Implementing Key Features of PPPs:

Case Studies From

Mehmet UZUNKAYA Planning Expert State Planning Organization

OUTLINE

I. RATIONALE: WHY PPPs? II. WHAT ARE PPPs? III. THE EXISTING LEGAL FRAMEWORK FOR PPPs IN TURKEY IV. PROJECTS IMPLEMENTED WITHIN THE EXISTING LEGAL FRAMEWORK V. MAIN PROBLEMS FACED VI. FOR SOLUTION... VII. INTENDED OUTCOMES

RATIONALE: WHY PPPs?

Increasing Infrastructure Increased Need for Rapid Realization Demand consideration of of Infrastructure Investments alternative project management and financing methods in both national and local Constraints on Public level. Budgets The Potential of Private Sector for Financing Support

Inefficiency in Public-Private Partnerships Potential for Utilizing the Existing Systems Private Sector Expertise and Dynamism (*) (*) Includes investments on the municipal level % GDP Sharesof Investments in Turkey(1998

RATIONALE:WHY PPPs?

- 2012)

Investments Budget CentalGovt. Investments Public Investments Private Investments Total

RATIONALE: WHY PPPs?

2010 Public Investments in Turkey (Beginning of Year) Thousand TL

2009 Remaining Time Total Project Cumulative 2010 Remaining for Completion Cost Expenditure Budget Financing Need (Years) AGRICULTURE 68.568.676 24.524.831 3.666.606 40.377.239 12 MINING 1.951.107 116.630 1.419.800 414.677 1 INDUSTRIAL PROD. 1.506.429 603.996 333.472 568.961 3 ENERGY 38.752.912 15.629.815 3.376.100 19.746.997 7 TRANSPORT 103.344.206 54.327.602 7.744.744 41.271.860 6 COMMUNICATION 734.103 293.372 223.500 217.231 2 1.406.179 446.797 182.202 777.180 5 HOUSING 416.027 110.844 157.021 148.162 2 EDUCATION 19.980.361 9.546.415 4.060.417 6.373.529 3 HEALTH 9.361.289 3.195.457 1.777.892 4.387.940 3 OTHER 27.378.875 9.630.245 4.853.536 12.895.094 4

TOTAL 273.400.164 118.426.004 27.795.290 127.178.870 6

WHAT ARE PPPs?

A GENERAL DEFINITION

Public-Private Partnertships (PPPs):

“Risk-sharing contractual agreements between public and private sector on the realization of a public-mission project through the dominant use of private sector resources which is extended beyond the construction to operation and management stages that constitutes the basis for the private partner to cover its costs by either user charges or government’s partly or fully purchasing of the services”

Whichever definition is used, however, both in terms of PPPs as a general and in terms of contract types (such as BOT, BOO, BOOT, etc), boundaries of public and private responsibilities in a PPPs arrangement are basically determined by the specific contract clauses signed between public and private partners.

WHAT ARE PPPs?

R

R R Public Authority R Public (Government) Guarantee Administration Agreement Treasury Investor (Equity) Implementation Purchasing Guarantee Contract Agreement Agreement (PPP) Financing Contract

Bank or International Special Purpose Vehicle Financing Finance Organization (Project Company) Contract Recourse/Non-Recourse/ (Debt) Limited Recourse R Construction Management Input Supply Contract Contract Contract

Supplier Contractor Operator R R R

WHAT ARE PPPs?

POTENTIAL BENEFITS OF PPPs

Involvement of a new source of finance, helping expand coverage: particularly attractive for governments having fiscal constraints

Utilization of private sector expertise, efficiency and innovative approach in construction, operation and management: Factors that would potentially provide better risk mitigation and drive down the costs of service provision as compared to public provision.

WHAT ARE PPPs?

POTENTIAL RISKS IN PPPs Risks from Private Sector Perspective

Commercial Risks Macroeconomic Risks Political Risks

Commercial Viability Inflation risk Investment risks Completion Risks Interest rate risk Currency convertibility and Operation Risks Exchange rate risk transfer Environmental Risks Expropriation of the project Operation Risks by the state Revenue Risks Political violence (war and Input Supply Risks civil disturbances) Force Majeure Risks Change of law risk Contract Mismatch Quasi-political risk Sponsor Support

Source: Yescombe, E. R., (2002).

WHAT ARE PPPs?

POTENTIAL RISKS IN PPPs

Risks from Public Sector Perspective

 Information, expertise and incentive asymmetry

 Subjective project selection

 Biased optimism

METHODS COVERED BY THE EXISTING LEGAL FRAMEWORK

 Build-Operate-Transfer (Law No: 3996, 3465, 3096)  Build-Operate (Law No: 4283)  Build-Lease-Transfer (Law No: 5396)  Transfer of Operating Rights (Law No: 4046, 5335, 3465, 3096)  Long Term Lease (Law No: 5335, 4046)  Shadow Toll (Law No: 3996) SECTORS COVERED BY THE EXISTING LEGAL BASE

POWER HEALTH Electricity Production, Hospitals Transmission, Distribution and TOURISM Trading Marinas Dams GENERAL ADMINISTRATION TRANSPORTATION Border Gates Motorways, Bridges, Tunnels, MINING Carparks, Motorway Roadside Mining and Enterprises Facilities ENVIRONMENT Railways Investments to Prevent Seaports and airports for civil Environmental Pollution use PRODUCTION AGRİCULTURE Factories, and etc. Irrigation COMMUNICATION WATER AND SEWAGE Water for Drinking and other use Waste Treatment Sewage

SECTORAL APPLICATIONS

 POWER

BOT Projects (22)  Girlevik II-Mercan HEP Plant  Ereğlisi-Trakya  Gaziler HEP Plant Natural Gas Combined  Gönen HEP Plant  Marmara Ereğlisi-Unimar Natural Gas  Kısık HEP Plant  Gebze-Dilovası Natural Gas  Hasanlar HEP Plant  Esenyurt Natural Gas  Suçatı HEP Plant  Birecik Dam ve HEP Plant  Dinar II HEP Plant  Berdan HEP Plant  Ahiköy I-II HEP Plant  Çal HEP Plant  Sütçüler HEP Plant  Çamlıca HEP Plant  Bozcaada Wind Power  Aksu-Çayköy HEP Plant  Çeşme-Alaçatı Wind Power  HEP Plant  Tohma-Medik HEP Plant

SECTORAL APPLICATIONS

 POWER

BO Projects (5)  Gebze Natural Gas Combined-Cycle Electricity Plant  Adapazarı Natural Gas Combined-Cycle Electricity Plant  İzmir Natural Gas Combined-Cycle Electricity Plant  Natural Gas Combined-Cycle Electricity Plant  İskenderun Thermic Plant

TOR Projects (2)  Çayırhan Thermic Plant  Hazar I-II HEP Plant

SECTORAL APPLICATIONS

 TRANPORTATION

AIR TRANSPORT  Airport I. ve II. International Flights Terminal (BOT)  Atatürk Airport International Flights Terminal Building (BOT)  - Airport Terminal Building (BOT)  Airport International Flights Terminal Building (BOT)  İzmir Adnan Menderes Airport International Flights Terminal Building (BOT)  Ankara Esenboğa Airport Domestic and International Flights Terminal Buildings (BOT)  Sabiha Gökçen Airport International Flights Terminal Building (BOT)  Atatürk Airport Domestic and International Flights Terminal Buildings (Long Term Lease)  Domestic and International Flights Terminal Buildings (Long Term Lease)  Zonguldak Çaycuma Airport (Long Term Lease)  Antalya Gazipaşa Airport (Long Term Lease)

ROAD TRANSPORT  Göcek Tunnel (BOT)  Roadside Facilities on Motorways (BOT)  Gebze-Orhangazi-İzmir Motorway (İzmit Bay Crossing Included) (BOT)

SECTORAL APPLICATIONS

 TRANSPORTATION

MARITIME TRANSPORT  Çanakkale Kepez Port Superstructure Facilites (BOT)  Güllük Ship Wharf (BOT)  Bodrum Passenger Wharf (BOT)  Trabzon Port (TOR)

URBAN TRANSPORT  Strait Road Tunnel Crossing (BOT)

SECTORAL APPLICATIONS

 TOURISM  Antalya Marina (BOT)  Marina (BOT)  Dalaman Marina and Seabus Approaching Facility (BOT)  Fethiye Marina (BOT)  Muğla Marina (BOT)  Bodrum Turgut Reis Marina (BOT)  Kaş Marina (BOT)  Marina (BOT)  Mersin Marina (BOT)  Sığacık Marina (BOT)  Çeşme Marina (BOT)  Gazipaşa Marina (BOT)  Yalova Marina (BOT)

SECTORAL APPLICATIONS

 GENERAL ADMINISTRATION  Edirne İpsala Border Gate (BOT)  Iğdır Gürbulak Border Gate (BOT)  Dereköy Border Gate (BOT)  Hatay Cilvegözü Border Gate (BOT)  Artvin Sarp Border Gate (BOT)  Şırnak Habur Border Gate (BOT)  Edirne Kapıkule Border Gate (BOT)  Edirne Hamzabeyli Border Gate (BOT)

 MINING  A-Kafa Ore Extraction Facility (BOT)

SECTORAL APPLICATIONS

 MUNICIPAL SERVICES

 İzmit Urban and Industrial Water Supply Project (BOT)  Pre-qualification for 22 projects under the law No.3996.  Municipalities utilize private finance in drinking water, sewerage, solid waste, transport and other (parking, fairs, etc) under the Law of Municipalities (No.5393)

SECTORAL APPLICATIONS In summary;

Models: Mainly BOT, BO, Long-term Lease and Transfer of Operating Rights

Sectors: Mainly energy, transport, (especially air transport), marinas, border gates

Projects: Mainly of the central administrative bodies

Arrangements in the municipal level are relatively limited and/or of small scale.

MAIN PROBLEMS FACED

1. The piecemeal nature of the existing legislation 2. Lack of model diversity 3. Lack of quality and timely preperation of documents, due to the lack of institutional capacity, that would asses the technical, economic and financial feasibility of projects and their socio-economic costs, benefits and risks, which would effectively assist decision makers in their decisions 4. Lack of ownership by the public sector of PPP projects due to the fact that PPPs are generally financed and operated by the private sector 5. In some cases, the over-optimism that PPPs are panacea 6. Lack of experience of public officials in PPP arrangements, which include more complex processes as compared to conventional procurement methods. (Information and experience asymmetry between public and private sector) 7. Lack of a central PPP unit, which would be a center of knowledge in PPPs and in charge of appraisal, prioritization and selection of PPP projects 8. Lack of standardization of project documents (Feasibilities, contracts, guidelines, etc)

FOR SOLUTION…

Steps need to be taken,

 A single framework PPP law  Building capacity within the public sector  Institutional arrangements An administrative structure that would,  Ensure the compliance of PPP projects with the National Development Plan Objectives, Annual Programs and Sectoral Policies  Prepare guidance and standardized documents for the implementing institutions  Assist line ministries and implementers to build capacity in preparing feasibility documents  Formulate the national PPP policy  Be in charge of appraisal, evaluation, prioritization, selection and monitoring of PPP projects  Become a center of knowledge  Coordinate creating capacity in the municipal level

INTENDED OUTCOMES

 Meeting the ever increasing infrastructure demand  Increasing the quality and effectiveness of public services  Contribituon of private finance  Utilizing the management and organization capacity of private sector  Technology transfer  Fast and timely realization of public investments.

THANKS...