Examination Committee: Dr. Sundar Venkatesh (Chairman) Dr. Winai - - PowerPoint PPT Presentation
Examination Committee: Dr. Sundar Venkatesh (Chairman) Dr. Winai Wongsurawat (Co-chair) Dr. Yuosre Badir (Member) Dr. Yuosre Badir (Member) Presented by Rathin Kumar Paul PMBF Programme, AIT 2011-2012 1 Introduction Provision for
Examination Committee:
Presented by Rathin Kumar Paul PMBF Programme, AIT 2011-2012
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Provision for sustainable and quality infrastructure is a prerequisite
for rapid economic development and requires huge sustained investment.
This investment is supposed to be supported by technological
innovation, skilled workforce and excellent project management. innovation, skilled workforce and excellent project management.
Governments alone cannot bring together all these elements. This has
led the concept of Public-Private Partnerships (PPP).
This is in fact a source of mutual benefit for both public and private
also involves transfer of valuable public assets and foregoing future revenues in the form of concessions.
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i) Degree of Corruption ii) quality of bureaucracy and iii) law and order situation determine the general investors protection (Bekaert at al, 2007 and LLSV,1998)
Profile of the investors : When legal rights are strong and efficiently enforced by regulators’ courts investors are more willing to invest in projects. In contrast when the legal investors are more willing to invest in projects. In contrast when the legal system does not protect investors availability of external finance is weakened . This can be measured by three factors i.e. (i) contract viability (ii) delays in making payment and (iii) profit repatriation (Bekaert at al,2007) Quality of Enforcement : If there is a strong system dedicated towards enforcement that might be a viable substitute for weak laws. An active and efficiently functioning court could come to rescue of investors harmed by the management. Quality enforcement system depends on the efficiency of judicial system (LLSV, 1998)
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(How and what kind Risk arises in case of PPP)
In case of infrastructure project a special purpose company is created and this
special purpose entity is supposed to execute the projects according to concession agreement
Sponsors are responsible for financing the project Project financing is done on a nonre-course basis. Here lenders are not supposed
to have recourse to the sponsor company but look solely to the revenue stream to have recourse to the sponsor company but look solely to the revenue stream
The risks associated with the revenue stream are therefore scrutinized. Here Equity investors may be willing to accept higher levels of risk in return for
higher expected returns on their equity, but lenders typically have a lower tolerance for risk and a greater need for risk mitigation mechanisms. (Montek
S.Ahlowalia, 2009) 6
Political Operational Market Regulatory 7
Source : Standard & Poor
Risks
Market Foreign Exchange Price Construction Payment Interest
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Public Private Pay Concession Fee
PPP Advisory Council Cabinet Committee Office for PPP Line Ministry Calls Request For Issues Request For Proposal (RFP) Negotiation & Contract Award
Viability Gap Funding
(VGF)
Technical Assistance
Responsible for Financing, implementing and Managing the project Exposed to various risks : Political Risk
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Line Ministry Finance division Planning Commission Project Identification Feasibility Study Calls Request For Quotation (RFQ)
Technical Assistance Investment Promotion Financing Facility (IPFF) Bangladesh Infrastructure Finance Fund (BIFF)
Political Risk Regulatory Risks Foreign Exchange Risk Interest Rate Risk Construction Risk Operational Risk Market Risk Payment Risk Source: Self Compilation (in light of PPP Policy)
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Conclusions : Bangladesh issued Private Sector Infrastructure Guidelines (PSIG) in 2004 . Later in 2010 it took comprehensive PPP policy. Bangladesh should not be considered as late entrant in formulating PPP policy in comparison with India and Philippines
40 60 80 100 120 140
Number of projects in energy sector (2007-2011)
Bangladesh India Indonesia The Philippines
20 40
Bangladesh India Indonesia The Philippines Thailand
The Philippines Thailand
Source: the World Bank
Conclusion: India implemented the highest number of projects in energy sector while the Philippines was in the second position. Though Bangladesh was in third position among the countries size of investment was very little in comparison with other countries. One reason for this might be that Bangladesh implemented small power projects in comparison with Thailand and Indonesia. Bangladesh implemented projects with lowest average project cost.
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Project cost(mill USD) in energy sector (2007-2011) Bangladesh India Indonesia
Indonesia The Philippines Thailand
Source : the World Bank
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Conclusion: India implemented the projects in energy sector during 2007 to 2011 with an investment of 94,169 million USD from private participation. During the same tenure the Philippines facilitated an investment of 10,296 million USD in energy sector. Though number of projects implemented in Bangladesh was higher than that of Thailand and Indonesia amount of investment was negligible in case of Bangladesh in comparison with Thailand and Indonesia.
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2.5 3 3.5 4 4.5 Number of projects in telecom sector (2007-2011)
Bangladesh India Indonesia
1 1
0.5 1 1.5 2 2.5
Bangladesh India Indonesia The Philippines Thailand
Indonesia The Philippines Thailand
Conclusion: India implemented the highest number of projects in telecom sector while the Philippines and Bangladesh implemented one project each in telecom sector. During this period (2007-2011) both Thailand and Indonesia implemented no project in telecom sector with private participation. But it was found that there were investment in Thailand and Indonesia in telecom sector. One reason might be that projects were taken before 2007 and extension of existing projects was taken place. There were 4 other projects in telecom sector before 2007 in Bangladesh. So number of projects was not many in comparison with energy sector.
Source: the World Bank
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1349 9334 4554 2396
Project cost (mill USD) in telecom sector (2007-2011) Bangladesh India Indonesia
46267
Indonesia The Philippines Thailand
Source : the World Bank
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Conclusion: India implemented the projects in telecom sector during the 2007 to 2011 with an investment of 46,267 million USD from private participation. During the same tenure Indonesia facilitated an investment of 9,334 million USD in telecom sector. Though the number of project implemented in Bangladesh and in the Philippines was same the amount
size might be one of the reason.
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60 80 100 120 140 160
Number of projects in transport sector (2007-2011) Bangladesh India
6 6
20 40 60
Bangladesh India Indonesia The Philippines Thailand
India Indonesia The Philippines Thailand
Conclusion: India implemented the highest number of projects in transport sector while there were no projects implemented in Thailand and Bangladesh during the period of 2007 to 2011 in transport
projects are different in nature. Though in PPP policy these sectors are identified for PPP investment, it takes time and major policy decision. This might be one of the reason that there were no PPP project ready for inviting private sector in transport sector.
Source : the World Bank
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1360 754
Project cost (mill USD) in transport sector (2007-2011) Bangladesh India
40275
India Indonesia The Philippines Thailand
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Source : the World Bank
Conclusion: India implemented the projects in transport sector during 2007 to 2011 with an investment of 40,275 million USD with private participation. During the same tenure Indonesia facilitated an investment of 1,360 million USD in transport sector. The Philippines was in the third position considering total investment of 754 million USD in transport sector. Both Bangladesh and Thailand had no investment from private sector during this period in transport sector. During this period Bangladesh failed to implement any project in transport sector. There is at least one project in transport sector in Bangladesh under implementation.
(Water & Sewerage Sector) 8 3 4 5 6 7 8 9
Number of projects in Water and Sewerage sector (2007-2011)
Bangladesh India Indonesia
1 1 1 2 3 4
Bangladesh India Indonesia The Philippines Thailand
Indonesia The Philippines Thailand
Source : the World Bank
Conclusion: India implemented the highest number of projects in water and sewerage sector while there were no projects in water and sewerage sector implemented in Thailand and Bangladesh during the period of 2007 to 2011. Indonesia and the Philippines implemented one project each in water and sewerage sector with private participation during the same period. Bangladesh is comparatively new in PPP. Creation of PPP project
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20 27
Project cost (mill USD) in water and sewerage sector (2007-2011)
Bangladesh India
242
Indonesia The Philippines Thailand
Source : the World Bank
Conclusion: India implemented the projects in water and sewerage sector during the 2007 to 2011 with an investment of 242 million USD with private participation. During the same tenure the Philippines facilitated an investment of 27 million USD in water
water sector. Both Bangladesh and Thailand had no investment from private sector during this period in water sector.
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Contract winning company: Summit Industrial and Mercantile Corporation and its partner GE Energy, LLC, USA Contract type & term : Build, Own and Operate (BOO) basis Build, Own and Operate (BOO) basis The Power Purchase Agreement (PPA) term was 22 years. Expected Operation Date : by May 2014 Estimated project cost : BDT 22.50 billion (USD 300 m) Debt: Equity Ratio : 75:25
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22 year off take power purchase agreement (PPA) with the
government entity.
Government was providing land for the power plant and
transmission line on lease.
A 22-year long gas supply agreement (GSA) Provision for inflation adjustment periodically in case of both
power and gas price.
Power purchase is backed by government guarantee.
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RISK MITIGATED NOT MITIGATED CONCLUSIONS Political Risk √ Available data shows that in case of Bibiyana project most
the Regulatory Risk √ Foreign Exchange Risk √ risks are mitigated via government guarantee and contract clause. There are some risks still now to which the project is exposed. Foreign Exchange Risk √ Interest Rate Risk √ Construction Risk √ Operational Risk √ Market Risk √ Payment Risk √ Price Risk √
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Contract winning company: D Tech Water Treatment Plant Contract type & term : Build, Own and Operate (BOO) basis Build, Own and Operate (BOO) basis The Water Purchase Agreement term was 30 years. Expected Operation Date : by May 2012 Estimated project cost : BDT 220 million (USD 2.90 m) Debt: Equity Ratio : 70:30
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30 year off take water purchase agreement with the government
entity.
BEPZA was providing land for the water treatment plant on lease. BEPZA was providing land for the water treatment plant on lease. A 30-year long electricity supply agreement Provision for inflation adjustment periodically in case of both
water and electricity price.
Water supply agreement is backed by BEPZA’s guarantee.
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RISK MITIGATED NOT MITIGATED CONCLUSIONs Political Risk √ Except political risk, regulatory risk foreign exchange risk , interest rate Regulatory Risk √ Foreign Exchange Risk √ risk , interest rate risk all other risks are found to be mitigated to the some extent in case
project. Foreign Exchange Risk √ Interest Rate Risk √ Construction Risk √ Operational Risk √ Market Risk √ Payment Risk √ Price Risk √
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Contract winning company: Ital Thai Contract type & term : Build, Operate and Transfer (BOT) basis Build, Operate and Transfer (BOT) basis
25 years including the construction period.
Expected Operation Date : by May 2014 Estimated project cost : BDT 92.50 billion (USD 1.24 billion ) Debt: Equity Ratio : 80:20
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(Risk Mitigation)
Guaranteed Traffic Transactions :
Revenue Sharing :
Viability Gap Funding (VGF):
company through budget allocation as an initiative to make the project viable
Repatriation of Foreign Exchange
allowed to convert its earnings in to foreign currency able to repatriate
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Financing Party Step-in Right :
In the event of default by the project company, the financing party will have the right to
step in for the purpose of operates, maintain and sell or assign the project asset to recover the debt.
Guarantee of non-competition:
A guarantee of not implement or develop, establish, construct, manage or operate any new
road parallel facility adjacent to the project area or permit any person to do so which would adversely affect traffic flow or revenue streams of the project for the first 12 years
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RISK MITIGATED NOT MITIGATED CONCLUSIONs Political Risk √ Except political risk, regulatory risk all other risks are Regulatory Risk √ Foreign Exchange Risk all other risks are found to be mitigated to the some extent in case
Project. Foreign Exchange Risk Financing closure was extended Interest Rate Risk Construction Risk √ Operational Risk √ Market Risk √ Payment Risk √
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DCC guarantees a traffic level of 43,283 per day during
If the number of vehicles is more than 65,581 then 40% of
Government
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RISK MITIGATED NOT MITIGATED CONCLUSIONs Political Risk √ In case of Jatrabari flyover project except political risk, regulatory risk and Regulatory Risk √ Foreign Exchange Risk √ regulatory risk and foreign exchange risk all other risks are found to be mitigated to the some extent. Foreign Exchange Risk √ Construction Risk √ Operational Risk √ Market Risk √ Payment Risk √
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Bibiyana Power Project CEPZ Water Treatment Project Dhaka Elevated Expressway Gulistan Jatrabari Flyover
Political Risk Regulatory Risk Foreign Exchange Risk Interest Rate Risk
Project Name
Risk
Interest Rate Risk Construction Risk Operational Risk Market Risk Payment Risk Price Risk
32 Conclusion: Here ‘red box’ refers to ‘not mitigated’, ‘green box’ refers to ‘mitigated’ and ‘yellow box’ refers to awaiting for mitigation plan. In spite of exposure to some risks (political, regulatory and foreign exchange) investors are implementing those
loss due to risks to the investors.
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Creating good example in PPP: Government should provide all sorts of
cooperation in implementation of on going projects with a view to create good impression about government’s pledge about PPP.
Pursuing stable economic policy: Investors prefers stability in economic condition
economic policy both in case of macro and micro scenario.
Capacity Building in Public sector: PPP is comparatively a new concept in Capacity Building in Public sector: PPP is comparatively a new concept in
to identify concerned risks in implementing a specific project.
Ensure free flow of information: To ensure fair competition among the investors
government should ensure free flow of information. Government should ensure all relevant information publicly available.
Developing Capital Market: In case of infrastructure development through PPP
private parties are responsible for financing the project. For infrastructure development long term financing is required. Commercial banks are unable to provide long term fund due to maturity mismatch. So development of capital market is very crucial.
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