Word Bank Resource Guide and Other Information on Performance-Based Contracts

1. Regional Seminar on Performance-Based Management and Maintenance Contracts Word Bank Resource Guide and Other Information on Performance-Based Contracts César Queiroz, Ph.D. Roads and Transport Infrastructure Consultant Arusha, Tanzania February 2008

2. Presentation Outline • World Bank Resource Guide for Performance-based Contracting • Additional resources • Toolkit for PPP in highways • From PBC to PPP • PBC and road management • RONET • PBC and the distribution of risks between the public and the private sectors

3. World Bank Resource Guide for Performance-based Contracting • Assists road agencies in developing countries to launch or enhance a PBC program to manage and maintain their road networks • Contains practical documentation to • identify a PBC approach to fit specific conditions in a given country • design bidding and contract documentation • develop an efficient PBC implementation strategy • Also useful for consultants and contractors • Produced under a partnership between the UK Department for International Development and the World Bank

4. World Bank Resource Guide for Performance-based Contracting • Sample Bidding Documents • Sample TOR for preparation of PBC projects and support to bidding process • Sample TOR for Supervision • Sample TOR for Facilitator / Trainer • Sample Technical Specifications • WB Technical Note No. 27 on PBC • Actual Contracts • Resource People

5. World Bank Websites on Performance-based Contracts • Resource Guide for Performance-based Contracting http://www.worldbank.org/transport/roads/resource-guide/index.html • Training Course for Performance-Based Management and Maintenance of Roads http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/EXTROADSHIGHWAYS/0,,contentMDK:20706624~pagePK:148956~piPK:216618~theSitePK:338661,00.html • Road Management Catalog http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/EXTROADSHIGHWAYS/0,,contentMDK:20735996~pagePK:210058~piPK:210062~theSitePK:338661,00.html

6. Gunter Zietlow’s Website on Performance-based Contracts • PBC Overview • Sample Terms of Reference for the Preparation and Procurement, Contract Supervision and Facilitation, and Training • Bidding and Contract Documents • Training Materials • Related Presentations • Available at: http://www.performance-based-road-contracts.com/

7. Toolkit for PPP in Highways The toolkit is structured under five headings and includes a library and interactive financial simulation model Available at the World Bank’s web site: www.worldbank.org/highways

8. From PBC to PPP…but PPPs are not new! • Toll road at Wadesmill in Hertfordshire, UK, established in 1663 by Act of Parliament • 19th century concessions: toll roads, bridges, tunnels in US; railways in France; subway in London • Suez (1860) and Panama (1880) canals • Decline around 1930 (great depression) • Resurgence in the 1980s: collapse of the state-owned monopoly paradigm

9. Toolkit for Public-Private Partnership in HighwaysFinancial Simulation ModelMain Financial Indicators

10. Debt Service Cover Ratio (DSCR) where i = number of tranches, 1≤ i ≤3 n = current year (Debt Service) i,n = (Principal) i,n + (Interest) i,n CAFDS= Cash Available for Debt Service

11. Loan Life Cover Ratio (LLCR) n = current year CAFDS= Cash Available for Debt Service Outstanding debtn end of period The Net Present Value of the Cash Available for Debt Service from year n+1 to the end of the maturity is discounted at the debt interest rate The financial tool provides the user with the minimum LLCR

12. Return on Equity (ROE) where: Equity injectedi is the equity provided by the sponsors in year i Dividendsi are the dividends distributed to shareholders in year i ROE is calculated in real terms through deflated flow (equity - dividends)

13. Project Financial InternalRate of Return (IRR) i = year OCFBF = Operating Cash Flow Before Financing

14. Project Net Present Value:Present Value of Taxes minus Subsidies (NPV) where: OCFBF = Operating Cash Flow Before Financing t = weighted average of the three rates on the tranches of debt The NPV is calculated for the first year of the construction period

15. Estimated Minimum Toll Rate to Attract Private Investment for a PPP Project $/km 5,000 vpd 10,000 vpd 15,000 vpd 20,000 vpd Construction cost, $ million/km

16. PBC, PPP and Road Management • Road condition is a key indicator of the roads agency efficiency • PBC and PPP have been used to improve the condition of road networks (also to expand) • A new tool can help road agencies and policy makers to assess the future condition of a road network as a function, inter alia, of funds available: RONET

17. Road Network EvaluationTools (RONET)Version 1.01World BankJanuary 2008

18. RONET • Developed for SSATP by the World Bank • Helps decision makers: • Monitor network condition • Plan allocation of resources • Assess consequences of macro policies • Design Road Asset Managements Systems • Developed for Africa, but can be applied worldwide

19. RONET Output Asset value Roughness Network charts Network monitoring indicators Road works summary Optimal work program Input Country data Length of road network Historical data Standards Cost of road works

20. Road Network Length Matrix Total 5 x 5 x 5 x 5 = 625 road classes

21. Default RONET Traffic Categories

22. Default RONET Condition Categories • Very Good: requires only routine maintenance (RM) • Good: requires RM plus preventive maintenance or spot regravelling or repairs • Fair: requires RM plus periodic maintenance • Poor: requires RM plus strengthening or partial reconstruction • Very Poor: requires RM plus full reconstruction

23. Default RONET Condition Categories

24. Performance AssessmentWhat are the Consequences of Applying Different Maintenance and Rehabilitation Standards?

25. RONET Distribution • RONET is available for free internet download at: http://www.worldbank.org/afr/ssatp • RONET CD can be obtained by contacting: • Monique S. Desthuis-Francis mdesthuis@worldbank.org • Technical issues: • Rodrigo Archondo-Callao rarchondocallao@worldbank.org

26. Allocation of Risks High Force Account Maintenance Contracts PBC RISK TO PUBLIC SECTOR Concessions BOO Decreasing Public Risks, Increasing Private Risks Low High RISK TO PRIVATE SECTOR

28. Thank you!

29. Some Basic References World Bank (2006). “Resource Guide for Performance-based Contracting.” Washington, D.C. http://www.worldbank.org/transport/roads/resource-guide/index.html World Bank (2005). “Performance-based Contracting For Preservation and Improvement of Road Assets.” Transport Note No. 27. Washington, D.C. http://www.worldbank.org/transport/roads/resource-guide/Docs-latest%20edition/PBC/trn_27_PBC_Eng_final_2005.pdf World Bank (2005). “Sample Bidding Document: Output- and Performance-based Road Contract (OPRC).” http://www.worldbank.org/procure/ World Bank (2003). “Toolkit for Public-Private Partnership in Highways.” Public-Private Infrastructure Advisory Facility (PPIAF) and World Bank. http://rru.worldbank.org/Documents/Toolkits/Highways/index.htm

30. WB PPP-related Sites • Toll Roads and Concessions http://www.worldbank.org/transport/roads/toll_rds.htm • How to Hire Expert Advice on PPP http://rru.worldbank.org/Toolkits/Documents/Advisors/Full_Toolkit.pdf • Labor Issues in Infrastructure Reform www.ppiaf.org/Reports/LaborToolkit/toolkit.html • Toolkit for PPP in Highways http://rru.worldbank.org/Toolkits/PartnershipsHighways/

31. World Bank Websites on Performance-based Contracts • Resource Guide for Performance-based Contracting http://www.worldbank.org/transport/roads/resource-guide/index.html • Training Course for Performance-Based Management and Maintenance of Roads http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/EXTROADSHIGHWAYS/0,,contentMDK:20706624~pagePK:148956~piPK:216618~theSitePK:338661,00.html • Road Management Catalog http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/EXTROADSHIGHWAYS/0,,contentMDK:20735996~pagePK:210058~piPK:210062~theSitePK:338661,00.html

32. Concession term: 20 yrs Construction Cost: $1M/km to $5M/km Operation cost: $500,000/km/yr Equity: 14% Subsidies: 0 Interest rate: 5%/yr Grace period: 4 yrs Repayment period: 14 years Discount rate: 10% Initial traffic: 5,000 vpd to 20,000 vpd Traffic growth: 3% Inflation: 6% Tax: 18% IRR ≥ 12% ROE ≥ 16% LLCR ≥ 1.0 DSCR ≥ 1.0 Basic Assumptions to Estimate the Minimum Toll Rate to Attract Private Investors for a PPP Project

33. Cesar QueirozRoads and Transport Infrastructure ConsultantWorld Bank, 1818 H Street NWWashington DC 20433 USATel +1 202-473 8053Mob +1 301-755 7591Email: cqueiroz@worldbank.orghttp://www.worldbank.org/transporthttp://www.worldbank.org/highways

34. Cesar Queiroz is an international consultant on roads and transport infrastructure, with main interest in public-private partnerships (PPP) in infrastructure, road management and development, performance-based contracts, port rehabilitation, improving governance, quality assurance and evaluation, research, teaching and training. Between 1986 and 2006, he held several positions with the World Bank in Washington, D.C., including principal highway engineer, lead highway engineer, and highway advisor. Prior to joining the World Bank, Cesar was the deputy director of the Brazilian Road Research Institute in Rio de Janeiro. He holds a Ph.D. in civil engineering from the University of Texas, USA, a M.Sc. in Production Engineering from the Federal University of Rio de Janeiro, and a B.Sc. in civil engineering from the Federal University of Juiz de Fora, Brazil. Cesar was awarded the Maua Medal for his contribution to transport development in Brazil, and is an elected member of the Russian Academy of Transport. He has published more than 130 papers and articles, including being a co-author of two World Bank main publications on PPP and performance-based contracts, respectively the “Toolkit for PPP in Highways” and the “Resource Guide for Performance-based Contracting.” He has participated actively in several international organizations, such as TRB, SHRP, OECD, PIARC, IRF.