Public-Private Partnerships (PPP) in Highways

International Experience and Lessons for Success

Transport Learning Week, April 3, 2006Jose Luis IrigoyenSector Manager LCSFT

Source: Public Works Financing-Major Project Survey 1995-2004PPPs becoming a global business across developed & emerging markets

yet anchored in selected group of OECD and developing countriesSource: PWF Major Project Survey October, 2004

and highly influenced by few global concessionaires or sponsorsTop 10 Transportation Developers 2004Active ownership role in PPPs 1985-2004Source: PWF Major Project Survey October, 2004

Rise & fall in developing countries shows vulnerability in era of financial shocksTotal Investment in Road Projects with Private Sector Participation 1988-2003 Total InvestmentNumber of ProjectsSource: PPI DatabaseMexico Peso CrisisAsian CrisisArgentinaRussia/BrazilTurkey

but also reflects impact of project activity within key countries

Source: PPI Database with most of the investment going to Middle Income Countries

-1,0002,0003,0004,0005,0006,0007,00019881989199019911992199319941995199619971998199920002001200220032003 US$ millionMexicoBrazilChileTotal Investment in Road Projects with Private Participation. Source: PPI DatabaseMexicoBrazilChileInsights on performance of few programs

PPP projects in highways have suffered from optimism biasForecasting errors from inability to obtain good data or incorrect assumptions in modelsprice elasticity of traffic to tolls;substitute services/intensified competition;

Chart18

4.483333333338.82.16.57

3.73333333335.711.393.86

4.97142857141.612.1-0.88.27.7

6.44285714292.814-4.97.96.7

1.31428571435.592.55.85.7

0.114285714305.2-11.45.72.2

4.8428571429-29.83.44.44.8

3.32857142866.94.68.73.44.1

4.0571428571-4.53.27.598.5

4.085714285710.26.88.79.75.4

1.11428571434.29.18.19.24.1

1.3714285714-5.7-4.44.78.82.3

0.3428571429-50.6-10.3-0.60.9

2.57142857143.9-3.4-3.8-4.21.6

3.82.25.383.63.4

3.4714285714-7.67.97.12.63.1

2.94285714297.985.6-3.85.8

3.37142857142.93.66.61.95.4

4.7142857143-2.6-0.17.31.24.1

3.4142857143-7.53.310.64.23.4

2.2428571429-2.4-4.33.75.14

0.628571428612.71.384.22.4

1.357142857111.9-0.512.33.63.9

0.68571428575.94.9725.4

2.97142857145.85.95.74.45.8

2.3-2.84.210.6-6.25.2

2.02857142865.52.77.35.22.1

2.78571428578.13.37.56.83.4

2.35714285713.90.23.950.6

2.5857142857-3.40.8-1.13.6-4.1

3.3142857143-0.54.55.46.62.6

1.2714285714-3.71.52.9-0.31.6

Average G-7

Argentina

Brazil

Chile

Mexico

Colombia

Year

Annual growth rate (%)

Average annual GDP growth rate for selected LAC countries compared with G-7 countries (1970-2001)

LAC Countries

GDP growth (annual %)

Country name196019611962196319641965196619671968196919701971197219731974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920-year average40-year average

Antigua and Barbuda....................................4.27.38.64.10.24.79.88.012.78.35.45.82.52.00.85.46.3-4.26.65.24.2..5.15.1

Argentina..5.4-0.9-5.310.110.6-0.73.24.89.73.05.71.62.85.5-0.0-2.06.9-4.510.24.2-5.7-5.03.92.2-7.67.92.9-2.6-7.5-2.412.711.95.95.8-2.85.58.13.9-3.51.92.7

Aruba........................................................17.09.012.04.04.04.06.0..........8.08.0

Bahamas, The..10.710.510.510.510.49.19.68.49.0-5.61.6-3.57.6-16.8-14.85.29.214.226.16.5-9.26.73.614.24.81.83.02.32.31.1-2.7-2.01.90.3-0.3........2.14.2

Barbados..7.79.1-5.15.011.44.010.66.97.59.53.91.31.3-4.74.0-0.14.46.17.74.7-3.2-5.00.23.40.59.41.06.35.0-4.8-2.9-5.01.04.50.55.23.04.4..1.53.1

Belize..4.94.95.05.04.94.84.97.45.14.84.010.25.413.63.6-0.06.57.97.515.21.3-0.3-2.12.01.14.611.29.213.110.63.69.33.31.83.32.03.54.02.55.05.4

Bermuda..4.74.51.111.14.814.413.32.13.46.33.41.81.50.93.88.95.91.52.17.92.4-5.32.00.5-2.06.73.84.10.40.0-3.5-0.13.00.64.42.63.1....1.73.4

Bolivia..2.15.66.44.85.66.56.9-12.23.1-0.54.95.86.75.16.66.14.23.4-0.0-0.90.2-4.5-4.10.3-1.7-2.62.52.93.84.65.31.64.34.74.74.44.44.72.51.92.8

Brazil..10.35.20.93.53.14.24.911.49.78.811.312.114.09.05.29.84.63.26.89.1-4.40.6-3.45.37.98.03.6-0.13.3-4.31.3-0.54.95.94.22.83.20.20.02.44.8

Chile..4.05.26.12.70.410.03.63.83.52.19.0-0.8-4.92.5-11.43.48.77.58.78.14.7-10.3-3.88.07.15.66.67.310.63.78.012.37.05.710.67.47.63.4-1.05.44.4

Colombia..5.35.52.96.63.05.34.26.46.57.06.07.76.75.72.24.84.18.55.44.12.30.91.63.43.15.85.44.13.44.02.43.95.45.85.22.12.80.6-4.53.14.2

Costa Rica..-1.08.14.84.19.87.95.78.55.57.56.88.27.75.52.15.58.96.34.90.8-2.3-7.32.98.00.75.54.83.45.73.62.37.76.34.52.4-0.63.76.28.03.34.7

Cuba................................................................................

Dominica....................................11.8-18.414.312.14.12.75.41.37.17.58.6-0.25.30.62.01.71.41.72.82.13.5..4.43.7

Dominican Republic..-2.317.06.56.8-12.513.53.30.210.918.210.910.412.96.05.26.75.02.14.56.14.11.64.60.31.03.610.02.24.8-5.81.08.03.04.34.87.38.27.37.34.25.4

Ecuador..1.54.63.97.83.22.46.94.02.36.56.315.624.06.45.69.26.56.65.34.93.91.2-2.84.24.33.1-6.010.50.33.05.03.62.04.32.32.03.40.6-7.52.14.4

El Salvador..3.512.04.39.35.47.25.43.23.53.03.96.14.95.32.95.06.85.3-4.2-11.8-10.5-6.31.51.30.60.22.51.91.04.83.67.57.46.06.41.84.13.22.01.43.1

Grenada....................................5.46.0-0.40.94.92.94.88.18.211.23.46.15.22.3-0.3-2.62.82.54.36.84.8..4.04.1

Guatemala..4.33.59.54.64.45.54.18.84.75.75.67.36.86.42.07.47.85.04.73.80.6-3.5-2.60.5-0.60.13.53.93.93.13.74.83.94.04.93.04.45.13.62.54.1

Guyana..4.71.1-12.311.410.55.24.31.07.04.33.1-3.31.27.78.51.5-2.6-1.8-1.81.71.5-13.2-6.8-5.02.4-0.90.9-3.7-4.9-3.06.07.88.28.55.07.96.2-1.51.80.91.8

Haiti..-4.59.5-2.7-2.22.10.7-4.01.82.9-0.38.41.41.26.3-2.38.60.54.87.37.6-2.7-3.40.80.30.2-0.1-0.70.81.1-0.14.2-13.2-2.4-8.34.42.71.43.1..-0.20.9

Honduras..1.95.83.65.49.05.46.06.60.73.64.05.87.9-1.22.110.510.410.04.70.62.6-1.4-0.94.34.20.76.04.64.30.13.35.66.2-1.34.13.75.13.0-3.02.63.9

Jamaica..2.61.33.27.68.03.31.35.14.511.73.116.4-5.8-3.6-0.3-6.5-2.40.6-1.8-5.82.51.32.3-0.9-4.61.67.82.96.85.50.71.51.41.10.5-1.8-2.40.10.41.11.8

Mexico..5.04.78.111.96.66.15.99.43.46.53.88.27.95.85.74.43.49.09.79.28.8-0.6-4.23.62.6-3.81.91.24.25.14.23.62.04.4-6.25.26.84.83.42.84.7

Nicaragua..7.411.79.911.19.03.37.01.36.21.43.32.26.414.2-0.25.28.4-7.8-26.54.65.4-0.84.6-1.6-4.1-1.0-0.7-12.5-1.7-0.1-0.20.4-0.43.34.34.75.14.06.31.02.4

Panama..10.88.48.44.59.17.58.66.98.56.49.64.65.42.41.61.61.29.74.51.19.25.3-4.52.74.93.6-1.8-13.41.68.19.48.25.52.91.82.84.54.13.53.04.6

Paraguay..7.11.33.93.95.41.28.53.14.14.95.46.47.28.26.37.010.911.411.414.88.5-3.7-3.03.14.00.04.36.45.83.12.51.84.13.14.71.32.6-0.4-0.83.14.6

Peru..7.48.33.76.64.98.43.80.43.85.84.22.95.49.33.42.00.40.35.83.17.2-0.4-12.64.12.39.28.5-8.3-11.7-5.47.0-1.86.413.17.52.56.80.32.32.03.2

Puerto Rico..9.57.510.47.19.17.16.34.88.98.76.37.46.00.1-2.55.36.56.66.11.51.1-3.00.57.32.18.24.96.54.93.82.33.23.22.53.43.33.2....3.34.9

St. Kitts and Nevis..0.81.70.9-0.3-1.13.415.5-14.65.4................7.61.615.12.6-1.40.09.75.59.07.88.58.32.12.04.07.04.83.86.37.03.62.05.44.2

St. Lucia..........................................3.5-10.84.323.5-5.814.91.912.29.123.52.77.02.61.43.31.11.82.93.15.45.4

St. Vincent and the Grenadines....................................11.93.42.06.14.84.45.96.16.74.514.62.55.00.67.50.2-2.47.53.63.75.24.04.64.9

Suriname......................3.90.90.34.62.02.18.17.8-7.5-7.47.6-5.9-4.1-3.0-0.9-2.4-15.411.811.10.12.94.3-3.0-2.34.0........-0.20.8

Trinidad and Tobago..14.02.75.67.60.74.14.47.46.01.4-2.113.00.86.15.311.44.712.47.36.23.911.3-5.26.1-4.1-3.3-4.6-3.9-0.81.514.4-11.7-1.43.63.83.53.54.14.21.63.7

Tunisia....4.812.04.92.63.50.210.44.74.710.617.7-0.78.17.27.93.46.46.67.45.5-0.54.75.75.6-1.46.70.11.78.03.97.82.23.32.37.15.45.06.24.35.3

Uruguay..2.5-1.60.22.41.03.1-3.71.95.92.3-0.3-1.30.32.96.13.91.55.46.25.81.6-9.8-10.3-1.11.58.88.00.01.30.93.27.93.06.3-1.85.35.14.5-2.01.92.0

Venezuela, RB..3.28.53.911.14.21.52.87.30.77.71.51.37.12.12.97.76.32.30.8-4.4-0.4-2.1-3.81.40.26.53.55.8-8.66.59.76.10.3-2.33.7-0.56.5-0.7-6.01.12.7

Latin America & the Caribbean (Average)2.873.86

Source: IMF: Global Development Finance & World Development Indicators (for GDP per capita growth)

Macro analysis

GDP growth (annual %)

Source

Country name19601961196219631964196519661967196819691970197119721973197419751976197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120-year avg40-yr. Avg

Argentina..5.4-0.9-5.310.110.6-0.73.24.89.73.05.71.62.85.5-0.0-2.06.9-4.510.24.2-5.7-5.03.92.2-7.67.92.9-2.6-7.5-2.412.711.95.95.8-2.85.58.13.9-3.51.82.7

Bahamas, The..10.710.510.510.510.49.19.68.49.0-5.61.6-3.57.6-16.8-14.85.29.214.226.16.5-9.26.73.614.24.81.83.02.32.31.1-2.7-2.01.90.3-0.3........1.94.2

Barbados..7.79.1-5.15.011.44.010.66.97.59.53.91.31.3-4.74.0-0.14.46.17.74.7-3.2-5.00.23.40.59.41.06.35.0-4.8-2.9-5.01.04.50.55.23.04.4..1.33.1

Belize..4.94.95.05.04.94.84.97.45.14.84.010.25.413.63.6-0.06.57.97.515.21.3-0.3-2.12.01.14.611.29.213.110.63.69.33.31.83.32.03.54.02.54.45.4

Benin..3.1-3.44.76.75.33.61.13.82.92.1-1.56.43.73.3-4.90.95.01.36.56.810.02.2-4.37.97.52.2-1.53.4-2.93.24.74.03.54.44.65.55.74.55.03.73.3

Bermuda..4.74.51.111.14.814.413.32.13.46.33.41.81.50.93.88.95.91.52.17.92.4-5.32.00.5-2.06.73.84.10.40.0-3.5-0.13.00.64.42.63.1....1.33.4

Bolivia..2.15.66.44.85.66.56.9-12.23.1-0.54.95.86.75.16.66.14.23.4-0.0-0.90.2-4.5-4.10.3-1.7-2.62.52.93.84.65.31.64.34.74.74.44.44.72.52.02.8

Brazil..10.35.20.93.53.14.24.911.49.78.811.312.114.09.05.29.84.63.26.89.1-4.40.6-3.45.37.98.03.6-0.13.3-4.31.3-0.54.95.94.22.83.20.20.02.04.8

Chile..4.05.26.12.70.410.03.63.83.52.19.0-0.8-4.92.5-11.43.48.77.58.78.14.7-10.3-3.88.07.15.66.67.310.63.78.012.37.05.710.67.47.63.4-1.05.34.4

Colombia..5.35.52.96.63.05.34.26.46.57.06.07.76.75.72.24.84.18.55.44.12.30.91.63.43.15.85.44.13.44.02.43.95.45.85.22.12.80.6-4.53.04.2

Costa Rica..-1.08.14.84.19.87.95.78.55.57.56.88.27.75.52.15.58.96.34.90.8-2.3-7.32.98.00.75.54.83.45.73.62.37.76.34.52.4-0.63.76.28.03.54.7

Dominican Republic..-2.317.06.56.8-12.513.53.30.210.918.210.910.412.96.05.26.75.02.14.56.14.11.64.60.31.03.610.02.24.8-5.81.08.03.04.34.87.38.27.37.34.15.4

Ecuador..1.54.63.97.83.22.46.94.02.36.56.315.624.06.45.69.26.56.65.34.93.91.2-2.84.24.33.1-6.010.50.33.05.03.62.04.32.32.03.40.6-7.52.04.4

El Salvador..3.512.04.39.35.47.25.43.23.53.03.96.14.95.32.95.06.85.3-4.2-11.8-10.5-6.31.51.30.60.22.51.91.04.83.67.57.46.06.41.84.13.22.02.13.1

Guatemala..4.33.59.54.64.45.54.18.84.75.75.67.36.86.42.07.47.85.04.73.80.6-3.5-2.60.5-0.60.13.53.93.93.13.74.83.94.04.93.04.45.13.62.54.1

Guyana..4.71.1-12.311.410.55.24.31.07.04.33.1-3.31.27.78.51.5-2.6-1.8-1.81.71.5-13.2-6.8-5.02.4-0.90.9-3.7-4.9-3.06.07.88.28.55.07.96.2-1.51.80.91.8

Haiti..-4.59.5-2.7-2.22.10.7-4.01.82.9-0.38.41.41.26.3-2.38.60.54.87.37.6-2.7-3.40.80.30.2-0.1-0.70.81.1-0.14.2-13.2-2.4-8.34.42.71.43.1..-0.70.9

Honduras..1.95.83.65.49.05.46.06.60.73.64.05.87.9-1.22.110.510.410.04.70.62.6-1.4-0.94.34.20.76.04.64.30.13.35.66.2-1.34.13.75.13.0-3.02.73.9

Jamaica..2.61.33.27.68.03.31.35.14.511.73.116.4-5.8-3.6-0.3-6.5-2.40.6-1.8-5.82.51.32.3-0.9-4.61.67.82.96.85.50.71.51.41.10.5-1.8-2.40.10.41.41.8

Mexico..5.04.78.111.96.66.15.99.43.46.53.88.27.95.85.74.43.49.09.79.28.8-0.6-4.23.62.6-3.81.91.24.25.14.23.62.04.4-6.25.26.84.83.42.54.7

Nicaragua..7.411.79.911.19.03.37.01.36.21.43.32.26.414.2-0.25.28.4-7.8-26.54.65.4-0.84.6-1.6-4.1-1.0-0.7-12.5-1.7-0.1-0.20.4-0.43.34.34.75.14.06.30.82.4

Panama..10.88.48.44.59.17.58.66.98.56.49.64.65.42.41.61.61.29.74.51.19.25.3-4.52.74.93.6-1.8-13.41.68.19.48.25.52.91.82.84.54.13.53.14.6

Paraguay..7.11.33.93.95.41.28.53.14.14.95.46.47.28.26.37.010.911.411.414.88.5-3.7-3.03.14.00.04.36.45.83.12.51.84.13.14.71.32.6-0.4-0.82.54.6

Peru..7.48.33.76.64.98.43.80.43.85.84.22.95.49.33.42.00.40.35.83.17.2-0.4-12.64.12.39.28.5-8.3-11.7-5.47.0-1.86.413.17.52.56.80.32.31.93.2

Puerto Rico..9.57.510.47.19.17.16.34.88.98.76.37.46.00.1-2.55.36.56.66.11.51.1-3.00.57.32.18.24.96.54.93.82.33.23.22.53.43.33.2....3.44.9

Trinidad and Tobago..14.02.75.67.60.74.14.47.46.01.4-2.113.00.86.15.311.44.712.47.36.23.911.3-5.26.1-4.1-3.3-4.6-3.9-0.81.514.4-11.7-1.43.63.83.53.54.14.21.33.7

Uruguay..2.5-1.60.22.41.03.1-3.71.95.92.3-0.3-1.30.32.96.13.91.55.46.25.81.6-9.8-10.3-1.11.58.88.00.01.30.93.27.93.06.3-1.85.35.14.5-2.01.72.0

Venezuela, RB..3.28.53.911.14.21.52.87.30.77.71.51.37.12.12.97.76.32.30.8-4.4-0.4-2.1-3.81.40.26.53.55.8-8.66.59.76.10.3-2.33.7-0.56.5-0.7-6.01.42.7

Average LAC Region4.85.73.66.75.35.55.04.55.45.14.75.55.44.11.74.85.14.94.64.11.5-2.0-1.63.11.43.33.31.61.81.84.03.13.53.63.23.44.42.91.1

2.33.6

Canada..3.16.85.16.66.56.62.95.35.32.65.65.37.24.12.35.53.44.04.21.33.1-3.02.95.75.42.64.14.92.40.2-1.90.92.34.72.71.54.43.34.64.51.52.73.7

France..5.56.75.36.54.85.24.74.37.05.74.84.45.43.1-0.34.23.23.43.31.61.22.61.51.61.52.42.54.64.22.61.01.5-0.92.11.71.11.93.42.93.12.02.13.3

Germany........................4.34.80.2-1.35.32.83.04.21.00.5-0.62.13.02.42.51.73.73.53.22.82.2-1.12.31.70.81.42.11.63.00.61.92.1

Italy..8.26.25.62.83.36.07.26.56.15.31.93.26.55.3-2.06.52.43.75.53.50.80.61.22.83.02.53.03.92.92.01.40.8-0.92.22.91.12.01.81.62.91.81.93.3

Japan..12.08.98.511.75.810.611.112.912.510.74.78.48.0-1.23.14.04.45.35.52.82.83.12.33.84.43.04.56.55.35.33.10.90.41.01.63.51.8-1.10.82.4-0.42.85.2

United Kingdom..2.61.34.05.02.82.02.34.02.12.42.03.67.3-1.7-0.72.82.43.42.7-2.2-1.31.83.72.43.84.24.45.22.10.7-1.50.12.34.42.82.63.52.62.33.12.22.42.4

United States..2.55.24.05.65.65.92.74.22.70.23.45.65.9-0.6-0.35.64.75.63.2-0.22.5-2.14.37.33.83.43.44.23.51.7-0.53.12.74.12.73.64.54.44.34.21.23.23.4

Average G-75.75.95.46.44.86.15.16.25.94.53.75.06.41.30.14.83.34.14.11.11.40.32.63.83.52.93.44.73.42.20.61.40.73.02.32.02.82.42.63.31.3

19701971197219731974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001

Argentina..5.4-0.9-5.310.110.6-0.73.24.89.73.05.71.62.85.50.0-2.06.9-4.510.24.2-5.7-5.03.92.2-7.67.92.9-2.6-7.5-2.412.711.95.95.8-2.85.58.13.9-3.4-0.5-3.7

Brazil..10.35.20.93.53.14.24.911.49.78.811.312.114.09.05.29.84.63.26.89.1-4.40.6-3.45.37.98.03.6-0.13.3-4.31.3-0.54.95.94.22.73.30.20.84.51.5

Chile..4.05.26.12.70.410.03.63.83.52.19.0-0.8-4.92.5-11.43.48.77.58.78.14.7-10.3-3.88.07.15.66.67.310.63.78.012.37.05.710.67.37.53.9-1.15.42.9

Mexico..5.04.78.111.96.66.15.99.43.46.53.88.27.95.85.74.43.49.09.79.28.8-0.6-4.23.62.6-3.81.91.24.25.14.23.62.04.4-6.25.26.85.03.66.6-0.3

Colombia..5.35.52.96.63.05.34.26.46.57.06.07.76.75.72.24.84.18.55.44.12.30.91.63.43.15.85.44.13.44.02.43.95.45.85.22.13.40.6-4.12.61.6

Average LAC Region6.03.92.57.04.75.04.47.26.65.57.25.85.35.70.34.15.54.78.26.91.1-2.9-1.24.52.64.74.12.02.81.25.76.25.05.52.24.65.82.7-0.83.7

Source: GDP_WDI

Macro analysis

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Average G-7

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Average Annual GDP Growth Rate for Argentina compared to the G-7 (1970-2001)

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Average Annual GDP Growth Rate for Brazil compared to G-7 (1970-2001)

Average G-7

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Year

% Growth

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Average Annual GDP Growth Rate: Chile compared to G-7 (1970-2001)

Average G-7

Chile ..

Year

% Growth

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Average Annual GDP Growth Rate for Mexico compared to G-7 (1970-2001)

Average G-7

Mexico ..

Year

% Growth

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Average Annual GDP Growth Rate: Colombia compared to G-7 (1970-2001)

Average G-7

Colombia ..

Year

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Sheet4

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Average G-7

Argentina

Brazil

Chile

Mexico

Colombia

Year

% Growth

Average Annual GDP Growth Rate for Selected LAC Countries Compared with the G-7 (1970-2001)

Sheet5

Sheet6

PPP projects in highways have suffered from optimism biasPolitical commitment at too early a stagebefore appraisal at sufficient depth to allow graceful exit project timelines inconsistent w/sound bidding practices Downplaying vulnerability of PPP projects to changing political, financial, economic contextfailure to identify/value political and social costs (eg., toll increases)Forecasting errors from inability to obtain good data or incorrect assumptions in modelsprice elasticity of traffic to tolls;substitute services/intensified competition;

PPP projects are becoming smaller reflecting financial constraints and also that bigger projects already done in more active countriesSource: PPI Database

Structured project finance has come a long way, but not yet for all ... Fashioning the finance to specific project needs --with risks and returns borne not by sponsor alone but by different types of investors-- is buzzwordmezzanine finance; monoline insurance broadens access to capital marketsinterest rate and foreign exchange hedging increasingly critical as projects become more finely balancedbut available only for certain projects/countriesmostly projects with investment grade credit rating;no realistic opportunities for hedging in many countries;contractual complexity/financial rigidity not always favored by sponsors/allowed by project economics

Financing tights suddenly in emerging markets due to crisesThe financing dilemma for developing countries*

Sheet1

Poblacion, area y flujos capital a infraestructura de paises en desarrollo como porcentaje del mundo

Poblacion84.4

Area (km2)76.2

Flujos capital a infraestructura2.1

Grupo de paisesNuevaMantenimientoTotal

por nivel ingresoUS$bn%GDPUS$bn%GDPUS$bn%GDP

Ingreso bajo50.03.258.63.7108.66.9

Ingreso medio183.22.6173.02.5356.25.1

Ingreso alto136.00.4248.00.8383.91.2

Paises en desarrollo por Region

EAP99.93.779.02.9178.96.6

SA28.13.135.03.863.16.9

ECA39.12.858.94.297.96.9

MENA14.92.413.32.128.24.5

SSA13.32.812.62.725.95.6

LAC37.91.632.91.470.83.0

Todos233.12.7231.62.7464.75.5

Deuda en mercados emergentes (volumen en mercado secundario)

199419951996199719981999200020012002

Volumen Total276627395297591641742185284734843068

Instr. Mercado Local52459312741506117659999315171411

Acceso a infraestructura por grupo de ingreso - 2000

GeneracionTelecom por 1000 pers.CarreterasFFCCAguaSaneamiento

Grupo paisesGDP perElectricidadFijasMoviles(km/1000(km/1000(% hogares(% hogares

por nivel ingresocapita(kw p/pers.)(lineas)(suscrip.)personas)personas)conectados)conectados)

Paises Ingreso Bajo475116285.81.060.0776.345.6

Paises Ingreso Medio1,91940612783.71.100.1381.861.9

Paises Ingreso Alto29,8082,031582526.010.540.4499.698.1

Ratio Ingreso Alto/Bajo63182191.010.006.001.32.2

Grupo paisesGasto ActualNecesidadesInversion Adicional

por nivel ingreso%GDP%GDPUS$bn

Paises Ingreso Bajo4.06.921

Paise Ingreso Medio2.95.172

Subsidios por tarifas debajo costo123

Costos por ineficiencias tecnicas55

Inversion anual en infraestructura200

Efecto Privatizacion/Concesion (US$millones)

FF.CC.De Subsidio AnualA "Canon" Gobierno

Argentina800173

Brazil (Fed)5001,700

Mexico4002,400

International Infrastructure Bonds in emerging economies

FeaturesAvgStd.Dev..MinMax

Spread o/US Treasury (bps)298.0173.810.0802.2

Amount (US$m)278.0201.623.01000.0

Maturity (years)11.810.52.9100.0

Rating (Moody/S&P)BBB/BBB-3 notchesBAAA

Source: Dailami & Hauswald, 2003 - Sample of 105 infra bonds in 20 countries

Sheet1

84.4

76.2

2.1

Porcentaje

Poblacion, area y flujo capitales a infraestructura en paises en desarrollo como porcentaje del total mundial

Sheet2

2766524

2739593

52971274

59161506

41741176

2185599

2847993

34841517

30681411

Volumen Total

Instr. Mercado Local

US$bn

Deuda mercados emergentes

Sheet3

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US$bn

Sheet4

Efecto Privatizacion/Concesion (US$millon)

FF.CC

De Subsidio Anual

A "Canon" Gobierno

Argentina

800

173

Brazil (Fed)

500

1,700

Mexico

400

2,400

Sheet5

Sheet6

Financing tights suddenly in emerging markets due to crisesIn a global business, financial crises led to:increase in cost of capital, sovereign risks/spreadsreduction in projects IRRincrease in uncertainty with regards to both... exposing weaknesses in both project finance structures and regulatory frameworks:high tariffs attract political interventionism drop in demand increases pressure for renegotiationmismatch between risks and returns exacerbated by currency volatility and reliance on hard currency debtgovernments left with costly contingent liabilities they cant honor on time*

Worsening of regulatory environment during crises erodes support for PPPspass through formulas that transfer exchange risk to users fail in midst of abrupt devaluations --and turn exchange risk into political or regulatory riskDistressing results of crises:Governments breach contracts, affecting access to capital markets.Users must cope with steep increases in tolls eroding long-term support for PPPs.

Currency depreciation against the US Dollar in 174 countries

(1976-2001)

Current average depreciation rate (%)

Volatility

(%)1

All Developimg Countries

16

22

East Asia and Pacific

10

20

Europe and Central Asia

23

31

Latin America and the Caribbean

23

33

Miiddle East and North Africa

6

14

South Asia

8

13

Sub-saharan Africa

16

27

OECD

2

11

Measured as the Standard deviation of current depreciation

Approaches to traffic risk mitigation --no conclusive evidence of whats bestSource: Jose Vasallo, 2005 Traffic Risk Mitigation in highway concession projects: the experience of Chile

Approaches to traffic risk mitigation --no conclusive evidence of whats bestSource: Jose Vasallo, 2005 Traffic Risk Mitigation in highway concession projects: the experience of ChileMinimum Income Guarantee Approach

Approaches to traffic risk mitigation --no conclusive evidence of whats bestSource: Jose Vasallo, 2005 Traffic Risk Mitigation in highway concession projects: the experience of Chileduration

Stronger alignment between PPP objective & compensation mechanismNew thinking about the transfer of volume risk and whether the premium paid outweighs benefitsUK from shadow tolls to payments based on combination of service availability and performanceavailability payment, 2000; active management payment, 2002NAO critical of shadow tolls given operator is unable to influence demandcurrent trend to focus the compensation mechanism on establishing degree of risk allocation in project needed to induce appropriate performance by private sector

A mix of foreign and local sponsors compete aggressively to win contractsSource: Developing Country Investors and Operators in Infrastructure Phase 1 Report, PPIAF, 2005often overly aggressive concessionaires bid too low with expectation to renegotiate contract conditions as soon as possible

Bottom line, few cancellations but opportunistic renegotiations the ruleStatistics mask high incidence of renegotiationsLarger projects more prone to cancellation or distress

Despite slowdown, PPPs remain an attractive option for many governmentstools to bring legitimacy to PPP approaches and project selection and make informed decisions about risk allocation at both policy and project levelimpact of PPP programs on road sector dev. & fundingproper accounting, management and funding of contingent liabilities to effectively address public riskpragmatic approaches to building institutional and regulatory capacity to better deliver on third Pinstruments to address financial market constraints (w/ due attention to two sides of creative financing coin) Some key areas for WB attention:

Many thanks...jirigoyen@worldbank.org

Change in paradigm regarding the role of the State in the sector even countries with strong public finance tradition are embracing some forms of PPPs in developed worldWhile the trend is positive, yet: the pace of implementation is far from desirable. Altogether, 52% of proposed transport infrastructure projects unable to reach financing (42% in the case of road projects). Suggest a high level of difficulty in structuring projects robust enough to attract private investors the activity is still too much concentrated in a few countries. How many in 1993? In 2004?

Investment in PPP projects in roads reached a peak in 1997, recovered somewhat in 2001 and fell to about 17 percent of its annual average since 1990 in 2003Mansoor Dailami, June 2005. Crisis in one country should be associated with higher spreads in other markets, if they both are a result of a changed attitude to risk or liquidity

Six countries have concentrated 80 % of the total investment and the participation of other countries remains small.

Forecasting errors resulting from incorrect assumptions in models and/or inability/unwillingness to obtain good data. we all are aware of the studies by Standard and Poor and others about overestimating trafficNeed to pay more attention to price elasticity of traffic to tollsBut also failure to consider substitute services/consequences of intensified competition from rival transport operatorsOr benefits counted twice in different parts of appraisal when secondary impacts are really ramifications of primary impact excessive focus on appraisal of individual projects in isolation, overlooking consequences for network as wholeFailure from outset to clarify objectives and address potential conflicts between stated and actual objectivesPolitical commitment at too early a stagebefore an appraisal at sufficient depth to allow graceful exitproject timelines inconsistent with bid preparationFailure to identify and value political and social costsDownplaying risks associated with long gestation and operation periods which make PPP projects vulnerable to changing political, financial and economic circumstances. Great support to a PPP initiative may fade away latter as administration shifts attention to other burning or no so burning priorities.Forecasting errors resulting from incorrect assumptions in models and/or inability/unwillingness to obtain good data. we all are aware of the studies by Standard and Poor and others about overestimating trafficNeed to pay more attention to price elasticity of traffic to tollsBut also failure to consider substitute services/consequences of intensified competition from rival transport operatorsOr benefits counted twice in different parts of appraisal when secondary impacts are really ramifications of primary impact excessive focus on appraisal of individual projects in isolation, overlooking consequences for network as wholeFailure from outset to clarify objectives and address potential conflicts between stated and actual objectivesPolitical commitment at too early a stagebefore an appraisal at sufficient depth to allow graceful exitproject timelines inconsistent with bid preparationFailure to identify and value political and social costsDownplaying risks associated with long gestation and operation periods which make PPP projects vulnerable to changing political, financial and economic circumstances. Great support to a PPP initiative may fade away latter as administration shifts attention to other burning or no so burning priorities.Myriad of investors and with a variety of instruments that blur the distinction between equity holders and equity investors, and add a third layer of funding complementing the traditional two-tier equity and debt structure. mezzanine finance (subordinated and convertible debt, preferred equity, equity warrants) add third layer Mezzanine finance is so called because it describes the level lying between the ground floor of the structure (equity) and the first floor (senior debt). It also refers to financing that is raised soon after start-up funding from investors but prior to floating on the stock exchange after the venture has established an operating track record. Debt subordination instruments provide different levels of return on debt in exchange for taking on different ordering in paying out liabilities from defaulting companies. Debt is classified into senior and junior levels, with junior level debt receiving higher returns than senior level finance in exchange for absorbing the first losses. Mezzanine finance is distinguished by: i) having a differing priority of claim to cashflow and assets in the event of liquidation, a lower priority than senior debt but higher than equity; ii) often having a conversion option for the holder to transform the instrument from one form such as debt to another such as equity; and iii) being most attractive when the spread is significant between expected senior debt and equity returns. monolines broaden access to institutional investors and capital markets (with their index-linked and annuity profiles)Interest rate and foreign exchange hedging increasingly critical as projects become more finely balanced

Developing country currencies are twice as volatile as OECD country currencies. Higher volatility means higher cost to governments/users of providing forex guarantees compared to OECD countries