Infrastructure meets Business Globally: What to Expect from PFI?

Nuno Gil

Manchester Business School (on sabbatical)

Global Research Awardee (Royal Academy of Engineering)

CRGP, Stanford University (visiting scholar)

© Nuno Gil Hong Kong, 2009

Infrastructure meets Business

• Infrastructure Gap is Massive (~ $53 trillion OECD07)

– population growth, migration towards cities, deteriorated infrastructure, globalization of supply chains

• Governments worldwide resort to private-sector capital due to constrained budgets and neo-liberal ideology

© Nuno Gil Hong Kong, 2009

Infrastructure meets Business– transportation (airports, railways, highways, ports)– utilities (water, electricity, gas)– social assets (hospitals, schools, prisons)

© Nuno Gil Hong Kong, 2009

• The Funding Issue

i) user chargesii) government budgetiii) hybrid scheme

© Nuno Gil Hong Kong, 2009

•

© Nuno Gil Hong Kong, 2009

The Financing Issue•Public finance

- bonds; central government funds

•Private-capital involvement- privatization of state-owned infrastructure firms

- private finance initiatives (PFIs)/concessions - contracting out provision of public services

•Key players: - public listed companies (suppliers & clients) - pension funds, private investors, family houses; infrastructure funds; funds of infrastructure funds

Different PFI structures

PFI with Minimum Revenue Guarantee

PFI Concession

(Annual Revenue)

Am

ou

nt R

eve

nu

e

Traffic Volume

Private User Revenue Paid to Concessionaire

Revenue Cap

Am

ou

nt R

eve

nu

e

Traffic Volume

Private User Revenue Paid to Concessionaire

Government Minimum Revenue Payment

Cost to Government = 0%

Availability Finance = Possible

Cost to Government = 100%

Availability Finance = Certain

Cost to Government = ?%

Availability of Finance= Probable

PFI Concession

(Annual Revenue)

Am

ou

nt R

eve

nu

e

Traffic Volume

Government Annuity Payment to

Concessionaire

Revenue Cap

Source: Presentation from Asian Development Bank, PPPI Days, Washington D.C., December 15-18, 2008

Public Procurement alternativesDesign BuildIdea Operat

e

Public

Authority

Operator

Outsourcin

g

BOL/ BOT /

BTO/ PFI

Concession

Design & Build

Service

Contract

Finance

All In-

house

Source: Presentation by Marco Venturini, Northern Europe Veolia Water

UK Public Sector Institutions relevant to PFI

HM TreasuryPolicy

HM TreasuryPolicy

Partnerships for SchoolsPDO

Partnerships for SchoolsPDO

Partnerships UKImplementation

Partnerships UKImplementation

Sector Ministry Private Finance Units

Sector Ministry Private Finance Units

Devolved Government Policy Units

Devolved Government Policy Units

Auditing bodiese.g. National Audit Office

Auditing bodiese.g. National Audit Office

Other key support bodiese.g. 4ps

support to Local Authorities

Other key support bodiese.g. 4ps

support to Local Authorities

Source: Presentation from Ed Farquharson, Partnerships UK, PPPI Days, Washington D.C., December 15-18, 08

PUK Ownership Structure

49% 51%

Advisory Council

HMT Perm Sec ChairUK-Wide Public Sector

representation

Board

2 HMT Nomineesinc. 1 Sh. Exec.

HM Treasury (45%)

Scottish Ministers (4%)

Private Sector Institutions

PUK Investments

Partnerships for Schools

PUKPUK

DfES

Source: Presentation from Ed Farquharson, Partnerships UK, PPPI Days, Washington D.C., December 15-18, 08

UK PPP programme

893 projects, £78bn capital value, of which 687 now operational Source: Presentation from Ed Farquharson, Partnerships UK, PPPI Days, Washington D.C., December 15-18, 08

PPI Development Process

Source: Presentation from Jay-Hyung Kim , Korea Development Institute, PPPI Days, Washington D.C., December 15-18, 08

PIMAC - Public and Private Infrastructure Investment Management Center; VfM – value for Money

South Africa PPP Unit

Parpublica (Portugal)

Partnerships UK

Partnerships Victoria (AUS)

Partnerships BC

PPP Knowledge

Center (Netherlands)

UFP (Italy)

MAPPP (France)

Legend:- Dotted line – Consulted with Agency- Solid line – Modeled after Agency

Central PPP Policy Unit

(Ireland)

PPP Centrum (Czech

Republic)

PPP Central Agency (Fiji)

PMAC (Korea)

New South Wales (AUS)

PFI Promotion Office (Japan)

2000 2001 2002 2003 2004 2005 2006 2007

Flemish PPP Knowledge

Center

Partnerships S. Australia

PPP Unit (Mauritius)

National PPP Forum (AUS)

PPP Policies(Singapore)

Efficiency Unit

(Hong Kong)

PPP Unit (Slovakia)

Infrastructure Ontario

French Institute for PPP (France)

Secretariat for PPP (Greece) PPP STIP

Agency (Croatia)

Agencies Interviewed

Other Agencies

Global Diffusion of the PPP Agency Model*

Source: Presentation from Ray Orr, CRGP, Stanford, PPPI Days, Washington D.C., December 15-18, 2008

Approximate Size of Various Programs

Value of Deals ($B)

Number of Deals

UK Highways Agency $158.0 846

Infrastructure Ontario ≥$6.0 40+

MAPPP $5.8 147

Parpublica $10.2 49

Partnerships BC $4.5 23

Partnerships Victoria $5.5 17

Partnerships UK $61.7 450

South Africa PPP Unit $4.5 18

Total $256.2 1590

Source: Presentation from Ray Orr, CRGP, Stanford Univ., PPPI Days, Washington D.C., December 15-18, 2008

PPIs in Asia - a mixed picture PPIs in Asia - a mixed picture Total PPP investment in 2007 (USD million)Total PPP investment in 2007 (USD million)

7,388

China

Indonesia

1,441

Philippines

1,376

Georgia

962

India

14,232

Pakistan

1,434

Cambodia

649

Vietnam

374

Source: The World Bank & PPIAF in presentation from Michael Barrow, Asian Development Bank, PPPI Days, Washington D.C., December 15-18, 2008

0%

25%

50%

75%

100%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Latin America and the Caribbean

East Asia and Pacific

Europe and Central Asia

South Asia

Middle East and North Africa

Sub-Saharan Africa

Diversification across Regions

Percentage of PPI Investment in Each Region, 1992-2007

Percentage of total PPI investment

(moving average)

Source: World Bank and PPIAF, PPI Projects database in presentation from Jyoti Shukla, PPIAF Program Manager, PPPI Days, Washington D.C., December 15-18, 2008

PPP sectors in AsiaPPP sectors in Asia Asian PPP investment by sector in 2007 (USD million)Asian PPP investment by sector in 2007 (USD million)

Telecom, 1,324 , 3%

Water and Sewerage, 2,182 , 4%

Transport, 13,853 , 28%

Energy, 31,274 , 65%

Source: The World Bank & PPIAF in presentation from Michael Barrow, Asian Development Bank, PPPI Days, Washington D.C., December 15-18, 2008

The Integrator Model: Separate strategic partner responsible for project development from partner responsible for delivery

The case of Competitive Partnership: Local Education Partnerships (LEPs)/Local Improvement Finance Trusts (LIFTs)

The case of Competitive Partnership: Local Education Parternships(LEPs)/Local Improvement Finance Trusts (LIFTs)

Source: SRCI (2005) report

The case of Competitive Partnership: Local Education Parternships(LEPs)/Local Improvement Finance Trusts (LIFTs)

Source: SRCI (2005) report

Incremental Partnerships: Where assets can be procured and built into stages

Source: Deloitte research 2006

Government

Concessionaire

IFI

Revenue Support Fund

Minimum Revenue Payments

Loan AgreementCommercial

Lenders

Performance Auditor and Panel

of Experts

Arbitrator

Arbitration

Performance monitoring and expert

opinion

Debt Repayment

Standby Loan Agreement

ProceedsContractual

and Regulatory Guarantee

Concession Agreement

Tariff Revenues

Cash Cascade:

1. O&M

2. Debt

3. CAPEX

4. Profit distribution

CAPEX = capital expenditure, IFI = International Financial Institution O&M = operations and maintenance

Resolves concerns about political risk, and it ensures necessary funding is available if

guarantee calledSource: Presentation from Asian Development Bank, PPPI Days, Washington D.C., December 15-18, 2008

Integrator Model for Large Infrastructure Projects

Infrastructure Funds - Performance

Source: The World Bank & PPIAF in presentation from Michael Barrow, Asian Development Bank, PPPI Days, Washington D.C., December 15-18, 2008

Telecom 17%

Water2%

Transport33%

General14%

Electricity34%

Ethiopia10%

Others28%

Angola20%

Sudan8%

Nigeria34%

Chinese financial investments in Sub-Saharan Africa, 2001-2007

Chinese Investment by Country,

2001-2007

Chinese Investment by Sector,

2001-2007

Source: World Bank and PPIAF, PPI Projects database in presentation from Jyoti Shukla, PPIAF Program Manager, PPPI Days, Washington D.C., December 15-18, 2008