Islamic Development Bank (IsDB) Use of Islamic Finance in PPP Hospital Projects (Case: Istisnaa for PPP Hospital ) Fida Rana PPP Investment Lead Hassan Idris Legal Counsel

Major healthcare reform, Turkey Health Transformation Program & Social Security System; rehabilitating and strengthening the current healthcare infrastructure. bringing together regional small hospitals under one campus. increasing service quality and efficiency. 2023 goal – 35 new PPP health with 40,000 - 50,000 beds. Integrated health campuses - hosting a number of specialized hospital departments, areas as well as R&D laboratories and centres, techno parks, social facilities, housing and parking lots. Two important things to mention related to healthcare sector in Turkey: Social security system GoT Healthcare Strategy 2013-2023 Subject to Technical Due Diligence

Konya Integrated PPP Health, Turkey Total bed capacity: 838 (General Hospital 420 & Child Hospital 418) Project Cost: EUR 355 ml 75:25 debt to equity ratio Subject to Technical Due Diligence

Funding by international banks IsDB EBRD BSTDB Siemens Bank UniCredit Bank Subject to Technical Due Diligence

Classical project finance structure MoH YDA Construction (Sponsor) Lenders Project Agreement Shareholder Agreement Loan agreements YDA Saglik (O&M Contractor) YDA Construction (EPC Contractor) Project Company O&M Contract EPC Contract O&M Subcontracts Service Provider no. 1 Service Provider no. 2 Service Provider no. 3 Service Provider no. 20 …

Revenue Structure Subject to Technical Due Diligence

Construction Arrangement Lump sum, fixed price, turnkey contract; on arms-length basis; Full pass-down of all responsibilities related to construction period from Project Company to EPC Contractor;

O&M Arrangement Full pass-down of all responsibilities related to operations period from Project Company to O&M Contractor. Each service will be subcontracted to experienced service provider. Procurement of medical equipment for relevant service will be passed down to O&M subcontractor.

Concept of istisna’ As an Islamic mode of finance, Istisna’ refers to a contract whereby one party (the buyer) asks another party (the seller), and the seller undertakes, to construct/manufacture a specific thing/asset according to certain agreed-up specifications at a determined price and a specific date of delivery. It is mode of finance that serves to meet advance funding for construction and development projects.

Istisna' Structure for Konya PPP Hospital   Project Agreement IsDB as Agent as Project Co Beneficiary (Borrower) MoH EPC Contractor EPC Contract Istisna’ Procurement Agreement Agency Agreement Delivery of assets (1) (2) IsDB makes Stage Payments to the Borrower (as Agent) during the construction phase in consideration for the Agent procuring the construction and delivery of the Procurement Assets to the Borrower to fulfil IsDB’s obligations under the Procurement Agreement. The Borrower makes Deferred Consideration payments to IsDB in consideration for IsDB fulfilling its obligations to procure the Procurement Assets. IDB

Istisna’ Procurement Agreement Procurement Agreement mirrors the obligations of the Project Company under the Project Agreement (with the Ministry of Health) to design, engineer, procure, construct, develop, and deliver specified assets (the "Procurement Assets"). Istisna’ Procurement Agreement covers: Clear description of the Procurement Assets Istisna’ Price and its components Completion timeline Compensation for delay in payment Delivery of Assets: partial and final Incorporation of CTA and ICA

Agency Agreement The Agent shall be responsible for selecting a qualified EPC contractor that has the ability to carry out the procurement obligations. Stage Payments to equal IsDB’s commitment. Agency Agreement will cover: Appointment of Agent Partial Assignment of the EPC Contract; Stage Payment Procedure Condition Precedent: CTA Termination: final delivery or termination date Events of Default Agent’s Indemnity

Memorandum of Early Settlement Shari’ah does not permit the inclusion of the prepayment provisions for fixed-priced financing such as Istisna’. Reasons?: The discounts not a right that is capable of being enforced. Level of price uncertainty likened to “two sales in one”. discretion of the financier. The MoU spells out the mechanism for prepayment of Istisna’ Price as permitted in the Istisna’ Procurement Agreement.

Structuring Considerations in Islamic Project Finance Selection of appropriate mode of finance. Multiplicity of legal documentation. Shariah Board clearance. independent assessment and confirmation of Shari’ah compliance. Ownership of Assets vs. Pari passu. Treatment of certain fees. Governing law. Shammil’s case

Why Istisnaa? Why Not Leasing ?? Substantial construction and installation of assets involved. The asset ownership challenge. Limiting the ownership obligations to construction phase. However, Leasing (Ijara) could be used during the operations phase with reverse Istisna’ for the construction phase.

Thank you شكراً Merci IDB