1. 1 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects MINISTRY OF ECONOMY OF POLAND AND WORLD BANK SEMINAR ON LEGAL, ECONOMIC AND IMPLEMENTATION ISSUES IN PPP PROJECTS Wednesday, June 18, 2008, 9:00-9:30 Economic and Financial Feasibility of Building and Highway PPP Projects Mr. Carsten Glenting, Head of Department, COWI (cag@cowi.dk)

2. 2 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects Agenda 1.Economic and Financial Feasibility of PPP Projects –Appraisal of PPP projects –Value for Money –Assessing private sector interest 2.PPP for Buildings (Sports arenas & Schools) –The economics of buildings of public interest –Performance specifications –Tendering under EU competitive dialogue –Case studies 3.PPP and donor support - synergy or competition?

3. 3 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects Economic and Financial Feasibility of PPP Projects Appraisal of PPP projects General project appraisal Technical feasibility Economic and financial feasibility Organisational and legal feasibility PPP specific project appraisal What are the key drivers for proposing this project as a PPP Is it likely that Value for Money can be obtained through a PPP solution Is the public sector project sponsor ready to accept a different role compared to a traditional procurement Is the private sector ready to accept a different role compared to a traditional procurement

4. 4 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects Economic and Financial Feasibility of PPP Projects Appraisal of PPP projects PPP should be a conscious, professional and competitive process - even for privately financed projects, the money have in the end to be paid by a combination of user charges, budget allocations and donors

5. 5 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects Economic and Financial Feasibility of PPP Projects Assessing Value for Money

6. 6 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects Economic and Financial Feasibility of PPP Projects Assessing private sector interest Competition during the tendering of a PPP is a key prerequisite for obtaining Value for Money for the public sector Competition requires that the tender is sufficiently attractive to attract several experienced private sector operators To facilitate this, a mini market sounding of selected local and regional private sector operators may be performed

7. 7 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP for Buildings (Sports arenas) The economics of buildings of public interest Financing of Construction costs may come from 2 sources: –Public funding –Real estate development (residential, corporate, hotels, retail) European Sports arenas have a catchment Area of 3,5 - 10 mio. inhabitants in a radius of 100 km Operation of sports arenas CANNOT cover investment Sports arenas in dense populated areas may be able to be operated without deficit (e.g. O 2 Arena in London, Color Line Arena in Hamburg, The Globe in Stockholm, Parken Stadium in Copenhagen, Dortrecht Stadium in Holland)

8. 8 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP for Buildings (Sportsarenas) The economics of buildings of public interest Commercial revenues –Commercial activities like Congresses, trade fairs, meetings parties generates surplus –Concerts, plays, sports events combined with SPONSORS, may balance –Restaurant, café, beer sales & fast food are important sources of revenue Other revenues –Municipality rent the facility for community purposes –Professional sport clubs Few Leisure PPP in the UK, because it is considered to be high risk projects, unless the public is willing to guarantee rent on week- days

9. 9 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP for Buildings (Schools) The economics of buildings of public interest Construction costs –Financing of construction costs through availability payment –Little other income. If any it comes from excess capacity (evenings and week-ends) which may be rented to private parties Operation & Maintenance costs –Fixed payment for utility costs (electricity, heat and water), i.e. costs related to building –Variable cost for utility costs related to user behaviour –Penalty if PPP Co does not live up to standard service level (for instance repair whole in the roof within a certain time) –Incentives to ensure that PPP Co and procuring agency cooperates (for instance the parties share savings on maintenance cost due to reduction in vandalism)

10. 10 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP for Buildings Performance specifications (example a school) Vision : Sports, Health & Science theme Scope: School for 1000 pupils with 3 independent departments: –Primary level ( 0-3rd grade) –Medium level ( 4-6th grade) –Senior level (7-10th grade) And a common area with administration, library, sportsfacilities room for special subjects (Physics, biology etc) Architecture: Building(s) must be flexible in other to accommodate changes in number of pupils and in educational principles

11. 11 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP for Buildings Performance specifications (example a school) Technical standards, examples: –The building must meet the requirement for energy efficiency level 2 (the need for energy for heating, ventilation, cooling, hot water and light, must not exceed 70 kWh/m² per year) –Indoor climate (example: Ventilation must ensure maximum of 0,1% CO2..) –Lighting (200 Lux required ) –Acustics (reverberation must not exceed 0,5 seconds) –Hot water utility must be dimentioned so it can accomodate hot water need of 84 persons, who take 5 minutes showers within 15 minutes

12. 12 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP for Buildings Performance specifications (example a school) O&M standards, all tasks are described as –Short description of the task (The PPP Co is responsible for cleaning of all building and equipment) –Objective (The school must be clean and hygienic, and there must be a high customer safisfaction) –Quality and service standards (The service is measured by the cleaning standards system as described in…)

13. 13 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP for Buildings Tendering under EU competitive dialogue The competitive dialogue is a procurement method for use in the award of complex contracts, where there is a need for the procuring agency to discuss all aspects of the proposed contract with candidates Steps: –Contract Notice –Selection of candidates and invitation to dialogue –Dialogue Phase –Final Tender –Evaluation of tenders –Selection of Preferred Bidder –Contract Signature

14. 14 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP for Buildings Case studies Langeland School: Financed through availability payments from the municipality DBFO Procured through competitive dialogue Service level definition describes as a school for 1000 pupils with a number of facilities - but no specification of m2 etc. Key issues: –Creative approach to meet energy efficiency requirement –Bidders have to learn to work cost efficiently under competitive dialogue –Fixed budget envelope –Tax treatment is approved on case by case basis

15. 15 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP for Buildings Case studies Næstved Arena: Financed through sale of surrounding land for residential development Concession Procured through competitive dialogue Municipality pays investment (availability payment) and fixed low O&M fee Municipality gets public access Monday-Thursday + limited number of weekend days Commercial concerts and enterprise events Friday- Sunday

16. 16 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP for Buildings Case studies Gentofte Arena: Financed through sale of adjacent land for commercial development of office space and public contribution DB + O&M Procured through competitive dialogue Municipality pays investment (upon completion) and annual O&M fee Municipality gets full access to facility

17. 17 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP and donor support - synergy or competition? Challenges in combining PPP and EU funding

18. 18 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects PPP and donor support - synergy or competition? Models for combining PPP and EU grants

19. 19 Wednesday, June 18, 2008, 9:00-9:30 Economic & Financial Feasibility of PPP Projects COWI – Economic and Management PPP advisory services: –Setting up the institutional framework for PPP –Structuring PPP solutions for specific projects –Assessing market interest –Financial modeling of PPPs –Contract structures –Assistance during tender and negotiation Active PPP transaction advisory assignments (June 2008): –Langeland School, Denmark –Gentofte Arena, Denmark –Næstved Arena, Denmark –Odense regional airport, Denmark –Dublin Waste to Energy, Ireland –Fingal Landfill, Ireland –Belgrade Landfill, Serbia –10 water concessions, Uganda "Our competitive advantage is our ability to provide consultancy on economics, finance and law in natural integration with engineering and environmental disciplines"