1 APPLICATION ON THE SPANISH CONCESSIONAL MODEL TO CENTRAL AND ESTERN EUROPE WORLD BANK WORKSHOP ON PPP IN HIGHWAYS: INSTITUTIONAL, LEGAL, FINANCIAL AND TECHNICAL ASPECTS Antonio M. López Corral Professor of the Polytechnic University of Madrid Washington, April 3rd, 2006

km of state and regional motorways -4,400 km of toll motorways - 2,200 km tendered during last 8 years and 600 during last 3 years km of state and regional motorways -4,400 km of toll motorways - 2,200 km tendered during last 8 years and 600 during last 3 years MOTORWAYS MAP OF SPAIN

3 INVESTMENT AND FINANCING TRANSPORT INFRASTRUCTURES OF STATE IN SPAIN 20% Private Capital Public Budgetary 40% FF.EE 5% 20% Public non Budgetary FF.EE 15% FF.EE 15% Ministry 30% Public Companies 50% 20% Private Sponsors EXECUTION TOTAL FINANCING : 60.3 BILLION € 60% 20% European Funds 20% Private Capital FINANCING Public (Budgetary and not Budgetary)

4 - All the projects to be executed in concession regime will have the same indispensable conditions of maturity that any other project that use any other route of financing -Additionally they will require a feasibility study that will have also to be put under public information -Definition of concessional formula - All the projects to be executed in concession regime will have the same indispensable conditions of maturity that any other project that use any other route of financing -Additionally they will require a feasibility study that will have also to be put under public information -Definition of concessional formula PREPARATION OF CONCESSIONAL PROJECTS FOR TENDERING

5 -It is reflected in the law of concessions, in the sector law, in some cases, in their regulations decrees and, specially, in the terms of references that considers the feasibility study -Possibility of cross financing -Application of the progress clause -It is reflected in the law of concessions, in the sector law, in some cases, in their regulations decrees and, specially, in the terms of references that considers the feasibility study -Possibility of cross financing -Application of the progress clause DEFINITION OF CONCESSIONAL FORMULA (1)

6 -Different alternatives to the project -Prizes and penalties associated to quality -Possibility of operating businesses related with the goal of concession -Possibility of public financing -Contract known with few opened clauses, most of them of economic content -Different alternatives to the project -Prizes and penalties associated to quality -Possibility of operating businesses related with the goal of concession -Possibility of public financing -Contract known with few opened clauses, most of them of economic content DEFINITION OF CONCESSIONAL FORMULA (2)

7 - Normally in the Spanish model the open competition made in a single phase is preferred - Criteria of awarding are transparent and quite objective: they looks for, between the projects of quality in reliable hands, the one that guarantees the best economic conditions for the public interests -It tries to assure the competitive tension in all the process. - Normally in the Spanish model the open competition made in a single phase is preferred - Criteria of awarding are transparent and quite objective: they looks for, between the projects of quality in reliable hands, the one that guarantees the best economic conditions for the public interests -It tries to assure the competitive tension in all the process. TENDERING OF CONCESSIONAL PROJECTS

8 –Time for maturity: 2 years (4 years to mature the ordinary projects) –Time for bidding and awarding: 7 months - 1 year –Beginning of the construction after the awarding: months -Costs of participation in a bidding process: 0,5 million € –Time for maturity: 2 years (4 years to mature the ordinary projects) –Time for bidding and awarding: 7 months - 1 year –Beginning of the construction after the awarding: months -Costs of participation in a bidding process: 0,5 million € TENDERING AND AWARDING RESULTS IN SPAIN (IN MEDIUM TERMS) (1)

9 –Number of bidders: –Number of alternatives by bidder: 3 –Internal Rate of Return offered by the winner: 6,5 - 7,5% –Cost of the risks assumed by the concessionaires: 2,5 - 3,5% –Number of bidders: –Number of alternatives by bidder: 3 –Internal Rate of Return offered by the winner: 6,5 - 7,5% –Cost of the risks assumed by the concessionaires: 2,5 - 3,5% TENDERING AND AWARDING RESULTS IN SPAIN (IN MEDIUM TERMS) (2)

10 –Closing of the financing by the concessionaire: before the six previous months to finish the construction –Cost of the financing of the investment by the concessionaire: 5,0 - 6,5% -Time for execution: 3 years –Closing of the financing by the concessionaire: before the six previous months to finish the construction –Cost of the financing of the investment by the concessionaire: 5,0 - 6,5% -Time for execution: 3 years TENDERING AND AWARDING RESAULTS IN SPAIN (IN MEDIUM TERMS) (3)

11 PPP FUNDING WITH EUROPEAN FUNDS Santiago de Compostela-Alto de Santo Domingo Motorway PPP FUNDING WITH EUROPEAN FUNDS Santiago de Compostela-Alto de Santo Domingo Motorway

12 RATE OF ERDF COFINANCING –Investment 300 Million euros (2/3 sponsor; 1/3 public fund) –Public investment 100 Million euros (2/3 Region; 1/3 State) –ERDF contribution: 55% of public investment –Investment 300 Million euros (2/3 sponsor; 1/3 public fund) –Public investment 100 Million euros (2/3 Region; 1/3 State) –ERDF contribution: 55% of public investment Millions of Euros FOMENTOXUNTA Total investment to be granted 33,366,6 ERDF contribution 18,336,6

13 TEN-T IN EU AND NEIGHBORING COUNTRIES Investments foreseen TEN-T till 2020: 600 billion € Priority projects: 230 billion € To be executed as PPP: 120 billion € Priority projects in EU neighboring countries till 2020: 45 billion € To be executed as PPP: 9 billion €

14 - Lack of a coherent long-term policy of infrastructures financing - Lack of continuity and broad political consensus on the use of PPPs for roads - Unclear and unstable laws, difficult to interpret - Lack of institutional stability - Insufficient staff (number, capacities) - Lack of a coherent long-term policy of infrastructures financing - Lack of continuity and broad political consensus on the use of PPPs for roads - Unclear and unstable laws, difficult to interpret - Lack of institutional stability - Insufficient staff (number, capacities) SOME EXPERIENCES IN CENTRAL AND EASTERN EUROPEAN COUNTRIES

15 - The whole project preparation process takes up to 10 years - Lack of a feasible project pipeline - Insufficient knowledge of expected results - Long tenders - Long negotiations - No competitive tension during the negotiation process - Tenders are not perceived to be transparent - The whole project preparation process takes up to 10 years - Lack of a feasible project pipeline - Insufficient knowledge of expected results - Long tenders - Long negotiations - No competitive tension during the negotiation process - Tenders are not perceived to be transparent SOME EXPERIENCES – CONCESSION TENDERS

16 - Insufficient control in some cases by the Ministry of Infrastructure - Insufficient coordination between different departments in relation to implementation of policy - Lack of long term strategies and plans - Poor relationship between the administration and private partners - No structure for monitoring implementation and ongoing operation of projects - Insufficient control in some cases by the Ministry of Infrastructure - Insufficient coordination between different departments in relation to implementation of policy - Lack of long term strategies and plans - Poor relationship between the administration and private partners - No structure for monitoring implementation and ongoing operation of projects SOME EXPERIENCES – INSTITUTIONAL WEAKNESSES

17 As a consequence: - Confusing signal for the market - PPP are seen as a source of corruption - PPP are seen as an ineffective way of infrastructure provision and not applicable in Central & Eastern Europe However the problems with correct implementation of Public Private Partnership should not be confused with the PPP instrument itself As a consequence: - Confusing signal for the market - PPP are seen as a source of corruption - PPP are seen as an ineffective way of infrastructure provision and not applicable in Central & Eastern Europe However the problems with correct implementation of Public Private Partnership should not be confused with the PPP instrument itself PPP APPLICABILITY IN CENTRAL AND EASTERN EUROPEAN COUNTRIES

18 - Precise definition of the PPP mechanism by the administration - Use of open tendering procedure - Easy participation in the tendering process to increase competition for the contract - Simplified evaluation of proposals - Bidding proposals can not be negotiated - Financial closure not required before awarding - Fixed deadlines for awarding - Precise definition of the PPP mechanism by the administration - Use of open tendering procedure - Easy participation in the tendering process to increase competition for the contract - Simplified evaluation of proposals - Bidding proposals can not be negotiated - Financial closure not required before awarding - Fixed deadlines for awarding MAIN FEATURES OF THE RECOMMENDED SYSTEM

19 A2 Konin - Stryków (Łódź) - Konotopa (Warsaw) motorway + additional Warsaw bypass sections A2 Konin - Stryków (Łódź) - Konotopa (Warsaw) motorway + additional Warsaw bypass sections A2 Konin - Stryków (Łódź) [103 km] delivered by the State to the concessionaire as a payment in kind - a form of public support O&M by the concessionaire covered by tolls A2 Stryków (Łódź) – Konotopa (Warsaw) [94 km] built by the concessionaire O&M by the concessionaire covered by tolls A2 Konin - Stryków (Łódź) [103 km] delivered by the State to the concessionaire as a payment in kind - a form of public support O&M by the concessionaire covered by tolls A2 Stryków (Łódź) – Konotopa (Warsaw) [94 km] built by the concessionaire O&M by the concessionaire covered by tolls RECOMMENDED PPP MECHANISMS AND PILOT PROJECTS IN POLAND RECOMMENDED PPP MECHANISMS AND PILOT PROJECTS IN POLAND

20 A2 Konin - Stryków (Łódź) - Konotopa (Warsaw) motorway + additional Warsaw bypass sections A2 Konin - Stryków (Łódź) - Konotopa (Warsaw) motorway + additional Warsaw bypass sections All sections: built by the concessionaire O&M by the concessionaire cross-financed from A2 revenues. free for users All sections: built by the concessionaire O&M by the concessionaire cross-financed from A2 revenues. free for users Additional sections: S8 Konotopa – Powązkowska [11 km] S8 Powązkowska – Piłsudskiego [12 km] S7 Northern Exit from Warsaw [approx. 15 km] Additional sections: S8 Konotopa – Powązkowska [11 km] S8 Powązkowska – Piłsudskiego [12 km] S7 Northern Exit from Warsaw [approx. 15 km] RECOMMENDED PPP MECHANISMS AND PILOT PROJECTS IN POLAND RECOMMENDED PPP MECHANISMS AND PILOT PROJECTS IN POLAND

21 A2 Konin - Stryków (Łódź) - Konotopa (Warsaw) motorway + additional Warsaw bypass sections A2 Konin - Stryków (Łódź) - Konotopa (Warsaw) motorway + additional Warsaw bypass sections Because of high financial profitability of the project no public support is required. Concession period may be used as the main bidding variable. Because of high financial profitability of the project no public support is required. Concession period may be used as the main bidding variable. RECOMMENDED PPP MECHANISMS AND PILOT PROJECTS IN POLAND RECOMMENDED PPP MECHANISMS AND PILOT PROJECTS IN POLAND

22 Thank you Antonio M. Lopez Corral Professor of the Polytechnic University of Madrid Tf.: (+34) Fax: (+34)