Confederation of International Contractors ’ Association Paris November , 17-18, 2014

1. Public-PrivatePartnership Usefulness and socio economicbenefits Confederation of International Contractors’ Association Paris November, 17-18, 2014 Presentation by Vincent Piron (PIRON Consulting) PIRON Consulting

2. General economics • Global GDP worldwideisgrowingslowly • In OECD countries itisgrowing more slowlythan in Asia • But the GDP is not a adequateparameter: • Ex: USA, where GDP increases and mediansalarydecreases • Ex: China, wherepollutuion and housing are masking reality • Ex: the global problem of urbandevelopment • Ex: the environmental question, sealevel in citiesnearbyseas • Interest rates cannotanymoredecreasebecausethey are aroundzero • So we have now a new model to develop PIRON Consulting

3. Where the money for investmentmay 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» PIRON Consulting

4. 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. PIRON Consulting

5. Economic indexes versus traffic Householdconsumption Manufacturedgoods GDP PIRON Consulting

6. 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 PIRON Consulting

7. 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 … Which Infrastructure for Which Service PIRON Consulting

8. Condition to have wellpreparedprojects (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 PIRON Consulting

9. The various aspects of PPP’s • Financial : the mostevident and the mostspoken of. • Accounting : difficult, changing and conditioning the very existence of the PPP • Legal : the mostcomplicated, and often the main issue • Technical : assumed to beeasilysolved by contractors • Economical : supposed to besolvedpreviously by the grantor, but neverreallydiscussed and checked • Political : has always been managed as a matter of feeling and seldomwith a scientificapproach PIRON Consulting

10. Toomuchistoomuch PIRON Consulting

11. PPP’sdefinition 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. PIRON Consulting

12. PPP’sdefinition and evaluation The vertical and horizontal continuum of PPPs PIRON Consulting

13. Stakeholdersand notion of non writtenagreements POPULATION FINAL CUSTOMER/END USER (Motorists, truckers, airlinescompanies, railwaycompanies, airlinepassengers) CONCESSION-GRANTING AUTHORITY (State, regional/local authority) 1 2 TAXES Ministry of Finance Concessionaire SHAREHOLDERS Purely-financialinvestors Project buildersinvestors 3 7 4 6 5 LENDERS Allocation of funds CONTRACTOR Construction company OPERATOR PIRON Consulting

14. Who pays, under which structure?

15. Revenues fromsocio-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%. PIRON Consulting

16. Role of a real toll policy • On a real tolled infrastructure thereis a strong interaction between utility and financing : the tollpolicy • Maximizing socio economicbenefitsisachieved by a lowtolllevel • This eases the politicalproblemcreated by the real toll • But the optimum of revenues for the concessionaireisreachedwith a rather high tolllevel • This minimizes the grantthatisrequestedfrom the authorities but decreases the socio economicbenefits and makes more difficult the politicalacceptability of the toll PIRON Consulting

17. Household Income PIRON Consulting

18. Cost / Volume relationship Generalizedcosts in euros Surplus Bitterness Toll proceeds Daily traffic in thousands PIRON Consulting

19. 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). PIRON Consulting

20. Excellence Center PIRON Consulting