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Developing Public Private Partnership in the Republic of Serbia
International Legal OptionsPaul, Hastings, Janofsky & Walker (Europe) LLP
Kirk Lovric, Project Finance
16 November 2010
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Outline
About Paul Hastings International Expectations International Options Case Studies PPP Market Development Strategies for Success Q&A
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About Paul Hastings
Paul, Hastings, Janofsky & Walker LLP is a global law firm with over 1,250 lawyers in 18 offices around the World.
We operate from the major business centers in Europe, North America and Asia.
In Europe, we have key offices in London, Paris, Frankfurt and Milan. We are a full service corporate law firm with a market leading project
finance and PPP practice. We advice around the globe on PPP projects with particular emphasis on:
• Europe;• North America;• South America;• Asia; and• Middle East.
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Selected recent PPP experience in Emerging Markets
Varna and Bourgas – Bulgaria Advising Vinci Airports and Vinci Concession in relation to their bid to expand and operate the airports in Varna and Bourgas, Bulgaria on a BOT basis.
Istrian Toll Motorway – Croatia Advising the Government of the Republic of Croatia on the refinancing of the first phase of the Istrian toll motorway and the financing of the construction, operation and maintenance of the Istrian toll motorway (European Road Deal of the Year 2003).
Oman Airport Privatization – Oman Representing Alterra (a joint venture between Bechtel and Singapore Changi Airport) in its bid for the Muscat and Salalah airport privatization in Oman.
Military Hospital – Czech Republic Advising the Czech Government in connection with the construction and financing of the Military Hospital in Prague.
Mumbai and Delhi Airport Privatizations – India Representing Reliance Energy Limited in its bid for both of the Mumbai and Delhi airport privatizations in India.
Croatian Ports – Croatia Representing Dubai Ports in respect of a port project in Croatia.
Jorge Chavez International Airport in Lima – Peru Representing Odgen Aviation in connection with a bid to acquire a concession to operate the Jorge Chavez International Airport in Lima, Peru.
The PRC Ministry of Railways JC - Cina Advised NWS Holdings Limited, a Hong Kong listed company, in the establishment of joint venture enterprise with a total investment of RMB20 billion to operate rail container terminal and related businesses in 18 cities in the People's Republic of China.
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International Expectations
Western European PPP Procurement Requirements In the EU, PPPs that qualify as “public contracts” under the Public Contracts
Directives must comply with the EU Procurement Directives (EU/Directive/17)
Public Banks like to see that procurement has been completed in accordance with EU rules.
Eastern European Procurement Practices Eastern European countries generally have not got EU compliant
procurement processes which makes it difficult for EIB and EBRD to lend
Aim to comply with EU procurement law & the Public Contracts Directives, otherwise PPP projects will not obtain competitive finance in the market
Eastern European countries are often more reliant on funding from the World Bank, EIB or the EBRD for funding aspects of their PPPs and, consequently, EU procurement is more important
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International Expectations
Complete revenue forecasts using international qualified consultants (be realistic about revenue and asset value not concerned about extracting a commercial return on Government assets)
Aim to access EU Cohesion Funds and Public Bank funds
Use International Construction Contractors (even though construction prices quoted by foreign contractors and the returns required for its equity will look excessive when applied its public sector comparators)
Use International Commercial Banks (even if the financing terms proposed by the foreign contractor are considered to be too expensive)
Be concerned and focused on: Government Balance Sheet and budgetary restrictions (avoiding Sovereign
Guarantees) – aim to transfer Construction, Financing and Operations risk to a large Private Sector partner with the balance sheet to take such risk
Ensuring first projects are a success (Large PPP Partners are concerned about development costs in emerging markets) – other PPPs will follow
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International Options
Government Financial Support Options
Availability Payments Shadow Availability Payments Revenue Guarantees (Sovereign Government Credit Service Payment, Debt not Sovereign
Guaranteed)
Private Sector Revenue Options
Hybrid – Eg: Higher Tolls on Freight on Motorway than Public Usage– Mixture of Different Pricing for Hospital Usage
Risk Allocation Options
Ground Risk Allocation Repayment of Debt on Contract Termination
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International Options - Financing
Transport Projects Spectrum
Hybrid
Sufficient Revenue Partial Revenue
Market Revenue Shadow Usage Payment/ Availability Payment
(Full Government Support)
Insufficient Revenue
PPP Projects Spectrum
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International Options - Risk Allocation
Major Risk Borne by Government
Borne by Concessionaire
Shared
Land Permit
Land Acquisition
Final Design & Building Permit
Ground Risks
Construction
Operation & Maintenance
Defects (New Works)
Defects Latent Defects Patent Defects
Demand
Financing
Contract Termination
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Case Studies – Traditional Structure
Concessionaire
Government
Private Investor(s)
Construction Contractor Operator
Lenders
Concession Agreement
Shareholders Agreement Funding
Agreements
Construction Contract
O & M Agreement
Traditional PPP Structure
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Case Study – Bina Istra Motorway
Concessionaire
Government
Private Investor(s)
Government
Construction Contractor
Operator
Lenders
Concession Agreement & Availability Payment
Shareholders Agreement
Funding Agreements
Construction Contract
O & M Agreement
Emerging PPP Structure
Tolls
Private Hard Toll Revenue
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Case Study – Prague Military Hospital
Concessionaire
Government
Private Investor(s)
Government
Construction Contractor
Operator
Lenders
Shareholders Agreement
Funding Agreements
Construction Contract
O & M Agreement
Emerging PPP Structure
PrivateHotel
Revenue
Private RevenueConcession Agreement & Availability Payment
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PPP Market Development
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
Transport – Motorways and Tolling Systems
Transport – Airports, Railways and Ports
Social Infrastructure (Schools, Prisons and Hospitals)
Defence
IT
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PPP Market Development
Stage 1
Stage 2
Stage 3 -1
Stage 3 -2
Stage 3 - 3
Governments
Public Sector Banks
Sponsors
Commercial Banks/Bond Houses/Monolines
Private Equity Funds
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Strategies for Success
Identification of key public infrastructure for investment Ensuring necessary legal framework is in place Identification of “pathfinder” projects – select projects that are not
technically too difficult and will be attractive to the market (e.g. in terms of amounts and duration) and can be achieved within a PPP structure
Ensure risk allocation will achieve off-balance sheet treatment Identification of key personnel within Government to co-ordinate PPP
projects and to be a repository of PPP know-how Establishment of market precedent Standardisation for costs savings
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Strategies for Success
Recognise process involves a multi-party approach with a diverse number of stakeholders
Recognise that some participants may be less sophisticated than others Identify Government’s Key Concerns and the Private Sector’s Key
Concerns Draw upon experienced participants and advisers Formulate strategies to:
• Avoid Pitfalls and Obstacles• Address Government’s Key Concerns• Address Private Sector’s Key Concerns
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Q&A
Q&A
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Future Contacts
Jonathan SimpsonPartner, Head of European Projects, LondonPaul, Hastings, Janofsky & Walker (Europe) LLPT [email protected]
Kirk LovricSenior Associate, LondonPaul, Hastings, Janofsky & Walker (Europe) LLPT [email protected]
Pierre KirchPartner, BrusselsPaul, Hastings, Janofsky & Walker (Europe) LLPT [email protected]
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