Putting the ASEAN PPP Principles into Practice

Putting the ASEAN PPP
Principles into Practice
Towards an ASEAN PPP Agenda
ASEAN PPP Networking Forum
16 December 2014
J. Grant Hauber
Principal Public-Private Partnership Specialist
Southeast Asia Department
ASEAN PPP Principles
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•
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Policy
Clear and predictable framework
Competent and well-resourced
government PPP agency
Align other gov’t processes and
policies to assure good PPP
implementation
Competitive business environment
Project Selection and Preparation
• Develop a robust project pipeline
to high standard
• Consult with stakeholders from an
early stage
• Allocate risks properly
• Think through consequences of
risks and how to resolve
Affordability and Budget
Transparency
Assure sustainability and
affordability of each investment
Transparently budget for all costs,
including subsidies
Take a realistic view of cost
recovery from end-users
Regional Considerations
Develop policy with a view to
cross-boarder cooperation in mind
Coordinate development with
neighbors
Acknowledge that there are
special conditions to make
regional PPP projects work – as
well as special benefits
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PPP projects are being pursued in a confluence of needs
Legal
Financial
Management
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Liabilities: actual and
contingent
Capital Budgeting
Subsidies
Foreign Exchange
Guarantees
Tendering
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Environmental
Company Law
Investment Law
Contract Law
Regulation,
Rules
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Standards
Compliance
Enviro
Social
Legal
Public
Financial Mgt
Safeguards
PPP
Competitive
bidding standards Procurement Project Planning &
Unsolicited
Approvals
Sector
proposals
Contracts
Operations Resource
Sector Operations
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•
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Design standards
Regulations, oversight
Operations protocol
Maintenance and
quality requirements
Resources
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National interests,
prioritization, allocation
Economy and efficiency
Competing needs
Scarcity
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Standards
Compensation
Rehabilitation
Development
Land
Land
Allocation
Social
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Rights
Policies
Use planning
Planning/Approvals
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National and sector
development plans
Decision processes
Efficiency, economy
criteria
Controls, guidance
Ministerial inter-relations: PPP does not stand alone
A line ministry may be responsible for project implantation, but there are many interfaces
Central F/X
Bank
Legal
Co.
Law
Investment
Incentives
BOI
For Inv
Cmte
Revenue
Financial
Management
Debt
Mgt
Contingent
Liabilities
Budget
Subsidies
Evaluation
Finance
Ministry
PPP
Project
Direct
Responsibility
Environmental
Enviro Social
Ministry
Land
Sector
Royalties
Ministry Allocation
Tendering
Resource
Sector Operations
How is this all
coordinated?
Planning
Ministry
DFI
Relations
Planning/Approvals
Ministry
Cab
Cmte Resources
Aid
Agencies
Cabinet
PM/
Pres.
How to tackle development with private investment?
• A whole-of-government approach is needed for smooth and
sustainable implementation of PPPs
• Need for exquisite communications…
…with private sector
…with civil society
…and within government!
• Create transparent, consistent, predictable, and certain policy
• Redefine success: Be realistic and practical
• Understand strengths and weaknesses
– Fiscally, economically, sector-wise
• Top level political support, operated by professionals
Project finance lending has changed
• Universal challenges
– Post-GFC environment has tightened credit criteria
– Increased financial sector regulation
– Basel II / III capital accords
• The remaining project finance lenders have exhibited different
characteristics than in the past
–
–
–
–
Core sectors
Select countries
Focus on signature deals
Following relationship clients
• Emergence of local lenders
– Stronger countries’ banks – such as in the Philippines – have seen
much greater interest in projects
– Advantage: knowledge of ground realities, local currency finance
Asian project finance volumes are at a trickle…
• Emerging countries in Asia accounted for only 19% of Asian
project finance lending in 2013
– This represents only 4% of global PF volumes
– Vietnam’s 8% in Asia was a single transaction
– Indian PF volumes use non-traditional PF structures, thus are have
participation from domestic institutions only
Source: Project Finance International 2003-2014
…and this really hasn’t changed in a long time
Historic project finance volumes in emerging Asia
PH
M
Y
ID
PNG
LAO
PH
LAO
LAO
ID
PH
PH
M
Y
ID
ID
TH
TH
ID
ID
LAO
M
Y
TH
PNG
ID
TH
M
Y
ID
TH
PH
M
Y
VN
M
Y
ID
PH
LAO
TH
Source: Project Finance International 2003-2013
TH
TH
TH
TH
VN
VN
One deal,
$5bn
How is emerging Asia faring?
Emerging Asia PF volumes are falling as a percentage of all Asia
project finance lending
Percent of Project Finance Market:
Rest of Asia vs Global / All of Asia
90%
80%
Rest of Asia vs All of Asia
70%
60%
50%
40%
30%
Rest of Asia vs Global
20%
10%
0%
2003
2004
2005
2006
2007
2008
Rest of Asia as % of Global
Source: Project Finance International 2003-2014
2009
2010
2011
2012
Rest of Asia vs Asia
2013
2014 1H
PPP frameworks to the rescue?
Public-Private Partnerships have become a driving force in
infrastructure development in developing Asia, despite challenges
• Inspired by the success of UK PFI and Australian PPPs
• Target infrastructure and public service areas of high economic
value and potential commercial viability
• Seeks to tap the ingenuity and capital of the private sector and
the efficiencies it can foster
– Improves asset performance
– Stretches limited state budgets
– Defers ‘financing’ of state assets
• Not a panacea – but they can help!
– Macro and sector fundamentals are still a driver of success
What are the needs?
Public Sector
Private Sector
• Make efficient use of scarce
fiscal resources
• Deliver value for money from
government fiscal
commitments
• Improve efficiency and
sustainability of investments
• Achieve delivery of critical
public services in a timely
fashion
• Clear value proposition with
risks they are able to directly
manage
• Clear policies, laws,
processes
• Clear bid process and
realistic project
specifications
• Clear revenue model
• Clear ability to make a profit
• Create a sustainable
financial investment
Efficiency, Performance
Clarity, Certainty
11
Global Markets
National Focus
PPP is the grandest of balancing acts…
Government
Goals
Societal
Needs
PPP
Project
Investor
Profits
Lender
Requirements
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Technical
Safeguards
PPP
Project
Inputs
Outcomes
…Actually, a number of balancing acts
Financial /
Commercial
Legal
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Keys to success: planning and implementation
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Focus on fundamentals
– Details are important – technical, commercial, financial, legal, social
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Balance risks
– Allocate responsibility only to those who have a reasonable chance of being
able to handle it
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Plan for payments
– If affordability is an issue for constituents, explicitly plan and budget for VGF
support and subsidies
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Do not shortcut process
– Establish a process and persevere
– ‘Emergency procurement’ or ‘fast track processes’ rarely result in equitable,
transparent or sustainable results
•
Manage expectations
– Infrastructure projects take time; early announcements of tendering and
completion without delivery will lead to mistrust of the entire system
– Communications are key!
•
Provide certainty
– Predictability and longevity are the surest way to best results
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Realities of project development
• PPP must account for all project factors
– Technical:
Assure project built and operated to high standard
– Financial:
Revenue is sufficient to recovery capital, pay debt
– Commercial:
Value proposition attractive for investors over long term
– Legal:
Contracts are balanced, thorough and enforceable
– Safeguards:
Protect people and the environment
• Risks must be identified and allocated to those able to manage
them, backed by solid contracts
• Projects take time for public sector to develop and create bid
• Must consider commercial and financing elements of project
• Projects require inputs from a broad range of professionals
• Bidders require sufficient time to assemble their bids
• Predictability is important
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Project Development Funding is key to success
To deliver investible projects, governments have benefitted from
use of professional support, supported by dedicated project
preparatory facilities/funds (PDFs)
• What are they?
– Dedicated funds specifically meant to pay the costs of
professional advisory and consulting services
– Government or independently managed for benefit of PPP units
– Revolving facilities:
• Winning bidder is charged a ‘development fee’
• Fee is recycled back into the PDF to support more projects
• What do PDF’s support?
– Enhanced project preparation
• Technical
• Commercial
• Legal
– Transparent competitive bidding processes
– Advisory support from formation through financing
What does PDF cover?
Comprised of two primary components:
– Project Development – analyze, prepare, specify, structure
– Transaction Advisory – structure, document, bid, negotiate, close
Technical
Studies
Sustainability
Political
Facts
Desires
Technical
Fiction
Needs
Fiscal
Reality
Social
Operating
Obligation
Performance
Surveys
Modeling
Revenue
requirements
Industry
consultation
Technical
Specifications
Financial
Structure/Support
Performance
Outcomes
Concept
Project
Project
Development Screening Formulation
Govt Planning
Project
Structuring
Project Development
Emphasis: Defining supply/demand, defining performance
requirements, created specifications, quantifying business case,
studying financial economics, creating revenue model
RFQ/RFP
Documents
Award
Project
Contracts
Negs
Finance
Transaction
Execution
Project
Financing
Transaction Advisory
Emphasis: Documenting project requirements in contracts and
bidding specifications/criteria, firming up the financial structure
and supports, implementing tendering, negotiating, closing
Financial Close
Dreams
PPP – a balance of responsibilities
Private Sector
Public Sector
1
• Prefeasibility
• PPP Scope?
• Public linked projects?
Identify
• Pre-bid opportunity
assessment
• Form Consortium – SHA
2
Develop
3
Land
Acquisition
5
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Prelim design, costing
Performance specifications
Land requirements
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4
Social / enviro impacts
Conference •
Financial modeling
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Revenue model
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Contract formation
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• Obtain land free and clear
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ahead of issuing RFP
Prepare
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Retain consultants, counsel
Develop approach to project
Design and specifications
Implementation plan
Financial modeling
Supplier/contractor tendering
Financier approach
Develop
7
9
Evaluate
8
Bid
Award
Negotiate 10
Gov’t Support
Monitor 13
Finance 11
Arrange
Implement 12
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Redefine “Success”
There are many interim steps on the way to a completed program.
These need to be communicated internally and externally to demonstrate
the work that went into progress.
Each of these can be considered a ‘success point’
Policy
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Prioritized investment plan for
sector
Announce competitive bid
strategy – end of ‘MOU era’
Institutional management
changes, processes, evolution
Sector regulations
– Tariff and finances
– Performance
• Quality of power, reliability
• Energy efficiency
– Standards
• Design
• Dispatch
Projects
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Issue of tender packages
– Means work went into
prioritization, preparation
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Bid award
Financial Close
Start of construction
Start of operations
Annual performance review
Use Development Partner TA and
loan projects as a means to help
accomplish these success points.
Link them to an overall ‘story’ of
evolution on a path to success
ADB supports sustainable PPPs around the region
ADB has been supporting development of PPP frameworks,
institutions, and support funds across our member countries
Framework /
Policy
Project
Devel Fund
Risk
Management
Bangladesh
✔
✔

Cambodia

India
✔
✔
✔
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Indonesia
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✔
✔
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Laos


Myanmar
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
Philippines
✔
✔
Thailand
✔

Vietnam
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
Country
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








✔ = Advanced Stage
 = Currently Developing
ADB Assistance to Member Countries on PPP
Education
Energy
Health
Transport
Airports
Water
Agri-busi.
– Working with 7 ASEAN countries on national PPP frameworks
– Organized $100s of millions of Project Development Funding
How can ADB help?
ADB can provide assistance to both public and private sectors
along the project development timeline – and beyond
ONE
Public
Private
Regional Departments
Private Sector Operations Dept
Investment Environment
• Policies
• Processes
• Institutions
• Sector Reform
• Corporatization
• Regulation
Project Level
Supporting Project
Investors
• Project
Development
Funding
• Direct Project
Lending
• Enabling Project
Finance
− Sovereign loans
− Guarantee
supports
• Commercial Risk
Guarantees
− 25% of project
cost or $250m
− 25% of project
cost or $400m
• Equity
ADB complements the universe of capital
Financial
Close
Commence
Operations
Capital Markets
Institutional Investors
Private Equity & Infrastructure Funds
Mezzanine Capital
For
For
Governments
Governments
Commercial Lenders
(original financing)
ADB
Loans
Commercial Lenders
(take-out financing)
ADB guarantees
EXIMs, Multilateral/Bilateral Development Agencies
TA
RFP Respondent
Equity Investment
RFP Respondent
Development Spend
PDF
Government Agency
Early-stage
22
Mid-stage Late-stage
Project Development Lifecycle
For Projects
TA = Technical Assistance
PDF = Project Development
Facilities (for Govts)
Formula for success in PPP
• Upfront quality
– Project selection
– Project preparation
• Honesty to one’s self
– What is the true fiscal and operational realities of your sector? Your
finances?
– Would I put my own money into this?
• Making it happen
– Select only technically and financially qualified parties
– Reasonable and appropriate time for bid preparation
– Transparent and objective tendering
• Assuring it delivers
– Monitor construction and testing
– Enforce contractual performance
• Patience!
Thank you
J. Grant Hauber
Principal Public-Private Partnership Specialist
Southeast Asia Department
T: +632 683 1707
E: [email protected]
Countries are not all viewed the same by investors
• In general we have seen strengthening of credit quality in
almost all markets over the past two years
• Credit default swaps have tightened to reflect ratings
Country
Rating
CDS
(S&P / Moody’s)
(bps, 10-yr)
Not Rated
n/a
Cambodia
B / B2
-
Indonesia
BB+ / Baa3
200
Lao PDR
Not Rated
n/a
Malaysia
A- / A3
138
Myanmar
Not Rated
n/a
Philippines
BBB / Baa3
140
Singapore
AAA / Aaa
-
Thailand
BBB+ / Baa1
140
Vietnam
BB- / B1
250
Brunei