making public private partnerships a reality in serbia werner weihs-raabl infrastructure finance...

Making Public Private Partnerships a reality in Serbia

Werner Weihs-RaablInfrastructure Finance & Public SectorErste Group Bank AG

PPP Finance Workshop

2PPP Finance Workshop 18 Nov 2010

IntroductionTransportation FinanceDeals 2009-2010

Roads

Social Infrastructure

Airports Harbours

Railway systems Energy networks

Education Healthcare

Utility systems

Bina Istra/ M6 III Hungary

R1 Slovakia/ D1 Phase 1 and 2 Slovakia

A3 Romania / Bar-Boljare Montenegro

Electronic Toll projects in Slovakia and France

Dubrovnik Airport

Brasov Airport

Prague Airport

Constanta Port

Port of Rijeka

High Speed Rail Tours-Bordeaux


Infrastructure Why investing in Infrastructure?Employment Effects Of Infrastructure Investments Investments in Infrastructure have a „multiplicator effect“ they trigger short-term impulses for demand and

have a positive impact on employment

Effects on Employment of Investments in Transport Infrastructure

Effect of Investments of €72m (most of the toll road projects that are now in the market have a volume of EUR 1bn or more!)

Effect of Investments of €72m (most of the toll road projects that are now in the market have a volume of EUR 1bn or more!)

Direct Effect (Construction

sector)Indirect Effect (All sectors) Total

High-speed road network 426 353 779

National Roads 568 353 921

Public Transport 868 375 1,243

Rail Infrastructure

Extension of Network 851 382 1,233

Train Stations 922 390 1,312

the work force needed for large road PPP transactions is sometimes immense – depending on the size and complexity, e.g. tunnels.

D1 Phase 1: up to 7,500 people in peak times!


PPP ModelsNecessary Considerations

Each PPP Project is a mortgage to be paid off over a long time period – concession periods of 30y+ Each PPP must be added to all other annual commitments effect the annual budgets! Even good Value for Money must be affordable – sometimes projects are too large, e.g. Bar-Boljare Montenegro

Projects must be financially attractive to the private sector – e.g. IRR’s above 10% They must have a regular revenue stream that will make them viable – annual availability payments in M6 III, R1

or sufficient toll revenues

Do not expect gold plated if only paying for plastic Accept risks have to be shared – e.g. land acquisition especially in CEE, problem in Czech Republic and Romania

especially Accept the private sector has to make a profit

Affordability:

Bankability:

Managing Expectations of the Public Sector:


PPP ModelsFinancing Issues

„Bankability“ of PPP‘s and other Infrastructure Projects

Strong Political will /stable regulatoryand legal framework

Secure and Stable

Cash-Flows

Demand forProject

EnvironmentalAspects

Technical Complexity

Early-TerminationRegulations

Liability of Sponsors

Debt ServiceReserve

Government Support

Optimal Risk Allocation

Bankability Issues

strong revenuesupport e.g. through

availabilitypayment mechanisms

e.g. Step-in Rights, compensation payments

Minimum DSCR requirements

Solid Private Partner and adequateEquity contribution


Relevance of Infrastructure for Banks Infrastructure in Today‘s Market

Crisis of confidence is ongoing and fundamentals are deteriorating Bank Capital and Liquidity are still scarce and banks will seek to improve balance sheet portfolio credit. In PPP’s

the new developments are: Big Club Deals Still long tenors but with a different structure (mini-perm structures are mainly used) Higher margins achievable Better security packages provided by the sponsors Higher equity ratios Guarantees by state (e.g. on EIB tranches like in D1) Moderate deal size – Ticket sizes taken by banks went down significantly but are already increasing again

(take amount in R1 between EUR 50-100 million) Relationship or existing bank groups (the banks currently active in the PPP road projects like R1 and D1

are mainly participating by either following core market strategies– like Erste Group – or core client strategies – like the French banks following the French construction companies like Vinci and Bouygues)

The world has changed & is likely to recover slowly:

Infrastructure Deals are less volatile and provide a level of “safe haven”


Financing of PPP’s in Current TimesKey Project Agreement Developments (I)

Key Elements of the risk transfers from public to private sector are being revisited following „credit crunch“:

Item Pre 2003 2003-2007 Current

Termination provisions Element of guaranteed compensation for debt funders on larger projects

Subject to NPV of a % of cash flows less rectification costs – could lead to debt funders losing all debt

Guarantees on debt repayment either through direct guarantees or termination provisions guaranteeing amounts

Longstop dates to construction completion

Generally 12 months Had gone as low as 1 month

12 months? – more important to ensure funders’ TA’s accept as reasonable

Financing terms movement from Preferred Bidder to FC

Generally accepted that private sector bares risk, although public sector did accept where reasonable

Private sector Public sector

Refinancing benefits Sometimes shared, although earlier schemes 100% private

Shared 50:50 Ratchet mechanism towards 70%+ public sector


Financing of PPP’s in Current TimesKey Project Agreement Developments (II)

Key financing terms are being revisited following „credit crunch“:

Item Pre 2003 2003-2007 Current

Margins 100bps+ (150bps on larger projects)

As low as 40bps 250-500bps

Market flex Occasionally margin flex No Many clauses aimed at minimising pricing risk

Base Case Cover ratios 1.25x As low as 1.10x 1.25x +

Tenor of debt 25-29.5 years for bank Bank debt exceeded 30 years

Max 22-28 years (though marketed as short-term)

Many banks restricted to 7 years

Cash sweep Element of sweep post year 8

None Typically 100% cash sweep post year 8


PPP ModelsKey Lessons Learned in Planning PPP

Low capital value projects – disproportionate procurement costs (e.g. projects below EUR 20 million) Projects prone to unpredictable changes – e.g. IT

Reduces procurement time and costs – less document preparation Reduces negotiation time – position clear to both sides

Good quality projects should not be delayed unnecessarily Long term contract – locked in and difficult to change

Suitably resourced project team Experienced advisors

PPP is NOT appropriate in all cases

Standardized Guidance (UK, NL)

Robust legislation, project development, and approval

Developing Public Sector Expertise


Infrastructure Finance in Line With Maastricht Maastricht Rules on PPP

A PPP‘s assets should be classified off-balance sheet for government if both of the following conditions are met:

The private partner bears the construction risk

The private partner bears at least one of either price or demand risk

Combinations are also possible: Traffic risk partly taken by the private sector (A3 Romania) or “Shadow Toll” models (A5 Austria)

Availability based PPP‘s like M6 III, R1, D1 Phases 1+2

PPP‘s bearing full traffic risk for the private sector like High Speed Rail Tours Bordeaux, some German A Models


Construction

Design

Availability of service

Quality of service

Maintenance & renewal

Market

Obsolescence

Force majeure

Residual value

Regulation policy

Private Sector

Public or Private

Shared

Public Sector

Construction

Design

Availability of service

Quality of service

Maintenance & renewal

Market

Obsolescence

Force majeure

Residual value

Regulation policy

Traditional PPP

PPP financing is gaining ground in infrastructure finance

Private sector partner bears construction risk AND demand risk OR availability risk

If risk transfer is adequate, solution is Maastricht neutral

Risk exposure in the PPP model

Infrastructure Finance in Line With Maastricht Maastricht Neutral PPP StructuresRisk Exposure in the PPP Model

Source: Partnerships UK


EU funds – Key for long-term developmentInvestment areas

Transport Infrastructure in CEEOutlook & Potential


Serbia Corridor X

250km in Serbia; Total investment volume EUR 1.7bn, planned completion date 2012

Belgrade – South Jadran road to Montenegro

Belgrade Bypass 69km from Zemun to Pancevo; first section opened in 2009; second section partly

finished; third section (bridge across the Danube) under construction Total investment volume EUR 543mn (EBRD 55mn, EIB 180mn)

Novi Sad Bypass

Road Transactions in CEE Potential & Outlook


Refurbishment of Gazela bridge (Belgrade) Contract signed Total investment cost EUR 58mn (EIB 33mn)

Beška bridge on highway Belgrade-Novi Sad Building started in 2006 (funds EIB/EBRD EUR 53 mio)

Zemun-Borca bridge Project volume: EUR 170 million Construction period: 2 to 3 years

Zezelj bridge construction EUR 60 million

15Erste Group

Serbia



Belgrade Metro Project costs: EUR 720 million Construction period: until 2020 3 lines - line one should be completed by 2014, line 2 and 3 between 2018 and 2020

Belgrade - Bar railway Necessary investments estimated at: EUR 200 - 300 million Project duration: 10 years Reconstruction should enable an average speed to increase from the current 40 to 100 km/h

Modernisation of Serbian railways and construction of container terminals on Corridor 10, improvement of

information technologies and digitalisation of the telecommunication network with optical infrastructure is

necessary.

16Erste Group

Serbia



Montenegro

Bar-Boljare Highway Part of European Corridor Bar – Belgrade – Budapest Total estimated construction cost for 170km: EUR 4bn After termination of CA with Konstruktor-led consortium,

negotiations with Greek-Israeli Actor-Shikunbinui consortium (second ranked)

Support by multinationals not secured



Port / Waterways Transactions in CEEPotential & Outlook

Port of Constanta Modernisation Programme Possible extension of Pier III Completion of the North breakwater – extension by

1,050m (EUR 122mn) Improvement of railway capacity (EUR 17.6mn) Road bridge across Danube-Black Sea Canal (EUR

28.8mn) and over link canal (EUR 31mn) Other planned development and modernisation projects

will amount to an estimated investment volume of approx. EUR 500mn

Romania

Extension and refurbishment of several ports along the Danube in coordination with the planned EU strategy for the Danube region (presentation planned before the end of 2010)

Danube Strategy of European Union

http://upload.wikimedia.org/wikipedia/commons/f/fa/Danubemap.jpg


Croatia

Port of Rijeka Rijeka Gateway Project I Rijeka Gateway Project II

Port of Dubrovnik

New cruise terminal, EUR 140mn Other Port Modernisation Projects

Port of Ploce (new bulk cargo and container terminal, EUR 206mn Port of Zadar (new ferry port, EUR 236mn) New container terminal at the island of Krk, EUR 450mn

Montenegro

Port of Bar Privatisation and Modernisation Tender for the sale of 54.05% of the shares in the „Container terminal and general cargo“ and a 30-

years concession, with an obligation to invest

Modernisation of the container and passenger terminal, expansion of the liquid terminal capacities, construction of new quays and procurement of new equipment

Port / Waterways Transactions in CEEPotential & Outlook


Czech Republic:RES¹ Target 2020: 13% (6.1% 2005) Wind: 192 MW installed ²Feed in tariff ca. 91 EUR/ MWh; 20 yearsGreen Bonus ca. 75 EUR/ MWh; 20 yearsPV: 693 MW installedFeed in tariff: ca. 500 EUR / MWh; 20 yearsGreen Bonus: 460 EUR / MWh; 20 years

Croatia:RES¹ Target 2020: 5%Wind: 28 MW installed ² Target 2030: 400 MW Feed in tariff 98,7 EUR/ MWh; 12 yearsPV: 0.1MW installedFeed in tariff 290 EUR/ MWh; 12 years(for large insallations >30kwp)

Poland:RES¹ Target 2020: 15% (7.2% 2005) Wind: 725 MW installed ² / Target 2010: 2000 MWRegulation Wind:Quotas: 7% – 2008; 8.7% – 2009; 10.4% – 2010-2014Price = Green Certificates 66 EUR + power offtake 39 EUR= total 105 EUR/ MWh; 15 years (further steps to be set after 2017 as framework agr. ends) PV: 1 MW installedFeed in tariff: ca 120 EUR/ MWh

Slovak Republic:RES¹ Target 2020: 14% (6.7% 2005) Wind: 3 MW installed ² / Target 2015: 750 MWFeed in tariff ca. 81EUR / MWh; 15 years PV: 0.1 MW installed / Target 2015: 10 MWFeed in tariff ca. 425 EUR / MWh; 15 years(for large insallations >100kwp)

Hungary:RES¹ Target 2020: 13% (4.3% 2005)Wind: 201 MW installed ² Target 2020: 800 MWFeed in tariff ca. 105 EUR / MWh; 10 yearsPV: 0.7 MW installedFeed in tariff ca. 105 EUR / MWh; 10 years

Romania:RES¹ Target 2020: 38% (33% 2010)Wind: 14 MW installed ² / Target 2020: 200 MWPV: 0.6 MW installedRegulation PV + Wind:Quotas: 5.26% – 2008; 6.28% – 2009; 8.3% – 2010: 16,8% - 2020Green Certificates: 27 - 55 EUR / 1 MW; 15 years (2 GC wind and 6 GC photovoltaic)

Bulgaria:RES¹ Target 2020: 16% (9.4% in 2005)Wind: 177 MW installed ²Feed in tariff 74-97 EUR/ MWh; 15 yearsPV: 6 MW installedFeed in tariff ca. 373 EUR/ MWh; 15 years

Austria:RES¹ Target 2020: 34%Wind: 995 MW installed ²Feed in tariff 97 EUR/ MWh; 12 yearsPV: 37,5 MW installedFeed in tariff: 250 EUR/ MWh (large installations > 25kwp); 12 years

Current Regulation Wind & PVRegulations and current capacities in CEE

¹ RES: Energy from Renewable Sources

Figures may vary significantly due to changes in FX rates.

Serbia:RES¹ Target 2020: n.a. Wind: n.a MW installed ²Feed in tariff 95 EUR/ MWh; 12 yearsPV: n.a. MW installedFeed in tariff 230 EUR/ MWh; 12 years

² Installed figures as per 31.12.2009

Summary & OutlookLessons learned · Strategy · Potential for cooperation


Deal size the smaller the project, the easier and faster it can be implemented

Complexity

low complexity leads to less construction risk and therefore to lower risk premiums

PPP is not always the solution!

for local and regional projects – flexibility is required (i.e. direct financing, promissory notes)

Strong political support - PPP project priority list

Long term strategy for PPP projects and infrastructure development

Availability and efficient use of alternative funds (e.g. EU, EBRD, etc.)

Political risk imminent

Summary & Outlook Lessons learned in 2009 and 2010

CEE is a promising market for infrastructure PPPs but the commitment of the governments must be increased and the available knowledge for successful

realisation used.


Use our strong local presence in the market and the industry knowledge of Group Infrastructure & Public Sector to assist the Public Sector in defining master plans for the infrastructure development of their respective countries

Potential Support:

Infrastructure and PPP Advisory Services and/or working groups, identifying quick wins etc.

Proposal for financing solutions for the various projects – also in case PPP’s are not the optimal solution

Evaluation of EU funding potential and assistance in absorbing EU funds

Offer trainings for Public Sector representatives, especially on regional and municipal level – e.g. project management skills, tender preparation, transport route planning

Banks and industry players present in the CEE/SEE market have to play an active role in the development of infrastructure and the realisation of projects due to the

lack of experience and track record of the Public Sector in these countries.

Summary & Outlook Our strategy for the coming years


More than 17 million clientsErste Group

Clients: 5.3mnMarket share based on:Retail deposits: 29.4%Retail loans: 27.4%Branches: 660

Clients: 3.1mnMarket share based on:Retail deposits: 19.1%Retail loans: 19.0%Branches: 1,053





Clients: 4.5mn Market share based on:Retail deposits: 23.4%Retail loans: 19.9%Branches: 665


All data as of March 2010.

Present through Kärntner Sparkasse

Present through SteiermärkischeSparkasse


Thank you!

Werner Weihs-Raabl Erste GroupHead of Group Infrastructure Finance & Group Public Sector 1020 Vienna, Obere Donaustraße 17 - 19

Tel.: +43 (0) 50100 - 18010Fax: +43 (0) 50100 - 9 18010mobile: +43 (0) 664 818 05 [email protected]

Milica SredanovićErste GroupStrategic Relationships1020 Vienna, Obere Donaustraße 17 - 19

Tel.: +43 (0) 50100 - 19903mobile: +43 (0) 664 818 38 25

[email protected]

mailto:[email protected]

mailto:[email protected]

making public private partnerships a reality in serbia werner weihs-raabl infrastructure finance...

Documents

banks infrastructure

private sector

toll road projects

large road ppp transactions

public private partnerships

employment of investments

hungary r1 slovakia

annual budgets