Experience with PPP projects in EuropeVilnius 22th November 2006

Dr. Christian Kummert, DEPFA BANK plc

2

from a public sector perspective

Advantages - Risk transfer to private sector

- Date and cost certain- Efficiency and cost advantages- Off budget- Operator Know How

- Output- and not input focussed

Disadvantages - loss of public sector control- increased financing costs- availability of administrative

resources- limited competition over

concession period - economic focus of private investors

Advantages and disadvantages of PPPs

3

PPPs in Europe

Long track record

First projects closed

Projects in tender or preparation

No experience

Experience

Transportation Schools Hospitals Prisons Environment

UK

Ireland

Portugal

Spain

Italy

Scandinavia

Netherlands

France

Germany

Hungary

Poland

4

PPPS in EuropePipeline (as of summer 2006)

0 20 40 60 80 100

Ireland

Austria

Greece

Spain

Germany

Portugal

France

Italy

UK

billion €

5

Project Company

Sponsors Banks

Insurance

Public Authority

Construction ConsortiumOperator

Turnkey-Contract

O & M - Contract

Loan AgreementConcession Agreement

Equity

Traditional Structure

PPP Structures

6

Purchase of Receivables

Special Purpose CompanySpecial Purpose Company

Municipality

Fixed payments

Bank

Approval Supervisory

Authority

Purchase Price: NPV of future

payments

Concession

Purchase of future receivables

Germany

7

Hospital Schemes

Portugal

InfraCo CliniCo

Portuguese State

Banks

Contractor

Operator

Shareholders

SupplierInterface

Agreement

Medical Equipment

TurnkeyConstruction

Contract

FM Contract

Senior Debt Equity/Subdebt

Concession

8

Oeresund-Crossing, Market Entity-Approach

Denmark

Denmark Sweden

SPV(= Market Entity)

User

Contracts

Toll incomeLenders

Garanties50% 50%

Construction Operation Maintenance

Debt

9

Risk Allocation in School PFI

Risks Public Project Turnkey O&M BanksSector Co Contractor Contractor

Planning √ √

Inflation √

Change of Law √ √

Insurance √ √

Construction √

Operations √

Maintenance √

Volume / Demand √ √

Force Majeure √

Termination √ √

Risk Allocation

Project Risks

10

Full Toll Shadow Toll Availability Payment

Toll Payment by User by Government by Government

Traffic Risk traffic flow less traffic flow more no traffic riskpredictable predictable

Performance no additional penalties sophisticatedRisk penalties possible deduction schemes

Public Sector - no exposure - financial exposure - financial exposure- low acceptance - optimal use - optimal use

- strong control

Application - few intersections - many intersections - many intersections- high traffic - low traffic - political motivation

Payment Schemes

Road PPPs

11

years

million vehicle-km

revenue cap

Band 1: highest tariff per vehicle-km

Band 2: second highest tariff per vehicle-km

Band 3: lowest tariff per vehicle-km

Band 4: no tariff

Banding Structure

Road PPPs

12

Cash Flow for DistributionDebt ServiceO&M Expenditure

years

cash flow

Cash Flow Profile of Shadow Toll Road

Road PPPs

13

0 2 4 6 8 10 12 14 16 18 20 22

Fully available

1 out of 3 lanes closed

1 out of 2 lanes closed

2 out of 3 lanes closed

All lanes closed

Availability Payment Due (in %)

100% 20%

80% 0%

50%

Time of day

Availability Payment Structure A13/UK

Road PPPs

14

• Experience Contractors

• Buffer in construction schedule (working shifts, winter break, etc.)

• Completion buffer (Construction Contract versus Concession Agreement)

• Joint and several liability of turnkey contractors

• Completion guarantee by contractors/sponsors

• Liability caps of contractor

• Liquidated Damages for delays in completion

• Advance Payment Bond, Retention Bond, Performance Bond

• Warranty periods

• Direct Agreement with Turnkey Contractor

Mitigation of Construction Risks

Lenders‘ Requirements

15

• Annual Debt Service Coverage Ratios (ADSCR)

• Loan Life Coverage Ratios (LLCR)

• Project Life Coverage Ratios (PLCR)

• Debt/Equity Ratios

• Concession Tail

• Sensitivities (in particular break even scenarios)

• Repayment Profile (annuity, sculpted, ballon, bullet, cash sweep)

• Reserve Accounts (Debt Service Reserve Account, Major Maintenance Reserve Account)

Cash Flow

Lenders‘ Requirements