PROJECT FINANCE INITIATIVE and PUBLIC PRIVATE PARTNERSHIPS Simon Par Keeling, Société Générale Paris

Public Private Partnerships u Project Finance Initiative / Public Private Partnership (PPPs) is a partnership between the public sector and the private sector for the purpose of delivering a project or a service traditionally provided by the public sector u The overall aim of PPPs is to structure the relationship between the public sector and the private sector, so that the risks are borne by those best able to manage them u Increased value is achieved for public services through the exploitation of private sector skills and competencies  Transfer of appropriate level of risks and responsibility  But, government maintains control where appropriate (e.g. regulation, transport policy)

Public Private Partnerships in Europe u PPPS are increasingly being seen as an attractive approach to the provision of infrastructure projects and services across Europe u An ever increasing number of countries are embarking upon PPP programmes (Greece, Ireland, Finland, Italy…) that will lead to a significant redefinition in the role of the public sector in the financing and provision of public services

limiteddevelopingmature SpainNetherlandsUnited Kingdom FranceItaly Portugal BelgiumGreece FinlandIreland Germany Degree of PPP development Public Private Partnerships in Europe

Objectives of PPPs: Public Sector u Value for Money: better services at lower prices for customers u Competition - ensures that Value for Money achieved for taxpayers u Risk Transfer u Introducing private sector expertise u Innovative solutions u Off balance sheet financing and long-term private funding

Implications of PPPs: Public Sector u Change in procurement process u Development of core requirement (output specifications, frequency of trains) u Consideration of whole-life costing u Detailed analysis of project risks u Regulation of the provision of services u Relationship with funders and sub-contractors through Direct Agreements u Consistency of approach through central government

Objectives of PPPs: Private Sector u Long-term projects with strong underlying economics u Proper risk allocation - risks that can be managed u Acceptable returns

Possible Benefits derived from PPPs u Experience of PPPs suggest that significant benefit could be achieved in the followings areas :  acceleration of infrastructure provision / faster implementation  reduced whole life costs  better allocation of risk  better incentives to perform  improve quality of service  generation of additional revenues for the public sector (revenue share, concession fee…)

Lessons learnt u PPPs: Learning the lessons  laying the foundations (experienced external advisors, clear regulatory regime..)  clearly defined process to reduce the time and cost  clearly defining project and performance requirements  removing unintended obstacles (parliamentary appraisal, trade unions…)  critical role of the central and local government agencies to play in the management and regulation of PPPs

u Private ownership, control and investment u Incentives for efficiency Service contract Management contracts Outsourcing contracts BOTsConcessions contracts % Trade sale or IPO Types of PPPs u Potential benefits for consumers u Risk u Wide range of options : allocation of responsibility for asset ownership, management and capital investment between the public and private sectors

Traditional Risk Allocation for Public Sector Procurement Roll Out Design Technology Operation Finance Approval Process Maintenance Asset Value Market Public Sector Quality/Cost Cost/Obsolescence Cost/Availability/Terms Cost/Quality Time/Cost Cost/Quality Residual Value Usage/Price

Public Private Partnership Risk Allocation Commissioning DesignTechnology Operation FinanceApproval Process Maintenance Asset ValueDemand Private Sector Quality/Cost Cost/Obsolescence Cost/Availability /Terms Cost/Quality Time/Cost Cost/Quality Residual Value Usage/Price Public Sector Regulatory Process Time/Cost Procurement Contract Residual Value