Transcript HIGHWAY CONCESSIONS AND WORLD BANK GUARANTEES

Russian Federal Highway Agency
Assessing the Potential for
Public-Private Partnerships
(PPP) in Highways
Cesar Queiroz
Lead Highway Engineer
World Bank
Moscow, 28 February 2005
Presentation Outline
•
•
•
•
Transport and economic development
PPP and public policy requirements
The main risks of highway projects
International experience with highway
PPP projects
– Traffic forecasting risks
– Impacts on revenues
• The Toolkit for PPP in Highways
• Case studies
• Discussions
Developing and Advanced
Countries
• Developing countries include lowand middle-income economies
• Advanced (developed, industrial,
rich) countries denote highincome economies
Classification of Economies
Economies
GNI per capita
Low-income
$765 or less
Middle-Income
$766 to $9,385
High-income
$9,386 or more
Source: www.worldbank.org/data
Classification of Economies
Economies
GNI per capita
Low-income
$765 or less
Middle-Income
Lower
Upper
$766 to $9,385
$766 to $3,035
$3,036 to $9,385
High-income
$9,386 or more
Source: www.worldbank.org/data
GNI per capita ($/pop)
50000
40000
30000
20000
10000
43940
Source:
http://devdata.worldbank.
org/data-query
33750
27020
16990
1213011830
4960 4490 4070
2610 1780 1590 970
190 100
Be
l
Uk
r
T
DR aj
Co
n
Ka
z
Lu
x
De
n
Fi
n
Sp
a
Po
r
Sl
v
Es
t
Li
t
La
t
Ru
s
0
$/pop
EU15, EU8 and CIS
50000
43940
40000
EU15
30000
EU8
20000
CIS
12130 11830
10000
4960
4490
4070
2610
970
190
Ukr
Taj
0
Lux
Por
Slv
Est
Lit
Lat
Rus
Economic Development and
Transport Infrastructure
GNI ($/pop)
100000
logGNI = 1.39 logPRD
R squared: 0.76
98 countries
10000
1000
100
100
1,000
10,000
Paved Road Density (km/mil pop)
Source: Queiroz and Gautam
100,000
PPP: Public Policy Requirements
• Proposed highway projects should be part of
Government program
• Subject to full social cost-benefit assessment
– to ensure public as well as private benefits
– to establish need, and provide basis for
public participation in financing
• Concession award and agreement should
– be well designed
– be transparent and competitively procured
– have clear rules for regulation of the
concession
Some Key PPP Issues
• Ensuring open market access and
competition
• Protecting the public’s interest
• Defining the right level of Government
contribution
• Selection of the most suitable PPP type
• Appropriate performance indicators
“Traffic Risk in Start-Up Toll Facilities”
Standard & Poor’s (S&P)
• 67 toll case studies comparing forecast
performance with actual/observed
– Toll roads, bridges & tunnels
– User-paid & shadow tolls
• Key findings:
– Systematic errors (optimism bias) in
forecasts
– Consistency of error-drivers
– Produced a traffic risk index
– Sensitivity testing is essential
S&P Research Results 2002
X <= 0.19010
5.0%
0
0.2
Comparison of Actual/Forecast Traffic
Normal(0.72, 0.32); n = 67
X <= 1.2583
95.0%
0.4
0.6
0.8
1
1.2
1.4
1.6
Actual (Observed) Traffic
Mean ~ 70%
Spread: 18% - 146% !
Traffic Forecasting Risk Index
Project Attributes
More Reliable
Less Reliable
Tolling Regime
Shadow tolls
User-paid tolls
Tolling Culture
Tolls well established
No toll roads in
country
Infrastructure
Estuarial crossings
Dense urban
networks
Extension of existing
road
Green field site
Highly congested
corridor
Limited/no
congestion
Few competing roads Many alt. routes
Clear competitive
advantage
Weak competitive
advantage
Only highway
competition
Multi-modal
competition
Stand-alone facility
Reliant on other,
proposed highway
Error Drivers
• Miscalculation of road user willingness-topay
• Recession/economic downturn
• Future land use scenarios that never
transpired
• Time savings less than expected
• Improvements to competitive (toll-free) routes
• Underestimate of ramp-up period (traffic
stability), both severity and duration
• Less usage by trucks
Tolling Experience
No tolling
experience:
actual traffic =
56% of forecast
Host Country with No/Limited Tolling Experience
Normal (0.56, 0.31)
X <= 1.0000
91.7%
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0
0.2
0.4
0.6
0.8
1
1.2
Host Country with Tolling Experience
Normal (0.87, 0.26)
X <= 1.0000
69.0%
1
0.9
Tolling
experience:
actual traffic =
87% of forecast
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Future Challenges
• Point-of-use charging
– depends on ability to pay/willingness to
pay
• New toll collection technologies
– Reliability, take-up, back-office
processing
• Pricing sophistication
– discounts (frequent user programs,
resident discount schemes), peak/offpeak pricing, day-of-week, season-ofyear
Main Lessons for Success
•
•
•
•
A well defined legal framework
Simple and transparent procurement
Shared risk-reward concession structure
First attempt with toll roads tend to have
mixed results
• Projects should have social benefits as
well as commercial viability
• Particular attention to traffic forecasting
and hence revenues
• Public sector comparator advisable
World Bank Toolkit for PublicPrivate Partnership in
Highways
Toolkit’s Objective
To provide policy makers from
economies in transition with some
guidance in the design and
implementation of a Public Private
Partnership (PPP) in the highway
sector
Definition of PPP
A Public-Private Partnership (PPP)
constitutes a sustained collaborative
effort between the public sector
(government agencies) and private
enterprises to achieve a common
objective (e.g., the road project) while
they pursue their own individual
interests.
The Toolkit
The toolkit is structured under
five headings and is navigated
through a series of tree
diagrams under each of these
headings. It also includes a
library and interactive financial
models.
Availability of the Toolkit
• Free of charge
• A multimedia product available
on a CD ROM
• Also available at the World
Bank’s web site:
www.worldbank.org/transport
Contributors
Financing Institution
Public-Private Infrastructure Advisory Facility
(PPIAF) www.ppiaf.org
Executing Agency
The World Bank www.worldbank.org
Consultants
Groupe Egis (http://www.groupegis.com)
in association with
Coudert Brothers (http://www.coudert.com)
The Highway Toolkit Includes
• over 5000 pages of reference
publications and web links
• a 500 word glossary
• case studies and financial
simulation software
Toolkit Modules
1. Overview and Diagnosis
2. Project Characteristics
3. Public Sector Functions
4. Laws, Rules and Contracts
5. Implementation
Toolkit Modules
1. Overview and Diagnosis:
rationale for private participation in
the highway sector, alternative
contractual forms, guide to
conduct a diagnostic of the sector
2. Project Characteristics
3. Public Sector Functions
4. Laws, Rules and Contracts
5. Implementation
Toolkit Modules
1. Overview and Diagnosis
2. Project Characteristics:
key considerations in the design of a
public-private partnership,
discussions of well-known PPPs
3. Public Sector Functions
4. Laws, Rules and Contracts
5. Implementation
Toolkit Modules
1. Overview and Diagnosis
2. Project Characteristics
3. Public Sector Functions:
analyzes the roles of the public
sector and presents the tools at
Government's disposal for
performing such roles
4. Laws, Rules and Contracts
5. Implementation
Toolkit Modules
1. Overview and Diagnosis
2. Project Characteristics
3. Public Sector Functions
4. Laws, Rules and Contracts:
guidance on the design of legal and
contractual frameworks for private
participation in highways, with
boilerplate provisions
5. Implementation
Toolkit Modules
1. Overview and Diagnosis
2. Project Characteristics
3. Public Sector Functions
4. Laws, Rules and Contracts
5. Implementation: outlines the key
steps in introducing PSP, bringing
elements from previous modules
and distinguishing by type of private
sector contract
1. Overview and Diagnosis
Why Embark on PPP?
• Context and Key Issues
• Expected Benefits from PPP
• Why (and where) is the Private Sector
more efficient than the Public Sector?
• Overview of PPP experience
• PPI project data base
Choosing the right option
• Forms of PPP
• Making the diagnosis
• PPP policy and strategy
2. Project Characteristics
• Tailoring appropriate PPP: A
continuum of alternatives
• Examples of well-known PPP
3. Public Sector Functions
• Protect community welfare
• Planning and policy making
• Provide adequate framework
• Facilitator
• Contract award
• Regulation
4. Laws, Rules and Contracts
• Legislation




Legislative framework
Adjust legal framework
Regulatory framework
Standards
• Contracts
 Maintenance contracts
 Operation and maintenance concessions
 BOT type projects
5. Implementation
• Actors
• Main Steps
• Managing the Reform
• Selection and contract award
Public Private Partnerships
Works & Management
&
Services
Contracts Maintenance
Contracts
Operation &
Maintenance
Concessions
Build
Operate
Transfer
Concessions
Low
Full
Privatization
High
Extent of private sector participation
BOT-type of Concessions
The responsibility of the
concessionaire comprises an
initial construction, upgrading
or major asset rehabilitation,
and operation and maintenance
of the facility.
In addition to the five modules, the
Toolkit also includes:
•
•
•
•
•
Financial simulation tool
Graphic simulation tool
Case study
CD Map
Documentation
• Glossary
Glossary
Access control: Limiting the number
of points at which vehicles may enter
or leave the road
……
Zero-coupon swap: A swap in
which the fixed-rate payer does not
make any payments until the maturity
date of the swap but receives floatingrate payments at regular payment
dates
Glossary
Swap agreement: A contract
whereby two parties agree to
exchange periodic payments. The
amount of the payments exchanged is
based on a notional principal amount.
There are four types of swaps:
currency swaps, interest rate swaps,
commodity swaps and equity swaps.
And where is the
toolkit?
Financial Simulation Case Study
The Government of Farland is
considering to build a road
between the cities of Farport
and Farcapital (located 50 km
apart) through a Public Private
Partnership (PPP) scheme.
Financial Simulation Case Study
Basic data include:
Construction cost: US$200 million
Source of funds: Subsidies, equity and credit
Real interest rate: 10%
Concession duration: 30 years
Initial traffic: 15,000 vpd
Toll rate: US$5.00 (indexed on inflation)
Inflation rate: 7% per year
Financial Simulation Case Study
Using the above information
and other default data in the
Graphic Simulation tool of the
Toolkit for Public-Private
Partnership in Highways, please
answer the questions below:
Financial Simulation Case Study
Question 1: In the absence of
Government subsidies, ceteris paribus,
what would be the return on equity
(ROE)? What would be the change in
the internal rate of return (IRR) of the
project?
Answer: ROE would reduce from
15.63% (with a Government contribution
of 44% of the construction cost) to
6.94%. No change in IRR (12.27%).
Financial Simulation Case Study
Question 2. While subsidies may be paid by the
Government during the construction period, it
recovers some of this payment through taxes
during the operation period. What would be the
Government contribution to this project that
would lead to a financial balance for the
government throughout the concession period?
Answer: About 23% of the construction cost, as
22% would generate a US$171,000 surplus and
24% would lead to a US$2,464,000 deficit.
Financial Simulation Case Study
Question 3. In the absence of Government
subsidies, ceteris paribus, what would be
the required initial toll rate to yield a
return on equity (ROE) of 16%?
Answer: With no subsidies, an initial toll
rate of US$8.00/veh yields a 15.08% ROE;
an initial toll rate of US$9.00 yields a
17.82% ROE. So an initial toll rate between
US$8.00/veh and US$9.00 would be
required.
Some WB-related Sites
• Toll Roads and Concessions
http://www.worldbank.org/transport/roads/toll_rds.htm
• Toolkit for PPP in Highways
http://rru.worldbank.org/Toolkits/PartnershipsHighways/
• Port Reform Toolkit
http://www.worldbank.org/html/fpd/transport/ports/toolki
t.htm
• How to Hire Expert Advice on PPP
http://rru.worldbank.org/Toolkits/Documents/Advisors/F
ull_Toolkit.pdf
• Labor Issues in Infrastructure Reform
www.ppiaf.org/Reports/LaborToolkit/toolkit.html
World Bank Partial Risk
Guarantee Structure
Govern’t
Counter
Guarantee
Concession
Agreement
World Bank
World Bank
Guarantee
Project
Loan
Company or
Agreement
Concessionaire
Private
Lenders
Typical Financial Benefit of
Partial Risk Guarantees
• Reduce cost of private sector
borrowing from LIBOR + 900 to
LIBOR + 200
• http://www.worldbank.org/guarantees
Unsolicited proposals to governments
• Origin of most controversial private
infrastructure projects
• In theory, generate beneficial ideas
• In practice, some unfavorable
experiences; attempt to avoid
competition; exclusive negotiations
behind closed doors
• Usually sole-source negotiations take
much longer than expected
Should governments forbid unsolicited
proposals?
• Some governments forbid all
unsolicited proposals to reduce
public sector corruption and
opportunistic behavior by private
companies
• Some governments recognize a
good project idea in the tender by
compensating the original project
proponent
Experience with unsolicited proposals
• often negative, reflecting the fact
that projects of this type have
usually represented poor value for
money, were frequently
incompatible with the actual
development needs of the country,
and the country’s ability to pay
Experience with unsolicited proposals
Often negative, reflecting the fact
that projects of this type have
usually represented poor value for
money, were frequently
incompatible with the actual
development needs of the country
and the country’s ability to pay, and
are usually associated with
allegations of (or proved) corruption
PPP and the Changing Role of
the Public Sector
• The public sector must transform its
role from a service provider to
manager in order to monitor private
concessionaires
• From performing quality control to
focusing on quality assurance
• Keeping things simple is often more
effective than being over prescriptive
• Change is not easy
PPP Institutional Structures
• An efficient institutional structure
facilitates PPP development
• The Decentralized Model places
responsibility within the concerned
line ministries (e.g., France)
• The Centralized Model is based on
the creation of one dedicated national
PPP unit (e.g., UK, Ireland)
Functions of a PPP Unit
• At the beginning: developing capability,
required legal and regulatory structures,
market interest and pilot projects in order to
test and demonstrate the value of PPPs
• As experience is gained: assisting the
selection of PPP opportunities, counseling,
ensuring value for money, investor
attraction, maintaining political support, and
reducing risk by creating trust between
parties
Growing Interest in PPP
Percent of countries
Over 2,700 projects in developing and transition
economies since 1990. Many outstanding successes
PPP investments have fallen from their peak
US$ billions
Many projects renegotiated. About 6% of projects cancelled or
in distress, often exposing government to significant costs
Allocation of Risks
100
Maintenance
Contracts
Management
Contracts
RISK
Operation &
Maintenance
Concessions
TO
BOT
PUBLIC
SECTOR
Decreasing
Public Risks,
Increasing
Private Risks
0
RISK TO PRIVATE SECTOR
BOO
100