encouraging sustainable investment in infrastructure through ppps

8/3/2019 Encouraging Sustainable Investment in Infrastructure Through Ppps

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Encouraging Sustainable Investment in InfrastructureEncouraging Sustainable Investment in InfrastructureThrough Public Private PartnershipsThrough Public Private Partnerships

Wale ShonibareWale Shonibare

rec or, n ras ruc ure nancerec or, n ras ruc ure nance

July 2010

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Financing Needs

Nigeria needs $15 billion annually over the next five to six years to finance its infrastructural

deficits*

With around 20% expected to come from the private sector, this suggests at least $3 billion per

year

This financing should come from:

Local project sponsors

International ro ect s onsors14% 12%

Percentage of

GDP

Public Infrastructure Expenditure as a % of

GDP**

Local Banks

International Banks

Local Institutional Investors

International Institutional Investors

Multilateral Finance Organisations

However, there are issues to be resolved in order to take full advantage of the options available

We need to foster an environment that encourages sustainable investment in infrastructure.

*Source: ICRC (April 20th2009)

2

0%

2%

4%

6%

8%

10%8%

5%

3.50%

Countries

India

Russia

Nigeria

** Source: Economist, International Business Monitor (2008)


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Private Funding Sources Main Challenges

Local project sponsors Often inexperienced; lack of credible track record

Little local knowledge; very risk averse; concerned about

transparencyInternational project sponsors

Local banks

Short term focus due to asset liability mis-match; inadequate

access to long-term capital; need to build human capacity; high

interest rates.

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Challeng

e

International banks

Local Institutional Investors

Int. Institutional Investors

Multilateral Finance Insti

Lack access to L-T investment opportunities; underdeveloped

corporate bond market; skewed stock markets

Little local knowledge; lack access; require quick exit

Slow cumbersome processes; country limits; many strings attached

Cyclical fickle appetite; introduces currency risk; liquidity in

short supply due to global credit crunch


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Public Sector Policy Main Challenges

Absence of aNational Infrastructure

Development Plan

Governments have been slow to articulate the level of

infrastructure requirements to meet their development goals

Privatization and deregulation has been very slow, resulting in

inadequate pipeline of opportunities

Sluggish pace of policy reformand implementation

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Challeng

e

Inappropriate ProcurementProcesses

Need to introduce processes that give confidence to private sector

that government is serious; use competent advisers; develop

detailed high quality documentation; work to realistic deadlines

Appropriate Macro/MicroEconomic Conditions

Encourage stable exchange rates, low inflation, low interest rates;

build out yield curve; pensions reform; regulate effectively;

sanctity of contract; tax incentives, capital markets reforms


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The Domestic NGN Yield Curve

11.00%

12.00%

Yield Federal Government of Nigeria Yield Curve

Maturity (Years) 0.98 1.90 2.83 4.90 7.83 8.58 19.56

Yield 7.32% 8.31% 8.24% 8.84% 9.94% 9.89% 10.94%

Source: UBA Treasury Division

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6.00%

7.00%

8.00%

9.00%

.

0.00 5.00 10.00 15.00 20.00 25.00

Maturity in Years

Yield (%)


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Private Capital Preferred Sectors Private participation in infrastructure in Africa has

been largely in telecommunications

Almost 73% of total private investment in

infrastructure projects (1990 2004) 126 telecommunication projects attracted

$28.7bn (1990 2004), projects in othersectors attracted just $10.6 bln

Telecoms have driven investments

0

1

2

3

4

5

6

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

US$b

o t e nvestment n ot er sectors went to

energy projects

Transporthad the next largest share of activity,with $3.2 bn. Nearly 60% of this went to toll roads,

mostly for long-term concessions

Regional investors, mainly from South Africa,account for approx 38%, more than any othercategory of investor in 1998 2004

Greenfield activities account for 60% of all

infrastructure projects with private participation in

Africa

More greenfield opportunities in Africa than brownfield

Source: World Bank, PPIAF

Total Telecoms Other sectors

-10%

0%

10%

20%30%

40%

50%

60%

70%

Concessions Divestures Greenfield Projects Management and

lease contracts

Sub saharan Africa Rest of Developing World


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What makes a good project (1)?

Strong link between cost and affordability

Problem for prestige projects

Unrealistic traffic projections can cause

Project realism

Good feasibility studies are essential

Planning risks should be shared

Stakeholders buy-in is crucial

Project preparation

pro ec a ure

Grants/guarantees can help a projectsfinancial viability

Tolls must be set at the right level

Beware technically complex projects

A programme of projects helps buildcapacity and develop expertise

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What make a good project (2)?

Effective and unambiguous regulatoryframework is vital

Regulation may be through contracts orvia an independent regulator

Regulatory environment

Must facilitate long-term lending in localcurrency

Innovative and competitive productsreduce cost of funds

Financial markets

Sanctity of contract is key

Internationally acceptable procurementpractice helps

Legal framework

Credible bidders increase competition and

value for money Confidence in the process will encourage

bidders to invest in developing expertise

Bidder expertise

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Case Study (1) - Project Appraisal

Project realism 3 Low usage; tolls too expensive

Project Preparation 6 Inaccurate traffic forecasts; local opposition

Regulatory

environment

5 Brief history of concessions

4

6

8Project Realism

Project PreparationBidder expertise

Hungary M5

0 = poor; 10 = excellent

Financial markets 4 Under-developed in immediate post-communistera

Legal framework 7 Concession legislation in place

Bidder expertise 8 Phase 1 completed on time and within budget

0

2

Regulatoryenvironment

Strength of financialmarket

Legal framework

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Case Study (2) - Project Appraisal

Project realism 7 No demand risk transfer, availability-basedpayment;

Project Preparation 7 Complex project; well promoted

Regulatory 7 Well established10Project Realism

Dutch High Speed Rail Link

Financial markets 7 Strong and broad based

Legal framework 9 Very well established

Bidder expertise 10 International experienced bidders

0

5 Project Preparation

Regulatory

environment

Strength of financial

market

Legal framework

Bidder expertise

10

0 = poor; 10 = excellent


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Case Study (3) Chile Toll Roads

Actions Outcomes

Introduction of a new concession law

Establishment of infrastructure fund

Pension funds and insurance companies

allowed to invest in bonds of green fields

Minimum revenue guarantees provides

comfort to investors and financiers on

Increased participation of institutionalinvestors

Foreign investment inflow especially fromEuropean Construction companies

Emergence of monoline Insurance to

provide comfort to the investors through

some projects

Creation of a concession council

entrusted with strategic direction of theprogram

Financial sector reforms introduced toexpand the pool of available domestic

financing

Domestic infrastructure bonds linked withinsurance

Introduction of the exchange rateguarantee

Access to foreign financial marketsthrough exchange rate guarantee

Enhanced Investor confidence due to

minimum revenue guarantee comfort.

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Contact

Wale Shonibare

Director, Infrastructure Finance

UBA Ca ital

Mobile: +234 7085 631 886Email:[email protected]

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