#1IFC International Finance Corporation OPPIAF PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY World Bank Group World Bank Institute Workshop on Implementing PPP projects in Sierra Leone Timothy J. Murphy David Livingston Freetown, July 9-12, 2013 21008613#2Who We Are • David Livingston . ⚫ PPP Advisor, Ryerson University о O O Chief of Staff to Premier CEO of Infrastructure Ontario Executive Vice-President, TD Bank • 30 years of banking experience O 2#3Who We Are • Tim Murphy O ⚫ Co-Chair, PPP and Project Finance Group O O Adjunct Professor, Faculty of Law Chief of Staff to Prime Minister Chief of Staff to Finance Minister Former Member of the Legislature • 24 years of legal experience. 3#4Legal & Institutional Structures for PPPs in Africa SESSION 1 4#5• . • Introduction: Session 1 Why PPPs and definitions PPP contract types • Management contracts Concessions How PPP can help, benefits and limitations Review of PPP legislation in selected countries in Africa and the PPP bill of Government of Sierra Leone Why legal and institutional framework is important Examples and cases Q&A 5#6What are P3s? Four key attributes: 1. A public good or service delivered in partnership with the private sector 2. Risk allocation consistent with party best able to manage it 3. Whole of lifecycle costing (design and maintenance obligations are bound together) 4. Private finance 6#7• Why Private Finance? Enforcing contractual compliance Innovation Efficiency Matching incentives to outcomes Value for money 7#8Public-Private Partnerships: The Misconceptions 1. PPPs = Privatization 2. PPPs increase private sector profits 3. PPPs are long and complicated 4. PPPs are expensive because there is private financing 5. PPPs make projects affordable because they will be financed by the private sector 6. PPPs are unpopular 80#9History of PPP in Canada • First introduced in Canada in mid to late 90s, however, really gained momentum in 2004/2005 Currently we are seeing 10-15 deals procured each year Entities actively procuring PPP solutions include: British Columbia Alberta Manitoba Dedicated Canadian PPP Agencies Alberta INFRASTRUCTURE ONTARIO An agency of theunementenza Québec partnerships British Columbia Alberta Infrastructure and Transportation Infrastructure Ontario Infrastructure Québec Partnerships British Columbia • Ontario Québec New Brunswick Federal Various municipalities Broad cross-country support Nouveau Brunswick Infrastructure Canada Partnerships New Brunswick PPP Canada Inc. 6#10Politics of Canadian PPP Although nomenclature varies there is broad cross- Canada support with a significant history of closed transactions and few failed deals or post-closing defaults. Support for the PPP model has been institutionalized at both the federal and provincial levels with the creation of specialized agencies with procurement and negotiation responsibilities. 10#11• Politics of Canadian PPP • Various provinces have instituted legislation requiring an evaluation for all major capital expenditures to undergo screening for suitability for procurement as a PPP. PPP is seen as a core financing option in government's toolbox and while there remain dissenters, they are rarely politically controversial. 11#12Politics of Canadian PPP • Recent creation of a federal Canadian PPP agency has opened up opportunities for smaller players such as municipalities to carry out PPPs (Abbotsford vs. St. John). • Government ownership often retained and employees jobs guaranteed • Value for money reporting and AG review 12#13Notable Recent Canadian Transactions A total of $50bn Canadian PPP Projects have been awarded to 2012 2 Ontario (~$23bn) British Columbia (-$10bn) Quebec (~$7bn) Alberta (~$5bn) • Air Rail Spur Link • Billy Bishop TCA Tunnel . Interior Health and Surgical Centre Project • CHU Ste-Justine • Alberta Schools I • • Highway 407 East - Phase 2 • KGH Clinical Support Lachine Rail Maintenance Facility • Alberta Schools II • Alberta Schools III Building • Ottawa LRT . • Pan-Am Games Projects Evergreen Line . • Humber River Regional Hospital • • . St. Joseph's Healthcare Hamilton • Centre for Addiction and Mental Health (CAMH) South Fraser Perimeter Road • Halton Healthcare Services • Golden Ears Bridge • Windsor Essex Parkway Kelowna Vernon Hospital Sea to Sky Highway Centre Hospitalier de l'Universite de Montreal (CHUM) • McGill University Health Centre (MUHC) • CHUM Research Centre • Autoroute 30 • Montreal Concert Hall . • SE Stoney Trail • NE Stoney Trail Singe Room Occupancy Renewal Initiative • NW Anthony Henday Drive • Royal Jubilee Hospital • Toronto South Detention Centre • • Bridgepoint Hospital • Niagara Health System • North Bay Health Centre • Durham Courthouse New Data Centre • Fort St. John Hospital Surrey Memorial Hospital Manitoba (~$0.3bn) • Disraeli Bridge Chief Peguis Trail Atlantic Canada (~$2.1bn) • NB Route 1 Gateway • NB Trans-Canada Highway . FM Highway • Highway 104 Confederation Bridge • • SE Anthony Henday Drive NE Anthony Henday Drive • Evan-Thomas Water Treatment and Wastewater Treatment Facility Canada (Federal $1.1bn) • CSEC LTAP (DND) = • RCMP Headquarters (Surrey)#14Current Canadian PPP Pipeline Ontario • . • • • East Rail Maintenance Facility McMaster Children's Health Centre Providence Care Hospital Public Health Laboratory at MaRS Centre Sheppard East Maintenance and Storage Facility • Peel Memorial Centre for . • Integrated Health and Wellness The Region of Waterloo's Rapid Transit System ErinoakKids Centre British Columbia • BC Children's and BC Women's Redevelopment Project • McLoughlin Wastewater Treatment Plant Project • Emily Carr University Project • John Hart Generating Station • Kitsilano Secondary School • North Island Hospitals Project • . Oak Bay High School Replacement Project • Okanagan Correctional Centre • Queen Charlotte/ Haida Gwaii Hospital Replacement Project Vernon Jubilee Hospital • • Highway 407 East - Phase 2 • Joseph Brant Hospital • Sheridan College . St. Michael's Hospital • Eglinton Crosstown LRT and Scarborough LRT Lines Other • Iqualuit Airport Quebec • Aerotrain • Hotel Dieu Hospital • CHU Ste-Justine • Quebec Detention Centres • Turcot Interchange Saskatchewan Municipalities • Barrie Transit Project • • Calgary Recreation Centres Sudbury Waste Management • Calgary Waste to Energy • St. John Water • . • Snow Storage and Decontamination Facility Regina Stadium Saskatchewan Data Centre Regina Water Treatment Alberta • Edmonton LRT • Lac La Biche Water and Wastewater Treatment Canada (Federal) • Pont Champlain • Ottawa Heating & Cooling • La Mason de Radio • Canada Development Project Detroit River International Crossing Energy Services Acquisition Program 14#15Process Integrity in Canada • Published project schedule • Market consultation . . Clear RFQ and RFP process Project Agreement commentary Design and Specifications commentary Publicly available materials 15#16Assessing P3s as a Procurement Method Nature of the asset or service . Expertise • Value for money Risk identification and assessment 16#17When does a P3 make sense? • Nature of the Asset / Service O O о Availability or usage risk models Competitive market Large enough to warrant extra costs Clearly defined scope with measurable outcomes Synergy between design and operation 17#18When does a P3 make sense? • A Proper Regulatory Framework . • Public Support о • • Unions, public, sectoral, private sector Depoliticized Procurement Process • Accountability, transparency, certainty Government Side Expertise • Legal, financial, technical, project management • Centralized agency • Standardized process 18#19When does a P3 make sense? • A Clear Business Plan ○ O A reliable needs assessment • Understanding the long-term commitment Detailed output specifications • . Focus on the ends, not the means Clear KPI's Detailed value for money assessment 19#20When P3s do not work • One-off P3s can be risky for the public sector O O Insufficient experience on both sides to transfer risk or price it properly Higher transaction costs O Insufficient public sector expertise о O Insufficient focus on output specifications Experienced P3 markets will deal better with P3s than markets that do fewer P3s Insufficient long term capital Counterparty risk Inefficient and lengthy process 20 20#21Enabling Legislation Criteria: о Market credibility 。 Clear lines of authority O о о Transparent decision-making Adequate investment in institutions 。 Clear planning direction • Controls on spending authorizations O O O Procurement process rules. Clear regulatory powers 21 21#22The Key to PPPs: Value for Money • • Equation differs between an availability model and a full concession model • Conducted at 2 points: Before selecting the model and after bids received Public Sector Comparator vs. Adjusted Shadow Bid or actual bids 22 22#23Value for Money • Retained Risks: . • No value for money unless risks are transferred ⚫ Risk modeling: • • • • Risk identification Allocation (retained, transferred, shared) Probability of Occurrence Cost of occurrence Assessment 23 23#24PPP Lessons Learned 1. There must be consistent oversight throughout the entirety of the project to ensure compliance and avoid the undermining of the original roles and functions of the parties. This oversight should be thoughtfully planned and implemented by all parties with considerations to the resources and tools available to the contracting parties. 24 24#25PPP Lessons Learned 2. Create flexible options for renegotiation and other challenges in a cost-effective way. Many states have experienced difficulty in dealing with challenges that arise throughout the project because of inadequate provisions in the agreement. 25 25#26PPP Lessons Learned 3. Be transparent in procurement processes whenever possible to gain public trust, and to reassure investors of fair process. Ideally, specific conditions for transparency and non- discrimination should be outlined in the legislation to encourage compliance. 26#27PPP Lessons Learned 4. Projects should be tailored to the individual communities in which they will be implemented to meet the specific needs and challenges of that region. Experts, including local specialists, should be consulted early and often to accurately predict costs to ensure the long-term financial viability of projects. This utilization of business experience will help private investors accurately consider their qualifications for the project. 27#28PPP Lessons Learned 5. Governments must have strong policies in place to ensure fair process is followed. This can be achieved through the promotion of transparency and will assist with gaining investor confidence. 6. Feasibility studies should be thorough, including analyses on needs, affordability, value for money, appropriate risk allocation between public and private parties, and consideration of all stakeholders. A thorough feasibility study at the early stage that includes an appropriate safety margin will help avoid parties avoid complicated and costly renegotiation in the later stages of a project. 28#29Building Blocks for Effective Partnerships • Assess needs, ascertain mandate, manage expectations • Create structure to enable participation and impart ownership Build capacity Ensure sustainability 29 29#30The Role Of Stakeholders In The PPP Process SESSION 2 30 30#31Introduction - Session 2 Building a credible PPP program • Identification of stakeholders in public and private sectors How to deal with stakeholders during the PPP process • Examples and cases Q&A 31#32Building a Credible PPP Program Overall program requirements о Legislative framework Central agency leadership Finance / Treasury/ PM / Pres. Single procurement agency • • • Clear powers • Political independence Expertise in decision making. Low turnover Access to external expertise . Technical/legal/ financial 32 32#33Building a Credible PPP Program о Transparent and credible process More bidders, better prices Planning requirements Early engagement Ruthless focus on outcomes not mechanisms Stakeholder engagement 33#34Building a Credible PPP Program Project Issues Competitive marketplace? • • • Is there technical ability in marketplace? Are there local companies capable? • Consider BF training? What is financial appetite locally? Investor knowledge? Market tour? Israel example Banks vs. bonds Lifeco's Pension funds of unions Local content requirements 34 34#35Building a Credible PPP Program о • Planning cycle and political stability Bureaucratic leadership to point of market readiness? Shorten the process Increases interest Less cost Less uncertainty of closing Reduces time for political backlash or new party Output specifications and public consultation • Value for Money assessment • . Legitimacy tool for value Clear, transparent assessment; pre-decision to proceed with P3 35#36Building a Credible PPP Program о о Project Management skills for government team Coordinates government approach . • • . Decision-making authority on like-to-have vs. must-have Keeps process moving Assesses market risk appetite (when is no bid a real risk?) RFQ Requirements and process 3 bidders: • Ontario IT example 36 36#37Building a Credible PPP Program о ⚫ Project Agreement • Value for money assessment on risk allocation What risks remain with public sector and why Early engagement of lender input; key arbiters of risk allocation 37#38Building a Credible PPP Program • Design and specification review process. O Financial commitment at bid submission • . . Proposal validity period Reduce post bid changes Fewer lender imposed changes and delays. after bid Lender commitment to close at bid 38#39Stakeholder Engagement Government Stakeholders • President/Premier • Finance/Central Agency Procurement Agency Line Ministries/Bureaucracy ● Opinion Leaders • Business Community . Political System Elected Representatives • Media 39#40Stakeholder Engagement Unions and Employees Public Sector employees/unions Affected employees Construction workers/unions Pension funds 40#41Stakeholder Engagement Civil Society Organizations • Think Tanks CCPPP • Lawyers • Private Sector Construction Sector Equity Investors • Banks • Bond Investors • International Development Banks Commentators/academics • Business Press 41#42A Special Class of Stakeholders Private Finance о о о "Outsourced" performance monitoring Determining the limits of risk allocation Bankability as a surrogate for what can work 42#43Risk Allocation Specific Types of Risks in the Construction and Operation of Public Assets and Services O O Technical risk Construction risk Operating risk о Revenue risk Financial risk о о Force Majeure risk Regulatory/political risks Environmental risks 43#44How Lenders Look at Risk Why lenders matter How lenders consider risk: о What risks does Project Co. bear? O Which risks are not passed down to a third party? Objective: identify which risks are borne only by Project Entity (if any) and which are borne/mitigated via third party support Actions: perform detailed analysis of: о Project Agreements & Related Contracts O Entity considerations O о Tax considerations Insurance considerations Third Party support 44#45Project Party Risk . о Equity Providers How much are they contributing? Actual $$ • Debt to equity ratio о O What financial resources are possessed and available? How committed are they? • Actions: о о Review/analyze financial statements Review / analyze ability to deal with reputational risk 45 45#46Project Party Risk Construction Contractor ⚫ Technically capable of performing? O O What financial resources are available? Parent Co. support? о How committed are they? Will they walk away? O O Limitation of liability? Third party support? • Bonding & subguard Reserves Bid price / contingencies 46#47Project Party Risk • Actions O O Review/analyze financial statements Analyze availability of construction performance support о Technical Advisor review • Contractor capabilities Timeline Construction price Contingencies 47#48Project Party Risk O Service Provider Technically capable of performing? 。 Financial resources available? Parent Co. support? о How committed are they? о Limitation of liability? о о Third party support? • Bonding & subguard Reserves Lifecycle obligations 48 48#49Counterparty Risk • Crown or a Crown agency? If not, is there Crown funding or Crown financial support? • World Bank, ADB, other support • Guarantees 49#50Issues in P3s - Lender Security for Performance – the price о Higher costs due to lender-imposed requirements о • Restrictions on public sector rights to variations Bankability as a limit to risk transfer 。 Innovation vs. certainty 50 50#51Issues in P3s Innovation vs. certainty O Equity sponsors and lenders will find that lenders' tendency towards project control and monitoring can be the source of conflict between them O While equity sponsors will favor risks that might lead to efficiencies down the road, lenders are more likely to favor pursuing paths with certain outcomes о Lenders receive a fixed rate of return on their investments, while equity sponsors stand to benefit financially from project improvements 51#52Solution? Mandatory innovations O о O O Specific innovations on which proponents are required to provide submissions • E.g. an alternative funding structure to include subordinated funding May require submissions on alternative scenarios of risk allocation · E.g. (i) Project Co (ii) Authority (iii) shared Authority retains discretion to accept/reject • Pre-submission review of innovations Commercial in confidence enquiry 52#53Issues in P3s: Usage Risk Building up to revenue projects? • Ontario: early projects were build-finance: P3s with training wheels Then availability-based design build finance. maintain (not operations) Then usage risk variations. 53 53#54Issues in P3s: Usage Risk Bankability as a restriction on usage Separation of construction and operating risk 54 54#55Factors in Funding Usage Risk Projects Predictability and reliability of revenue о Brownfield vs. Greenfield о Traffic risk assessment Project vs. balance sheet finance Size of Project Government willingness to accommodate lenders O о Minimum revenue guarantees Minimum payouts on project default Market experience and competition 55#56The PPP Cycle SESSION 3 56#57Introduction - Session 3 Understanding the PPP cycle from project origination to contract management Challenges in each stage of the cycle Group discussion on the PPP cycle Examples and cases • Q&A 57 44#58Project Determination • Government decision Project timing a joint decision with Procuring Authority Budget critical . о Generally understated 0 Requires interaction with Procuring Authority Authority delegation 58#59Project Due Diligence • Validate budget Define Output Specifications. • Confirm market interest Confirm timing O о Develop relationship with project owner Procure Advisors Project Authority (Architect/Engineer), Legal, Fairness, Maintenance Process and Finance optional 59 59#60Initiate Request for Qualifications Generally an open process • Set evaluation criteria Standardized documents, but every project requires full response 60#61RFEI or Market Soundings • New asset classes or new models • Sales vehicle for project O Consider the international market Two-way communication 61#62RFQ Issuance & Evaluation • Technical and Financial requirements . Clarity on scoring . Relatively quick Choose 3 • Potential for bidder debrief 62 62#63Initiate Request for Proposals Only to RFQ winners • Detailed documents . • Defined evaluation criteria O о Price Design Technical • Maximum standardization 63#64Bid Phase Structured interaction Commercially Confidential Meetings critical • Technical and legal consultation process • Formal scope amendments . о Formal document amendments Ultimately bid to same document Highly governed by Fairness • Goal is 3 good bids with no surprises or disqualifications • Lender sign-off 19 64#65RFP Evaluation Proposal Validity Period • Elaborate process with teams on all components о No information sharing between teams • Select Preferred Proponent 59 65#66Commercial Close Only with Preferred Proponent • Settle document • Settle specifications • Set stage for Financial Close as a subsequent step Time frame defined by bid 99 66#67Financial Close • Lock in financing • Only after this stage can project begin Early Works a standard concept 67#68Construction Period Oversight • Largely self regulated by bidder • Quick response to queries to avoid delay • Manage requests for amendments diligently • Who decides on changes? 68 88#69Construction Completion Specified by contract • Timeliness requirements • Controlled by procuring authority . Independent assessment Trigger for payments 69 69#70Maintenance/Operations Phase • Contract management is crucial Understanding the contract is difficult Continuity Issues Who decides on waivers, changes etc and has final financial approval? Handback and lifecycle requirements • Lifecycle Capital Cost 70 70#71Lessons Learned for Developing Countries 1) Conduct a thorough needs analysis of infrastructure and basic services and consider all the options to meet these needs. 71#72Lessons Learned for Developing Countries 2) Carry out a thorough feasibility study that: 1. Compares public sector provision with private sector provision and that takes into account affordability, value for money and risk transfer 2. Considers the rate of return on equity acceptable to both parties 3. Uses accurate information in its calculations and projections 4. Avoids unnecessarily high design specifications 5. Considers all the financing options before committing to one model 6. Involves all the necessary stakeholders 7. Identifies all the risks of a particular project, allocates them to particular parties and devises risk mitigation strategies 8. Requires treasury approvals at key stages of the project preparation process 72#73Lessons Learned for Developing Countries 3) Work out a multi-year budget framework to assess the affordability of projects for specific government institutions. 4) Address the issue of cost recovery and how infrastructure is to be financed. 73 73#74Lessons Learned for Developing Countries 5) Encourage competition to drive innovation. and bring down prices. 6) Build effective regulation by: 1. Developing transparent, credible and effective regulatory agencies that are adapted to the specific needs of the country; and 2. In the absence of effective regulatory agencies, creating a department within the relevant ministry which is relatively independent and has sufficient resources. 74#75Lessons Learned for Developing Countries 7) Provide political guarantees to investors where appropriate. 8) Develop capacity at the national, provincial and municipal levels by: 1. Sharing expertise and experiences with other governments and government departments; 2. Creating a PPP Unit in the Ministry of Finance, other relevant ministry or National Treasury to plan, negotiate, implement and monitor PPPs; 3. Establishing PPP Facilitation Units in national and regional development finance institutions (DFIs); and 4. Developing good transaction skills (legal, financial, negotiation and industry specific skills) in the relevant government institutions. 75#76Lessons Learned from Developing Countries 9) Ensure process integrity and legitimacy: 1. Implementing mechanisms to guarantee transparency at all stages in the tendering process. These mechanisms must include setting procurement specifications, open public hearings for major government contracts, and the final selection of contractors; and 2. Involving independent agencies such as Transparency International to oversee the bidding process and commit government institutions and private bidders to an integrity pact. 76 76#77Lessons Learned from Developing Countries 10) Pre-empt public complaint and suspicion by: 1. Preparing the group for private sector participation by making structural reforms and raising tariffs to approach cost recovery levels; 2. Communicating decisions around privatization and PPPs to the public to build consensus and transparency; 3. Providing policy clarity in the areas of free basic services in concession areas; 4. Considering the extent to which a project or particular bidder will contribute to the local socio-economic environment; and 5. Assessing the political commitment to a particular project from government institutions. 77#78PPP Structuring SESSION 4 78#79Introduction - Session 4 •Institutional challenges in PPP structuring Fiscal risk management: fiscal commitments and contingent liabilities Examples and cases • Q&A 12 79#80Establish Procuring Authority • Legislation о Create as Crown Corporation Budget allocation Project allocation • Accountability document Standard corporate functions • Goal is market credibility 80#81PPP Models BF • DBF • DBFM • DBFOM Open to interpretation but critical determinant is presence of Finance 81#82Institutional Challenges Stakeholder reaction O Owners O Unions • Architect and Engineer disintermediation . • Market capacity . Financing capacity Equity and debt 82 82#83Scope and Contract Issues . Output specifications vs. design Scope creep Bid team structures and changes Authority over sub-trades Risk allocation Contract management 83#84Fiscal Challenges Treat as debt • Profile cash flows . . Accept contingent liabilities. • Interaction between capital commitment and operating commitment seldom well solved Value of revenue transfer 84#85PPP Procurement SESSION 5 85 59#86Introduction - Session 5 • Procurement cycle Procurement strategies Pre-qualifying bidders • Bid process Negotiation with bidders Basis for award Dealing with unsolicited bids. Examples and cases • Q&A 86#87Trust Determinants - Government • Stakeholder reaction • On budget performance • On time performance • Interpretation of market Respect for "shareholder" 87#88Trust Determinants - Market Managing key phases of cycle O O о о Risk tolerance Team flexibility Evaluation objectivity at RFQ Fair bid process that accommodates interaction Evaluation objectivity at RFP Flexibility on close 88 88#89Enhancing Acceptance O о Understanding strategies. Output specifications clear and comprehensive Model appropriate Standardize documents Role of price vs. design NPV vs. nominal Respect for timelines 89#90Bankability Risk transfer key Availability vs. concession • Flexibility around equity Generally plentiful Availability of debt a greater concern 90 90#91Step-in Rights Goal is not to interfere with market as first course of defense о Lenders step in first • Watch for MAC's • Maintain control of service 91#92Financial Modeling • Parallel market to understand issues • But market responsibility • Repayment of equity • Bond vs. bank solutions Lifecycle capital responsibility • Handover requirements . 92#93Unsolicited PPP Proposals A successful public tendering process creates market competition and enhances legitimacy and transparency. Unsolicited proposals based on privately defined output specifications not publicly agreed and mandated. Many countries do not have to processes in place to channel unsolicited proposals into the public competitive processes. Governments have less opportunity to clearly articulate the end goals of the project and less control over the bidding process. 93 33#94Unsolicited PPP Proposals Example: The AGIL Longonot energy plant in Kenya will be completed in 2014 and resulted from an unsolicited PPP proposal. Unsolicited proposals are most successful when concerning technologies which are difficult to subject to competitive bidding. For example, under Philippines law, the only unsolicited proposals permitted are those concerning technology. 94#95Challenges: Energy PPP projects • Difficult to attract investors for rural areas due to the low purchasing capacity of the local population Poor infrastructure leads to higher upfront capital costs for private investors Many private investors are wary of these high-cost investments in countries with unstable economies and politics 95 95#96Challenges: Energy PPP projects Example: The Grand Inga Dam is the world's largest hydropower scheme, located in the Democratic Republic of Congo. It would produce up to 39,000 MW of electricity. However, its US$50 billion price tag and the history of political corruption in the country has created a huge challenge in finding a consortium of investors and governments to participate. 96 96#97Natural Resource PPP projects Volatility in the commodity market creates investor risk • The history of excessive taxes and expropriation from governments is a concern of private investors High capital expenditure for a high risk business can create difficulty in attracting the right investor • Poor infrastructure imposes high cost for accessing natural resource sites 97#98Natural Resource PPP projects Example: Significant infrastructure spending is necessary in Kenya for the country to meet its PPP goals in natural resources. For example, to extract and transport oil in Kenya and Sudan, the expensive Lamu Corridor is being built. The oil pipeline is expected to cost $4 billion, while the entire Lamu Corridor project is expected to cost around $30 billion by its completion. 98#99Transport PPP projects Many transport projects, such as ports and toll roads, involve interaction with local communities. Public dissatisfaction with construction, labour opportunities from the project, fees for use of the service and disruption of their way of life can cause difficulties for PPP projects. • Inherent exposure to the risk of market demand for the project upon completion creates uncertainty • Concession periods following infrastructure completion often cause disputes between the public, the government and private investors 99#100Transport PPP projects Example: The Lekki Toll Road Concession Project in Lagos will charge for use of the road for the next 30 years to help pay for its high construction cost. Locals have since complained of the tall fence around the highway, the placement of the road between communities that traditionally lived together, the high cost of use for local citizens, and the poorly constructed, overcrowded non-toll route. This dissatisfaction with the final product and the final cost may hinder the possibility of procuring future projects in the area. 100#101Agriculture PPP projects Widespread mistrust between farmers and the public towards the private investors in the biotechnology industry, particularly private sector seed companies, is a major challenge to agriculture PPP projects Low productivity, poor farming infrastructure, high harvest losses and lack of market access make it difficult to attract private investors 101#102Agriculture PPP projects Example: A study conducted with more than 80 agricultural stakeholders in Burkina Faso, Egypt, Kenya, Nigeria, South Africa, Tanzania and Uganda, published in the UK-based journal Agriculture and Food Security, showed that trust was perhaps the most important factor in the success or failure of agro-biotechnology public-private partnerships in Africa. 102#103Highway Service Centres O Project Re-build Centres on major highways to provide gas, food and accommodation services to travellers Marketed as a DBFOM Challenge O O Difficult to gauge revenue potential Sites were pre-determined and had issues Bidder interest started high and fell away 103#104Highway Service Centres Outcome O о Process extended with only 2 bidders Losing bidder threatened lawsuit ⚫ Project closed successfully • More risk shared than expected о O ⚫ Majority of sites built and operating successfully Remaining sites source of ongoing dispute 104#105Highway Service Centres Lessons Learned O O O Unknown revenue is deeply discounted by bidders As much as possible use greenfield vs brownfield sites Establish stronger dispute resolution mechanisms 105#106Air Rail Link O Project O Express rail link between suburban major airport and downtown major train station ⚫ Initial tendering process stopped and resurrected as a DBFOM Challenge O ⚫ Appetite for revenue risk changed significantly by the end of tender 106#107Air Rail Link Outcome O Revenue risk retained by public Project broken into smaller DBF packages Lessons Learned O Speed to close is critical Have to sell bidders on revenue upside in pre-tender sounding 107#108Niagara Hospital O о Project Full service, acute care, regional hospital Tendered as a DBFM Challenge о • Market crashed post commercial close and lenders fell away 108#109Niagara Hospital Outcome о O Project closed and price retained Financing restructured and Substantial Completion Payment concept introduced Lessons Learned 。 MACs are real о O Market will accept innovation in extreme circumstances 109#110Highway 407 о Project Initially a very long term DBFOM concession with massive win to bidders Subsequent phases tendered as DBFM with revenue risk/upside retained Challenge • Initial concessionaire a bidder and had contract to ensure linkage across phases 110#111Highway 407 Outcome о O Project closed successfully Revenue retained as an asset that may be valued in future Lessons Learned Market will tolerate a lot within a fair process Timing and certainty of revenue needs to be thought through 111#112Gas Plants Project DBFOM concessions for 20 years Challenge O Sites in many cases proved untenable Projects cancelled post contract execution 112#113Gas Plants Outcome O • Out of pocket costs paid O New sites and contracts sole sourced but on same terms Extreme political fallout Lessons Learned Public control over, and community engagement with, siting is critical 113#114Nuclear Plant Expansion Project Expansion of existing nuclear plant by 2 reactors (4 in place) Needed to keep national supplier honest Initiated as DBFOM with active interest Challenge O Bidders amended terms and transferred back risk Prices too high and tender terminated 114#115Nuclear Plant Expansion Outcome Project re-initiated with extensive market sounding • Remains underway Lessons Learned Projects can be too big for risk to be transferred 115