1. A bank’s perspective on PPP projects

2. Main contents Why PPP projects become popular
Why banks are involved and the challenges we are facing
How banks evaluate PPP projects
Advice to ensure success

3. Why PPP projects become popular
The government has a plan for the project, but is limited by the budget.
The private sector has the willingness and ability beyond mere construction.

4. A PPP project:
An cooperation between the public and the private sector, in which the government and the private sector carry out a project together on the basis of an agreed division of tasks and risks, each partly retaining its own identity and responsibilities.
Characteristic: Risk sharing, benefits sharing.

5. PPP vs. conventional construction model
Risk bearing: the private sector takes more risks
Basis of the contract: performance-based evaluation
Length of the contract: long-term contractual arrangements

6. Benefits: Public sector private sector Off-balance sheet
Cost efficiencies
Shorter time to delivery
Better management
Fixed return on investment
Improve image

7. Why banks are involved Invited by the private sector
PPP projects: large amount, long term, more risks
Use leverage
The result: most funds come from banks

8. Challenges banks are facing
Uncertainty
Repayment source ---future cashflows of the project
Long term
No guaranty
No recourse to sponsors
Only project asset and long-term operation contract

9. How banks evaluate PPP projects
Economically viable
Stable environment (including laws and policies)
Consistent support from public sector
Experienced and capable private sector
Clear contracts

10. Some considerations in evaluation and structuring :
Challenge important assumptions in the project feasibility study
Monitoring of the cashflows
Regular review and comparison of the project performance with the feasibility study
Different guaranty requirements in different stages: construction period, operation period

11. High-way projects
Used to be financed by the central or local government
More constructors become investors and operators
How a bank views the project:
Large investment, large initial input and later operational cost
Long term, higher risk
Source of repayment is limited, e.g. traffic volume not guaranteed, hence the income of the project
Stability of relevant policy, e.g. transfer time, lift road tolls on holidays
No guaranty

12. What the bank expect Safety: repayment of interests and principals
Source of repayment: volume, charge rate, allocation of the income
Guaranty: government’s commitment
pledge of charging rights
Other requirements: sponsors’ guaranty before the completion of the project, charge or monitoring of the charge collection account
Profitability: at least cover the funds cost and overhead costs

13. Some advice to ensure success
A well interest-balanced structure
Trust among the parties involved
Appropriate flexibility on all sides and be open-minded for adjustments in case of need

14. Wish you success!