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Public-Private Partnerships (PPP). Michel Audigé Lead Port Specialist ECA region – The World Bank. Workshop on PPPs in Russia (Moscow - March 3-4, 2005) Port sector. The Four Main Russian Gateways to the Global Market. Distribution of Roles in The New Ports Era.

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Public-Private Partnerships (PPP)

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Public-Private Partnerships (PPP)

Michel Audigé

Lead Port Specialist

ECA region – The World Bank

Workshop on PPPs in Russia

(Moscow - March 3-4, 2005)

Port sector


The Four Main Russian Gateways to the Global Market


Distribution of Roles in The New Ports Era

Public Port and Marine Authorities

  • Provide basic infrastructure (access / protection / connection)

  • Establish a reliable administrative framework

  • Traffic Safety and Environment Protection

  • Technical regulation matters

  • Promote Port Community dialogue

    Commercial Terminals (Private Sector)

  • Handle operational aspects

  • Manage commercial risks

  • Propose and implement investment policy

  • Incentives for high performance and competitive tariffs

  • Play a crucial role in fostering efficient logistics development


Source ADB


Definition of PPP Schemes

  • Very wide spectrum, from work and service contracts to full privatization

  • Pros and Cons of PPP schemes

  • In any case, a long – up to 18 months -- and complex [two or three steps] process to ensure success, i.e., resulting from long term “win-win” deals

  • In each case a “tailor-made” design is required

  • Size matters, i.e., US$100 million minimum per deal


PPPs : Options and Challenges for Success

Key Challenges for Success:

  • Policy Framework (i.e., PPP legislation, institutional capacity, economic regulation and communication program)

  • Transaction Design (i.e., market structure, cost recovery and affordability)

  • Financiability (i.e., adequate risk allocation mechanisms)

  • Public Sector Risk Management (I.e., assessing and monitoring government’s commitments under PPP schemes)


PPPs : Pros. and Cons.

Reference EBRD 2004


Why Seeking for PPPs in Ports?

  • Mainly for mobilizing private financing, but also

    • to improve port competitiveness [examples: Antwerp, Mexican, and Laem Chabang ports];

    • to strengthen linkage with global market [illustration: Maersk in St. Petersburg (Transib), and Algeciras];

    • to boost international trade to/from Russia with the rest of the world [promising development of international container trade, doubled in the present decade.]


Developments in The Container Business

  • Increase in flows of containers;

  • Increase in maximum vessel sizes;

  • Growth of ICT and automation;

  • High performance demands;

  • Major international players; and

  • Need for investments in terminal facilities and modern handling equipment.


Development of The International Container Trade(Sources: Various)


A competitive land bridge for containerized cargo?

Source: MOTC Finland - 2005


Key Factors for a Successful PPP in Ports

  • Objectives of the PPP: difficult choice between two extremes:

    • Maximum revenue for Port Authority

      versus

    • Maximum competitiveness for port users];

  • Public and transparent tendering process;

  • Optimal risks’ allocation [2 slides];

  • Standard timeframe for a well designed PPP; and

  • Two-step vs. Three-step approach [3 slides].


Optimal Risks’ Allocation (1/2)

  • Political Risks(Confiscation / Expropriation / Nationalization, Civil Strife / War).Mitigation through International Arbitration and Risk Guarantee (IBRD and MIGA)

  • Government Performance Risks (Compliance to contractual terms in a Concession Agreement). Mitigation through insurance and guarantees (IBRD and MIGA)

  • Environment and Safety RisksEnvironmental and safety constraints to be defined in Concession Agreement

  • Construction RisksRisk generally borne by Concessionaire. Acquisition of land by Government before construction. Issue of geotechnical risks


Optimal Risks’ Allocation (2/2)

  • Technical Operation RisksRisk to be borne by Concessionaire

  • Revenue Risk in existing facilitiesOften an acceptable risk to be borne by Concessionaire (adequate provision on tariff in Concession Agreement)

  • Revenue Risk in newly-built facilitiesA major risk (traffic volume, tariff setting, revenue in local currency). Often not possible for Concessionaire to bear all the risk

  • Financial RisksInconvertibility/Transfer Risk to be insured. Issue of Exchange Risk. Other risks borne by Lenders. World Bank Partial Risk Guarantees.


Indicative Transaction Timetable [15-18months]:

(Two steps process)


Phase I: Strategic Review and Due Diligence [6 months]


Phase II: Transaction [9 months]


Three Steps Process

  • Pre-qualification: (Previous experience in port facilities financing and operations, Project finance capacity)

  • « Technical » Selection: (Essentially on the basis of a detailed Business Plan) using «Pass or Fail» criteria

  • Financial Selection: (on the basis of unified documentation, i.e., draft lease / concession agreement) – Simple selection criterion, e.g., fixed annual fee plus royalty (per container movement) of service provided by Concessionaire to the port users


What Is Eligible for PPP Schemes?

  • In any case, PPP can only result from economically and financially justified projects

  • Size does matter [Transaction costs -> minimum project size of US$100 million and more…]

  • Private sector interest in port business [see ADB graphic]:

    • Cargo handling, especially containers; and

    • Marine services (towage, berthing, etc…)

  • Added Value logistic services

  • Port/City interface redevelopment for urban purposes

    past experience in Russia and worldwide


List of PPI in The Port Sector in The Region (1992-2003)

Source: WB PPI Database 2003


List of PPI in The Port Sector Worldwide (1992-2003)

Source: WB PPI Database 2003


Possible PPPs’ Prospects in Russia

… as listed in the Russia Transport Strategy until 2020:

  • St. Petersburg and Ust Luga railway/ferry services with Kaliningrad;

  • Transshipment facilities for oil, grain and containers in the port of Novorossiisk;

  • Vostochnyy/Vladivostok ports and railways access;

  • Plus logistics services and development of inland waterways:

    • Astrakhan water transport node;

    • the Makhachkala port; and

    • Reconstruction of the Kochetov lock on the Don River.


Possible PPPs Prospects in Russia


World Bank Group comparative advantages

  • Close partnership with Russian authorities

  • Advisory services from either the IBRD and/or the IFC

  • Skill-mix and worldwide experience

  • External consultants and experts

  • Reputation to act as an “honest broker”

  • Increased confidence of the private sector

  • Balancing interest of both Public and Private sectors

  • Transparent and competitive PPP process and more

     The Port Reform Toolkit (www.worldbank.org).


Hard Currency:

Loans (Investment & Policy, IBRD, IDA)

On-lending facilities

Co-financing schemes (A/B Loans, IFC)

Guarantees (IBRD, IDA, IFC, MIGA)

Insurance (MIGA)

Equity and related products (IFC)

Local Currency:

Currency Conversion Option (FSL)

Currency swap

Guarantees

WBG: Financial Support for PPP’s

Financial Products

Advisory Services/1

Institutional Building Capacity:

  • PPIAF

  • WSP

  • BNPP (Bank & Netherlands Partner)

  • TAF (PIDG)

  • FIAS

    Project (transaction) Execution:

  • DEVCO (IFC Advisory Services)

  • GPOBA

  • Cities Alliance

  • PIDG (EAIF, Guarantco, Infraco – also includes financing products)

/1 Includes Partnerships with other donors


Next Steps (1/2)

  • Independent review of the Russian port sector to:

    • Review the relevance of its current institutional framework and administrative organization

    • Determine the level of competition intra- and inter-ports as well as the efficiency and relevance of regulatory mechanisms in place

    • Assess the level of operational performance, tariffs and shippers’ degree of satisfaction for the service provided

    • Assess current and future port capacity (in volume and by type of cargo)

    • Intermodalism and value added logistics

    • Evaluate the prospects for promoting PPP schemes.


Next Steps (2/2)

  • Short/medium term action plan to:

    • Develop an appropriate regulatory legal framework

    • Increase port capacity – and efficiency – through PPP schemes

    • Improve the overall rail, road and inland waterways connection between the ports and their hinterland, especially with Russia’s oil/gas production centers

    • Introduce modern information and communication technologies

    • Where necessary, improve port/city interfaces to minimize the impact of port related businesses on the functioning of the city


Public-Private Partnerships (PPP)

Michel Audigé

Lead Port Specialist

ECA region – The World Bank

Workshop on PPPs in Russia

(Moscow - March 3-4, 2005)

Спасибо!


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