Confederation of International Contractors’ Association Paris November, 17-18, 2014 Presentation by Vincent Piron (PIRON Consulting) 02/3-7/2014PIRON Consulting1 Public-Private Partnership Usefulness and socio economic benefits

GENERAL ECONOMICS Global GDP worldwide is growing slowly In OECD countries it is growing more slowly than in Asia But the GDP is not a adequate parameter: Ex: USA, where GDP increases and median salary decreases Ex: China, where pollutuion and housing are masking reality Ex: the global problem of urban development Ex: the environmental question, sea level in cities nearby seas Interest rates cannot anymore decrease because they are around zero So we have now a new model to develop 02/3-7/2014PIRON Consulting2

WHERE THE MONEY FOR INVESTMENT MAY COME FROM It is usually said that the States have no money to invest in housing and infrastructures (I hear this since 45 years) But it is a matter of allocation of money because money is there, it has been printed by the central banks The Juncker Plan (300 billion €) is just a reallocation of existing budgets, and further support from EIB and private sector. In USA it is the same music. But what is new is the idea of coordination and profitability of investment « further support » means « profitable investment » in order to reimburse the « additional debt» 02/3-7/2014PIRON Consulting3

WHICH TYPE OF INVESTMENT Digital economy, Energy, Transport Infrastructure Social infrastructure and environment These last two items practically mean « housing » and organisation of urban development Digital economy and Energy are paying the investment directly through invoicing directly the final client For Transport Infrastructure and housing the final client will never repay directly the investment and the State should provide support. 02/3-7/2014PIRON Consulting4

ECONOMIC INDEXES VERSUS TRAFFIC 02/3-7/2014PIRON Consulting5 Household consumption GDP Manufactured goods

HOW TO PROVIDE SUPPORT There are two ways to evaluate the profitablility of a project: financial and socio-economical Financial profitability is a clear and well known notion Socio-economical profitability means that benefits to be considered are not only monetary benefits but also wellfare, safety, social amenities, better housing,… These socio-economic benefits generate indirect GDP growth, In there is GDP growth, there is additional renevues from taxes and thus increase of budget 02/3-7/2014PIRON Consulting6

02/3-7/2014PIRON Consulting7 WHICH INFRASTRUCTURE FOR WHICH SERVICE Transportation Water supply Waste management District heating Telecommunications Education Health Recreation Roads, airports, rail … Dams, reservoirs, plants Incinerator compost u. Plant, network Tel exchanges & lignes Schools, University Hospitals Stadia, theatres …

CONDITION TO HAVE WELL PREPARED PROJECTS (CONCESSIONS AND PFI) In order to develop this process: The States have to choose the relevant projects The States have to be convinced of the fact that additional revenues « in cash » for their budget will come from the implementation of the project Then they will accept to provide grants and subventions, or guaranties for loans To help to develop this virtuous process, CICA is working since many years on documents describing the way to select, prepare and implement good projects 02/3-7/2014PIRON Consulting8

902/3-7/2014PIRON Consulting THE VARIOUS ASPECTS OF PPP’S Financial : the most evident and the most spoken of. Accounting : difficult, changing and conditioning the very existence of the PPP Legal : the most complicated, and often the main issue Technical : assumed to be easily solved by contractors Economical : supposed to be solved previously by the grantor, but never really discussed and checked Political : has always been managed as a matter of feeling and seldom with a scientific approach

TOO MUCH IS TOO MUCH 02/3-7/2014PIRON Consulting10

PPP’S DEFINITION AND EVALUATION « PPP » does not cover any legal reality. Existence of 2 families of contracts (typology): Concessions : More (concession contract) or less (lease, affermage or service contracts) investment is made by the private party The private operator bears demand and industrial risks PFIs Investment is made by the private party But he does not bear the demand risk. It bears only an availability risk for which he receives a guaranteed revenue. In fact, families are not entirely separate. There is a Continuum of contractual provisions. 02/3-7/2014PIRON Consulting11

PPP’S DEFINITION AND EVALUATION The vertical and horizontal continuum of PPPs 02/3-7/2014PIRON Consulting12

STAKEHOLDERS AND NOTION OF NON WRITTEN AGREEMENTS 02/3-7/2014PIRON Consulting13 POPULATION FINAL CUSTOMER/END USER (Motorists, truckers, airlines companies, railway companies, airline passengers) SHAREHOLDERS Purely-financial investors Project builders investors OPERATORCONTRACTOR Construction company CONCESSION- GRANTING AUTHORITY (State, regional/local authority) LENDERS Allocation of funds TAXES Ministry of Finance Concessionaire

WHO PAYS, UNDER WHICH STRUCTURE? Administrative and Contractual StructureFunding Taxes onlyTaxes + Toll Toll only (higher rate) Public Authority operates by itself Traditional procurement Contracted out to a public company Traditional procurementConcession Contracted out to a private company PFI, Contrat de Partenariat Concession or PFI or C. de partenariatConcession 14

1502/3-7/2014PIRON Consulting REVENUES FROM SOCIO-ECONOMICS Revenue generated by the utility of the project An economically viable construction will generate activity and therefore fund flows. Such flows will be split between the private- sector actors, commercial or industrial companies, and the public- sector actors. Recent research, notably that directed by Professor Rémy Prud’homme have shown it to be possible to estimate budget revenue for the State, which collects taxes and social contributions, at 20% of the annual surplus. In the case of local government in France this percentage falls to approximately 3%.

1602/3-7/2014PIRON Consulting ROLE OF A REAL TOLL POLICY On a real tolled infrastructure there is a strong interaction between utility and financing : the toll policy Maximizing socio economic benefits is achieved by a low toll level This eases the political problem created by the real toll But the optimum of revenues for the concessionaire is reached with a rather high toll level This minimizes the grant that is requested from the authorities but decreases the socio economic benefits and makes more difficult the political acceptability of the toll

02/3-7/2014PIRON Consulting17 HOUSEHOLD INCOME

02/3-7/2014PIRON Consulting18 COST / VOLUME RELATIONSHIP Surplus Bitterness Toll proceeds Daily traffic in thousands Generalized costs in euros

ACTIONS BY CICA Developing with UNECE a methodology to prepare and implement efficient projects Create a « center of excellence » for training decision makers to these rather complicated process of project evaluation, selection, tender and implementation Studies with economists about the link between socio- economic development linked to a new project and budgetary resources Consider how to developing maintenance of the works already build(main part of the activity now). 02/3-7/2014PIRON Consulting19

EXCELLENCE CENTER 02/3-7/2014PIRON Consulting20