PPP Funds for Infrastructure Investments Istanbul, 8th November 2006 Alessandro Merlo Sanpaolo IMI Group International Public and Infrastructure Finance

PPP schemes continue to develop well throughout Europe and United States Successfully PPP schemes in Europe: France, Germany, Italy, Spain, Portugal, Greece, etc. Supported by: è legislative framework è PPP taskforces è governments commitment Public Private Partnership

PPP in Italy Which lesson can be learned?

A parallelism can be drawn between the Italian development of PPP scheme and the experience in MENA countries è Lack of modern infrastructures è Government Budget restrictions è State providing public services (experience vs. efficiency) è Lack of institutional investors è Lack of capital for local sponsors Nowadays Italy can be considered one of the most promising market for PPP projects development in Continental Europe PPP in Italy and MENA countries

The last three years ( ), thanks to legislative innovations, can be considered as the true start up phase with: è public entities è private companies è banks That gave the necessary experience and defined operating criteria those will permit to speed up the bidding and structuring procedures PPP in Italy a long start-up period

Modifications to the legal framework: è elimination of limits on the concession period è priority right attributed to the promoter PPP in Italy creating the “legal framework” are the factors that have determined a boost of projects under PPP schemes. In a three years’ period the number of tenders has doubled (from 206 to 418), while the number of concessions granted has increased by almost 4 times (from 47 to 229).

Data related to projects prometed by public authorities Data related to projects promoted by private companies PPP in Italy Investors come when revenue stream is supported by a clear regulation.

Financing PPP Not only debt but also equity needs

Equity provided by sponsors Mezzanine or Equity provided by PPP funds Debt Project Financing provided by banks è Leverage funds è PPP funds attract money from long term investors (such as pension funds, banks, foundations). They inject equity or mezzanine finance in PPP projects Role of PPP funds 100

è Benefits for investors in PPP funds è Investing in stable cash-flow businesses, with a moderate risk è Help sponsors è PPP funds help sponsors to: - Structure project financing (making them “bankables”) - Face equity needs (both through capital increase and mezzanine financing) - Control costs during construction and operational period è Benefits for public sector è PPP funds stress analysis on economic and financial feasibility of projects in the long term è PPP funds are bynature long term investor, they are not interested in construction revenues Role of PPP funds

What comes first: PPP development or PPP funds ? Lesson took from PPP experience in the UK: è the growth has been in parallel. What comes first ?

Geographic FocusItaly Investment Type Social and Public Buildings, Environment projects, Public Utilities networks Investment Philosophy Investing in greenfield and brownfield PPP projects Fund Strategy SPONSORFIN.OPI S.p.A. (SANPAOLOIMI GROUP) MANAGEMENT COMPANYFondaco SGR (controlled by banking foundations) ADVISORFIN.OPI S.p.A FUND TARGET€120 million INVESTORSSANPAOLOIMI Group, Banking Foundations, International institutional investors FUND LIFE12 years (+ 2 years) Investment Period6 years Divestment Period6 + 2 years The PPP Italia Fund

Investment strategy PUBLIC BUILDING ENVIRONMENTURBAN DEVELOPMENT TRANSPORTSPUBLIC UTILITIES SIZE of INVESTMENT MEDIUM- LOW MEDIUM-HIGHMEDIUM-LOWHIGH RISK LOWMEDIUM MEDIUM- HIGH MEDIUM YIELD MEDIUMHIGH MEDIUM- HIGH MEDIUM TENOR MEDIUM- HIGH MEDIUMHIGHMEDIUM INVESTMENT POLICY OF THE FUND 50-60%10-20%15-20%5-10%20% With such an investment policy PPP Italia, raising €120mln, will in invest in projects for about €1,5bln

Financing PPP How to have a more efficient use of public and donor funds

è To attract investors Public Authorities and Donors normally gives subsidies to project sponsors è Subsidies are one-off investments è Subsidies availability is very restricted è Difficult to choose to which projects grant subsidies and in which amount è Public Authorities and Donors can invest in PPP funds and being able to accept more risk and less return, compared to Private Institutional Investors, they can: è Decrease the cost of equity and mezzanine for infrastructure projects è Have a strong leverage effect: up to 1 to 20 (1€ invested in PPP Funds by Public Authorities can attract additional 2€ from institutional investors and as a result participating to projects for 20€) è Take profit of project analysis and selection made by a dedicated team (fund managers are remunerated based on the success of their investment) è If things goes well Public Authorities and Donors can receives back their investments and participate to extra-performance Public Investments in PPP funds

è Fideme is a closed-end fund, managed by IXIS CIB, which provides mezzanine finance to renewable energy sector in France A case study: FIDEME Ademe French Public Agency for Renewables Institutional Investors (CDC, Banca OPI, Caisses d’Epargne, …) FIDEME Project 30 projects 30 projects 320 MW installed 320 MW installed €370mln invested €370mln invested Senior Investor B share Junior Investor A share €15mln €30mln Mezzanine Finance

1.Payment of priority interest to B shares 2.Buy Back of B shares (at nominal value) – reimbursement of invested capital 3.Buy Back of A shares – reimbursement to Public Agency 4.Payment of extra performance, if any, equally divided between A (50%) and B (50%) shares FIDEME Cash Flow Cascade è è All the funds has been invested è è No default projects (a portfolio analysis shows an better risk profile compared to initial hypothesis) è è Potential over-performance (current evaluation): €5mln è è ADEME will be able to re-invest entirely its commitment, … and even more After four years (2002 – 2006)

Alessandro Merlo Sanpaolo IMI Group International Public and Infrastructure Finance Edin & Suner Plaza Meydan Sok. 14/1, Akatlar Istanbul, Turkey Phone Fax