Organised by Civil Service College, Dhaka Nazrul Islam Executive Director and CEO Infrastructure Investment Facilitation Center 11 February 2012 Basics of Public-Private Partnerships (PPP) 1

2 THE OVERVIEW  PART A: PPP Concepts Introduction Introduction Type of PPP’s Type of PPP’s PPP History in Bangladesh PPP History in Bangladesh  PART B: Commercial Aspects & PPP Models  PART C: Transactions

PART A: PPP Concepts 3

PPP can be defined as a “long term business partnership between the public and private sector through a contract or license, for providing infrastructure services” Examples: Power stations (IPPs), toll roads and elevated expressways, container terminals What is Public-Private Partnership (PPP)

5  Non-Infrastructure (competitive)  Investors free to take up project anytime  No Bidding necessary  Infrastructure (Govt. monopoly)  Investors not free to take up project  Majority Projects Solicited  Bidding necessary  Government gives right to do business By default, all infrastructure belongs to the Public Sector Infrastructure and Non-Infrastructure Compared TYPE Non- Infrastruc- ture Infrastruc- ture Public Sector  Private Sector  x PPPby sharesby contract

  Medium to long term relationship between the public and private Sector   Enable Government to work with private sectors to provide infrastructure   Involves sharing and transferring of risks and rewards between public and private Sector   Attempts to utilise multi-sectoral and multi-disciplinary expertise to structure, finance and deliver desired policy outcomes   Clear governance structures established to manage the partnerships PPP as a Contractual Framework

  Achieving improved value by utilising the private sector’s innovative capabilities and skills to deliver economy, efficiency and effectiveness   Leveraging private sector capital to obtain efficiency gains in service delivery and asset creation   Life-cycle responsibility, value for money, output specification, risk transfer fundamentals More critically…

8  Service Contracts  Management Contracts  Lease Arrangements  Concessions BOT (Build-Operate-Transfer) BOT (Build-Operate-Transfer) BOO (Build-Own-Operate) BOO (Build-Own-Operate) BOOT (Build-Own-Operate-Transfer)) BOOT (Build-Own-Operate-Transfer)) BT (Build-Transfer) BT (Build-Transfer) BTO (Build-Transfer-Operate) BTO (Build-Transfer-Operate) ROT (Refurbish-Operate-Transfer) ROT (Refurbish-Operate-Transfer) ROM (Refurbish-Operate-Maintain) ROM (Refurbish-Operate-Maintain) SOT (Supply-Operate-Transfer) SOT (Supply-Operate-Transfer) Types of PPP Contracts

9 Duration (yrs) Increasing level of delegation, risk & irreversibility Service contracts Management contracts Leases Concessions Divestitures 100 % non-public ownership 100 % Public ownership BOT BOO Provider Enabler/ Regulator Government’s Role Forms of PPP

10 First Generation PPPs: Started with Independent Power Producers (IPPs) after Government approved the 1996 Private Sector Power Generation Policy of Bangladesh Second Generation PPPs: PPP in multiple sectors carried out after the Government approved the Bangladesh Private Sector Infrastructure Guidelines (PSIG) in 2004 Third Generation PPPs: The Government approved the PPP Budget in The third generation PPP policy & starategy with guidelines have recently been approved by Government in Aug PPP Development Phases in Bangladesh

PART B: Commercial Aspects and PPP Models 11

 Model A: Users Pay Fully  Model B: Viability Gap Funding (VGF)  Model C: Direct Payments PPP projects can be broadly categorized as follows PPP Models

 Project Viability: The project needs to be viable  Demand Risk: Investor bears the risk  Tariff: Tariff is fixed by the contract  Bidding Parameter: Highest fixed or variable royalty  Implications to Budget: No need for allocating budget Model A: Users Pay Fully

 Project Viability: The project need not be fully viable  Demand Risk: Investor bears the risk  Tariff: Tariff is fixed by the contract  Bidding Parameter: Lowest VGF payment  Implications to Budget: Budget needs to be allocated Model B: Viability Gap Funding

 Project Viability: Not relevant  Demand Risk: Not assumed by the investor  Tariff: Bidding parameter determines the tariff  Bidding Parameter: Lowest annuity or levelized cost  Implications to Budget: Budget needs to be allocated Model C: Direct Payments

16 Equity Investors Lenders/ Institutional Investors Borrower / Concessionaire Executing Agency Dividends Equity Investment Debt Finance Debt Service (Principal + Interest) Concession Agreement Toll Payments Revenues/Cash Flows Project Construction, Operations and Maintenance Toll Rate/ Fare Collection Revenue Government of Bangladesh Performance Guarantee Overview of Contractual Framework Annuity Payments

PART C: PPP Transactions 17

18 Procurement of PPP Investors  Procurement Types Solicited Projects Solicited Projects Unsolicited Projects Unsolicited Projects  Both need engagement of Transaction Advisers  Conduct commercial feasibility study to satisfy the requirements of the executing agency, approving authorities, private sponsors and potential lenders  Prepare the contract documents (PPA, CA etc)  Prepare necessary bidding documents and assist in bid evaluations  Assist the implementing agency in contract negotiations and contract finalisation.

19 PPP Contractual Framework Shareholders Agreement Power Purchase Agreement Fuel Supply Agreement EPC Contract O&M Agreement Insurance Agreement Implementation Agreement Loan Agreement Sub-ord Loan Agreement Power Authority Shareholders Government Senior Lenders Sub-Debt Insurance Companies O&M Operator Constructio n Contractor Fuel Supplier

20 Conducting Pre-Feasibility/Feasibility Study Focusing on Commercial Aspects Developing Framework for Bid Process and Bid Criterion Preparing of Bid DocumentManaging the Bidding Process Assisting in Executing the PPP Concession Agreement with Investor Role of the Transaction Advisor