Keynote presentation at the 3rd South East Europe Airport Infrastructure FORUM Chairman: Dr.Thomas Frankl

1. South
East
Europe
Airport
Infrastructure
Forum
Zagreb,
June
2013
Dr.Thomas
Frankl
MD,
Airport
Development
Partners,
Geneva
Principal,
Brixton
Capital,
San
Diego

3. THE
DOUALA
TRICK
* This
is
the
story
of
an
airport
PPP
told
from
the
perspective
of
a
member
of
the
Firefly
consortium
* A
purely
fictional,
subjective
and
subversive
account
* Any
resemblance
with
real
PPPs
would
be
entirely
coincidental

4. THE
DOUALA
TRICK
* The
CAST:
* The
government
of
Freedonia
(transport
ministry
and
PPP
agency);
* The
head
of
state
of
Azurria;
* Numerous
consultants
(PPP,
traffic
forecast,
…)
* 10
consortia,
two
of
which
are:
* The
Firefly
consortium
made
up
of
a
major
public
airport
operator,
a
leading
construction
firm
and
a
private
equity
fund
* The
Flyover
consortium
made
up
of
a
major
private
airport
operator,
a
leading
construction
firm
(in
which
the
government
of
Azurria
holds
11%)
and
a
finance
institution

5. Chapter
1
–
Early
Days
* It’s
early
2008,
before
the
global
financial
crisis
* Money
is
chasing
infrastructure
assets
* Infrastructure
PPP’s
are
drawing
record
interest,
achieving
record
prices
* They
have
come
to
be
accepted
as
the
‘friendlier
face’
of
privatization
* Government
of
Freedonia:
Our
capital
airport
is
a
(shame)
but
we
don’t
have
the
means
to
turn
it
into
what
it
should
be:
‘Let’s
do
a
PPP
!’

6. Chapter
1,
cont’d
–
Early
Days
* Traffic
forecasters
tell
the
government
what
it
wants
to
hear:
‘your
airport
has
the
potential
to
become
the
region’s
hub
before
your
bigger
archrival,
Sylvania,
will
be
able
to
–
‘build
the
infrastructure,
and
traffic
will
come’
* Freedonian
government
commissions
breath-­‐
taking
design
for
a
landmark
airport
terminal
based
on
highly
aggressive
traffic
forecasts
* Heated
public
debate
amid
suspected
corruption
about
rigged
design
selection
process
* 25-­‐year
BOT
tender
documentation
is
drafted
and
airport
PPP
consultants
hired
(on
a
part-­‐
success
basis)

7. Chapter
2:
The
PP
Plot
Thickens…
* Global
recession
–
now
it’s
assets
chasing
money
and
even
‘worst
case’
traffic
forecasts
have
been
proven
too
optimistic
* PPP
projects
that
used
to
be
bankable,
aren’t
so
any
longer…
* …while
governments
are
more
in
need
than
ever
to
implement
PPP
pipelines
* Consequence
for
Freedonia’s
capital
airport:
cancel,
adapt
terms
&
conditions,
or
pretend
nothing
has
changed
* ‘We
stick
with
it
!
–
we
have
gone
through
worse
crisis
than
this
...’

8. Chapter
2,
cont’d
:
The
PP
Plot
thickens…
* Consultants
panic:
we
can’t
get
the
minimum
number
of
interested
parties
for
the
PQ
* So
they
tell
candidates:
‘don’t
worry,
Free-­‐donia
will
finally
ease
up
on
the
conditions’
–
‘just
pre-­‐
qualify
and
you
will
be
ok’
* They
also
make
the
PQ
criteria
fit
to
candidates
who
otherwise
wouldn’t
be
able
to
participate

9. Chapter
2,
cont’d
:
The
PP
Plot
thickens…
* Government
speaks
to
potential
interested
parties
* ‘We
like
your
project,
there
are
just
one
or
two
problems…’
(aka
show-­‐stoppers)
* Future
bidders
start
high-­‐profile
lobbying
campaigns,
one
head
of
state
* In
the
meantime,
the
global
crisis
has
led
to
a
credit
crunch,
many
banks
are
too
busy
avoiding
bankruptcy

10. Chapter
3:
Going
live
* Pre-­‐qualification:
IM
and
supporting
documents
issued
–
full
of
errors,
contradictions
and
ambiguities
* Endless
rounds
of
Q&A’s,
requiring
multiple
deadline
extensions
* Consortia
realize
that
conditions
are
unchanged
–
they
attempt
to
change
them
via
the
Q&A
process
-­‐
unsuccessfully

11. Chapter
3:
Going
live
* A
number
of
consortia
prequalify,
anyway:
‘we
are
in
a
better
position
this
way
when
the
tender
conditions
will
be
relaxed’
* The
short-­‐listed
consortia
analyze
the
tender:
no
change.
‘We
can’t
make
this
work,
it’s
unbankable’
–
no
point
of
proposing
to
our
investment
committee.
‘We’ve
had
enough
,
we
are
out!’
* …except
for
the
Flyover
consortium

12. Chapter
3:
Going
live
* The
Flyover
consortium
issues
a
valid
bid
* The
other
consortia
are
in
disbelief:

13. Chapter
4:
The
Douala
Trick
* They
pulled
the
Douala
trick
!
‘All
we
may
get
out
of
* How
can
they
get
away
this
is
an
ethics
award
with
it
AGAIN
?!
–
but
that
won’t
cover
our
costs…’

14. Chapter
5:
Catch-­‐22
* Success
–
we
have
a
final
bidder
!
* The
PPP
Agreement
is
signed
with
great
fanfare,
ground-­‐breaking
before
April
11,
2013
* But
nothing
happens…no
crane
in
sight
* The
concessionaire
signals
problems
–
’we
can’t
get
financing
at
acceptable
term’
–
very
sorry,
but
not
our
fault’…could
it
be
because
the
PPP
is
not
bankable
?
(now
that
would
be
a
surprise
!)

15. Chapter
5:
Catch
22

16. Chapter
5:
Catch-­‐22
* The
PPP
agreement
gets
adapted
to
take
account
of
‘new
realities’
* The
drop-­‐out
consortia
are
too
frustrated
to
sue
–
they
have
moved
on…
* …and
they
won’t
bid
a
again
for
a
PPP
in
Freedonia

18.
How
avoid
future
Catch-­‐22
situations?
1. Governments
must
build
their
proper
PPP
capacity
–
consultants
won’t
do
it
for
them.
* Difficulty
of
reconciling
the
interests
of
government
and
consultants
* PPP
capacity
also
helps
select
competent
consultants

19. How
Avoid
Future
Catch-­‐22
Situations
?
2.
Manage
public
expectations
effectively:
* Establish
a
communications
strategy
* Be
(very)
wary
of
traffic
forecasts
–
understand
the
forecast
methodologies
* Don’t
overestimate
bidder
interest
* Don’t
raise
unrealistic
expectations
–
even
if
a
future
government
will
have
to
deliver
* Define,
and
communicate,
what
success
and
what
failure
will
be
like
(e.g.
min.
number
of
final
bids)
*
Have
a
plan
B
in
case
of
failure

20. How
Avoid
Future
Catch-­‐22
Situations
?
3.
Re-­‐structure
and
re-­‐organize
projects
in
response
to
a
changing
environment
(e.g.
higher
private
sector
risk
aversion,
interest
rates,
etc.)
* Communicate
early
to
stakeholders
and
the
wider
public
* Consider
conversion
into
a
shorter-­‐duration
management
contract
and
re-­‐issue
when
the
environment
has
improved

21. How
Avoid
Future
Catch-­‐22
Situations
?
4.
Creation
of
a
‘grey
list’
of
bidders
* Successful
non-­‐fair
play
bidders
can
damage
the
reputation
of
governments
–
and
of
PPP
in
general
* ‘Grey
Listed’
parties
would
flag
warning
signal,
not
mean
exclusion
* World-­‐wide
exchange
of
PPP
practices
and
experience
* Not
only
success
stories,
more
is
often
learned
from
tough
challenges
and
from
failures

22. How
avoid
future
Catch-­‐22
Situations
?
5
.
Immunize
PPP
projects
from
external
political
influence
* Anticipate
political
influence
for
high-­‐value
and
high-­‐profile
PPPs
* Communicate
policies
and
procedures
clearly
from
the
beginning
* Refer
to
them
and
stick
to
them