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Public Private Partnerships and Sports Stadia 26 September 2018 Stephen Harris PPP Director Altra Capital © copyright Altra Capital Limited 2018 www.altracapital.com
Altra Capital •High level independent advisory group •Review, design and implement strategic and complex projects •Predominantly active in infrastructure and Public Private Partnerships •Specialise in provision of procurement, management, training, capacity building, financial and legal advisory services for the financing of infrastructure in all sectors; and especially to support public sector clients in the international market •The team was created in 2008 to bring together global PPP experts, all of whom have been active in the evolution of PPP since its inception. •Offices in London, Sofia and Santiago © copyright Altra Capital Limited 2018 www.altracapital.com
About me •Altra Capital, PPP Director •UK Government Public Private Partnerships Export Advisory Group (Chairman) •UKTI International High Value Opportunities PPP project specialist, PA Consulting and EY •Tribal Group plc, International Development Director, •TheCityUK PPP and Projects Group, Chairman •United Nations Economic Commission for Europe PPP group (Geneva), UK representative •International Financial Services London, Head International and Chairman of PPP committee •Turkish PPP Platform (Istanbul), Director and co-founder © copyright Altra Capital Limited 2018 www.altracapital.com
About me: Strategic advisory roles •Ministry of Finance and Development, Botswana •Government of Liberia •Treasury of Denmark Department of Transport, State of Arizona •Finance and Investment Ministers of Egypt •Government of Colombia •Turkish Treasury and Privatisation Unit •Government of Vietnam •Mayor of Calgary •Chief Financial Officer of Florida •Finance Ministry of Greece •Treasury Board of Quebec •Finance Ministry of Singapore •Finance Ministry of Malta •Finance Ministry Czech Republic © copyright Altra Capital Limited 2018 www.altracapital.com
Problems of government infrastructure procurement © copyright Altra Capital Limited 2018 www.altracapital.com
What is infrastructure? • Projects can be purely private (such as power stations, oil and gas development, pipelines or minerals), a partnership between the public and private sectors (PPPs), or may be built and operated completely in the public sector. • Hard Infrastructure - highways, streets, roads, and bridges; mass transit; ports; canals; airports and airways; water supply and water resources; wastewater management; solid-waste treatment and disposal; electric power generation and transmission: telecommunications; and hazardous waste management • Soft Infrastructure - cultural and sports infrastructure (stadiums, museums), public buildings (government buildings, schools, hospitals, police, fire, courts, libraries), public spaces (public squares, parks, beaches) and other, usually long-term, physical assets and facilities. © copyright Altra Capital Limited 2018 www.altracapital.com
Government financed infrastructure • Traditionally much of the infrastructure in the UK and elsewhere was financed and run by the private sector • Only after World War 1 did infrastructure and public service provision become largely responsibility of government • Governments could borrow at lower rates than the private sector • Issues - how government could raise enough finance to fund large up front capital cost of new infrastructure and upgrading of existing infrastructure • New infrastructure was not being built or maintained © copyright Altra Capital Limited 2018 www.altracapital.com
Problems with traditional infrastructure procurement •Low quality build It’s built by the lowest bidder! No incentive to build to last No link between designers and operators Limited innovation •Adversarial approach to relationships •Difficulty in raising capital cost upfront •Hits today’s taxpayers benefits tomorrows •Cost and time overruns Change orders •Lack of strategic planning •Unnecessary retention of risk •Separate capital, operational and maintenance budgets mean that each is vulnerable to cuts © copyright Altra Capital Limited 2018 www.altracapital.com
Problems with traditional infrastructure procurement § Government needs to: § Upgrade old infrastructure § Build new infrastructure § Maintain new and existing infrastructure § Use this infrastructure to deliver top class services to the citizen, to a consistent standard and for the long term § Traditionally financed by tax revenue (local or central), with some user fees or tariffs § Since 1990s Increasing use of private finance to help meet worldwide infrastructure gap § Decided to use project finance to engage private sector investment © copyright Altra Capital Limited 2018 www.altracapital.com
What are Public Private Partnerships? © copyright Altra Capital Limited 2018 www.altracapital.com
What is PPP? • Contractual arrangement between the public & private sector -over a long term • To deliver a service -usually a new asset (or renovation) • Output not input specification • Integrate design, construction and maintenance • Contractor/operator finances investment up front • Contract can terminate for non-performance • Penalties for not meeting contract terms • Government retains reponsibility for ensuring service delivery to agreed standard • Assets revert to Public body at end of contract - For letting out on another PPP - Or operating by Public body © copyright Altra Capital Limited 2018 www.altracapital.com
Why PPP? • Spread of capital cost amortised over all taxpayers for life of contract • Cost effective allocation of risks • Combined services budget can’t be raided • More efficient procurement • Government budgets for operation and maintenance are protected • Needs long term strategic and business planning • Payment mechanism designed to ensure delivery and performance • A strategic whole life approach to delivering services • Services paid for as they are consumed • Provision of assets otherwise unavailable © copyright Altra Capital Limited 2018 www.altracapital.com
Public Private Partnerships... are about… are not… • Better procurement • Free infrastructure • Better strategic planning • Just about finance • Building and maintaining good • Just building things infrastructure • Just about involving the private • Public and private sectors working sector together • Privatisation, simple concessions, • Sharing of risks between most outsourcing or property appropriate parties development Consistent quality of service delivery A method to make a bad project good © copyright Altra Capital Limited 2018 www.altracapital.com
Types of PPP PPP can be grouped into two types: • demand based PPPs where the private firm takes revenue and/or demand risk • demand based PPP is often refereed to as a concession and relies on end-user customer payments • annuity based PPP where the government retains those risks • annuity based PPP is often referred to as a DBFO (PFI/PF2) and involves availability payments from the public sector © copyright Altra Capital Limited 2018 www.altracapital.com
Discussion about Finance © copyright Altra Capital Limited 2018 www.altracapital.com
Funding and financing • do not muddle funding and financing • funding • in general, funding applies when an organisation fills the need for cash from its own internal reserves • funding is the act of providing financial resources, usually in the form of money, or other values such as effort or time, to finance a need, program, and project, usually by an organisation or government • government could allocate funds itself or through government agencies to projects that benefit the public • financing • the term 'financing' is used when the need is filled from external or borrowed money • remember to meet the requirements of potential financiers • you have to demonstrate that you are capable of managing the projects until they are fully delivered • both are usually required in PPPs © copyright Altra Capital Limited 2018 www.altracapital.com
History of Project Finance • limited recourse lending was used to finance maritime voyages in ancient Greece and Rome • its use in infrastructure projects dates to the development of the Panama Canal, and was widespread in the US oil and gas industry during the early 20th century • however, project finance for high-risk infrastructure schemes originated with the development of the North Sea oil fields in the 1970s and 1980s • project finance is the principle system behind PPP © copyright Altra Capital Limited 2018 www.altracapital.com
Definition of Project Finance • project finance is the long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project • definitions focus on: • the productive capabilities of an economic unit (i.e. the project) • the needs and preferences of the debt participants in financing the development, construction and operation of such units, with the impact on the equity participants being implied by (and a direct consequence of) the debt • principles and structures that evolved to address risk/reward allocations relating to the financing of the development, construction and operation of these projects © copyright Altra Capital Limited 2018 www.altracapital.com
Where is the finance? • Today the problem is that of matching the supply of finance from the private sector with investable projects • The main forms of financing infrastructure remain: • government funding • traditional procurement • design-build-operate • corporate or on-balance sheet finance • corporate financing – which would involve getting finance for the project based on the balance sheet of the private operator • the mechanism used in lower value projects • project finance • “limited recourse” or “non-recourse” financing © copyright Altra Capital Limited 2018 www.altracapital.com
Commercial viability • Will the project work and make money? • is there a sound market for the project or service? • how will current and future competition affect the viability of the project? • how are the running costs expected to escalate? • how reliable is the supporting infrastructure (e.g. the roads leading to the bridge which the project will construct)? • is a guarantee available from the public entity? • how reliable are the input supplies, and are alternatives available? • does the project company have the resources and skills to successfully implement and manage the project? © copyright Altra Capital Limited 2018 www.altracapital.com
Cashflow to shareholders 15,000 12,500 10,000 7,500 5,000 2,500 £’000 0 -2,500 -5,000 -7,500 -10,000 -12,500 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2225 2026 2027 2028 2029 2030 2031 2033 2035 Equity Invested Loan Stock Invested Loan Stock Repaid Loan Stock Interest Dividends Equity Repaid © copyright Altra Capital Limited 2018 www.altracapital.com
Bankability The degree to which a project is structured to represent an overall risk acceptable to the lenders © copyright Altra Capital Limited 2018 www.altracapital.com
Bankability Bankability focuses on • the ability of the project company to repay the debt • bankability is used to describe not only the contract between the lender and the project company but all of the contracts between the key project participants • generally the lender will want to minimise the risk borne by the project company • the sponsors forming the project company are equity investors and on successful projects equity investors will make approximately double the gains of the lender Put simply, a PPP project is considered bankable if lenders are willing to finance it © copyright Altra Capital Limited 2018 www.altracapital.com
Key Issues for Banks in PPP Projects • Micro • Macro • Well defined projects; clarity on output • Legal regime permitting taking of specification security and enforcement of contractual rights • Strong, experienced contractors • Political commitment to PPP and to • Credible completion undertakings specific projects • Appropriate allocation of risk reflected • Competition amongst construction in payment regime companies • High quality predictable cash flows – • Availability of service providers low volatility • Availability/capacity of long-term debt • Alternative service providers in the market event of bank’s step-in • Availability of project equity • Adequate termination protection • Established exit route for project equity • Protection from other adverse events, change in law, force majeure, insurance • Transparent procurement process. etc. © copyright Altra Capital Limited 2018 www.altracapital.com
The business case 1 - general • A technical study or feasibility study is not a business case • It should never be the situation that PPP has already been decided upon by the procurer and that the business case is there to defend that decision. Improved procurement • The project has to stack up in all aspects and be deliverable no matter the form of funding or financing. © copyright Altra Capital Limited 2018 www.altracapital.com
The business case 2 - procurer • The procurer must • establish what the problem is - why the project is needed • set out the objectives • set out all the relevant details, information and facts • the technical solution • analysis of the procurement / funding / financing options • what the benefit of entering into a PPP might be • develop a comprehensive basis to evaluate bids • provide a way to measure the project’s success © copyright Altra Capital Limited 2018 www.altracapital.com
The business case 3 - SPV • The sponsor (SPV) must develop • a comprehensive risk-weighted business plan • the financial justification for a project • provide evidence that the project is a good investment • convince its financiers of the viability of its proposals • set out the benefit of entering into a PPP might be • Clarify how the asset will be procured and managed • Establish funds will be raised for operating, maintenance and replacement, • Clarify what each partner's interest in the project is © copyright Altra Capital Limited 2018 www.altracapital.com
Costs and revenue • Are the technical cost estimates in line with the required output specifications and based on established national/international benchmarks? • Are all cost categories accounted for, including the costs of social and environmental impacts? • Is there an assessment of the ability and willingness to pay (especially if this is a new project with no previous experience of user charges)? • Are revenue estimates, whether based on user charges or government payments, backed by sound demand projections/ guaranteed demand? • Are the timing and level of expected revenues based on realistic assumptions? © copyright Altra Capital Limited 2018 www.altracapital.com
PPP and Sports Stadia © copyright Altra Capital Limited 2018 www.altracapital.com
# PPP for Sports facilities • Most PPP’s fall into 2 groups • Revenue generating hard infrastructure – roads, airports, power • Non-revenue generating soft infrastructure – schools, hospitals, government buildings • PPP sports facilities fall somewhere between the two – they are soft infrastructure but with significant, rather than ancillary, revenue generating opportunities • Vary from municipal swimming pools and basketball courts to large stadia • Key issues are: design, maximum event flexibility, predictable and large revenue streams • Also – environmental impact, city footprint, transport access Slide 31 © copyright Altra Capital Limited 2018 www.altracapital.com
Case Study Euro 2014 Stadia • PPP (Contrat de partenariat) used extensively by France for Euro 2016 facilities • Marseilles: Stade Vélodrome - Built 1937 PPP renovation 2011-2014 Seats 67,394 .Key improvement – roof • Bordeaux: Nouveau Stade de Bordeaux – PPP New build 2013-2015 Seats 42,115 • Nice: Stade de Nice – PPP New build 2011-2013 Seats 35,624 • Villeneuve-d'Ascq (Lille): Stade Pierre-Mauroy – PPP New build 2009-2012 Seats 50,196 Slide 32 © copyright Altra Capital Limited 2018 www.altracapital.com
Case study Lille: Stade Pierre-Mauroy © copyright Altra Capital Limited 2018 www.altracapital.com
Stade Pierre-Mauroy Overview • Lille Olympique Sporting Club (Lille OSC) had outgrown its stadium; playing at other clubs stadia • 2001 plans for new stadium cancelled in Lille due to planning issues • 2006 New government structure saw PPP design, build, finance and operate tender for new 50,000 seat stadium in neighbouring Villeneuve-d'Ascq • Three bidders: Eiffage, Bouygues and Vinci. • 2008: Eiffage selected. 45 months to construct • 2009 construction began – completed 2013 - on time Slide 34 © copyright Altra Capital Limited 2018 www.altracapital.com
Stade Pierre-Mauroy Location and site • Part of wider development • Dug down into the earth to reduce profile • Included revenue generating parking, hotel and restaurants © copyright Altra Capital Limited 2018 www.altracapital.com
Stade Pierre-Mauroy Design Factors • Flexibility was key to consortium design: 3 configurations • 1- Stadium: for football • 2 – Arena: for indoor sports – handball, tennis, fencing • 3 –Concert hall • Moving from one to the other takes just one hour © copyright Altra Capital Limited 2018 www.altracapital.com
Stade Pierre-Mauroy Cost • 31 year contract • Total cost: €618 million, including €282 million for the stadium • Financed by: City of Lille (€24.7 million annually), the Lille OSC (€7.5 million annually) and the Nord-Pas-de- Calais regional council (€45 million). © copyright Altra Capital Limited 2018 www.altracapital.com
Case Study Sports Hub Singapore © copyright Altra Capital Limited 2018 www.altracapital.com
Sports Hub Singapore Timeline • 2001 Committee on Sporting Singapore report recommendations • Multi-use sports hub to replace national stadium • 2002 Feasibility study • 2004 Specification and market sounding • 2006 PPP tender • 2010 Contract signed • 2010-2014 Construction • 2035 PPP ends Sport Singapore becomes owner © copyright Altra Capital Limited 2018 www.altracapital.com
Sports Hub Singapore Consortium • Consortium led by Dragages Singapore • 25 years Concession - 100% upfront financing by the consortium • Dragages Singapore undertook to arrange with its partners all the resources needed –design, finance and construct the project within the specified deadlines and budget – then to operate and maintain the structure for a guaranteed fixed price • all with the agreed specified performance and quality of service for the facility’s users • The Consortium revenue includes a fixed availability payment and a share of commercial revenues • € 770 million project © copyright Altra Capital Limited 2018 www.altracapital.com
Sports Hub Singapore Consortium Partners © copyright Altra Capital Limited 2018 www.altracapital.com
PPP is no magic bullet • Without highly skilled individuals on both the public and private sector sides, PPP projects could still go badly wrong • Common problems included bureaucracy, inexperience, lack of technical skills, trying to change specifications midway through a project and political interference • Use recognised International procedures and contracts to attract international finance and essential highest quality management • Develop Private Sector capacity and expertise • Only with understanding will their be international interest • Sports projects carry higher than usual revenue risk for the private sector © copyright Altra Capital Limited 2018 www.altracapital.com
Thank You www.altracapital.com stephenharris@altracapital.com © copyright Altra Capital Limited 2018 www.altracapital.com
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