OECD 2013 annual meeting of senior PPP officials

Overview of global PPP markets

PricewaterhouseCoopers

15 April 2013

Contents

1. Trends in the global PPP market

2. Trends in global project finance

3. Policy responses

4. Observations and conclusions

Trends in the global PPP market

“The European PPP market recorded in 2012 its lowest volume and number of transactions for a decade” EPEC, 2012 review

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General decline in deal volumes ...

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• Debt markets struggling with Sovereign ratings, Basel III and de-leveraging

• Increasing reliance on multilaterals and export credit agencies

• Increased completion payments / milestones to reduce senior debt requirement

• Share of bonds, IFI finance and equity finance has increased slightly

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With ongoing changes in funding mix

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Decline is impacting all regions ...

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Developed markets over-borrowed and over-taxed Significant capital programmes in emerging markets, but PPP slow to develop

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With European’s decline particularly pronounced

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Within Europe the UK and France accounted for nearly 75% of transactions

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Sectoral impact is variable

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Transport remains the most active sector; social sectors declined sharply in 2013

Trends in global project finance

“Despite rising demand ... 2012 tells a story of deterioration in the markets where private capital has previously flourished” Infrastructure Journal, 2012 review

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Global project finance market

Annual project finance invested globally (US$ Bn)

Source: Project Finance International

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0

50

100

150

200

250

300

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Global project finance market

Global loans by sector (US$m)

Source: Project Finance International

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Sector 2009 2010 2011 2012

2009-2012 growth

Power 56,289 73,300 80,499 66,308 18%

Oil & Gas 25,640 25,951 38,835 60,234 135%

Transportation 25,451 52,315 43,607 40,467 59%

Telecommunications 8,118 13,383 5,314 10,303 27%

Leisure and Property 7,474 13,824 15,439 6,833 -9%

Water & Sewerage 4,699 1,578 997 4571 -3%

Mining 4,071 8,858 10,823 4,418 9%

Industry 3,454 6,306 12,154 3,241 -6%

Petrochemicals 2,797 11,306 4,614 1,529 -45%

Waste & Recycling 1,194 1,267 724 842 -29%

Other n/a 86 479 n/a

Total 139,186 208,174 213,487 198,746 43%

Policy responses

“While the Europeans talked other did get on with it” Project Finance International , 2012 league tables

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Policy responses

UK:

• A new PPP model (PF2):

◦ Government equity participation ◦ Soft services excluded ◦ Minor changes to risk allocation ◦ Encouragement for capital markets financing ◦ A new brand!

• Plus state guarantees and direct lending (again):

◦ UK Guarantees of up to GBP40bn ◦ Government loans made available to some 30 PPP projects

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Policy responses

• EIB project bond initiative:

◦ Subordinated loan or contingent facility ◦ To credit enhance senior debt ◦ Pilot phase to 2016; Euro 230m focused on transport

• Export credit agency facilities:

◦ Major source of credit / guarantees, linked to national project content

◦ Focus on utilities and industrials but can be broader ◦ Particularly effective for Japanese, Korean and Chinese

contractors; leading to some concern on market concentration

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Observations and conclusions

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Observations and conclusions

• Continued difficult economic conditions in many countries with established PPP programmes

• Now leading to marked decline in transaction volumes and values notwithstanding the availability of equity

• Gradual but slow transition from bank to capital market financing, but with few notable signs of progress in the last year

• In general the policy response does not appear sufficient to arrest the decline in PPP

But:

• The fundamental conditions for PPP to thrive remain and we are optimistic about medium term growth in developing markets

• Brownfield / secondary market remains active and growing

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