C.R.E.A.M. PPP Business Model

Building Europe Together with Public Private Partnerships07.04.23

1

Concept of a Business Model for the Support of PPP Projects

MasterPPPlanBusiness Model

07.04.23 Building Europe Together with Public Private Partnerships 207.04.23

OverviewContent

About Us Initial Situation Definition of PPP MasterPPPlan Development Strategy PPP Procurement Procedures Competitive Dialogue Project Finance EuroPPP Initiative MasterPPP ILM MasterPPPlan Business Model Contact Address


C.R.E.A.M. Europe PPP AllianceAbout Us PPP network for reconstruction and development COMMUNITY REALIZATION EUROPEAN AID MASTERPLAN PPP Think Tank consisting of 8 national PPP associations at present Using PPP as a sustainble regional development strategy PPP project participants, PPP adviser, PPP bidder,

• European and independent• Active in new EU member countries, EU candidate countries and EU third countries• In cooperation with the EU institutions and international PPP competence centres

Link between Western, Central and Eastern Europe• Economy• Science• Politics

Accelerator for EU Enlargement and sustainable regional development• MasterPPPlan – Initiative for European PPP Region• EuroPPP – Initiative for European PPP Bidder• MasterPPPlan Adviser – European PPP Procurement Manager• EuroPPP Adviser – European PPP Bid Manager• MasterPPP ILM – Infrastructure Life Cycle Management for PPPs


C.R.E.A.M. Europe PPP AllianceNational PPP Associations

Liaison OfficeNational PPP AssociationEuropean PPP AssociationMasterPPP ILM Competence Centre

http://www.cream-europe.eu/


Initial SituationGeneral Interests

PPP

Interests• Fast Realization• Better Service for

Citizens• No Debt

But• No Money• No PPP Knowledge• No Lifecycle Approach

Interests• Sustainable Regional

Development• Optimal Usage of EU

GrantsBut

• Competition between Regions

• Competition between Companies

• No Project Development

Interests• New Business• New Markets• New Partners• Access to Capital

But• No Risks• No Partners• No Venture Capital• No PPP Knowledge• No EU Knowledge

Interests• Long-term Investments• Safe Investments• Infrastructure is a new

Asset Class• High Returns

But• Looking for objects in

operation• No Risks

Unites all interests at a right procedure to a Win-Win situation


Initial Situation Problem Tree

Limited number of PPP projects and questionable efficiency of PPP projects

Problems in regulating PPP projects andStrategic management of PPP programme Lack of interest in PPP projects Difficulties in PPP project implementation

Deficiencies in operating environment andlack of capacity in Governments to promote,Develop, operate and manage PPP projects

Lack of awareness at the policy-making levelconcerning PPP

Lack of institutional mechanism for capacity-building, information sharing and absence of

Project development facility

Lack of easily accessible relevant informationand knowledge on PPPs

Unassessed state ofPPP-readiness

Lack of knowledgeconcerning specific

requirements(legal, financial,regulatory, etc.)

Lack of cooperationbetween agencies

involved inimplementing PPP

projects

Lack of cooperationbetween

governmentagencies and

training institutions

Suitable capacity-buildingmaterials and other training

materials are not readilyavailable

Effects

Causes


Initial Situation Object Tree

Increased number and investments, in and efficiency of PPP projects

Strategies designed and legal andregulatory regime established to create

conducive environment

Establishment of a regularPPP programme Improved project implementation process

Improved operating environment and enhancedcapacity of Governments to promote, develop

operate and manage PPP projects/programmes

National awareness in creatingconducive environment for PPP

development

Institutional mechanism for capacity developmentthrough networking of PPP units, programmes, training

and academic institutions, and the private sector

On-line PPP capacity-building facility,resources and relevant project information

accessible to all parties

National programmesAction plans

PPP-readiness assessment(in paricipating countries)

PPP Global Alliance(Established through an inter-regional meeting)

National training institutions

Internet-based system development

End

Means

PPP regional Alliance(Established through an regional meeting)

PPP national Alliance(National meetings and capacity-building workshops)

PPP-readiness assessment(in paricipating countries)

System installation


C.R.E.A.M. Europe PPP AllianceImplementation of PPPs

Using PPP as sustainable regional development strategy Transparent procurement as a Competitve Dialogue Lifecycle approach during project development Project Finance based on projected revenues from the facility Contractual PPP with clear risk sharing

EuroPPP Initiative for Private Side Specialization on facility type with life cycle approach Strategic building of PPP consortia

MasterPPPlan Initiative for Public Side Realization of infrastructure by transparent PPP procurements Competitive Dialogue with standardized procurement packs (output specifications, cashflow models, risk matrix, PPP contracts for different facility types)


Public Private Partnership Definition

PPP is PPP is notBetter procurementPublic sector reformBetter strategic planningBuilding and maintaining good infrastructureBetter services for the taxpayerSharing of risks between most appropriate partiesPublic and private sectors working together

Free infrastructureJust about financeJust building infrastructureJust about involving the private sectorPrivatisation, simple concessions, outsourcing or property development A method to make a bad project good


Public Private Partnership Advantages and Constraints

PPP PROs PPP CONsAcceleration of infrastructure provisionFaster implementationReduced whole life costsBetter risk allocationBetter incentives to performImproved quality of serviceGeneration of additional revenues Enhanced public management

Complex structure & documents Time-consuming to arrangeHigh up-front costsDemands significant senior staff attentionProject choice importantPSC methods need refiningDifficult to resolve when in defaultNeeds legal framework


Public Private Partnership PPP Value Drivers

Less Value Added More Value Added

Fixed price Performance-based payment mechanism: carrots and sticks! Above-par performance should give higher profitability, low performance should trigger penalties.

Performance payments

Input contracting Output specifications: Output-based contracting leaves

room for the private sector to decide how to deliver the envisaged services. This uses the private sector's creativity to deliver the agreed public service at lower costs, or to provide better quality at the same cost to the user.

Output contracting

Risks all placed in one hand

Intelligent risk allocation: a risk should be allocated to the party that is best able to manage that risk. If too many or the wrong risks are held by either the public or private party the PPP will not add value.

Risks with party best able to manage risk

Less project phases in one hand

Lifecycle optimization: integrating different components and phases of a service increases its performance over its lifecycle and minimizes interface problems.

More project phases in one hand

Informal contracts Formal contracting: formal contracting with clear legal

recourse in case of disputes increases clarify and reduces risk.

Formal contracting

Less competition Competition / functioning market: competition from an adequate number of companies increases value-for-money. PPPs without competition are inefficient.

More competition

Public financing Private financing: private financing also results in strong oversight from debt and equity providers which can increase project performance.

Private financing


MasterPPPlanRegional Development Strategy

MASTERPPPLAN REGIONAL DEVELOPMENT STRATEGY

SUPPORT TO ENTERPRISES HUMAN RESOURCES ATTRACTIVITY OF

THE AREA

Non financial services

InformationAudit / Advice

TrainingAwareness raisingCommon services

Financial services

GrantsLoans

GuaranteesVenture Capital

Factoring - Leasing

Intermediate structures

Development agenciesVenture capital companies

Technology transferagencies

Localinfrastructure

Enterprise centresIncubators

Industrial parksScience parks

First-Stop-Shops

direct indirect

KNOWLEDGE SOCIETY

Education

Training

Employment creation

Integration of less-favoured peopleand minority groups

Territorial pacts

Employment needs`analysis

LOCATIONAL FACTORSInfrastructureEnvironment

Industrial promotionInward investment

Reclamation of derelict landPromotion of the region

TourismClusters

InternationalisationResearch, Innovation and

Technology transferInformation Society


MasterPPPlanResource Base of a Region

HumanResources

FinancialResources

PhysicalInfrastructure

NaturalResources

Sources of Technology

Institutions Gov`tPolicies

Employed Residents+Skilled+Unskilled+Under-employed

Unemployed

Not in labour force+Retired persons+Youth+Homemakers

Entrepreneurs

Banks

Public finance Programmes

Informal investors

Non-profit loan funds

Venture capital

Other lenders

Transportation+Roads+Air+Rail+Water

Public utilities+Water+Sewerage

Private utilities+Gas+Electric+Telephone

Real estate

Air

Ground water and rivers

Seashore and forests

Plants and animals

Renewable stocks

Non-renewable stocks

Universities and colleges

Federal labs

Private reserach institutions

Corporate reserach centres

Education/ Training

Ecenomic development

Social service

Community based

Religious

Cultural

Environmental

Unions

Regulation Policy+Zoning+Permitting+Environmental

Taxes

Services+Police+Fire+Solid waste


MasterPPPlan PPP Procurement Procedures

PPP projects have public money (tax money) thus they have to be procured internationally

Besides the standard selection there is the - Negotiation procedure and the - Competitive dialogue

Procedure and dialogue can be used if the public side is very insecure or not experienced about detailed information like:• Technical issues • Legal aspects • Financial conditions • Political reasons


MasterPPPlanCompetitive Dialogue A Project solution is worked out during the

competitive procedure Avoid an early specification on possibly

suboptimum concepts This kind of procurement is open for

innovative bidder concepts Award criteria must be early determined

(output specifications) European minimum standards are met:

• Guarantee of an adequate publication and transparency• No discrimination of national and EU bidders and non EU countries• Grant sufficient preparation time for bidders from non EU countries• Respect of equal treatment of national and foreign proofs and

certificates during the pre-qualification


MasterPPPlan Competitive Dialogue


MasterPPPlanCompetitive Dialogue


MasterPPPlanOptimal Realization of a Project

No Public Influence

No Public Influence

No Public Influence

Private Investor

Private Investor

Single benefit from sell of the

property

Public Side has great Influence

Public Side has great Influence

Guarantees of Private Investor

Fair Risk Sharing

Private Investor

Sustainable Benefits

Public Side has total Control

Public Side has total Control

Guarantees of General

Contractor

Public Side

Public Side

Sustainable Benefits

Aspects of a Project

Urban Aspect

Realization Speed

Guarantees for the Realization

Market Risks

Financing of a Project

Economical Benefits for Public Side

Realization methods of an Infrastructure ProjectPrivate Project Development

Traditional Procurement

Public Private Partnership

PROs

CONs


Project FinanceProject Structure and Risks

SPVProject

Company

Shareholders

Lenders /Bondholders

Operator

Construction Contractor

GrantingAuthority

Services Purchaser

Raw MaterialSupplier

Shareholder’s Shareholder’s AgreementAgreement Concession Concession

AgreementAgreement

Purchase Agreement (e.g., Purchase Agreement (e.g., housing purchase agreement)housing purchase agreement)

Supply Agreement (e.g., Supply Agreement (e.g., cement supply agreement)cement supply agreement)

Construction Construction ContractsContracts

Operation & Operation & Maintenance Maintenance Agreement (O&M)Agreement (O&M)

RegulatoryRegulatory RisksRisks

Regulatory and Regulatory and Performance Performance RisksRisks

Completion RisksCompletion Risks

Performance Performance RisksRisks

FX Risks and Refinancing Risks FX Risks and Refinancing Risks

Political and Macroeconomic Risks Political and Macroeconomic Risks


Project FinanceProject Map


Project FinanceDifferent Agreements Implementation Agreement Concession Agreement Construction Contract Operations Contract Maintenance Contract Raw Materials Supply Contract Sales Purchase Contract Special-Purpose Company Documents Share Subscription Contracts Loan Agreements Inter-creditor Agreement Escrow Account / Trustee Arrangements Insurance Licences; Permits; Bills & Decrees => Transparent Contract Management


Project FinanceRisk Matrix = PPP Contract

Risk Type Mitigation

Pre-completion- Cost over-runs- Delays

(a) Fixed price turnkey contracts(b) Warranties / penalties / incentives(c) Fixed project specification(d) Strong contractors

Post-completion- Revenue forecasts- Revenue build-up- Operating costs- Management failure

(a) Committed supply contracts(b) Committed off-take contracts(c) Strong operators(d) Performance guarantees

Technical- Performance- Environmental- Safety

(a) Warranties(b) Proven technologies(c) Public consultation and approval

Financial- Structure: debt/equity ratio, eg. 75/25- Structure: return on capital- Structure: risk / reward ratio- Foreign exchange- Interest rates- Debt service cover- Taxation

(a) Equitable ROE, ( eg. 15-20 %)(b) Acceptable cover ratios ( e.g 1.5 -2.0)(c) Escrow and reserve accounts(d) Dividend constraints(e) Loan syndication(f) Insurance / financial derivatives(g) Standby funding arrangements

Legal- Regulatory framework?- Concession law?

(a) Experienced lawyers.(b) Clear, simple documents

Political- Regime stability- Force majeure aggt.- Political intervention

(a) Clear regulatory regime(b) Investment insurance(c) IFI support


Project FinanceMasterPPPlan Fund

Equity provided by Equity provided by sponsorssponsors

Mezzanine or Equity Mezzanine or Equity provided by provided by

MasterPPPlan FundsMasterPPPlan Funds

DebtDebt

Project Financing Project Financing provided by banks / provided by banks /

IFIsIFIs

Leverage fund• MasterPPPlan funds attract money from long term investors

(such as pension funds, banks, foundations). • Inject equity or mezzanine finance in PPP projects

100100


EuroPPP InitiativeOpportunities for Companies financing with EU-Know-How, EU-Grants, Venture

Capital opening new markets in other European countries starting system supply: complex prod. & service

solutions profiting from permanent cashflows (service-

contracts) securing through selling shares in the operation-

phase generating new orders in the core business

through • building new consortia in other PPPs• improved international communication channels

(national platforms)• improved networking to EU (international platform)


EuroPPP InitiativeOpportunities for Companies

Provider

Investor SystemSupplier

GeneralContractor

Developer

EuroPPPConsortium


MasterPPP ILM PlatformOverview


MasterPPPlan Business Model Structure

1. EU-wide, transparent PPP Procurement = Competitive Dialogue

Bidder 1

AwardedBidderBidder 2

Bidder 3

MasterPPPlan Procurement

2. Life Cycle C

osts

3. Project Finance

4. C

ontr

actu

al-P

PP

PPP Bid Management

PPP Bid Management

PPP Bid Management

PPP Procurement Management

Refunding of Bidder Costs

Refunding of Bidder Costs

Integration of Transaction and Bidder Costsin the PPP Life Cycle Costs

PPP Transaction Costs

550

10

10

10

PVLOGPVPVLOGPC


MasterPPPlan Business ModelAdvantages for the Region

Faster realiziation of PPP projects Support economically the

development of new projects and the regional development through Revolving Funds

Leverage better the effects of grants Increasingly attract private industrial

investors Gather PPP competence in Public

Authorities Goal-oriented regional development


C.R.E.A.M.How can C.R.E.A.M. Help? Doing PPP awareness Organizing PPP trainings and workshops for capacity building Using PPP as a sustainable regional development strategy Finding the right PPP project participants, PPP adviser, PPP bidder,

• In cooperation with the EU institutions and international PPP competence centres

Accelerator for sustainable regional development• MasterPPPlan – Initiative for PPP Region• EuroPPP – Initiative for PPP Bidder• MasterPPPlan Adviser – PPP Procurement Manager• EuroPPP Adviser – European PPP Bid Manager• MasterPPPlan Fund – Concept for Urban Development Fund• PPP Procurement Fund – Local Partners support PPP Procurement• MasterPPP ILM – Infrastructure Life Cycle Management for PPPs• Standardization of PPP Procurement Packs


C.R.E.A.M.Closing Remarks

“PPP is not only a profession, PPP is also a passion…”

“It is no longer a question of ‘if PPPs’ ?, but rather ‘when and how PPPs’ ? …”

“PPP is learning by doing…”

“PPP is social entrepreneurship…”

“PPP has 3 success factors: Transparency, Transparency, Transparency…”

Thank you for your attention!


AddressContact

C.R.E.A.M. Europe PPP AlliancePublic Private Partnership AssociationAvenue de l`Opale 1 Appart. 5B – 1030 Brussels

Fon: +32-2-7366-984Fax: +32-2-7320-795www.cream-europe.eu

NameE-Mail

NameE-Mail

Dipl.-Ing. Zoran [email protected]

M.A. Alexander M. [email protected]

MasterPPP Competence CentreImplerstrasse 11D - 81371 München

Fon: +49-89-95414.127Fax: +49-89-95414.555www.masterppp.eu

NameE-Mail

Peter [email protected]

http://www.cream-europe.eu/

C.R.E.A.M. PPP Business Model

Real Estate

public influence

eu institutions

ppp bidder

paricipating

regional meeting

ppp adviser

readiness

output specifications