Mitigating Risk in Infrastructure and Development ... 3 Susan Prado.pdf · Mitigating Risk in Infrastructure and Development Financing in the Philippines ... Post completion •Revenue

Mitigating Risk in Infrastructure and

Development Financing in the Philippines

Susan Z. Prado Executive Vice President & Chief Finance Officer Development Bank of the Philippines

Blue: 0-26-216

Red: 224-0-25

Direct

Lending

Nation-building thru

funding of priority

sectors such as

infrastructure and

logistics, social

services,

environment, and

Micro, Small and

Medium Enterprises

(“MSMEs”)

On-lending

of Official

Development

Assistance

(“ODA”)

funds

Primary on-lender of

ODA funds from

international

development

agencies to finance

medium to long-term

projects in priority

sectors

DBP is a 100% Philippine Government–owned universal

bank that is a pillar in both platforms of developmental

and commercial banking.

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Red: 224-0-25

Active participant in PPP and Infrastructure projects

Arranger and/or Lender (sample projects):

DepEd PPP for School Infrastructure Project I

Tarlac-Pangasinan-La Union Expressway

Boracay Water Supply and Wastewater Project

Mactan-Cebu International Airport

El Nido (LGU) Water Supply, Sewage and Wastewater Treatment Systems

300MW Therma SouthCoal Power Plant in Davao

54MW Trans-Asia Wind Power Plant in Guimaras

3MW Hydro Plant in Benguet and 8WM Hydro Plant in Agusan del Norte

RISK ANALYSIS AND MITIGANTS

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Red: 224-0-25

• Typical Infrastructure Financing is through the use of Project Finance structures

5

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Risk Type Mitigant/s

Pre completion • Cost overruns • Schedule Delays

• Fixed price turnkey contracts • Warranties / penalties • Financially strong and technically

capable contractors • Review of schedule by

Independent engineer

Post completion • Revenue forecasts • Revenue build up • Operating Costs • Management Failure

• Supply contracts • Offtake contracts • Market analysis • Strong operator/O&M partner • Performance guarantees

Project Finance Risk Matrix

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Red: 224-0-25


Technical • Performance • Environmental • Safety

• Warranties / Incentives • Proven technologies • Experienced contractor /

operator • Periodic reviews by

Independent Technical Consultant

• Equipment performance guarantees

• Public consultation and approval


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Red: 224-0-25


Financial • Structure: D/E ratio • Structure: risk/reward ratio • Foreign Exchange • Interest rates • Debt Service Cover • Cashflow

• Equitable ROE • Acceptable cover ratios

(DSCR) • Escrow and reserve accounts • Dividend restrictions • Loan syndication • Insurance • Financial derivatives / swaps • Standby funding

arrangements • Offtake / Supply Agreements


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Red: 224-0-25


Legal • Regulatory Framework • Concession Agreement

• Experienced legal counsel • Experienced transaction

advisors • Clear documentation

Political / Country

• Political stability • Change in law / regulations • Expropriation • Civil Unrest • War • Work Stoppages • Force Majeure • Political Intervention • Currency Controls

• Local knowledge particularly on the political environment

• Clear regulatory regime • Flexible tariff arrangements

that incorporate adjustments for these types of events

• Involvement of multilateral / bilateral agencies

• (Extended) political risk insurance


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Red: 224-0-25

Risk Allocation Matrix (for PPPs) Risk Private Sector Government

Construction Liable for completion Liable for delivery of required ROW

Market/

Revenue

Volume risk; has flexibility to adjust fares/fees up to a cap

• Ensures implementation of fare/fee increases per contract;

• non-implementation of increase = payment of difference

Expense Controls efficiency and optimization of operations/ maintenance

• Contractual adjustment of fares/fees typically tied to CPI;

• Government ready to provide relief for extra-ordinary movements in major cost items (ex. power) via adjustments in fees/fares or through other forms

Material Adverse Gov’t Action

Burden of proof; subject to a materiality threshold

Provides relief/compensation due to a MAGA event

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Red: 224-0-25

Alternative Financing Structures:

• Corporate lending via bonds/notes:

– EDC Fixed Rate Bonds (for 87MW Burgos Wind Farm)

– Citicore-Megawide Fixed Rate Notes (for the DepEd PPP for School Infrastructure Project I)

– First Gen Corp. Fixed Rate Notes (various power projects and general corporate purposes)

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Red: 224-0-25

Key Issues in PPP Concessions • Clear delineation of obligations for both Government (ex.

ROW delivery) and the Concessionaire

• Reasonable timetable for delivery of obligations

• Material Adverse Government Action provision does it adequately protect the Concessionaire?

• Termination payment provisions are lenders protected? Is there a haircut?

• Provision for delayed Government payment? issue of appropriations risk (ex. 2yr payment provision subject to interest)

IN CLOSING…

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Red: 224-0-25

Parting Thoughts

• Financing infrastructure development

– Contributes greatly to national development

– Requires proper understanding and allocation of the risks and issues

– DBP can play key roles throughout the project lifecycle

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Red: 224-0-25

Infrastructure - Connecting Rural Urban Intermodal Systems Efficiently (CRUISE) Program

JICA - Logistics Infrastructure Development Project (LIDP)

• Bulk/cold chain and packaging, transport and distribution facility •Road RORO Vessels & Terminal Facilities •Toll/access/LGU Roads and maintenance equipment • Airports • Public Market

• Private corporations, LGUs, GOCCs, Cooperatives

• tenor up to 20 years/ 5 years grace

Blue: 0-26-216

Red: 224-0-25

Infrastructure - Financing Program for the Water Sectors

JICA – Environmental Development Program Philippine Water Revolving Fund

• Water Supply system

• Private Corporation, LGUs, Water Districts (WD), PFIs


Blue: 0-26-216

Red: 224-0-25

Infrastructure – Financing Program for Water Sectors

JICA - Environmental Infrastructure Support Credit Program I and II

• Water supply system

• Private Corporation, LGUs, PFIs


Blue: 0-26-216

Red: 224-0-25

JICA - Environmental Development Project (EDP) Non Water

•Power generation and distribution (renewable energy)

• Private Corporations, LGUs, GOCCs, Cooperatives


Infrastructure - Financing Utilities for

Sustainable Energy Development (FUSED)

Blue: 0-26-216

Red: 224-0-25

JICA - Environmental Development Project (EDP) Non Water

•Solid/Hazardous/Health Waste Management • Industrial Pollution Control Projects

• Private Corporations, LGUs, GOCCs, Cooperatives


Environment - Green Financing Program

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Red: 224-0-25


JICA - Environmental Infrastructure Support Credit Program I and II

• Waste water treatment and sanitation • Solid/healthcare/ hazardous waste management • Industrial Pollution control •Cleaner production waste minimization/recycling

• Private Corporation, LGUs, PFIs


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Red: 224-0-25


KfW –Credit Line for Solid Waste Management

• Solid waste management

• Private Corporations, LGUs


Blue: 0-26-216

Red: 224-0-25


KfW – Industrial Pollution Control Loan I and II

• Industrial pollution control projects

• mSMEs


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Red: 224-0-25

Retail Lending Program for mSMEs

JICA - Industrial and Support Services Expansion Program II (ISSEP II)

• Manufacturing and support services • Education strongly linked to SMEs • Working capital

• <P200 M asset size before financing with loan limit of P100 M

• tenor up to 15 years/ 5 years grace (for working capital up to 7 years/ 3 years grace)

Contact Information:

Susan Z. Prado Executive Vice President & Chief Financial Officer Development Bank of the Philippines [email protected] +63.2.818.9511 (trunkline)

Mitigating Risk in Infrastructure and Development ... 3 Susan Prado.pdf · Mitigating Risk in Infrastructure and Development Financing in the Philippines ... Post completion •Revenue

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