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Study to assess the potential for enhanced private participation in the maritime and air transport sectors in Africa Monday 11 June 2012 Steer Davies Gleave 28-32 Upper Ground London, SE1 9PD +44 (0)20 7910 5000 www.steerdaviesgleave.com 1
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Study to assess the potential for enhanced private participation in the maritime and air transport sectors in Africa
Monday 11 June 2012 Steer Davies Gleave 28-32 Upper Ground London, SE1 9PD +44 (0)20 7910 5000 www.steerdaviesgleave.com
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Alistair Wray Senior Infrastructure Specialist European Investment Bank 40 years experience of development covering all aspects of infrastructure and most regions, including Sub- Saharan Africa. He has worked for DFID since 1991, with past 4 years under assignment to EIB. Peter Wiener Project Manager & Air transport infrastructure specialist 25+ years experience in the aviation industry, specialising in the economics, finance and regulation of aviation markets, and in traffic and revenue forecasting Sheila Farrell Ports specialist 40+ years experience of port and shipping consultancy work, specialising in port economics and finance, port privatisation and institutional reform
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Ι Objective: identify targeted interventions to facilitate private participation in key ports and airports across the African continent
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The study forms part of the activities foreseen under the ICA Transport Sector Platform
Ι Deliverable: report including short lists of 5-10 port or airport-related developments and other details including next steps towards advancing these to maturity Ι Measure of success: a small number of projects are identified for further support and in the longer term perhaps two projects may benefit from new private sector participation Ι Methodology: Six month desk-based study – with dissemination workshops in Brussels and Tunis
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Extensive literature review
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Stakeholder engagement
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Development of criteria for assessing suitable projects for investment
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Assessment of investment climate in different countries
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Selection of long and short-list of projects
stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
Ι Range of instruments available to ICA Members to assist projects throughout life cycle Ι Technical support: institutional reform, safety and security support, and advice to facilitate private sector participation. May extend throughout the project as transaction support Ι Financial support: grants, debt, equity, interest rate subsidies, and insurance guarantees. Provided to either private or public sector entities, or both
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Technical assistance / Capacity Building Financial assistance
STEP 1 ENABLING ENVIRONMENT STEP 2 PROJECT DEFINITION STEP 3 PROJECT FEASIBLITY STEP 4 PROJECT STRUCTURING STEP 5 TRANSACTION SUPPORT STEP 7 PROJECT IMPLEMENTATION STEP 6 LEGAL AND FINANCIAL CLOSE
Project life cycle
stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
Ι Existing ports
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Small
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Shallow
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Low levels of mechanisation
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Congested city centre locations
Ι Greenfield sites
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Larger ships
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Efficient layouts
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Easier access
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New working practices
Ι Other investment drivers
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GDP & trade growth
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Mining projects
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Dar es Salaam Suez Canal Container Terminal
stakeholder consultation
learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
key learning points
Ι Most PPP projects have been container terminals
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high financial returns
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strong market growth
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standardised contracts
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ease of implementation
Ι Dry bulks will be more important in future, due to mining activity Ι Port modernisation programmes & multi purpose berths are less attractive
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small scale
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low profitability
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technical complexity
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Ι New ports at greenfield sites are attracting private interest however:
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They are extremely expensive, especially when breakwaters & dredging area required
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They carry high commercial risks
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Dakar Richards Bay Mombasa Port Said
stakeholder consultation
learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
key learning points
Ι Public sector specification & procurement by competitive tendering are desirable but not always possible Ι “Big bang” development is only feasible at the right location, with high quality team and strong political commitment Ι Choice of investors should reflect size and complexity of project Ι Partnerships with local firms have resulted in limited technology transfer Ι Many of the problems with PPPs occur after contract signature
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non compliance
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weak regulatory bodies
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inflexibility in restructuring
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failure to resolve Customs problems
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stakeholder consultation
learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
key learning points
Ι Success factors
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strong traffic growth
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immediate benefits to port users
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sensitive handling of labour issues
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lack of political interference
Ι Obstacles to future investment
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political opposition to the concept of private investment
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inability to reach financial closure within a reasonable time period
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unclear policy framework
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barriers to market entry
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inability of the public sector to finance its share of PPP costs
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stakeholder consultation
learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
key learning points
Ι African aviation growing at 7% p.a. Ι Propensity to fly generally low Ι Key markets RSA, Egypt, Morocco, Nigeria, Kenya, Ethiopia Ι Runway capacity generally sufficient Ι Terminal capacity and quality often inadequate
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
Source: Official Airline Guide, IMF
Ι The Yamoussoukro Decision of 1999 has legal force in 44 of 54 African countries (not South Africa or Morocco) Ι It allows market access for carriers from participating countries following a simple notification procedure by the government Ι Although applied within some regions of Africa, full implementation across the continent has not been achieved Ι This reflects some governments’ unwillingness to relinquish control and continuing support for weak national airlines Ι Africa has a weak aviation safety record, with a higher accident rate than other world regions and a rate of hull loss over 10 times higher than in Europe Ι Primary causes relate to low levels of staff training and incomplete oversight by the relevant authorities in each country (poor quality equipment is also relevant but not a primary cause) Ι Both ICAO and EASA are involved in projects to enhance the regulatory framework and improve the technical capability of safety agencies in a number
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
Market Access Aviation Safety
Ι Airports
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Greenfield airport development
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Existing airport airfield enhancements or refurbishments
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Existing airport terminal expansion or refurbishment
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Cargo facilities
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Management contract for operation of an existing facility
Ι Airlines
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Involvement of a foreign airline as shareholder and operational partner; and
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Support for aircraft funding
Ι Air Navigation Services
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None historically, although several examples of IFI and other agency support (e.g. EIB support for ASECNA)
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps Enfidha Airport Lagos MMA2 Domestic Terminal Cairo Airport Kenya Airways
Ι Scale of the opportunity
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Greenfield airport ~ $500m + / 3 mppa
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Airfield / terminal enhancements ~ $50- 300m / 0.5 - 1 mppa
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Cargo facilities / management contracts $0 – 50m
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Aircraft financing / airline support ~ $100m
Ι Risk factors
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Lack of genuine Open Skies / failure to implement Yamoussoukro
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Support for national airline
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Lack of realism about scale of feasible private sector investment
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Poorly-defined regulatory regime for airport charges
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Lack of fair and open procurement processes
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
Past PPP projects – scale of investment
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
$150bn investment involving private participation =
$17bn in transport infrastructure
Southern Africa:
Cumulative investment with private participation per capita, 1990-2009
Transport
relatively low amount of PPP investment
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
Short length (4-5 years) of credit default swap and Forward Foreign Exchange markets: makes currency and credit risk very difficult to manage
Strength of local banking industry: only a small number of African countries have a local banking sector capable of providing financing of PPP projects Sovereign investment: often undertaken for the purpose of acquiring strategic assets rather than their financial return Level of equity return: required equity rate of return can be high making the cost of private finance prohibitively expensive Not a market for the generalist: complexities mean that investors need to become specialists in understanding the financial and project risks of the market Stapled finance: pre-arranged by vendor Track record: focus support to allow a country or group of countries to establish a track record of success IFI involvement at early stage: to reduce investors’ risk perceptions and allow private investment at reasonable risk premiums Specialist investors in Africa: are producing successful results by taking a portfolio approach to the investments and undertaking significant R&D to understand the key risks in the market Government involvement: an unappealing risk share to private investors could be addressed through project structure. For e.g. a vanilla turnkey, government guarantees or bridging loans Up-front financing: IFIs fund early phases of projects on own balance sheet & once sufficiently developed sell the full rights to a third party Key constraints on private investment Options to address some of these issues
Ι Four categories of assessment criteria, with a number of sub-criteria in each
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Scoring mechanism: for each sub- criteria
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Weightings of each dimension can be altered: currently at 25% each
Ι Flexible Framework
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Covers projects at different life cycle stages
Ι Project Evaluation
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Ports and airports projects evaluated using same framework
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Regional spread
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Balance of different types of port / airport project
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Balance of requirement for technical and financial assistance
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
Desirability of the project
scale and urgency of the issues that the project address and the effectiveness and benefits of the proposed solution
Project status
the readiness of the project to receive assistance, its technical & financial viability for the private sector, and the status of complementary infrastructure
Institutional capability
the capability of the project’s supporting institutions and structures
Scope for (an IFI-assisted) PPP
attractiveness of the project to the private sector, and the need for technical and/or financial assistance from IFIs
Ι Few clear winners or losers
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many projects achieved broadly similar scores
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results sensitive to weighting of different criteria
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problems of comparing different types of project
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margins of error due to quality of data
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interest in IFI assistance largely unknown
Ι Shortlist chosen to represent typical opportunities for IFI assistance
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diversity of project characteristics
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different stages in project development cycle
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geographical balance
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wide range of IFI assistance needs
Ι Donors are likely to have their own preferences, experience & contacts Ι Close substitutes are available for most short-listed project Ι Priorities of the IFIs will determine potential commitments
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
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Location Project type IFI assistance Reason for inclusion
Maputo Mozambique Modernization Financial Ready to go. Experienced investors already in place. Multiple beneficiaries + regional benefits Mtwara Tanzania Methanol/urea Financial Investor in place, adds value to local gas supplies, opens up new development corridor to Malawi Noukchott Mauritania Container Financial Large operational benefits. World Bank/IFC already providing technical assistance Dar es Salaam Tanzania Container Transaction Project urgently needed & almost ready to go. Strong private sector interest plus opportunities for capacity building. Mozambique Various mine- rail-port coal projects Project structuring Complex issues relating to infrastructure access. Public sector needs strengthening in negotiations with mining companies. Experience gained can be rolled-out to other countries Central coast Algieria New port Project structuring/ financial Industrial development opportunities. Large local investor interested (Cevital), and institutional arrangements in place to support PPPs Lekki/Olokola Nigeria New port Financial/ regulatory Relief of port congestion at Lagos plus substantial operational benefits. Stimulus to Free Trade Zone development Private investors already in place
stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
Ι Evaluation Framework assessment criteria applied to the long list Ι Frequently different projects scored well against different criteria:
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Good project readiness but low “desirability” (e.g. due small market served reasonably by current facilities); or
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Highly desirable project (key market and currently inadequate facilities) but project poorly defined and institutional capability low
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Resultant range of overall scores relatively narrow
Ι Overarching requirements
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Geographical spread
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Variety of project types (greenfield vs. enhancement)
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Types of IFI assistance (financial, technical
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
Country / Region Airport Project type IFI assistance Reason for inclusion Nigeria, West Africa Lagos International (LOS) International Terminal Rehabilitation Technical (and possibly financial at later stage) Most natural location for a West African hub which has a clear and urgent need for improvement Nigeria, West Africa Lekki-Epe (Lagos) New greenfield airport in Lagos Financial An alternative to Lagos, support for the Lekki airport in Lagos, which is a much more advanced project in terms of procurement Ghana, West Africa Accra Airport terminal and airfield enhancements Technical initially, financial at later stage Clear opportunity in a favourable environment,
Morocco, North Africa Fez New terminal building Financial Well-defined project to upgrade medium-sized airport in important tourism location Tanzania, East Africa Dar Es Salaam Third terminal Technical and financial Relatively low risk expansion opportunity in important East African airport Uganda, East Africa Entebbe / Kampala Terminal and apron expansion / modern cargo facility Technical and financial Well-defined opportunity to deliver urgent improvements to an important East African airport in favourable PPP environment Rwanda, East/Central Africa Bugesera, Kigali New greenfield airport Financial Clearly defined, highly ambitious project at bidding stage for PPP; possibility of developing hub serving East Africa and eastern DRC. Zambia, Southern Africa Lusaka New international terminal and existing terminal refurbishment Technical and financial Relatively low risk project for medium-sized southern African airport
Ι Donors and financiers to review lessons learned for both ports and air transport PPPs Ι Consider options to address influences on availability of finance Ι Based on the shortlists, identify a small number of projects suitable for ICA members to progress towards a successful PPP arrangement
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
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Stakeholders interviewed
Ι International Financial Institutions
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World Bank
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African Development Bank
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Agence française de développement
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International Finance Corporation
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Private Infrastructure Development Group
Ι Other organisations with African infrastructure experience
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Aga Khan Development Network
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Ernst and Young
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British Aviation Group
Ι Port Operators
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Grimaldi
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Grindrod
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ICTSI
Ι Port Engineers
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Royal Haskoning
Stakeholders interviewed
Ι Airport Operators
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Jomo Kenyatta International Airport, Nairobi
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Bi-Courtney, Lagos Domestic Terminal, MMA2
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AERIA, Abidjan Airport
Ι International Aviation Safety Organisations
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International Civil Aviation Organization (ICAO)
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European Aviation Safety Agency (EASA)
Literature review
Ι Several sources, including
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Programme for Infrastructure Development in Africa (PIDA)
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African Infrastructure Country Diagnostic (AICD)
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Ports: Ports, Logistics and Trade (AfDB)
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Air Transport: Open Skies for Africa: Implementing Yamoussoukro (Schlumberger)
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
Ι Some countries support private investment
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Algeria, Egypt, Gabon, Mozambique, Nigeria
Ι Others do not
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DR Congo, Gambia, Mauritania, Sudan
Ι Most lie in between
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private sector restricted to containers & captive bulks
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Legal changes are not port-specific
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Regulatory framework is weak or inconsistent
Ι Conversion to full landlord port status will create opportunities for private investment
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but this may be more difficult than in the past
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Country Port structure Legislation Policy Planning Past PPPs
Algeria Angola Benin Cameroon Congo (DR) Congo (Republic) Cote d'Ivoire Djibouti Egypt Equatorial Guinea Gabon Gambia Ghana Guinea Guinea Bissau Kenya Liberia Libya Mauretania Morocco Mozambique Namibia Nigeria Senegal Sierre Leone South Africa Sudan Tanzania Togo Tunisia Key: Most conducive to private investment Not known Most discouraging to private investment
stakeholder consultation
learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
key learning points
Ι Private investors are mainly:
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international container terminal operators
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large mining companies
Ι They face strong Chinese competition
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2 4 6 8 10 12
US$ bn
Investor turnover in relation to host country GDP, 2010
APMT DP World Hutchison Vale Rio Tinto BHP Billiton
Ι Banks, construction companies and private equity funds have a limited role Ι Strategic investors are often as large financially as the host country
stakeholder consultation
learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
key learning points
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Country Project Location
Algeria New port New port Containers W of Algiers Cap Djinet Oran Angola New port Modernisation Modernisation New port Barra do Dande Lobito Namibe Caio Benin New port Seme-Kpodji Cameroon New port Iron ore Kribi Kribi DR Congo New port Banana Cote d’Ivoire New port Containers Ore terminal Minerals Ile de Boulay San Pedro San Pedro San Pedro Gabon New port Mayumba Ghana Containers Containers Minerals Tema Tema Takoradi Guinea Iron ore Makatang Island Tunisia New port Enfidha
Country Project Country
Guinea-Bissau Modernsiation Bauxite Bissau Buba Kenya Containers New port Mombasa Lamu Mauritania Containers Noukchott Morocco Containers Containers Casablanca Mohhamedia Namibia Tanker berth Walvis Bay Mozambique Modernisation Containers Coal Coal Modernisation Maputo Nacala Nacala Beira/Chinde Beira Nigeria New port New port New port New port Lekki Badaagry Olokola Koko Tanzania New port Containers Modernisation Mwambani Bay Dar es Salaam Dar es Salaam Tanzania Urea/methanol Cement Mtwara Mtwara
stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps
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stakeholder consultation
learning points
key learning points
climate in Africa
framework
evaluation
project evaluation
and next steps Country Project name Project Burkina Faso Ouagadougou Greenfield Airport Cameroon Yaoundé Airport expansion Cameroon Douala Airport expansion Central African Republic Bangui Airport improvement Democratic Republic of the Congo Kinshasa Enhancement of ANS, runway and terminal rehabilitation Ethiopia Addis Ababa Additional aircraft stands, taxiways, resurface runway Gabon Libreville New concession after 2018 Ghana Accra Increase capacity (Gateway Programme) Ghana Kumasi Increase capacity (Gateway Programme) Kenya Nairobi Greenfield terminal (20 mppa) / second runway Mali Bamako New terminal / runway upgrade Morocco Fez New terminal building Nigeria Lagos International (LOS) Improve international terminal Nigeria Abuja Improve international terminal Nigeria Lekki-Epe (Lagos) Greenfield airport Rwanda Bugesera, Kigali Greenfield airport Senegal Dakar Greenfield airport (under construction) Tanzania Dar Es Salaam Third terminal Tanzania Kilimanjaro Possible re-concessioning of airport Tanzania Zanzibar New terminal and runway extension Togo Lomé New terminal, additional aircraft stands, cargo centre Uganda Entebbe / Kampala Terminal expansion, apron expansion, new cargo facility Zambia Lusaka New international terminal, existing terminal refurbishment