PublicPrivate Partnerships PPP

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Public-Private Partnerships (PPP)
Workshop on PPPs in Russia (Moscow - March 3-4,
2005) Port sector

• Michel Audigé
• Lead Port Specialist
• ECA region The World Bank

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The Four Main Russian Gateways to the Global
Market
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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

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Source ADB
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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., US100 million minimum per
  deal

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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 governments commitments under PPP
  schemes)

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PPPs Pros. and Cons.
Reference EBRD 2004
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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.

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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.

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Development of The International Container
Trade(Sources Various)
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A competitive land bridge for containerized cargo?
Source MOTC Finland - 2005
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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.

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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 Risks Environmental and
  safety constraints to be defined in Concession
  Agreement
• Construction Risks Risk generally borne by
  Concessionaire. Acquisition of land by
  Government before construction. Issue of
  geotechnical risks

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Optimal Risks Allocation (2/2)

• Technical Operation Risks Risk to be borne by
  Concessionaire
• Revenue Risk in existing facilities Often an
  acceptable risk to be borne by Concessionaire
  (adequate provision on tariff in Concession
  Agreement)
• Revenue Risk in newly-built facilities A major
  risk (traffic volume, tariff setting, revenue in
  local currency). Often not possible for
  Concessionaire to bear all the risk
• Financial Risks Inconvertibility/Transfer Risk
  to be insured. Issue of Exchange Risk. Other
  risks borne by Lenders. World Bank Partial Risk
  Guarantees.

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Indicative Transaction Timetable
15-18months (Two steps process)
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Phase I Strategic Review and Due Diligence 6
months
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Phase II Transaction 9 months
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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

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What Is Eligible for PPP Schemes?

• In any case, PPP can only result from
  economically and financially justified projects
• Size does matter Transaction costs -gt minimum
  project size of US100 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

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List of PPI in The Port Sector in The Region
(1992-2003)
Source WB PPI Database 2003
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List of PPI in The Port Sector Worldwide
(1992-2003)
Source WB PPI Database 2003
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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.

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Possible PPPs Prospects in Russia
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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).

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WBG Financial Support for PPPs
Financial Products
Advisory Services /1

• 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

• 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
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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.

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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 Russias 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

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Public-Private Partnerships (PPP)
Workshop on PPPs in Russia (Moscow - March 3-4,
2005)
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• Michel Audigé
• Lead Port Specialist
• ECA region The World Bank