECTS Lengthy concession period Public-private sector cooperation Transition from PPP owner status to PPP Private sector activity – client/customer planning, constructing, financing, operating, Utilization of the sectors’ maintaining, service/ relative advantages by product marketing correctly distributing risk/responsibility 7 between them TypicalTypical RiskRisk AllocationAllocation PUBLICPUBLIC SECTOR:SECTOR: PRIVATEPRIVATE SECTOR:SECTOR: PreliminaryPreliminary planning planning DetailedDetailed design design Construction (including StatutoryStatutory process process & & Construction (including schedule & set up costs) facilitationfacilitation of of availability availability schedule & set up costs) Operational risk (evacuation,(evacuation, expropriation, expropriation, Operational risk (including collection) archaeology…)archaeology…) (including collection) TechnologicalTechnological risk risk PoliticalPolitical risk risk FinancialFinancial risk risk DesignatedDesignated legislation legislation GovernmentGovernment deployment deployment SHARED:SHARED: DemandDemand risk risk ForceForce Majeure Majeure 8 ScheduleSchedule risk risk PPP/PFIPPP/PFI –– ProsPros && ConsCons ProsPros ConsCons ¾¾ LongLong term term project project Integration Integration ¾¾HighHigh Cost Cost of of tender tender processprocess ¾¾ OptimalOptimal Risk Risk Allocation Allocation and and thus thus betterbetter risk risk mitigation mitigation ¾¾FinancialFinancial Costs Costs ¾¾ EfficientEfficient use use of of property property (extra (extra ¾¾PrivatePrivate sector’s sector’s revenues)revenues) controlcontrol over over GovernmentGovernment ¾¾ SustainSustain economic economic growth growth PropertyProperty ¾¾ PrivatizationPrivatization ¾¾BudgetaryBudgetary issues issues ¾¾ ImprovementImprovement of of market market competition competition ¾¾ InternationalInternational experience experience & & know-how know-how ¾¾ ImplementingImplementing advanced advanced methods methods & & technologytechnology 9 INTERNATIONALINTERNATIONAL EXPERIENCEEXPERIENCE –– INFRASTRUCTUREINFRASTRUCTURE PROJECTSPROJECTS PLANNEDPLANNED ANDAND FINANCEDFINANCED THROUGHTHROUGH PPPPPP DURINGDURING 19851985--20042004 ApproximatelyApproximately 2,1002,100 ProjectsProjects Building, 253, 12% Water, 616, Transport, 10 29% 1227, 59% Source: FHWA INTERNATIONALINTERNATIONAL EXPERIENCEEXPERIENCE –– INFRASTRUCTUREINFRASTRUCTURE PROJECTSPROJECTS PLANNEDPLANNED ANDAND FINANCEDFINANCED THROUGHTHROUGH PPPPPP DURINGDURING 19851985--20042004 Approx.Approx. 2,1002,100 Projects,Projects, ~~ $900$900 billionbillion Building, Water, 59.2, 7% 95.4, 11% 11 Transport, 732.8, 82% Source: FHWA ISRAELISRAEL’’SS EXPERIENCEEXPERIENCE ININ ADVANCINGADVANCING PPPPPP PROJECTSPROJECTS Main Transport Policy Objectives Development of integrated transport systems Market responsive mechanism: The regulation of main sectors: public transport and railways, seaports, civil aviation. Ministry of Transport and Road Safety focusing on defining policy/objectives and monitoring/supervision – outsourcing of implementation, operation and maintenance activities. Privatization of services Greater involvement of private sector – PPP projects. 13Regional integration of transport systems. IsraeliIsraeli EconomicEconomic andand TransportationTransportation IndicatorsIndicators 19901990--20062006 Growth Rate, Indicators 1990 2006 % (1990-2006) GENERAL Population (Millions) 4.7 7.1 51% GDP (Index) 100 193 93% TRANSPORT Number of Vehicles (Millions) 1.07 2.1 93% Cargo at Ports (Millions of 18 36.3 102% tons) Passengers - International 3.6 8.8 144% Flights (Millions) Containers (Thousands Teu) 507 1,766 248% 14 Israel - Investment in Transport Infrastructure Development (Billions of Dollars) 13.5 12 52% + 9 8.9 6 3 0 2002-2006 2007-2011* 15 * - estimated Investment in Transport Sector as a percentage of GDP 2.0% 1.92% 1.77% 1.8% 1.68% 1.56% 1.6% 1.49% 1.4% 1.2% 1.21% 1.0% 16 2006 2007 2008 2009 2010 2011 * - All transport branches, include Private Sector, European average – 1% IsraelIsrael -- IndustriesIndustries underunder FocusFocus The government has decided to focus primarily on the following industries: ¾ Rail/Mass Transit Systems ¾ Highways ¾ Ports ¾ Water desalination and sewage treatment ¾ Buildings ¾ Energy (IPP; LNG; Solar) 17 IsraelIsrael –– TotalTotal InvestmentInvestment inin PPPPPP TotalTotal InvestmentInvestment -- Approx.Approx. $7$7 BillionBillion Building, 6% Water, 7% Transport, 18 87% IsraelIsrael –– TotalTotal InvestmentInvestment inin PPPPPP 9Transport – $6,100 Million: •First LRT Line in Tel-Aviv •First LRT Line in Jerusalem •Cross Israel Highway, sections 12-17 •Cross Israel Highway, section 18 •Carmel Tunnels •Highway 431 •Highway 531 •Road 22 – Krayot Bypass •Fast Lane to Tel-Aviv 9Water – $500 Million: •Desalination plants – Ashkelon, Hadera, Palmachim 9Building – $400 Million: •Prison facility (Beer-Sheva) •Energy center, Government Complex Parking Lot, Knesset building extension, the Government Complex • Health – 2 hotels for new mothers, welfare center 19 •3 Law courts (Herzliya, Tel Aviv, Petah Tikva) Israel'sIsrael's ExperienceExperience –– Transport,Transport, PPPPPP ProjectsProjects ••FailuresFailures:: – “Ha-Yovel” sea port – Tel-Aviv – Kfar Saba railway – Carmel Tunnels * ••SuccessesSuccesses – Cross Israel Highway, sections 12-17 – Highway 431 – Carmel Tunnels * $6.1 – First LRT Line in Jerusalem $6.1 BillionBillion ••ProjectsProjects inin differentdifferent stagesstages ofof progressprogress - Highway 531 and Ha-Sharon Railway - First LRT Line in Tel-Aviv - Road 22 – Krayot Bypass - Fast Lane to Tel-Aviv - Cross Israel Highway, section 18 * - Although20 the project is being implemented, it fails in the matter of statutory advancement Israel'sIsrael's ExperienceExperience –– MainMain ConsiderationsConsiderations forfor ImplementationImplementation SCHEDULE 9The shortest planned schedule for a transport project using the PPP method is 7 years – the Route 431 project (includes tender, financial closure and execution) 9We intend to create a standard tender process that will shorten project schedules STATUTORY PROCESS & FACILITATING AVAILABILITY 9As a rule, the Government is responsible 9Schedules must be modified to suit the tender process 9Facilitating availability while carrying out the tender process TRANSFERRING RISK/RESPONIBILITY 9Educated transfer of risks/responsibilities to the private sector 21 Israel'sIsrael's ExperienceExperience –– MainMain ConsiderationsConsiderations forfor ImplementationImplementation GOVERNMENT PREPAREDNESS 9Government partnership – an essential condition for success with the private sector 9The process demands organizational and financial preparedness on the part of the Government from the initial stages 9Cooperation of Government factors relevant to business development PROJECT MANAGEMENT 9Appointment of a project manager and a multi-disciplinary advisory team at the initial stage ECONOMIC IMPACT 9Short schedule project implementation, contributing to 22economic growth and employment EncouragingEncouraging ForeignForeign ParticipationParticipation Why is foreign participation needed? •Single borrower limitation (15%) •Low competition (2 major banks) – Equity: NIS 54B for the big 5; NIS 37B for the big 2. – ROE: 13.1% - 22% (9/2006 - big 5) •7-8 major groups participating in all government projects Improvements in order to facilitate the participation of foreign bidders and foreign lenders: ¾ Foreign interest rate changes protection. ¾ Foreign currency changes protection. ¾ Various indexation and protection options in accordance to risks at the different project stages ¾ Payments to Concessionaire in foreign currency 23 ReducingReducing ForeignForeign
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