This presentation by Virginie GRAND was made at the 7th Meeting on Public-Private Partnerships held on 17-18 February 2014. Find more information at http://www.oecd.org/gov/budgeting/ppp.htm

1. 7th Annual Meeting of Senior PPP Officials
OECD Conference Centre, Paris
February 2014
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2. Project Finance Update
Global PF deal volume: by financing type
• The overall project finance market
continues to remain strong and steady
(1,000 deals, USD400bn volume)
• Project bond element is growing
strongly, but project loans remain
dominant
• Government/DFI involvement still an
important component
• Liquidity has increased, leading to
some margin contraction
Source: Dealogic Project Finance Review 2013
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3. Project Finance Update
Global PF deal volume: by region
Global PF deal volume: by sector
Source: Dealogic Project Finance Review 2013
• Some of the large markets are "domestic“
• The nature of growth varies between the
different regions.
• Oil & Gas, Infrastructure and Energy remain
the predominant sectors
• Petrochemicals, Telecoms and Mining
contribute, but from small base,
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4. Key considerations for a Successful PPP Framework
Public Sector
commitment and skills
Favourable Legal
and Regulatory
Framework
‘Bankable’
Project
Value for Money
Funders’
requirements
Private Sector expertise
and engagement
Adequate Risk
Allocation
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5. Key considerations for a Successful PPP Framework
Institutional Framework
• Stable political framework
• Well understood and appropriate legal and regulatory and financial environment – PPP law
• Good governance - PPP central government institutions
• Standardisation
• Deal flow: quantity, sufficient scale to justify a PPP strategy, quality
• Leverage: create more opportunities to attract new financing using credit enhancing
Public Sector Commitment
• Clear PPP policy statement; Government support, financial and human resources
• Multi-sector PPP/Concession law or regulations
• Planning and projects selection; market soundings, consultation, approvals process
• Clarity on output awaited from the authority
• Dialogue procedures (ability to discuss project specific issues with the bidders)
• Transparent and competitive procurement; clear, robust, and objective criteria (technical / price)
• PPP Contract performance monitoring capacity
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6. Key considerations for a Successful PPP Framework
Private Sector
• Project discipline
• Technical solutions / innovations
• Innovative financing
• Development of skills (sponsors, contractors, banks); training programmes
• How do authorities create the incentives for the private sector to deliver value for money
Securing the financing
• How attractive is a country and its PPP programme to (domestic and foreign) investors and
lenders?
• Are lenders/investors comfortable with the law governing project documents?
• Are macroeconomic risks of inflation, exchange rate and interest rate allocated efficiently?
• Is a country’s lending capacity sufficient to finance its long term PPP programme?
• Funders’ requirements - risk allocation:
•Specific public credit enhancements; PPP & infrastructure investment fund
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7. Common Pitfalls
•
Poor project scoping
•
•
•
•
Under-scoping so bidders are unclear about the requirement
Over-scoping so bidding is restricted and/or over guided
Mis-costing – leading to unaffordable bids
Overly complex projects with “combinations”
•
•
•
•
Project on Project risk
Limitations on supply chain
Unrealistic or unclear risk allocation
•
•
•
•
Difficult consortium combinations making EPC difficult (eg rolling stock /
infrastructure)
Patronage / market
Quasi government counterparty rather than government
“latent defect” risk on existing assets
Inflexible procurement process
•
•
•
Locking in funding too early
Insufficient flexibility can lead to stranded bids
Not considering funding early enough – too much flexibility can lead to unrealistic
bids
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8. Global project finance trends – bank debt still the preferred route
450
Global Project Finance transaction volumes
1,000
400
900
350
800
300
700
600
500
250
200
150
255
100
203
400
320
275
300
249
200
50
100
0
0
2008
2009
Q3
450
2010
Loan
2011
Bond
2012
Equity
# of projects
Transaction volumes by region
1,000
900
400
60
350
300
65
55
250
50
95
200
150
70
60
0
2008
2009
Europe
Asia
500
400
130
120
100
105
2010
2011
Americas
MENA
300
60
100
113
600
20
60
120
100
50
700
107
70
62
800
100
200
0
3Q 2012
# of projects
•
New structures are emerging as a result of bank market constraints and governments
initiatives to encourage institutional investors to fund infrastructure projects.
•
•
First project bonds have closed in the UK, France and Spain in 2013
Infrastructure financing In the emerging markets remains dominated by DFIs and ECAs
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9. Greenfield finance structures in Europe
Need to adapt bank model and favour alternative funding options
A number of
funding options
have emerged to
support the more
limited bank debt
that is currently
available
Structure
Examples
• Long-term amortising debt of 20+ years
Bank debt
- International
- Domestic
Types
• PFI standard, French &
Dutch PPP
• “Soft” mini-perm (cash sweeps, large
margin step ups)
• “Hard” mini-perm
• Bank debt bridge to bond
• All funding from financial close
Government
Co-Lending /
Support
• Bank construction debt facility take-out
• Completion payment
• Debt Guarantee
• Direct funding
• Public listed bond
• Private placements
Project Bond
• With our without credit enhancement
(PCBE)
• Direct lending
Multilaterals
/
ECA
• EIB / EBRD
• M25, Manchester waste,
A41
• Utilities / brownfield /
trains
• IUK Guarantee Scheme
• UK Prudential Borrowing
• French rail projects
• Dutch Milestone Payment
• CDP’s involvement in
Italy
• EU Project Bond Initiative
• N33 in the Netherlands
• Cité Musicale in France
• Several PFIs in the UK
• IFC in emerging Europe
• EIB has lent to most
TEN-T / TEN-E projects
• ECAs
• IEP in the UK
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10. Greenfield finance structures in the emerging markets
Project finance is still driven by the Multilaterals and the ECAs
Structure
In most cases,
commercial banks
appetite will be
maximized with
adequate ECA / PRI
cover
Examples
• Direct lending up to a percentage of the
project costs
Multilaterals /
DFI
Types
• IFC
• Take project risk
• EIB
• USD funding is the preferred route
• A/B loans
Regional /
national
development
banks
• Domestic / regional focus
• Usually provide local currency financing
• Direct lending
• EBRD
• Proparco / DEG / FMO
• ADB
• IADB
• IDB
• BNDES / BANOBRAS
• IDC /DBSA
Export credit
• ECA covered commercial facility
Cover
• 100% political risk and a significant portion of
commercial risk
• Europe: HERMES,
COFACE, SACE, etc..
• Asia: NEXI, KSURE, etc…
• South Africa: ECIC
• US EXIM
Export Credit
Direct Lending
PRI Providers
• Some ECAs can propose direct funding in
addition to insurance cover
• JBIC
• Insurance product offering commercial banks
a 100% political risk cover
• MIGA
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•
KEXIM
• Private insurers
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