Astana Economic Forum22 May 2012

THE CHANGING LANDSCAPE OF INFRASTRUCTURE FINANCE

Jill JamiesonDeloitte Consulting, LLP

Public Private Partnerships

MEP PPP COMPONENT

Stage Three

Stage Two

Stage OneBelgium

DenmarkMexico

FinlandBrazil

South Africa

Netherlands

ItalyNew Zealand

Greece Portugal

Spain

France

Canada

US

JapanGermany

UK

Australia

Ireland

Potential to Leapfrog

High

Low

Low High

So

ph

isti

cati

on

Activity

ChinaIndiaSlovakiaLatviaRussiaKazakhstan

HungaryCzech RepublicBulgariaCroatiaAlbania

Market Maturity Curve by CountryMarket Maturity Curve by Country• Kazakhstan is still in early

stage of PPP development• Project design, legislative

shortfalls and other factors have been key impediments in attracting international investors.

• Push for reforms : “PPP has a great potential to attract private investment - we launched this mechanism in Kazakhstan but it needs to be improved in accordance with international best practice.” – President Nazarbayev January 2010

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GLOBAL CONTEXT

• Kazakhstan is launching its PPP program at a very complicated time for infrastructure finance

• Global investor flight to quality • Kazakhstan must consider the global

infrastructure finance market if it hopes to gain credibility with global investors

• While local investors may be an option in the medium term, Kazakhstan does not yet have the local financial infrastructure in place to launch a local PPP market

• Kazakhstan’s New Finance Initiative makes the application of international best practice in PPP critically important to the country’s fiscal stability

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CHANGING LANDSCAPE

Pre-Credit Crisis Trends Current Trends

Demand•Limited public money available for infrastructure•Fiscal dynamics encouraging government to explore alternative delivery models

Supply•Well functioning debt capital markets and international project finance loan market•Dominance of active equity investors and emergence of infrastructure funds

Demand•Infusion of public money for infrastructure (stimulus)•Fiscal distress solidifying interest in alternative delivery models (austerity)

Supply•Challenged debt capital markets•Price and tenor constraints in international project finance market•Impairment of some equity investors balanced by continued growth in infrastructure funds

Financial crisis has changed the economics of PPP as financial transactions:

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RECENT CAPITAL STRUCTURES

Capital Structure of recent PPP deals

Transaction Date Value (US$ millions)

Debt/Equity Ratio

Embraport (Brazil) 11/2011 US$1,015 75/25Lake Turkana Wind Power

(Kenya) 4/2011 US$ $867.7 70/30

Pristina International Airport (Kosovo) 6/2011 US$186 65/35

Florida I-595 (USA) 3/2009 US$1,670 87/13St. Petersburg Pulkovo Airport

(Russia) 6/2010 US$1,600 60/40

Karaganda Kindergarten Concession (Kazakhstan) 10/2011 US$40 0/100

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INFRASTRUCTURE INVESTORS

Strategic buyers / Concessionaires

Infrastructure Funds

Financial Sponsors

• Traditionally, sector operators, developers or contractors• Benefit from sector expertise, which can enhance the VfM• Long-term investment strategy• Always take part in consortium (to control results)

• Equity funds focused on infrastructure investments• Strong liquidity awaiting investment opportunities• Lower equity returns than for financial sponsors• Typically look to take part in a Consortium• Medium to long-term investment• Smaller investments than financial sponsors

• Equity firms with short exit strategies• High equity returns may limit value-for-money• Normally look for short-term investments with clear exit

strategies• Typically take part in a consortium

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CURRENT TRENDS

PPP is being employed as part of both austerity and stimulus programs

Investors are in pursuit of quality transactions Known strategic partners /

concessionaires Transparency and balanced risk

Innovation in risk distribution has revitalized investors in some areas

Infrastructure funds are dominating the markets

Sector preferences (i.e. clean energy) are jump-starting PPP programs

Increased emphasis on fiscal impact of PPP

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RECOMMENDATIONS Global crisis has evidenced a strong flight towards quality projects, so if Kazakhstan

hopes to attract serious foreign investment, it must place more emphasis on transaction design: Hire qualified transactions advisors Seek balanced risk allocation Insist on transparency in procurement Ensure contractual and regulatory compliance

Undertake legislative reforms, but with an aims towards: Simplification of the legal framework Overcoming known deficiencies in legal framework Drive legislative reform through pilot projects

Desperate need for Institutional reform: Institutional structure for PPP in Kazakhstan is an obstacle to investment Approval processes are excessive and ineffective

Pilot Projects Enable line ministries and regions for project development

USAID Macroeconomic Project