Transcript Public Private Partnerships to mobilize CDM projects

Trapec S.A.
Bucharest Multi Sector – Public Private Partnership
PPP Recommendation Report
– Bucharest District Heating
Municipality of Bucharest – February 2006
1
Trapec S.A.
District Heating in Bucharest today
 RADET, the public DH operator, is facing problems, the
most important are:
- Technical losses (decreasing from about 24% of the
produced heat to around 15% in 2005)
- Disconnections from the DH network, competition
with Natural Gas deliverer (decreasing from about
4707 in 2004 to around 1500 in 2005)
- Financial losses (2005 – the first profitable year since
2001)
 The financial resources of RADET and the Municipality
are insufficient to solve these problems in a satisfying
way in near future
2
Trapec S.A.
The Commitment of the Municipality towards EBRD
 April 2003, a loan agreement between the EBRD (European Bank
for Reconstruction and Development) and the General Council of
the Municipality of Bucharest has been signed.
 Among others, that agreement specified that a PPP – PublicPrivate Partnership has to be implemented within 24 months.
 Therefore the TOR for the consultant focused only on PPP
solutions.
No public-only solution has been analysed!
3
Trapec S.A.
Why to involve a Private Partner in a Public activity?
 The main results to be expected from a PPP agreement:
 Acceleration of infrastructure modernisation and faster
implementation of investment projects due to higher financial
capabilities.
 Reduced costs of operation through optimized processes.
 Reduced risk allocation for the Municipality through risk sharing
with the private partner.
 High incentives to perform and improve quality of service
delivered through direct correlation between financial returns
and efficiency.
4
Trapec S.A.
PPP - Project Structure and State
Market
Survey
RADET: Internal
Restructuring Plan
CGMB
approval

Phase I
PPP Recommendation Report
CGMB
approval
Phase II
PPP tender / contract
5
Trapec S.A.
Results of the project: Market Survey
 Market Survey (finalised in December 2004)
• overall and general presentation of PPP concepts
• Detailed presentation of the legal and regulatory framework
in Romania related to District Heating
• Presentation of different PPP case studies in Romania and
Europe
PPP models for DH systems are possible and used and
have the potential to be good solutions.
6
Trapec S.A.
Collecting Real Time Information
 In October 2005, a mission has been organised, in order to visit different
European district heating organisation.
Representatives of the General Council, of RADET and of the Municipality participated in that
mission.

The visited DH operators were:
 Boras Energi in Sweden – Private operation
 Tallinna Kute in Estonia – Concession, using a SPC
 Fernwaerne Zurich in Switzerland – 100% Public operation
 Main lessons learned:
- All these solutions have advantages and disadvantages
- All solutions are proofed to be successfully in practice
- All the actors of these solutions are ready to support Bucharest in its
task → The Bucharest municipality is not alone!!!
- An important success factor of all solutions are the actors behind the
solution.
7
Trapec S.A.
Results of the Project: Internal Restructuring Plan
 Internal Restructuring Plan (IRP) for RADET (delivered
in Oct. 2004 and approved in Jan. 2005)
• Deep analyse of the activity of RADET, pointing out the
different problems RADET is facing.
• Proposition of actions to be performed in order to solve these
negative internal factors
• RADET is currently implementing the recommendations
according their priorities
8
Trapec S.A.
Organisation
Processes
Finance
Customer
Balanced
Restructuring Map
Customer management C1 new division in RADET
Transform RADET into a profitable
customer-oriented organisation
C2
Improve co-operation with
existing customers
Improve the image of RADET
C3
Productive and non-productive
cost reduction
F3
Transform RADET into a
profitable company
Efficient mechanism for tariff
set-up and approval
F2
Cost centers per operational
processes
F1
Separation of operation and
P4 maintenance activities
F5
Develop the marketing activity
C4
F4
P3 Management of External
Thermal Energy Producers new department in RADET
Define and apply performance
criteria per process
P1
Relationship with Regulatory
P7 bodies and Municipality new department in RADET
P2Streamline the activity of RADET
towards the needs of its customers
P6
Re-organise the Financial
Department
Increase the role of
Dispatching Unit
Investment division - new
division in RADET
P5
Implement the Management
O9 Information System
O5 Define strategy (10 years)
and Business Plan (4 years)
Detail strategy and BP per
O6divisions and departments
Clarify the status of assets
O1 forming the public domain
O2 Negotiation of operation
contract with CGMB
Apply for an Integrated
Quality - Environment - H&S
O8 Management System
Externalise DH activities in
O11 Buftea and Otopeni
Lobby for separate tariff for
O3 thermal energy supply
O4
Define the future role of
RADET
O7 Certification of existing
Quality Management System
Smart outsourcing of
maintenance
activities
O12
Externalise non-core support
activities
O10
Motivate
and
streamline
O13 the
workforce
9
Trapec S.A.
Results of the Project: PPP Recommendation Report
• Prerequisites for starting a PPP procedure
• Service quality standards
• Options for developing a PPP solution
• Comparative analysis of the solutions
• Conclusions and recommendation
10
Trapec S.A.
Prerequisites for a successful PPP implementation (2)
 External factors are important causes of the present situation of
RADET
 The elimination of these factors is a precondition for a successful
PPP tender
 External factors can’t be influenced by RADET…
 … but by the CGMB commission and PMB departments, lobby
work on national policy level is needed
For a PPP success, the Municipality should continue its
positive efforts to eliminate the negative external factors.
11
Trapec S.A.
Performance standards
 Heat supply is a public service in Romania
- universality, continuity, quality, affordability and consumer
protection have to be respected.
 How can the Municipality control the quality of the service if this
one is externalised, namely to a private partner?
Performance standard have to be defined, depending on the
investment options and influencing them.
Defined performance standard will permit to assess, monitor and
correct the level of services for the clients.
12
Trapec S.A.
Performance standards
 A preliminary list of indicators to be included in the future contract is
proposed in the Recommendation Report, divided as follow:
- General indicators: they describe the quality of services
- Technical indicators: they influence the investment needs
 The final performance indicators list can be elaborated only after
carrying out a technical study and after having an investment plans.
These indicators should also be approved by the General Council
of Bucharest Municipality
!
Setting of the performance standard is crucial for the success
and acceptance of the PPP solution in Bucharest.
13
Trapec S.A.
The different analysed PPP models
 Solution 1
Private Management of RADET
 Solution 2
Private Operation, using a new Company
 Solution 3
Concession Contract with a new Company
 Solution 4
Concession Contract with RADET, after privatization
 Solution 5
Privatization of 48 small Heat Only Boilers and Casa
Presei
14
Trapec S.A.
Method of the Detailed Comparative Analysis
1. M arket risks
150
Mark
max.
Solution 0
√
2
√
2
√
1
2
√
2
√
2
√
1
√
0.5
√
2
√
2
√
2
√
1
√
0.5
√
1
√
2
√
2
√
2
√
1
√
2
√
2
√
2
-
√
Medium / Long term of P-P partnership (6…49 years)
-
-
Existing private property assets of the Municipality to be used as shares in the new company
-
-
Mark
Implication of the
operator to get a better relationship
with
clients and/or
(-1) - Minor
specificity
→suppliers
(-5) - Significant specificity
max.
Specialisation of activities can have as result a better performance
√
Immediate financial profit for Municipality resulting from selling the HoBs
-
√
-2 ofShort
Positive experience
the PPP
canofbeP-P
developed
further
on
duration
partnership
(1-5 years)
-
- √
-2 3 √
√
√
- √
-2
-
-
-
0.5 Solution
√
√ 1 2Solution
√ 2 2Solution
√ 3 Solution
2
√4
0 1 Solution
√
√
-
-2
√
-2
√
-1.8
√
-1
-
- -1.5
√
- -1
-
-
√
2-
√
-
-
-
-
-0.5
√
-0.5
√
-2
-3
√
√ -2 2 -
√
-1.5
√
Risk of non-acceptance by the operator of the “package” of legal agreements imposed by Municipality
Municipality
is sellingoperator
profitable(contractual)
assets (HoBs)
Municipality control over
the DH system
√
1
2 - √
Mark
1for-for
Minor
specificity
→ 5 -- Significant
Lack of Municipality's
control
to the investment
theMunicipality
privatised
HoBs
- - specificity
- √
Profitable DH utility, resulting
in profit for the
newrelated
Commercial
Company obligation
and royalty
max.
Difficult or
exit
strategy
for Municipality
- √
Innovative solutions, brought
byno
the
PP,
to motivate
the client to pay the bills
1 - √
2
Closer relationship with the clients (customer's service centers)
Impact
issues
duringable
the restructuring
process
√ √ -1 2 √ √ -2
Commitment of the PP
to getofasocial
sound
company,
to offer the best
price/quality ratio
Non-performance of the operator (Low/Medium/High)
-
New operation contract between Municipality and the operator
W
-
√
Operator
in charge
with thecontract
payback
of existingrange
liabilities
(EIB
loan)in
Increased
of services
(new
requirements/needs)
Acceptance of provisions
of signed
operation
between
PMB
and
RADET,
force
at the moment of the of the clients
√
2
3 not necessarily to be further used
PPP agreement signature
Positive experience in RADET
√
-3
0.5
1.5
√
3
√
3
√
√
2 √
√ -2
3√
2 √
√ -3
4√
-
√
-
-
√
-3
√
(-1)the
- Minor
specificity- → (-5) - Significant
specificity
Economical development of the city, increasing
heat demand
2 √ √ -3 4 √
- - √
Change
of legal framework
EU access including the
implementation
of the Acquis Comm.
Positive experience inRisk
RADET
(operation, transfer
dispatching)
to be
further
of unsuccessful
process
from
PMBused
to the new operator (assets - public and/or private
√ property,
4
√
4
√
2
√
2
√
-3
√
Change of regulatory framework
resources, contracts, etc.)
Better use of local financial resources
Capability of taking advantage of new technologies
1
√
2
√
4
Present quality of the service
indicators)
Negative
change of economical situation
4 not properly evaluated (performance
-3
√
-3
√
-3
√
Existing experience of the Municipality in management of concession agreements (APANOVA)
√
4
√
4
PMB playing role of "mediator"
between
the clients
and the thermal energy
Supply tariff not in force
√ suppliers
√
-2
√
-2
-1
√
Change of
local energy
strategy
-3
Use private partner know-how
and reputation
raising
financing
Value of assets
(HoBs andfor
goods
of private
property) not properly evaluated
4
O
T
-
New local regulatory authority to monitor the PPP contract
√
-
4
√
4
Level of needed investments not properly
evaluated
Recognised
name (brand)
√
-1
√
-1
√
Behavioural changes regarding the efficient use of√heat -1
√
2
√
3
Municipality still with high responsibility
coordinationon
of the
the overall
activity
√
-4
New in
competitor
thermal
energy market (HOBs or future small cogen
plants), -influencing the- development-
Capitalisation of the new company through the contribution of the private partner
Lack of political support
5 strategy of the Municipality
Existing know-how on large investment management
√
3
√
3
√
2
√
in investment
-4 Municipality still with high responsibility
√
√
-4
√
-4
-4
Technological
changes funds
(new,from
cheaper DH solutions available for competitors)
Operator not in charge with the existing liabilities of RADET (EIB loan) - reliable
partner for attracting
Difficult implemention of the PPP contract
- √ √ -1 3Sub-total
√ √ -2
IFIs, banks etc.
Increase of thermal energy price from the supplier (Elcen and IPP)
The private partner has an obligation of investment
√
1
Sub-total W
Sub-total S
-
-26.0
14.5
√
-22.8
22.0
5
-
5√
O
5
-27.5
48.0
64.0
√-2
√ -3
√
√
√
- -3
√-3
-√
-3
3√
- -2
√
√
-
0.5
√
1.3
-3
√
√1
-3.3√
3√
√
-3
√1
√
3.8
√√
0.5
0.5
√
0.5
-
2
√
√
√√
-1
√
-3
√
-√
√√√
-2
√
√
-4
√
1√
4
5
-
√
1.0
√
3
-2.7
1-3
√√
√√
√ -1 -1.5 √
-3√
-3√
4
-3
2
2
√ 0 -1Solution 1
Solution
√
2
√
2
√
√
√ -2 -0.5 √
√2
-3 -1.8√
√
0.5
√1
-1 -0.5√
√
√
-3.5
1
√
1-3
√
-3.8
-1
√
0.3
√8.5 -2
-5
√
1.5
-17.8-36.8
√
Sub-total
T-36.5
-23.5
59.8
2. Social risks
-3
Solution
-3
√2 1 -3Solution 2
√
√
-3
-
50
5. Operational risks
-1.9
√
0.5
4
4
√
-1.9
-
-1.5√
4
0.5
-√
-1.9
2
√
√2
√
-3
2
√
√
0.5
4
Risks assessment
0.4
Solution
5
-3
√
1√
√√
- -1
√
√ -3
100
Solution 3
√
2
Solution 4
√
2
Solution 5
√
1
+
√
3
Solution
√
32
-2
3
-1
2
-2
3
-3
√
√
√
√
√
√
√
4
-1
√
√
-3
3
-1
19.0
-1
-13.3
√
√
√
√
3
√
1
Solution
41 Solution 5
√
33 Solution
√
-2
√√
-14
√√
-1 1
√
-3.0
4
-1
√
-1
√
-1
√
-1.0
4
√
4
√
0.5
-1
√
0
√
0
√
-1.0
4
√
4
√
0.5
-1
√
-1
√
-1
√
-3.1
4
-1
√√
-11
√√
-1 1
√
-0.9
-2
√√
-15
√√
-1 1
√
-2.4
5
-1
√
0
√
0
√
-0.8
27.0
24.0
6.0
-2
√
-2
√
-2
√
-5.0
-10.1
-7.2
-7.2
-17.3
Solution 1
Solution 2
Solution 3
Solution 4
Solution 5
Solution 0
0
22.8
4. Investment risks
SWOT / Risk comparison
3. Contract risks
SWOT / Municipality's Risk comparison
Concession
Concession
RADET
privatisation
RADET
privatisation
Private
operation
SWOT
5
-
√
3√
2.8√
3 - Solution
√
3√0
3 3 -
-3
-
-0.5
√
-
SWOT analysis
Solution 5
2
√
Easy to be implemented
2
Solution 4
√
1
-
1
Solution 3
1
√
Transfer of operation and management know-how from the private operator
Low/Medium solution impact on the quality of service
S
Solution 2
√
√
Low/Medium solution impact on the thermal energy price / tariff level
3
Solution 1
-
Continuation of restructuring programme according to PP objectives
Private operation
SWOT
2
1 - Minor specificity → 5 - Significant specificity
New mechanism for managing existing RADET contractual liabilities towards his suppliers
Private
management
Private
management
Generation
privatisation
RADET today
RADET today
180
240
300
Risk
50
Generation
privatisation
110
Municipality's Risk
15
Trapec S.A.
The risks assessment
In the risks assessment, 6 categories
of risks had been taken in account:
1 - Market risks regarding the existing
DH system;
2 - Social risks;
Risks assessment results
Solution 3 - Concession, using a new SPC
3 - Contract risks;
4 - Investment risks;
5 - Operational risks;
6 - Force majeure.
+
1. Market risks
2. Social risks
3. Contract risks
4. Investment risks
5. Operational risks
6. Force majeure
Total
79.78
7.84
62.34
22.92
30.78
1.00
Municipality
10.63
2.67
40.36
0.00
4.43
0.20
PP
69.15
5.17
21.98
22.92
26.35
0.80
Evaluation and repartition of their
negative impact on the level of
Public Service Quality
16
Trapec S.A.
Decision of the GCMB
GCBM should select the best option for DH Services in
Bucharest and decide to continue the process with the
implementation of the selected model.
Prior to every implementation the mentioned
prerequisites have to be provided.
17