Erste Group Infrastructure Finance & Public Sector Private Sector participation in Infrastructure Projects Romanian Infrastructure Conference 25 th August.

Erste Group

Infrastructure Finance & Public Sector

Private Sector participation in Infrastructure Projects

Romanian Infrastructure Conference

25th 19 Apr 2023

2

Traditional Financing vs. Project Finance

Project companyProject company

Company /

Municipality

Company /

MunicipalityEquity

Project Finance Project Finance Conventional FinancingConventional Financing

BanksBanks

Municipality (Borrower)Municipality (Borrower)

LoanProjectloan

BanksBanks

Faultless solvency

Municipality liable for debt service

On the balance sheet

Off balance sheet

Non recourse to the sponsors

Creditworthiness depends on generated cash flows by the project

Risk sharing between participants

3

Instruments for Private Sector Participation

Control versus Cash generation Long term

Short term

Low C

ontro

l High

Low

C

ash

gen

erat

ion

Hig

h

Leasing

SecuritisationHire-purchase

Public Authority or State Loan

Contracting out

Factoring

Operating or Management Contract

Concession

Privatisation orSale

4

When are PPP‘s appropriate?

PPP‘s are essentially just a procurement alternative: decision should be based on which alternative (concession, procurement, privatization) offers the best value for money

PPP’s may be appropriate

where the public sector wishes to maintain a degree of control over a strategic asset

where the public sector must make a substantial financial contribution to a project to make it “bankable”

where a publicly owned, commercially oriented entity wishes to participate for commercial reasons

5

Key government issues

Budgetary considerations

Time and cost of the tendering phase

Government fear of loosing administrative power without parallel reduction of responsibilities

Continuing necessity of governmental support (mixed models)

Required know-how and experience of governmental agencies

Political commitment to the PPP model is essential

6

PPP rewards for Private Sector

Private partner

Private partner must have an adequate return on his investments

Interest in getting a construction contract, EPC contract, O&M contract

Long term contract and revenues

Banks

Higher margin and fees

Long term relationship to public and private partners

7

Necessity of risk sharing

Risks shall be allocated to the party best able to manage

and influence the specific risk:

Government

- Land acquisition

- Claims

- Cultural inheritance

- Licences and permits

- Change in law

- Maybe subsidise cash flows or tolls thus bear (some) traffic risk

- Provide guarantees for debt facilities

Supra-national Institutions

(EBRD, EIB, IFC etc.)

- Reducing political risk

- Providing access to local currency

- Accepting longer tenors

Private Partners

(Concessionaire, general contractor, operator)

- Completion risk

- Most technical and operational risks

- Performance risk

- (Some) traffic risk

- Provide guarantees

- Subordinated standby-facilities

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Financing issues

„Bankable“ risk allocation

Equity contribution depending on the financial feasibility of the Project and investor’s expectations

Strong government support (e.g. direct equity / debt guarantees)

Strong revenue support: key financial risks (e.g. traffic, FX) must be borne by the government,

shadow toll / availability concepts

Currency risk: Projects generating mainly local currency income, however, local currency funding is

not available for the whole amount needed

Maturities needed according to business plan are not bankable at first sight and need careful structuring. Loan tenors can be enhanced through instruments provided by supra-national institutions to reach 15-20 years as probably required by the economics of the project.

Adequate political risk coverage through the involvement of ECAs/MIGA and supra-nationals such as EIB and EBRD

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Legal issues

Transparency of the procurement process is a must

Creating the legal structure, limited potential for standardisation

Allocation of risks between private and public sector needs to be clearly defined

Retain certain flexibility to adapt the contracts to a changing environment

Find ways-out for possible events of early termination acceptable to all parties involved, i.e. public

entity, investor as well as debt providers

Compensation in case of early termination

Change in law risk is often shared for general change in law. Public sector takes risk on

discriminatory change in law.

Create a bankable security structure

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PPP Project Partners (1)

Sponsors: equity provider (construction companies, infrastructure funds, individuals)

Contractors: EPC contracts, long term maintenance, fixed price, date certain construction

Subcontractors: provide specific services to the general contractor

Operator/facility manager: has to take performance risk, part of long term maintenance

Customers: clients who profit most from a well performing solution based on socially acceptable levels

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PPP Project Partners (2)

State entities: legal framework, early financial contribution, main party to the concession contract

(International) Banks: financial structure, know-how provider, provide funding on a viable financial structure (DSCR, LLCR, DSRA)

Financial/technical advisors: assist the different parties to find an optimal solution

Market/insurance consultants: market overview, development, provide sufficient necessary insurance package for a project

Lawyers: draft documentation considering the potentially different legal systems involved

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Key Players: Investment banks…

…become Infrastructure OperatorsMacquarie Group

Worldwide leading private infrastructure investor

Various infrastructure funds worldwide with more than 100 assets

€36bn of equity under management

Special fund with CEE investment strategy: Macquarie European Infrastructure Fund III

Currently bidding for toll road PPP‘s in CEE (e.g. Slovakian motorways)

Goldman Sachs

Focus on traditional infrastructure sectors such as toll roads, airports and ports, as well as regulated gas, water and electrical utilities

Morgan Stanley Infrastructure Fund

Deutsche Bank (RREEF Infrastructure)

Over €6.1bn of assets under management

22 acquisitions

2007: acquisition of A5 Ostregion (Austrian toll road)

no other assets in CEE/SEE

3i

Focus on Europe, North America and Asia

No deals in CEE so far

ABN Amro

Focus on OECD countries in Europe

Bidding together with Vinci for R1 Expressway (Slovakia)

Babcock&Brown

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Hochtief

Involved in 31 PPP projects worldwide with an investment volume of +€11bn

16 in the field of public buildings (operation of 89 schools in Germany, the UK and Ireland)

15 toll roads with a total length of more than 700km (A4 Highway, Germany; Vienna North Highway, Austria;

Participating in all major toll road tender PPP‘s in CEE

Hochtief Airports:

stake in Athens, Düsseldorf, Sydney and Hamburg airports

Operation of Budapest and Tirana airports

A toal of more than 89million pax in 2007

Key Players: Construction Companies…

…become Infrastructure operators

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Key Players: Construction Companies…

…become Infrastructure operators

FCC/Alpine

Skanska

OHL

Mota-Engil

Eiffage

Aktor

Bilfinger Berger

Vinci

Strabag

Porr

Egis

Bouygues/Colas

Other main international players with activities in CEE:

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Key Players: International Infrastructure Operators…

…move to CEE

Some of the players are:

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Contacts Bucharest

Markus KrieglerErste Group – Banca Comerciala RomanaHead of Project Finance Bucuresti, Str. Lipscani 18-22, Sector 3

Tel.: +40 (372) 26 48 03mobile: +40 (732) 45 06 [email protected]

Ioana GheorghiadeErste Group – Banca Comerciala RomanaDeputy Head of Project Finance

Tel.: +40 (725) 26 75 60mobile: +40 (722) 29 18 [email protected]

Iuliana TobaErste Group – Banca Comerciala RomanaSenior Client Executive Bucuresti, Bd. Regina Elisabeta No. 5

Tel.: +40 (21) 31 21 505mobile: +40 (723) 71 46 [email protected]

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Contacts Vienna

Werner Weihs-Raabl Erste GroupHead of Group Infrastructure Finance & Group Public Sector 1020 Vienna, Obere Donaustraße 17 - 19

Tel.: +43 (0) 50100 - 18010Fax: +43 (0) 50100 - 9 18010mobile: +43 (0) 664 818 05 [email protected]

Christian Topp Erste GroupHead of Energy & Environment Finance 1020 Vienna, Obere Donaustraße 17 - 19

Tel.: +43 (0) 50100 - 18039Fax: +43 (0) 50100 - 9 18039mobile: +43 (0) 664 818 15 [email protected]

Christoph LangErste GroupHead of Health & Education Finance 1020 Vienna, Obere Donaustraße 17 - 19

Tel.: +43 (0) 50100 - 18041Fax: +43 (0) 50100 - 9 18041mobile: +43 (0) 664 818 04 [email protected]

Erich MaschekerErste GroupTransportation Finance 1020 Vienna, Obere Donaustraße 17 - 19

Tel.: +43 (0) 50100 - 19911Fax: +43 (0) 50100 - 9 19911mobile: +43 (0) 664 838 92 [email protected]

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Curriculum VitaeMarkus Kriegler, Head Group Project Finance

Markus Kriegler heads the Group Project Finance Team of Erste Bank Group as well as the Project Finance Division of Banca Comerciala Romania. He has extensive experience in corporate banking with a strong focus on structured finance. Since more than 10 years Markus Kriegler has been involved in a number of corporate finance transactions almost exclusively in the CEE Region and Austria. Markus holds a master degree from the Vienna University of Economics and Business Administration.

Before joining Erste Group in 2008 Markus acted as a Managing Director responsible for Corporate Solutions in the financing team of Unicredit Markets & Investment Banking in Vienna where he was responsible for a number of corporate finance transactions in CEE, Russia and Austria across all sectors.

From 2006 to 2007 Markus headed the Structured Finance Team of Unciredit (HVB Bank at this time) in Prague, Czech Republic. Leading a team responsible for project finance, acquisition finance and other structured finance solutions he was overlooking acquisition financings in the heat, power and natural resources sectors as well as in general industries. Moreover he was involved in project financings in various sectors including telecom, power, biofuel, general industries and media.Markus also spent three years in Serbia and Montenegro heading the corporate division of the newly founded HVB Bank in the country. Starting as a greenfield he built the corporate business of the bank to a 25 people operation.Before going abroad Markus was a member of the energy, oil& gas and utlities team within the Project Finance Department of Bank Austria Creditanstalt in Vienna which he headed from 2000 to 2001. In this time he was leading project finance transactions for power stations, refineries and water utilities in the CEE region, mainly in Poland, Hungary, Croatia, Czech Republic and Slovakia.

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Selected Credentials - Infrastructure Finance

Transport Finance

Phase I and II FinancingTransaction volume:

EUR 375Mio.

AZM, Croatia

Transport Finance

Phase II FinancingTransaction volume:

EUR 693Mio.with ERSTE participated:

EUR 30Mio.

Bina Istra, Croatia

Transport Finance

Financial Advisory and Financing

Transaction volume: EUR 2,1Bn.

D1, Slovakia

Transport Finance

FinancingTransaction volume:

EUR 445 Mio.with ERSTE participated:

EUR 60 Mio.

M6, Hungary

Transport Finance

EquityTransaction volume:

EUR 900Mio.

A5, Austria

Social Infrastructure Finance

FinancingTransaction volume:

EUR 46Mio.

Sportski Grad, Croatia

Energy Finance

FinancingTransaction volume:

EUR 1Bn.

Enerji SA, Turkey

Sports and Leisure Finance

6 yr investment loan: EUR 22mln.

Višnjik Sports HallZadar

City of Zadar / Sportski Centar Višnjik doo

2008Sports and Leisure Finance

25 yr investment loan: EUR 29mln.

Jelačićka Sports Hall Varaždin

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Selected Credentials - Infrastructure Finance Advisory

2008Infrastructure Finance

Financial Advisory Transaction volume:

EUR 40mln.

City Town Hall Czech Republic

2006-2008Infrastructure Finance

Financial Advisory Transaction volume:

EUR 75mln.

CourthousesCzech Republic

2006-2008Infrastructure Finance

Financial Advisory

Transaction volume:

EUR 65mln.

Emergency Care Centre Czech Republic

2006-2007Infrastructure Finance

Financial Advisory and Project Management

Transaction volume: EUR 80mln.

Pardubice County Hospital Czech Republic

2007-2008Infrastructure Finance

Financial Advisory and Project Management

Transaction volume: EUR 20mln.

Zlin Congress Centre Czech Republic

2007Social Infrastructure Finance

Financial advisoryTransaction volume:

EUR 15mln.

Catholic ChurchCzech Republic

2006Infrastructure Finance

Financial AdvisoryTransaction volume:

EUR 30mln.

Karlovy Vary Hospital Czech Republic

2006Infrastructure Finance

Advisory Transaction volume:

EUR 17mln.

Merger of Two Hospitals Czech Republic

2007Infrastructure Finance

Advisory on preparation of methodology

PPP methodologySlovak Republic

2007-2008Infrastructure Finance

Financial Advisory Transaction volume:

EUR 55mln.

Multifunctional Centre Czech Republic