Ministry of Finance and World Bank PPP Seminar Legal, Implementing and Economic Issues, Warsaw, 17-18 June 2008

Building and accomodation PPP projectsThe point of view of a financial investor

Thomas VieillescazesDirector, DIF

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Introduction DIFDIF PPP, DIF Renewable Energy & DIF Infrastructure II

•Independent investment funds & fund manager

•Operational as of September 2005

•Two infrastructure funds- DIF PPP (€150m) : DBFM/O investments W-Europe- DIF Infrastructure II (€500m+) : Infrastructure investments EU27

One renewable energy fund- DIF Renewable Energy (€150m): Wind & solar energy Europe

•DIF’s investors consist of long term investors,including pension funds and the EIB

•DIF PPP invests in primary and secondary PPP/PFI & infrastructure transactions

•Teams in The Netherlands/Schiphol, Paris and London

Frankfurt will be opened in the coming months

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Introduction DIFInvestments & projects in tender (primary) in PPP

5 UK PFI schools projects

2 UK PFI Healthcare projects

3 French hospital projects, Rail infra project, road/bridge project

2 Dutch road schemes

Danish acommodation project

3 UK PFI Leisure projects

2 UK PFI Detention projects (PB)

Belgian road scheme

Plus various CEE PPP rolesin bidding consortia(pipeline DIF Infrastructure II)

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Introduction to DIFA financial investor, what’s it in for?

• Well structured projects require competitive funding and are all about proper risk assessment & risk allocation

• Financial investors can play a role in enforcing the finance side of a project / bid

• Added value in the following areas:

- providing equity funding (‘DIF cheque’ up to ~€75m) and adding to industrial sponsors who wish to protect their balance sheet

- represent alignment of SPV (Project company) and funders interests (bankability)

- provide in-depth knowledge of finance markets/parties to the Sponsors’ table (team background)

• Alignment with the Public sector’s interest : investors want projects that deliver what is promised !

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Efficient risk sharing is ensured by back to back subcontracts : ‘transparent’ Project Company is key to efficiency of the system

Project CoProject Co

Public AuthorityPublic Authority

EPC contractorEPC contractor FM contractorFM contractor

Not

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ssari

ly t

he s

am

e s

hare

hold

ers

(r

ole

and e

ffici

en

cy o

f fi

nanci

al in

vest

ors

)

Construction :

•Risk transfer on construction price

•Penalties on delays, etc.

Operation and Management

•Cost of O&M

•Penalties for availability, performance, etc.

Construction :

•Risk transfer on construction price

•Penalties on delays, etc.

Operation and Management

•Cost of O&M

•Penalties for availability, performance, etc.

Operation and Management Contract

•Cost of O&M passed to FM contractor

•Penalties for availability, performance, etc. passed through this contract

•If underperforming (penalties paid every year), FM contractor can be changed without the PPP contract modified

Operation and Management Contract

•Cost of O&M passed to FM contractor

•Penalties for availability, performance, etc. passed through this contract

•If underperforming (penalties paid every year), FM contractor can be changed without the PPP contract modified

PPP contract

Subcontracts

Interface contract

Ris

ks

Risk SharingPass-through of risks using contractual structure

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Performance indicatorsSome examples

MaintenanceMaintenance « Soft » FM« Soft » FM Other ServicesOther Services

• Renewal plan

• Maintenance plan

• Technological upgrades

• …

• Cleaning

• Catering

• Safety

•…

• IT/Telecom

• Commercial activities

• other ‘public services’

• Security

•…

EnergyEnergy

• Energy

• Fluids

• Energy efficiency

• Fluids consumption

As measured

• Implementation of plans

• Timely update of plans

•…

• Reportings

• Measurements

• Panels

• Customer satisfaction

• reportings

• …

Indicators could take the form of ‘grades’ or %, then used to calculate a mitigation on PPP payments

‘Availability’ is not straightforward !

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PPP schemes for buildings

Size does matter

PPP contracts are big, complex, costly to put in place, costly to monitor

• Think of the criteria and number of performance indicators beforehand, keeping in mind the size

of the project (cost/benefit)

• Pragmatic risk sharing approach

• Long contract life, and contracts have to be understandable by new parties on the project

• try to keep documentation simple / light

Contract modifications always happen

• During construction : a PPP contract is a transfer of project ownership, and therefore the project

is not fully in the hands of the public sector as with a ‘standard’ public procurement project

• Design modification process has to be precise in the contract documentation

• O&M/FM modifications also always happen – 20+ year lifetime, how could it be different?

• try to keep documentation simple / light

Alternative methods for tendering smaller scale projects?

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Project RigsarkivScope of services

• DKK 580m/€78m Pilot Acommodation PPP, providing for archive storage depots for the Danish National Archives and the Royal Library (Phase 1)

• OPP Pihl Arkivet A/S (50/50 Pihl/DIF) selected as private contract partner by the Authority

• Project Company has 30 year title on the building

• Partly brownfield: refurbishment of the ground-floor of a DSB building (KB32) – 3,800m2

• Partly greenfield: two multi-storey depots and an intermediate building running betweenthe DSB building (KB32) and the depots beneath a landscape bridge (open to the public) - 13,000m2

• First PPP in Denmark

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Project RigsarkivScope of services

• 370 shelf km of documents (half the way from Copenhagen to Amsterdam)

• Administration facilities, reception and workshops

• Technically advanced (‘coherent shelf concept’ with control systems)

• Actually moving in will take 18 months

• Payment based on functionality (availability & performance), services and utilities

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Project RigsarkivMain Project milestones

FC & Start New build30 June 2007 &

1 July 2007

Start renovationExisting

1 January 2008

Constructioncompletion1 July 2009

End date DBFMcontract

30 June 2037

Construction period Operational period

FC & Start New build30 June 2007 &

1 July 2007

Start renovationExisting

1 January 2008

Constructioncompletion1 July 2009

End date DBFMcontract

30 June 2037

Construction period(24 months)

Operational period(28 years)

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• 25 yr DBFM contract

• ~€100m project

• Tender launched in July

2004

• PPP contract (+ financial

closing) signed in March

2006

• Start of operation April

2009

Other Example : Caen Hospital PPP (France)Project description

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• Performance guarantees for the following services

• Multi-technical maintenance (on non-medical equipments)

• Heavy maintenance/renewal – technical adaptation

• Water treatment and control

• Cleaning of windows, common spaces, offices (not hospital rooms)

• Security and Safety

• Energy control and adjustment, volume warranties on :

• Electricity for production of cooling

• Natural gas for production of heat in the building

Medical services / equipment (including beds) were excluded from the PPP scope in both

construction / provision and maintenance

Performance indicators defined in the PPP contract item per item (150 pages of such descriptions!)

• Reported by the SPV

• Easily measurable – form of reports agreed and defined in the contract

Other Example : Caen Hospital PPP (France)Performance indicators

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Alternative model small PPP projects“DBM+F model” (PMV Flanders) - background

• For small DBFM projects (like Rigsarkiv, or under), tendering costs and timing are always an issue

• Flanders (the Region’s investment arm PMV) developed an alternative tendering modeldesignated for smaller DBFM (road) projects(< €100m)

• Aiming to achieve full DBFM benefit:- off balance sheet treatment (ESR95 neutral)- build in time and within budget;- life cycle concept applied;- reduced bid/tender costs;- template for future similar projects; and- ‘contractual’ PPP model combined with ‘participative’ PPP model

• One project closed (summer 2007) with a pipelineof four new projects to come

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Alternative model small PPP projects“DBM+F model” (PMV Flanders) - mechanics

• Technics (DBM) and Finance (F) two separate tenders- DBM is paid by Project Company SPV- F is bidding on a (dynamic) risk allocation matrix and ultimately on the ‘credit’ of the DBM consortium

• Finance regards equity and senior debt (in one tender)

• After selection ‘DBM PB’ and ‘F PB’ both parties are“married” into one ‘classical’ DBFM scheme

• Payment on the basis of availability

• PMV (authority) mandates advisers for the ‘F bidders’,who price the cost thereof in their bids(ultimately winning consortium pays)

• Every consortium has one-to-one client dialogue meetings

• Contract based on (Dutch) standard road DBFM contract

• PMV takes a minority equity stake in the SPV (25 – 49%)

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Conclusion

1. PPP / DBFM is a superiour contracting method:• output specified (ideally)• certainty of delivery (on time, in budget)• forces parties (public & private) to define their project beforehand• provides long term O&M cost certainty

2. Several Public Authorities make a good effort to deal with “small size DBFM”• not over-complicate things• try to keep documentation simple / light• Consider alternative methods for tendering small – size DBFM projects (~Flanders roads?)• Limit tender duration (2 years!)

3. Importance of building experience at a country level• UK a very mature market : documentation standard, projects go fast• Other markets (France, Denmark, others) not marture yet• PPP legal environment constantly adapted• Pilot projects

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Contact details DIF PPP

DIF Thomas Vieillescazes

WTC Schiphol Airport Director (head of Paris office)

Schiphol Tel. +33 1 76 74 92 58

The Netherlands Mob. +33 6 87 96 66 61

www.dif.eu E-mail t.vieillescazes@dif.eu