The New Market of Public Private Partnerships (PPPs) in Greece by Alexandros Lykourezos Lykourezos Law Offices New York, November 17 th, 2006

Conventional types of Public Procurement: Classical Public Contract Classical Public Contract Concession Agreements Concession Agreements

Main Features/Characteristics of Public Contracts: Contract for Public Works (on Public Property) Contract for Public Works (on Public Property) State appoints Contractor (Public bid/Contract) State appoints Contractor (Public bid/Contract) Contractor undertakes the project (construction) Contractor undertakes the project (construction) State pays reward to Contractor (installments/upon completion) State pays reward to Contractor (installments/upon completion)

Main Features/Characteristics of Concessions: Contract for Public Works (on Public Property) Contract for Public Works (on Public Property) State appoints Contractor (Public bid/Contract) State appoints Contractor (Public bid/Contract) Contractor undertakes the project (construction) Contractor undertakes the project (construction) State contributes in financing the project State contributes in financing the project State concedes use and exploitation of the final project by Contractor for a long time period State concedes use and exploitation of the final project by Contractor for a long time period

The basic practical weaknesses The burden on the Public side: Immediate Cost – On Balance Sheet Immediate Cost – On Balance Sheet Breach of Public Contract (delays, faulty construction) Breach of Public Contract (delays, faulty construction) Risk for bad performance Risk for bad performance Initiative dependant on the National Economy (“only available when money is available”) Initiative dependant on the National Economy (“only available when money is available”) Unfair terms in Concession Agreements Unfair terms in Concession Agreements Not flexible Not flexible

Public Private Partnerships (PPPs) Definition: “any joint venture between a public body and a private company, typically involving the joint ownership of a special purpose vehicle (SPV) established under company law, to work in collaboration on a variety of projects”

The basic facts about PPPs: PPPs are not new (UK Privatization scheme in the 80s) PPPs are not new (UK Privatization scheme in the 80s) PPPs, in principle, are a type of Public Procurement (requiring special legislation) PPPs, in principle, are a type of Public Procurement (requiring special legislation) A “PPP” approach can be seen in conventional types of Public Contracts (e.g. concessions) A “PPP” approach can be seen in conventional types of Public Contracts (e.g. concessions) However, PPPs introduce new financial tools and require a new “attitude” by the Public and Private Sector However, PPPs introduce new financial tools and require a new “attitude” by the Public and Private Sector Considerable interest about PPPs all over Europe (EC Commission launched a wide debate with the “Green Paper” on PPPs in 2004) Considerable interest about PPPs all over Europe (EC Commission launched a wide debate with the “Green Paper” on PPPs in 2004) “PPP” is a generic term: Private Finance Initiatives (PFIs) is one form of PPP – “Procurement of services by private sector that are delivered through public assets” “PPP” is a generic term: Private Finance Initiatives (PFIs) is one form of PPP – “Procurement of services by private sector that are delivered through public assets”

The basic characteristics of PPPs: Contract between a public body and a private entity Contract between a public body and a private entity Relatively long duration of the contract Relatively long duration of the contract Private entity either Designs-Builds-Operates (DBO) or Designs-Builds-Finances (DBF) facilities Private entity either Designs-Builds-Operates (DBO) or Designs-Builds-Finances (DBF) facilities Private entity is financed by Private Institutions (agreement may include risk transfer, insurance and “step-in” clauses) Private entity is financed by Private Institutions (agreement may include risk transfer, insurance and “step-in” clauses) Public body either pays upon completion of the project or agrees on a concession Public body either pays upon completion of the project or agrees on a concession

The basis features of PPPs: New Market for provision of Construction & Services New Market for provision of Construction & Services The financial aspect of PPPs The financial aspect of PPPs Public Works  Financial Instrument Public Works  Financial Instrument Off-Balance Sheet – EUROSTAT 11 Feb Off-Balance Sheet – EUROSTAT 11 Feb Allocation of Risks Allocation of Risks Construction – Demand – Availability Risk Bankability Bankability Secondary Market – Securitisation Insurance Insurance Value for Money – Public Sector Comparator Value for Money – Public Sector Comparator Incentive for Quality

Basic conclusion on PPPs: Public sector: Public sector: Saves money – Value for Money – Allocation of Risks Private sector: Private sector: Makes money - Access to a new market – Investment incentive

Interested in PPP Source: IFSL International Interest in PPP 1999

Interested in PPP Source: IFSL International Interest in PPP 2006

Greek Law 3389/2005 on PPPs: Abolishes requirement of Parliament ratification Abolishes requirement of Parliament ratification Adopts new EU Directives on Public Procurement Adopts new EU Directives on Public Procurement Regulates award and contractual scheme of PPPs Regulates award and contractual scheme of PPPs Provides flexibility and allows shared better practice Provides flexibility and allows shared better practice Enhances bankability (step-in clauses and securitisation) Enhances bankability (step-in clauses and securitisation) Complies with EUROSTAT regulations Complies with EUROSTAT regulations

Practical layout - Award of a PPP contract (Greek Law 3389/2005): Government (Ministers’ Committee) PPP Taskforce Public Body (Municipality) External Advisors Award Committee Private entity (consortium) SPV Private entity (consortium) SPV Private entity (consortium) SPV

Greek PPP projects in the pipeline: Multi-schools projects: 27 Schools in Attica and 31 Schools in Macedonia Multi-schools projects: 27 Schools in Attica and 31 Schools in Macedonia (€ 266 mil. + 20%) (€ 266 mil. + 20%) Prisons projects: 3 prisons facilities in Salonika, Volos and Corinthos Prisons projects: 3 prisons facilities in Salonika, Volos and Corinthos (€ 198 mil. + 20%) (€ 198 mil. + 20%) University of Peloponnisos University of Peloponnisos (€ 84 mil. + 20%) Courthouse projects: 2 courthouse facilities in Heraklion and Patras Courthouse projects: 2 courthouse facilities in Heraklion and Patras (€ 100 mil. + 20%) Police facilities project in Attica Police facilities project in Attica (€ 36 mil. + 20%) Fire department facilities projects: 7 facilities in Salonika, Alexandroupolis, Veria, Lefkada, Giannitsa, Mesolongi & Gargaliani Fire department facilities projects: 7 facilities in Salonika, Alexandroupolis, Veria, Lefkada, Giannitsa, Mesolongi & Gargaliani (€ 31,5 mil. + 20%) International Conference Center in Athens (Paleo Faliro) International Conference Center in Athens (Paleo Faliro) (€ 54 mil. + 20%) Municipalities (Article 224 of the New Municipalities Code) Municipalities (Article 224 of the New Municipalities Code)

A quick case study: “Athens International Airport”  A concession contract (with a PPP approach)  EU funding: Cohesion Fund 11%, EIB loan 47%  Greek State contribution 19%  Commercial debt 17%  Equity 6%  SPV: Athens International Airport S.A (55% Greek State, 45% Private Consortium)  Construction delays: 3 months in advance Source: Patrick Boeuf, EIB, 2004

“Athens International Airport” – Duration of Project Implementation Source: Patrick Boeuf, EIB, 2004 (Time in months elapsed in each phase) Total (10 years)

Why invest in PPPs? Access to a new market (services & secondary market) Access to a new market (services & secondary market) Private investment (institutional & private investors) Private investment (institutional & private investors) Project Finance Project Finance Insurance and Risk Transfer Insurance and Risk Transfer

Why is the Government using PPPs: Expand of Public Works - Private finance, off balance sheet Expand of Public Works - Private finance, off balance sheet Value for money – Risk transfer – Performance-related reward Value for money – Risk transfer – Performance-related reward Commercial interest - Investments Commercial interest - Investments Innovation, Efficiency, Quality Innovation, Efficiency, Quality New approach to “Privatization” New approach to “Privatization”

Arguments against PPPs: Burden on future balance sheet Burden on future balance sheet Excessive outsourcing/sale of public property Excessive outsourcing/sale of public property Excessive private sector control Excessive private sector control Commercialization of public services Commercialization of public services Corruption? Corruption? Are these real concerns or remainders of an old attitude?

The keys to a successful PPP: Political support (focus on the public service) Political support (focus on the public service) Proper and complete legislation harmonized with international practice and expertise Proper and complete legislation harmonized with international practice and expertise Full and complete legal, financial and technical advice to the public bodies Full and complete legal, financial and technical advice to the public bodies A good PPP contract A good PPP contract A level playing field A level playing field Collaboration Collaboration

Website: Thank you for your kind attention!