1 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects MINISTRY OF...

1 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects

MINISTRY OF ECONOMY OF POLAND AND WORLD BANK

SEMINAR ON LEGAL, ECONOMIC AND IMPLEMENTATION ISSUES IN PPP PROJECTS

Wednesday, June 18, 2008, 9:00-9:30

Economic and Financial Feasibility of Building and Highway PPP Projects

Mr. Carsten Glenting, Head of Department, COWI([email protected])


Agenda

1. Economic and Financial Feasibility of PPP Projects

– Appraisal of PPP projects

– Value for Money

– Assessing private sector interest

2. PPP for Buildings (Sports arenas & Schools)

– The economics of buildings of public interest

– Performance specifications

– Tendering under EU competitive dialogue

– Case studies

3. PPP and donor support - synergy or competition?


Economic and Financial Feasibility of PPP ProjectsAppraisal of PPP projects

General project appraisal

Technical feasibility

Economic and financial feasibility

Organisational and legal feasibility

PPP specific project appraisal

What are the key drivers for proposing this project as a PPP

Is it likely that Value for Money can be obtained through a PPP solution

Is the public sector project sponsor ready to accept a different role compared to a traditional procurement

Is the private sector ready to accept a different role compared to a traditional procurement


Economic and Financial Feasibility of PPP ProjectsAppraisal of PPP projects

PPP should be a conscious, professional and competitive process

- even for privately financed projects, the money have in the end to be paid by a combination of user charges, budget allocations and donors


Economic and Financial Feasibility of PPP Projects Assessing Value for Money


Economic and Financial Feasibility of PPP Projects Assessing private sector interest

Competition during the tendering of a PPP is a key prerequisite for obtaining Value for Money for the public sector

Competition requires that the tender is sufficiently attractive to attract several experienced private sector operators

To facilitate this, a mini market sounding of selected local and regional private sector operators may be performed


PPP for Buildings (Sports arenas)The economics of buildings of public interest

Financing of Construction costs may come from 2 sources:

– Public funding

– Real estate development (residential, corporate, hotels, retail)

European Sports arenas have a catchment Area of 3,5 - 10 mio. inhabitants in a radius of 100 km

Operation of sports arenas CANNOT cover investment

Sports arenas in dense populated areas may be able to be operated without deficit (e.g. O2 Arena in London, Color Line Arena in Hamburg, The Globe in Stockholm, Parken Stadium in Copenhagen, Dortrecht Stadium in Holland)


PPP for Buildings (Sportsarenas)The economics of buildings of public interest

Commercial revenues

– Commercial activities like Congresses, trade fairs, meetings parties generates surplus

– Concerts, plays, sports events combined with SPONSORS, may balance

– Restaurant, café, beer sales & fast food are important sources of revenue

Other revenues

– Municipality rent the facility for community purposes

– Professional sport clubs

Few Leisure PPP in the UK, because it is considered to be high risk projects, unless the public is willing to guarantee rent on week-days


PPP for Buildings (Schools)The economics of buildings of public interest

Construction costs

– Financing of construction costs through availability payment

– Little other income. If any it comes from excess capacity (evenings and week-ends) which may be rented to private parties

Operation & Maintenance costs

– Fixed payment for utility costs (electricity, heat and water), i.e. costs related to building

– Variable cost for utility costs related to user behaviour

– Penalty if PPP Co does not live up to standard service level (for instance repair whole in the roof within a certain time)

– Incentives to ensure that PPP Co and procuring agency cooperates (for instance the parties share savings on maintenance cost due to reduction in vandalism)


PPP for BuildingsPerformance specifications (example a school)

Vision : Sports, Health & Science theme

Scope: School for 1000 pupils with 3 independent departments:

– Primary level ( 0-3rd grade)

– Medium level ( 4-6th grade)

– Senior level (7-10th grade)

And a common area with administration, library, sportsfacilities room for special subjects (Physics, biology etc)

Architecture: Building(s) must be flexible in other to accommodate changes in number of pupils and in educational principles



Technical standards, examples:

– The building must meet the requirement for energy efficiency level 2 (the need for energy for heating, ventilation, cooling, hot water and light, must not exceed 70 kWh/m² per year)

– Indoor climate (example: Ventilation must ensure maximum of 0,1% CO2..)

– Lighting (200 Lux required )

– Acustics (reverberation must not exceed 0,5 seconds)

– Hot water utility must be dimentioned so it can accomodate hot water need of 84 persons, who take 5 minutes showers within 15 minutes



O&M standards, all tasks are described as

– Short description of the task (The PPP Co is responsible for cleaning of all building and equipment)

– Objective (The school must be clean and hygienic, and there must be a high customer safisfaction)

– Quality and service standards (The service is measured by the cleaning standards system as described in…)


PPP for BuildingsTendering under EU competitive dialogue

The competitive dialogue is a procurement method for use in the award of complex contracts, where there is a need for the procuring agency to discuss all aspects of the proposed contract with candidates

Steps:

– Contract Notice

– Selection of candidates and invitation to dialogue

– Dialogue Phase

– Final Tender

– Evaluation of tenders

– Selection of Preferred Bidder

– Contract Signature


PPP for BuildingsCase studiesLangeland School:

Financed through availability payments from the municipality

DBFO

Procured through competitive dialogue

Service level definition describes as a school for 1000 pupils with a number of facilities - but no specification of m2 etc.

Key issues:

– Creative approach to meet energy efficiency requirement

– Bidders have to learn to work cost efficiently under competitive dialogue

– Fixed budget envelope

– Tax treatment is approved on case by case basis


PPP for BuildingsCase studies

Næstved Arena:

Financed through sale of surrounding land for residential development

Concession


Municipality pays investment (availability payment) and fixed low O&M fee

Municipality gets public access Monday-Thursday + limited number of weekend days

Commercial concerts and enterprise events Friday-Sunday


PPP for BuildingsCase studies

Gentofte Arena:

Financed through sale of adjacent land for commercial development of office space and public contribution

DB + O&M


Municipality pays investment (upon completion) and annual O&M fee

Municipality gets full access to facility


PPP and donor support - synergy or competition?Challenges in combining PPP and EU funding


PPP and donor support - synergy or competition?Models for combining PPP and EU grants


COWI – Economic and Management

PPP advisory services:

– Setting up the institutional framework for PPP

– Structuring PPP solutions for specific projects

– Assessing market interest

– Financial modeling of PPPs

– Contract structures

– Assistance during tender and negotiation

Active PPP transaction advisory assignments (June 2008):

– Langeland School, Denmark

– Gentofte Arena, Denmark

– Næstved Arena, Denmark

– Odense regional airport, Denmark

– Dublin Waste to Energy, Ireland

– Fingal Landfill, Ireland

– Belgrade Landfill, Serbia

– 10 water concessions, Uganda

"Our competitive advantage is our ability to provide consultancy on economics, finance and law in natural integration with engineering and environmental disciplines"

1 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects MINISTRY OF...

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