The Greek Experience Providing Important Lessons for Road PPP Transactions in other Cohesion Fund Countries
John Deighton
Director, Private Finance
Halcrow Group
Conference 22-23 November 2006
Vilnius, Lithuania
Background
Greece started the development of PPPs in the early 1990’s.
Athens International Airport and Attiki Odos were the first two major PPPs.
Since Attiki Odos , the Greek State has worked very hard to eliminate some of the early problems encountered.
The current Greek Motorway PPP programme reflects this desire to improve the process.
• Thessaloniki Tunnel
• Attiki Odos
Greek Road PPPs
Halcrow has been involved in the following Greek PPP projects
• Attiki Odos
• Maliakos – Kleidi Motorway
• Thessaloniki Submerged Tunnel
• Corinth – Kalamata Motorway
• Ionian Motorway
• Corinth – Patras Motorway
Either as Banks’ Technical, Banks’ Traffic or Sponsor’s Traffic Adviser
• The lessons learned in Greece provide useful guidance to other EU Cohesion Fund countries considering PPP, such as Lithuania.
• This presentation provides some of the key lessons.
Utilising Cohesion Funds
We all know that we need good infrastructure to promote economic development.
We also know that until there is economic development often the projects cannot be made economically viable.
This creates a dilemma.
Attiki Odos
42% EIB Loan
9% Commercial Loan
16% Private Equity
33% State Grant
Attiki Odos Motorway
The PPP project was made viable by the injection of 33% of construction cost as a State Grant.
50% of this Grant was funded by the EU Cohesion fund.
Appropriate Risk Allocation
The original Attiki Odos Concession Agreement had inappropriate Risk allocation.
The negotiations to reach an acceptable balance of risk delayed the project implementation.
The latest Greek Concessions include a process allowing risk allocation to be discussed during bid stage.
The key lesson is that the Risk allocation should be appropriate from the outset.
Expropriation Delays
Archaeology Delays the Project
Delay in Power Cable Removal
Relocated Archaeology – A Success
Typical Risk Allocation
PROJECT OWNER
Expropriation
Environmental
Archaeology
Permits
Service Diversions
SPONSOR
Design
Construction
Weather
Ground Conditions
Financing
Involve the EIB at an early stage
Involve the EIB at an early stage
EIB are focused on supporting EU projects such as Trans European Networks (TENS).
EIB can provide advice on different financing structures.
EIB is owned by EU Members – it is your money.
EIB financing structures are evolving – do not assume what was valid last year still applies – check.
Think ahead about Syndication
Most projects require a number of Banks to participate through the Syndication process.
The Lead financial centre for PPP is London.
Although documents should be prepared in the language of the country of project delivery, consider from the outset having all documents also in English, the language of the PPP Banks.
This investment, at an early stage, will pay dividends later in the process and enhance the attractiveness of the project to Bank investors.
Avoid Legal Challenges to the award of the Project
Greece used to award Concessions on a Quality – Price basis.
This led to Legal challenges on the Quality marking.
Competence now only considered at Pre-qualification stage.
Concession Tenders now assessed purely on tender Financial model and on the lowest NPV for Operation subsidy required by the bidder.
Approach significantly mitigates risk of Legal challenge to the award of the project.
Why PPP ?
In Greece they originally used Cohesion Funds to build
Motorways under Traditional Procurement
Result was
• Design & Construction was awarded on lowest bids
• No consideration of whole life cost in design
• Delays, cost overruns, claims, often poor quality work
• Serious concerns expressed by the Cohesion Fund
• Brussels imposed international project management
Ongoing maintenance delegated to Municipalities through
which motorways ran but no extra money.
Result – Little or no maintenance
Why PPP ?
Attiki Odos changed the Greek Approach.
Contractors appreciated they were responsible for 23 years
Quality significantly improved
Whole life costing considered in the Design
Investments made in construction to reduce Operation costs
Operation carried out in line with highest European standards
Ongoing maintenance financial obligations “ring – fenced” in the Financial model
Stringent asset hand back provisions at the end of the Concession
And provided a way of delivering the project financially with limited state funding
Now adopted for all Motorway programme
Traditional Procurement
£
t
Capex
Operating & Maintenance Costs
This is what is
supposed to happen
Traditional Procurement
£
t
Capex
Operating & Maintenance Costs
This is what
actually happen
s
Cost & time overruns
PPP Costs
£
t
Capex
Operating & Maintenance Costs
Lenders Letter of Support with Bid
After the delays in closing the Attiki Odos transaction, the Greek Government now require a Lenders letter of Support to be submitted with the bids
This letter indicates that should the bidder be successful there will be no commercial arguments on financing the transaction and due diligence has been carried out on the project.
Advantages
• Faster process to Financial close , commencement and project delivery
• Tests project bankability
• Due Diligence check on Bidders model assumptions prior to bid
• Minimises State – Bidder negotiations after award
Disadvantages
• If there are delays between bid and award market conditions may change, successful bidder may be able to secure better terms than his contract with Lenders who supported its bid.
• From real experience Bid stage Due diligence is a nightmare – information is always provided late – need to shadow the bid team – and everything changes in the last 24 hours prior to bid submission!
Notwithstanding this, it looks like Letter of Support is now the way of the world in PPP transactions.
State Project Management
State project management is an essential ingredient.
The State needs a suitably qualified and experienced team to manage the Risks and administration allocated to it under the Concession Agreement.
Needs a powerful leader focused on ensuring that the obstacles to the success of the project are removed in the least possible time.
State Leadership
The Leader should not be politically appointed.
The Leader should command the respect of all political parties.
This mitigates the risk of State culpable project paralysis in the event of elections leading to a change of government.
This mitigates the damage to State PPP credibility and the financial contractual cost caused by change of project leadership.
State Project Management
State team need to actively manage:
• Expropriation
• Permits
• Archaeology
• Services relocation
• Interfaces with other adjacent projects e.g. Railways & Metros
And all the other State stakeholders affected by the project such
as other Ministries , Municipalities, elected representatives,
Public Utilities.
Although it will be inevitable there will be State culpable delays,
good State project management can keep these delays to a
minimum !
It is not just about construction !
Just as a PPP is about the whole life of a Project Construction + Operation.
The State Project Management team should be established for the whole life of the project Construction – Operation.
State Project Management during Operation is very important.
FINAL LESSON
FINALLY IF YOU WANT A REAL CHALLENGE
THEN PUT YOUR NAME FORWARD FOR…
Olympic GamesAn immovable Deadline
13/8/2004
Attiki Odos completed 24/6/2004
Just in Time !
Contact details
John DeightonDirector, Private Finance
Halcrow Group
Burderop Park
SWINDON
Wiltshire
SN4 0QD
United Kingdom
Email [email protected]
Tel +44 (0) 1793 816296
www.halcrow.com
John Deighton, Director of the
International Project Finance Association
The industry’s only international, independent, non-profit The industry’s only international, independent, non-profit making organisation dedicated to promoting and making organisation dedicated to promoting and
representing the interests private sector companies representing the interests private sector companies involved in Private Finance Initiative’s (PFI), Public Private involved in Private Finance Initiative’s (PFI), Public Private
Partnership’s (PPPs) and project finance for major Partnership’s (PPPs) and project finance for major infrastructure projects in the world.infrastructure projects in the world.
Visit us at Visit us at www.ipfa.org
For all of the latest industry news, articles and reports For all of the latest industry news, articles and reports fromfrom
around the worldaround the world
Contact: Contact: Rachel DawesRachel Dawes
Head of IPFA ServicesHead of IPFA ServicesInternational Project Finance AssociationInternational Project Finance Association
Tel: +44 (0)20 7620 1883Tel: +44 (0)20 7620 1883Fax: +44 (0)20 7620 1886Fax: +44 (0)20 7620 1886Email: [email protected]: [email protected]
Top Related