ANDRE PENA AIRDEV2012 AFP PPPAirports Finalweb.tecnico.ulisboa.pt/~vascoreis/projects/airdev/... · 3 PRIVATE INITIATIVETO OVERCOME INFRASTRUCT. SHORTAGE Public-Private Partnerships

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Public-Private Partnerships in theAirport SectorStructured Guidelines for PPP Implementation

André Franco Pena

AIRDEV 2012 – Business Models for AirportDevelopment

Lisbon, 19 April 2012

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Public-Private Partnerships in the Airport Sector

Structured Guidelines for PPP Implementation

OUTLINE

Introduction1

Public-Private Partnerships – The Concept, Pros and Cons2

Public-Private Partnerships in the Airport Sector3

Guidelines for the Implementation of PPP4

Final Conclusions5

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PRIVATE INITIATIVE TO

OVERCOME INFRASTRUCT.SHORTAGE



1. INTRODUCTION

PRIVATE SECTOR (THE AGENT): Implementation of dynamic business models.

PPP AS A POSSIBLE SOLUTION TO DELIVER AIRPORT INFRASTRUCTURES.

PUBLIC SECTOR (THE PRINCIPAL): PSO requirements and regulation.

The Airport Sector

WHY IS IT IMPORTANT? Vehicles of economic well being and social development.

ISSUES IN AIRPORT DELIVERY? Capital intensive, cost overruns and delays, and public contestation.

Infrastructure needs and lack of resources

Infrastructure Gap

Reduced productivity and competitiveness

Space for private engagement, as a valid alternative

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Contractual agreements, where the GRANTOR (the State) assigns to a private

CONCESSIONAIRE HIS duty of delivering determined public infrastructures and/or public services. PPPs aim to maximize the value of the project and is based in the

proper sharing of risks and rewards between both parties involved.

2. PUBLIC-PRIVATE PARTNERSHIPS – THE CONCEPT, PROS AND CONS

Pros Value for Money: Use of private capital and diversification of the financing

sources. Maximization business potential.

Efficiency and Innovation: Implementation of the best of most innovative

operational proceedings.

Risk Management: Allocation of risks to the partners most able to bear

them, reducing overall project risk and partners’ exposure.

Cons Contract Design and Management: One of the major causes of failure.

Careful allocation of risks, definition of rents and compensations.

Complex Contractual Structures: The typical wide contract network

creates financial opaque structures, very difficult to monitor.

High Transaction Costs: TOR definition and procurement are complex and,

therefore, more expensive. Not suitable for small projects.

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OBJECTIVES

Trend towards marketbusiness models

Political influence, wrong andbad planned investments &current subsidization

Strategic character, promoterof economic development &regarded of public interest

3. PUBLIC-PRIVATE PARTNERSHIPS IN THE AIRPORT SECTOR

Introduction



MARKETIZATION OF

PUBLIC AIRPORTS

BUSINESS-ORIENTEDMANAGEMENT

COMPETITIVE ANDATTRACTIVE SERVICE

ECON. REASONING & POLITICAL AUTONOMY

INEFFICIENT SERVICE ANDEXCESSIVE PUBLIC DEFICITS

GOVERNMENTAL PROTECTION OF

THE AIR TRANSPORTATION SECTOR

PUBLIC-PRIVATEPARTNERSHIPS

PRIVATIZATION

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. Ultimate liability over the airport

infrastructure remains public;

. Terminals developed and managed by

private enterprises (typically airlines).

. Operators “hunt” mgmt. contracts;

. Diminish risk exposure to own markets;

. No operational nor commercial risks

transferred.

. Trade sales, IPOs, MBOs, EBOs, etc.;

. Reduce public exposure to investments;

. Bring private operation expertise;

. Develop strategic alliances.

MANAGEMENT CONTRACTS

. Private sector responsible for full service

delivery – OpEx and CapEx;

. Privately held during the contract and

then transferred to the State.

Different Models in Airport Public-Private Partnerships

OPERATION OF TERMINALS

CONCESSION CONTRACTS

SHARED OWNERSHIP

3. PUBLIC-PRIVATE PARTNERSHIPS IN THE AIRPORT SECTOR

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CONSTANT OVER-VALUATION OF MIN

COSTS OR MAX FEES. A VALUABLE

PROJECT MAY MEAN, FOR INSTANCE,

LOWER BUT MORE STABLE FEES

LACK OF STATE KNOW-HOW, FUNDS

INVESTED TO OVERCOME IT, AND

RATIONAL REASONING BY POLITICAL

DECISION MAKERS

APPARENT USE OF “OTHERPEOPLE’S MONEY” LED TO THE

DEVELOPMENT OF UNNEEDED

FINANCIALLY UNVIABLE PROJECTS



OVERUSE OF PPP TOMASSIVELY DEVELOP

INFRASTRUCTURES

BADLY DESIGNED CONTRACTS

AND THE STATE-GRANTORCAPTURE

INAPPROPRIATE PROCUREMENT

AND THE TRUE VALUE OF THE

BIDDINGS

Introduction

PROVIDE A HOLISTICCONSCIOUSNESS

TRANSFORM POLICYPROCESS

RAISE INVESTORS’ AWARENESS

DEFINE STEPPINGSTONES

PROMOTE GUIDELINES TOWARDS CLEANER PPP

4. GUIDELINES FOR THE IMPLEMENTATION OF PPP

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STEP 1: Bringing Public-Private Partnerships into Policy Agenda

THE OBJECTIVE MUST ALWAYS BE TO OVERCOME THE INFRASTRUCTURE GAP, INVESTING IN

MEANINGFUL PRIORITY PROJECTS.

PPP ARE ONLY ONE OF THE POSSIBLE ANSWERS TO ADDRESS THE SHORTAGE IN INFRASTRUCTURES, BUT IT

IS NOT ALWAYS SUITABLE. ALL OTHER SOLUTIONS MUST ALWAYS BE EQUALLY CONSIDERED AND

EVALUATED.

POLITICAL STRENGTH TO SET GOVERNMENTAL

OBJECTIVES AND PRIORITIES.DEFINE TARGETS AND GOALS AIMED TO BE

ACHIEVED WITH INFRASTRUCTURE PROJECTS.

ENGAGE STAKEHOLDERS IN ORDER TO PROMOTE

CONSTRUCTIVE PUBLIC DEBATE AND UNDERSTAND

NEEDS

FIND ADEQUATE MOMENTS OF OPPORTUNITY TO

SET PUBLIC DISCUSSION.

IMPERATIVE LONG-TERM STRATEGIC PLANNING, INSTEAD OF TYPICAL QUICK RESOLUTION OF

SHORT-TERM PUBLIC NEEDS.

PPP ARE A POSSIBLE SOLUTION IN

INFRASTRUCTURE DELIVERY, BUT IT IS NOT

NEITHER UNIVERSAL NOR INEVITABLE.


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ASSESS LEVEL OF IN-

HOUSE EXPERTISE &

NEEDS FOR IMPORTS

PREVENT ABUSES AND

PROMOTE MARKET

DYNAMICS & STABILITY

POLITICAL STABILITY

ATTRACTS INVESTMENT

AND INCREASES SUPPORT.

CRITICAL FOR SUCCESS,

MUST COMPREHEND

NEEDS & DESIRES

SET UP PPP TASK UNITS

TO DESIGN, MANAGE &

MONITOR CONTRACTS

UNDERSTAND PROJECTS’

FINANCIAL VIABILITY AND

SOCIO-ECONOMIC IMPACT

IDENTIFY NATIONAL

INFRASTRUCT. NEEDS & DEFINE MAJOR GOALS



REQUIREMENTS & EXPECTATIONS

TECHNICAL ISSUESLEGAL &

REGULATORY

FRAMEWORKS

INSTITUTIONALSTRUCTURES

ASSESSCOMMERCIAL,

ECONOMICAL AND

FINANCIAL ISSUES

ENGAGESTAKEHOLDERS

POLITICALCOMMITMENT ANDPPP CHAMPIONS

STEP 2: Structuring a National PPP Programme


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STEP 3: Identification and Prioritization of Projects

IDENTIFY NATIONALINFRASTRUCTURENEEDS

. PROJECTS WITH HIGH VALUE TO THE NATIONAL SOCIO-ECONOMIC CONTEXT;

. SUITABILITY TEST TO SPOT INADEQUATE PROJECTS AND ELIMINATE A PRIORI

CONDEMNED PROJECTS.

PRIORITIZEPOTENTIALINVESTMENTS

. IMPERATIVE TO NARROW THE FOCUS AND ENSURE OBJECTIVENESS

. MCDA – ECONOMIC/FINANCIAL VIABILITY, MIN/MAX CAPEX, DEMAND &

RISK ANALYSIS.


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STEP 4: Due Diligence and Feasibility Studies

GOALS UNDERSTAND THE PROJECTS’ SOCIO-ECONOMIC IMPACTS, ASSESS WHICH IS THE MOST

ADEQUATE PPP MODEL AND ASSESS THE INVESTMENTS’ FINANCIAL VIABILITY.

CHOICE OF PPP MODEL

PPP FAMILY INDICATOR: PRELIMINARY

ASSESSMENT OF CAPEX, OWNERSHIP, FINANCING

AND PRIVATE SECTOR’S ROLE.

PPP MODEL VALIDATION TOOL: RISK

ANALYSIS, COMPARING THE PROPOSED

ALLOCATION WITH PRE-DEFINED STRUCTURES.

ASSESS VFM DELIVERY

PPP FINANCIAL FEASIBILITY INDICATOR:SCENARIO ANALYSIS W/ VARIED CAPITAL

STRUCTURES & OUTCOMES. ACKNOWLEDGE

LIKELIHOOD TO ATTRACT INVESTORS & NEED FOR

COMPENSATIONS.

PPP VFM INDICATOR TOOL: PROVIDES A

PROBABILISTIC DISTRIBUTION OF VFM,

COMPARING IT WITH PSC(1), ASSESSING WHICH

MODEL MAXIMIZES VFM DELIVERY.

(1) PSC – Public Sector Comparator: Risk-adjusted cost a project if traditionally procured. Despite it is not a deterministic decision making tool, It is a

useful indicator when evaluating proposals’ VFM delivery.


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STEP 4 (Backup): Decision Support System for Due Diligence and Feasibility Studies

ProjectPPP yield better value?

PPP Suitability Test

Most adequate

PPP model?

PPP Model i(iterative evaluation

of different models)

Project Specific PPP

Assess VFM, against PSC.(Typically carried by an

independent party)

Proceed with the recommended

model. Start PPP procurement.

PPP Family Indicator

PPP Model Validation Tool

Preliminary model analysis. (CaPex, Ownership, Financing

Source, Private Sector Role)

Compute PSC.

Assess Project’s financial feasibility. (When delivered with

the selected delivery model)

PPP VFM Indicator

PPP Financial Viability IndicatorVFM

delivery?

Yes

Assess other procurement strategies

No

Revise 1

stle

vel of decisio

n

Revise. Inadequate goals and scope.

Inadequate. Withdraw PPP

procurement.

Risk Analysis


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STEP 5: Procurement and Contract Award

PROPER APPRAISAL IS

CRUCIAL FOR SUCCESS:

�RIGOROUS EVALUATION

OF TECHNICAL &

FINANCIAL SKILLS;

�VFM MEASUREMENT OF

EVERY PROPOSAL, WITH

COMPARISON WITH PPP

VFM INDICATOR.

INFO MEMO SENT TO

POTENTIALINVESTORS

EXPRESSIONS OFINTEREST RECEIVEDW/ NON-BINDING

PRICE

BIDDERS ARESHORT-LISTED

SHORT-LISTEDBIDDERS ARE SENT

REQUESTS FORPROPOSALS

BIDDERS’ DUEDILIGENCE AND

PROPOSALS’ SETUP

BIDDERS’ SUBMISSION OF

FINAL & BINDINGOFFERS

GRANTOR’S DUEDILIGENCE AND

PROPOSALS’ APPRAISAL

GRANTOR’S CHOICEOF PREFERRED

BIDDER

TECHNICAL ANDFINANCIAL CLOSE


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STEP 6: Implementation, Contract Management and Benchmarking

�CRUCIAL FOR THE SUCCESS OF ANY PPP;

�AIMS TO MONITOR PERFORMANCE, ENFORCE

REGULATION AND CONTRACT CLAUSES, ENSURE VFM

AND RESOLVE DISPUTES;

�CONTINUOUS PROCESS FROM RIGHT AFTER CONTRACT

AWARD UNTIL CLOSURE;

�SHALL BE UNDERTAKEN BY SPECIFIC PPP TASK UNITS.

CONTRACTMANAGEMENT

�AIMS TO COMPARE PRODUCTIVITY & EFFICIENCY,

EVALUATE PROCEDURES, POLICIES AND STRATEGIES;

�SHALL BE CARRIED AGAINST PAST INDICATORS AND

AGAINST SIMILAR AIRPORTS;

�PASSENGER IND.: FLIGHTS DELAYED, CONNECTING

TIMES, ETC.;

�MGMT. IND.: EBITDA MARGIN, ATM/RUNWAY, ETC,

BENCHMARKING


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5. FINAL CONCLUSIONS

Joint Ventures between the public & private sectors may be one of

the most viable solutions to overcome the current gap.

#2: Past abusive overuse of PPP created a

major prejudice about PPP.

#3: PPP are partnerships – Public interest shall

be protected and market potential promoted.

#4: Business opportunities must be attached

to structured political decision-making.

#1: The airport infrastructure gap is huge

and a counterattack is imperative.

Imperativeness of more consistent choice of infrastructure projects, as

well as, “cleaner” and better designed PPP contracts.

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Public-Private Partnerships in the Airport SectorStructured Guidelines for PPP Implementation

André Franco PenaDECivil – IST – UTLEmail: [email protected]: http://pt.linkedin.com/in/francopena

ANDRE PENA AIRDEV2012 AFP PPPAirports Finalweb.tecnico.ulisboa.pt/~vascoreis/projects/airdev/... · 3 PRIVATE INITIATIVETO OVERCOME INFRASTRUCT. SHORTAGE Public-Private Partnerships

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