Global PPP-PFI Outlook - H2 2011 - Infra Journal - IJ

Infrastructure journal - Research & Analysis - Infrastructure Journal: Global PPP/PFI Outl...
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Muhabbat Mahmudova 21 September 2011
Global PPP/PFI Outlook H2 2011: Volumes up despite low activity

Over the first eight months of 2011, an array of interesting projects and related developments were recorded in the global public-private partnerships (PPP) market. Admittedly, there was also a mixture of disappointing economic data, a number of policy and regulation announcements across several jurisdictions, sovereign-debt problems in Europe and a US downgrade all of which shaped the global economic climate in general and affected the performance of PPP market as we approach the end of the current calendar year. The current scenario, a harbinger for the remaining months in 2011, is that debt is scarce and expensive with regional disparities, the secondary market has come under pressure and M&A activity has suffered. Furthermore, the uncertainty over future liquidity in the debt markets will persist for some time yet as governments introduce financial regulations tailored to their macro prudential concerns. Different regions do not operate in a homogenous market, and each country within the region prioritises and supports PPP infrastructure in a different way and through different policy priorities. However, despite geographic location, successful PPP projects will have to be better tuned to changing market conditions; assets should be structured to a workable format that investors can take on. Hard economic reality made it a necessity for many governments to fund investments in social infrastructure and transport, and the need to involve the private sector has become more acute. Following the financial crisis and public spending cuts that followed - the private sectors expertise and capital would be needed to meet the scale of financing required. Despite government spending cuts, the PPPs model of procurement is not going to wane. Quite the contrary, there is now increased support for PPPs to boost productivity, competitiveness and economic activity. The financing volume in the first half of this year shows that commercial debt for infrastructure assets especially for PPPs is available. In addition, PPPs are also enjoying a greater level of financing from governments and international development banks. The challenges for the success of PPPs for some governments, new to PPP-structured infrastructure, will be to prioritise time and efforts to devise the right environment for the model and foster a better understanding of PPPs. Indeed creating PPP strategy and devising PPP projects is more complex than the traditional government procurement, which for many countries was the only way in the past to build infrastructure. For some more mature PPP markets, at present the lessons need to be learned from past experiences and from failures of PPP programmes mainly on how to structure PPPs to ensure cost-effectiveness, simplicity, efficiency and timely delivery. Below, IJ analysts scrutinise the market activity in the first half of this year in depth, and examine the future outlook for the asset class. Global Headline Figures & Overview H1 2011 The global PPP market in the first half of this year totalled US$31.4 billion in capital investments; up 5.8 per cent over the corresponding period last year on an annualised basis. However, fewer PPP projects reached financial close. The number of project finance deals that reached financial close in H1 2011 fell 25.6 per cent to 61 transactions down from 82 transactions in H110. The downward trend in PPP transactions making it to financial close has been witnessed in the market in each first half year period(s) since 2008. Interestingly, the current first half year differs from the previous periods in a way that the fall in the deal count did not result in the fall in the market volume. Investment volumes seem to have stabilised and the amount of investment capital increased, albeit to a reduced number of deals in the global PPP market. Overall, fewer countries financed PPP projects only 13 countries were active in closing deals in H1 2011, down from 19 countries in the corresponding period last year. Across the globe, only India, Australia and Canada saw an increase in their deal counts in comparison to the previous year. In Europe, the ongoing debt crisis and growing fiscal consolidation in the UK, Spain, France, Germany, Ireland, and Portugal resulted in reduction of the active pipeline and projects ready and able to progress to financial close. Deal count fell across all the sectors by 31 per cent in Transport, by 18.4 per cent in Social infrastructure, as well as Water and Telecoms. A further break-up of available data reveals Social infrastructure dominated the PPP market with 40 projects, followed by Transport with 18 projects, and Water only three projects. Volume of investment tells a different story as more money has been available H1 2011 was characterised by the overall improvement in the banks lending ability, which signals stronger confidence of lenders in PPP infrastructure and in some markets (Australia, Canada) better economics for investments in comparison to H1 2010 but also H1 2009. Thus fewer number of Social infrastructure deals attracted a total of US$12 billion, of which US$10 billion was debt. Additionally, 60 per cent of the money went to finance four multi-billion defence and hospital projects in France, Canada and Australia. Transport PPP projects attracted US$17.7 billion, of which US$12.6 billion was commercial debt allocated to 18 projects in the first half of this year, in comparison to H1 2010 when bank lending totalled US$9.5 billion but spread across 26 projects. Water & Sewage sector continued to slide as little private investment capital was available to this sector in the form of PPPs and the number of deals dipped to three deals this half year. However, the pipeline for water PPP has been growing steadily in several countries and we expect a few deals to progress to financial close next year, notably: Perus: US$165 million La Chira Wastewater, and US$155 million Aguas de Lima Sur II US$1 billion Monterrey VI Water Transfer PPP, Mexico US$1.4 billion Isabela Dams PPP, Philippines US$250 million Mugarraq Wastewater PPP, Bahrain Umm al-Hayman Wastewater Expansion PPP, Kuwait US$430 million Ashod Desalination PPP, Israel Erongo Desalination PPP, Namibia US$300 million Neva Water PPP, Russia Evan-Thomas Water and Wastewater PPP, Canada US$382 million Mundaring Water Treatment PPP, Australia
Chart 1
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(http://www.ijonline.com/cmsv2/Images/Uploaded/263-17-44-13-75_crp_LG.jpeg)
Infrastructure Journal 2011
Overall, as deal activity fell across all sectors, and some countries, the monthly deal activity in H1 2011 shows a sharp downsizing of the global PPP market. The months of April and May had a meagre deal flow. Private financing of PPP infrastructure goes predominantly to Greenfield projects. In H1 2011, from the total 61 transactions, 57 projects counted for new-built PPP assets, the bulk of investments concentrated on these projects - around US$29 billion. Secondary market activity was negligible in the first half of this year a total of US$1.7 billion in 2 projects - unlike the equivalent period last year when the volume of refinancing reached US$3 billion spread over 10 transactions. Table 1
(Source: Infrastructure Journal)
Western Europe remains the largest region for PPP investments, where almost 46 per cent of the total global investment capital was focused in H111. However, the region saw a sharp dip in investments and the number of deals in comparison to the equivalent period last year. This half year, multi-billion dollar projects made up the lions share of the PF investments in the global PPP market. The top 10 projects worth US$22.7 billion made up 72 per cent of the market, compared to 58 per cent market share in the first half 2010 when the total of 9 multi-billion projects attracted US$17.3 billion in investments. Largest PPP transactions in Transport, Social Infrastructure and Water sectors are listed in the tables below. Table 2
(http://www.ijonline.com/cmsv2/Images/Uploaded/263-17-59-57-202_crp_LG.jpeg) Table 3
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(http://www.ijonline.com/cmsv2/Images/Uploaded/263-18-1-38-361_crp_LG.jpeg) Table 4
(Source: Infrastructure Journal 2011)
Financing Trends European debt crisis has seen little sign of abating since the start of 2011 and continues to deepen market pessimism about prospects for infrastructure investments in the region. Higher political and regulatory risks are now a reality across European markets where governments seem to be running out of solutions to bring down national debt levels and resolve the Eurozone crisis. Many investors have spoken of waning trust in governments ability to meet their commitments to PPP infrastructure in the short-term in 2011 as well as next year. The banking community, especially in Europe, now operates in a heightened political and regulatory risk environment where banks appetite for new lending has become more blunted. For many European banks there are now fears about solvency of sovereigns, which may translate into potential liquidity problems. Despite this, none of the top banks seem to be reducing their lending to PPP projects. In H1 2011, overall lending to PPP projects increased across the top lending banks in comparison to full year figures in the years 2009 and 2010; a marked improvement in relative terms. There will be a concentration of lending on strong balance sheet banks, many peripheral banks will face reduced lending capacity, but at the same time no other sources of investments, including equity seem to be able to make up the shortfall. Bank lending in the short term will continue to be available to a more concentrated market of traditional PPP countries of Australia, Canada and here in Europe UK, France, Spain, Netherlands, and Belgium, and also Germany. For projects in less mature PPP jurisdictions, access to debt may continue to be a challenge and the rising cost of capital will make it difficult for projects to obtain funding. European banks hold a dominant position in lending to infrastructure including PPP. In the first half of this year, 44 European banks (including loans from the EIB and CDC) together held 69.1 per cent market share in the total lending (loans) to global PPP market roughly US$16 billion in H1 2011. In Asia, 23 active banks that financed deals in H1 2011, held 26.6 per cent of the market share - they provided around US$6 billion in lending to PPP projects. In the Americas, 12 banking groups share 3.7 per cent of the global PPP market loan volume. Lending to PPP projects from the commercial banks in H1 2011 reveal that European banks market position remains strong with French banks's share is around 24 per cent of the total commercial bank loans: French banks US$5.5 billion Indian banks US$4.2 billion (investments only in India) Spanish banks US$3 billion Italian banks US$1.9 billion Australian banks US$1.2 billion UK banks US$1.1 billion German banks US$0.6 billion Dutch banks US$0.5 billion Canadian banks US$0.3 billion
This year,funding in capital markets increased in volumes - thanks to Canadian market the value of bonds totalled US$3.2 billion. Almost all projects were Canadian social infrastructure deals. Below is the list of transactions with bond-financing in H1 2011: US$28.9 million - Strada dei Parchi A24/A25 Motorway PPP Refinancing, Italy US$160.5 million - South East Calgary Stoney Trail Ring Road Bond Funding, Canada US$1,016.5 million - Communications Security Establishment HQ P3, Canada US$1,402.4 million - CHUM Montreal University Hospital Centre P3, Canada US$110.6 million - Mental Health Centre Penetanguishene (MHCP) AFP, Canada US$51 million - Quinte Consolidated Courthouse P3, Canada US$72.5 million - South West Detention Centre P3, Canada US$217.8 million - St Joseph's Regional Mental Health Care P3, Canada US$102.1 million - St Thomas Consolidated Courthouse P3, Canada
Table 5
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(http://www.ijonline.com/cmsv2/Images/Uploaded/263-18-2-17-783_crp_LG.jpeg) The cost of debt has gone down this half year allowing more competition in the market in comparison to last year. In some cases pricing may look surprisingly low - in Tours-Bordeaux high speed rail project pricing on a commercial debt tranche was as low as Euribor + 145 bps. In Libor markets Brescia Hospital saw a 35-year loan priced at 210bps above Libor, and North West Fire and Rescue Services PFI saw a 27-year loan priced 217 bps above Libor. In Canada, short term loan for Quinte Courthouse was priced CDOR + 180bps, and in bond financed deals pricing ranged from as low as 3.8 per cent over the Canadian government notes and 7.13 per cent in South East Calgary Stoney Trail Ring Road for 32-year bond at the value of US$160.5 million. A sample pricing of global PPP/PFI project finance loans in the first half of the year looked as follows: Table 6: Pricing in social infrastructure
(http://www.ijonline.com/cmsv2/Images/Uploaded/263-18-2-38-596_crp_LG.jpeg) Table 7: Pricing in transport
(http://www.ijonline.com/cmsv2/Images/Uploaded/263-18-3-1-128_crp_LG.jpeg) IJs records show that since 2005 around 1008 different companies invested equity in PPP infrastructure, and 22 of them invested each year since 2005[1]. The biggest equity investors in PPP infrastructure in terms of capital invested between 2005 and 2010 have been Macquarie, Cintra, ASC Group, Vinci, Bilfinger Berger, John Laing, Meridiam, Transurban, Hochtief, FCC Group, Eiffage, Balfour Beatty, Sacyr, HSBC, Innisfree, Carillion, Skanska and Babcock and Brown. In H1 2011 equity capital investments and number of sponsors active in the market was up from the market volume in 2009 and 2010. In terms of cash equity, there was a slight decline in volume - US$3.3 billion invested down from US$3.7 billion in H1 2010. However, this decline in equity investments is a result of the fall in the number of deals drop in deal count was more pronounced 25.6 per cent against 10.8 per cent drop in equity investments. Equity investor type in PPP is diverse - both industrial investors as well as financial investors contributed both cash equity and indirect equity, which made up 17 per cent of capital costs of projects in H111. Financial investors infrastructure funds, pension funds, and private equity companies - invested the total of US$1.4 billion or 42.4 per cent of the total equity capital. The top financial investors in PPP equity include Caisse des Depots et Consignations (US$342.6 million), AXA Private Equity (US$217.7 million), Fengate Capital (US$149.1 million), InfraRed Capital Partners (US$112.3 million). Chart 2
The share of grants and loans from the international financial institutions (IFIs) as a source of funding PPP projects decreased and amounted to 16 per cent of total capital costs in H111 (see Table 5 above).
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Lending from the IFIs and governments totalled around US$4.5 billion, down from US$7.6 billion in H1 2010. The fall in lending comes along with the 20 per cent fall in the total lending by the World Bank reported for the financial year ending 30 June 2011. Most projects financed by IFIs were Transport deals LGV Tours-Bordeaux in France and Gold Coast RTL PPP Phase I were the biggest recipients of IFI/government moneys where 69 per cent and 33 per cent of project costs were covered by such funding. Geographic Spread of PPPs in H1 2011 PPPs are country-specific projects, and so each countrys policies and regulation would affect the deal volume and size of that market. There are however, general trends within each of the seven regions that IJ analysis has historically focused on. On the regional scale, PPP market has always been more prominent in Western Europe, where usually half of the investment capital is focused. However, market uncertainty, debt crisis in the Eurozone and the recession which continued in the first half of the year resulted in the worsening of the market conditions reduction in the pipeline of active deals and fewer deals making it to financial close in the Western Europe. Although Western Europe remains a dominant market for PPP in terms of deal count and value of investments, it fell by 27 per cent in terms of deal value and by 39 per cent in deal count in comparison the H1 2010. Four multi-billion projects, which closed in France and Italy did not help to sustain the volume of investments in the region. In North America Canadian market doubled in volume - US$3.5 billion was invested in 8 projects, up from US$1.7 billion invested in seven projects last year. The increase in deal volume was due to two projects US$1 billion Communications Security HQ and a US$1.4 billion CHUM Montreal University Hospital. The spike in volumes in Asia Pacific and Subcontinent is a result of active PPP markets in two countries - Australia and India, where a number of multi-billion dollar projects raised funding this year. In Australia four PPP projects closed in H111 one of them was US$2.7 billion New Royal Adelaide Hospital. India closed five projects two of them metro projects in Hyderabad and Mumbai with combined value US$4 billion. Chart 3
As mentioned, only 13 countries closed PPP projects in the first half of 2011. The Chart 4 below shows that France is leading by value of deals thanks to three multi-billion dollar projects - US$5.9 billion LGV Tours-Bordeaux high speed rail project, Balard French Defence Ministry PPP and A63 Motorway PPP. Within social infrastructure and water sectors (Chart 5) Australia dominated the market where US$3.99 billion was invested primarily to the US$3 billion New Adelaide Hospital PPP, narrowly followed by Canada, which saw US$3.8 billion of investments in the countrys PPP infrastructure. Leading market in terms of deal count is the UK where 17 projects closed in H1 2011 all social infrastructure dominated by education and streetlighting projects. The largest UK project in terms of capital invested was South Tyne & Wear Waste PFI worth US$456 million. This year did not see project financing in these countries, active in the previous year Portugal, Ireland, Mexico, Peru, USA, Russia, Sweden, Denmark and Egypt. Chart 4
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The way forward & analysis by region The trends in PPPs across the regions covered by IJ show that the need for private sector investment capital and expertise is growing especially in the aftermath of the global financial crisis. There are now a significant number of governments currently exploring public-private partnership as an option to develop infrastructure. Transport has been always the main sector favoured for PPP contracts, but social infrastructure PPPs now increasingly in the focus as the services delivered through PPP are in most cases delivered effectively and value for money. There is a growing agreement to invest in social infrastructure PPP to improve the quality and to complement future delivery of government services and programmes. The concerns around projects are the changing nature of social services in healthcare and education and the mechanisms that will help to manage that change; these should be planned long term, over the whole concession period. Post-crisis, and in light of current economic malaise, and fiscal constraints, PPPs depend on the governments capability to create the necessary conditions with an optimal interplay between several complex factors - the interests of the private sector investors, needs of the consumers (in the short and long term), and the role of the government in boosting competition and managing public money. PPPs will be crucial to overcoming country-specific infrastructure deficit - an important step to boost region-wide integration. Middle East and Africa The region is experiencing rising demand for infrastructure social as well as economic, with demand for power growing rapidly as population increases pushing the need for infrastructure. Indeed, the primary driver encouraging rapid infrastructure growth across the region, especially in the social sector, is population growth. So far efforts on infrastructure development have been concentrated on energy oil and gas, petrochemical, mining projects, IPPs, and IWPPs. Although, the PPP model has also been in use, it was applied in a smaller scale across a few countries in the region notably UAE (education, wastewater treatment), Israel (transport and water) and South Africa (transport, healthcare, government infrastructure)[2]. PPP market seemed stalled last year in the region in the Middle East as a result of the social unrest in the Gulf region, and in Africas PPP markets, South Africas activity waned as well. In Transport a number of projects are planned both in the Middle East and Africa. There are a number of airport concessions in the market - four in Oman, the delayed Cairo airport terminal 2 in Egypt, Dubais delayed Al-Maktoum airport terminal, Bahrain, Kuwait, Medina airport in Saudi Arabia, Lekki Airport in Nigeria, N1/N2 Winelands Toll road in South Africa. In Water PPP several water desalination and wastewater treatment projects are currently in the market UAE, Bahrain, Egypt, Kuwait, Israel, Oman, Nigeria and Namibia, Jordan. In Africa, South Africa has been leading the way in PPPs bringing three hospital projects which are at RFQ stages. Uganda is tendering a police building currently at RFP stage; Zambia announced a housing project for public service employees. Kenya is looking for PPP model to develop fourth generation Long Term Evolution (LTE) services network. Recently, it introduced changes in the laws and regulation to develop 4G network. Africa has not been commercially favourable for investors and the level of private investments in infrastructure remained low. The difficulty bringing PPPs to Africa is that PPP require a good understanding of project lifecycle costs, risks associated with projects, strong legal and regulatory framework that should support infrastructure projects and private investments, and overall developed institutional capacity. In the Middle East there is an extensive pipeline of potential PPP projects. The region is bringing a number of social infrastructure PPP projects to market Kuwait is leading the way, followed by the UAE, Bahrain, with pilot social housing project, and Egypt with two delayed hospital projects. Saudi Arabia is brining Saudi Security HQ PPP, and Israel Arad National Archive PPP. Overall, PPP projects are attractive for private investors in the Middle East and the Gulf states. However, certain challenges exist transparency and communication for the requirements placed on bidders, heightened bid costs, lengthy tenders, unexpected increase in the original contract value all require better planning. The UAE, Kuwaiti and Saudi markets are noteworthy. Starting with the UAE, the Emirate was hit by the debt crisis last year. However, following a turnaround and other ancillary factors in play, it is set to become the biggest PPP market in the Middle East. Highlights of projects: Khalifa port Umlifaina bridge Al-Ain Sewerage plant Fujairah desalination plant Guggenheim museum Al-Maktoum Airport NYU Abu Dhabi Campus PPP Dubai Emergency Care and Trauma Hospital PPP
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Abu Dhabi Automated Car Parking PPP Dubai Water Buses PPP In Kuwait, the government has adopted the PPP initiative to develop multiple infrastructure projects between 2010 and 2015. As many as 32 projects are currently being prepared under a countrys US$28 billion PPP programme. Highlights of projects: Kuwait University faculty projects - College of Arts and Education Subiya Causeway a US$2.6 billion road project New Physical Medicine and Rehabilitation hospital PPP which may become a first PPP hospital project in the region Sabah al-Salem university project Kuwait airport upgrade, including a US$747 million new terminal project Kuwait National Railroad Project
The government is also tendering for a number of government ministries headquarters to be build and maintained by private companies. The country is eager to use PPP model to develop infrastructure in the areas that have not received enough attention in the past. PPP model is being recognised by the government as a tool that can be used to achieve long-term gains in service delivery in Saudi Arabia. The government announced last year that US$385 billion will be invested in infrastructure over the next ten years by 2020. This year the government announced that social infrastructure spending will surpass US$155 billion over the next 10 years, to be invested in healthcare, housing and education sectors. The primary concern for the country as well as for other countries in the region is a need for a well-prepared programme for PPPs and their application to sectors, and chosen projects. Saudi Security Headquarters PPP King Abdul Aziz Port Terminal II PPP Medina Airport Expansion PPP Phase I Mecca Mass Rail Transit (MRT) Stage 1 PPP Riyadh Metro Haramain HSR Saudi Landbridge Railway
Europe Traditionally the leading region in PPP market in terms of the deal volume and market size, Europe has slid down due to recession, national austerity policies, spending cuts, and Eurozone currency crisis. The decline across Western Europe and Eastern European markets will continue, as next years pipeline of deals looks weak. The expectation for the next year is that it will not be able to top the PPP volumes of this year, although PPP projects will continue to close. In Social infrastructure the UK, Spain, Russia, Germany, and Turkey have a total of 11 projects currently in the banking market. There are also about 40 projects approaching final stages in pipeline, expected to close next year Turkey (hospitals), France (university), Finland (school), Belgium (prisons), Germany (schools), Ireland (schools), Italy (hospital), Poland (waste), Netherlands (court, museum, schools), Russia (water), Spain (court) and the UK (housing, police PFI, hospitals, waste, university, urban regeneration). In Transport, several multi-billion dollar projects will be looking to close next year. There are around 12 projects already looking for debt funding France (roads), Germany (road), Italy (road, metro), Spain (road), Netherlands (light rail), Turkey (tunnel), Russia (road), Slovakia (road). UK remains attractive, developed and well-supported PPP market. It has the largest number of infrastructure projects in pipeline not all of them are active currently. Other European countries with strong support to PPPs include France, Spain, Germany, Belgium, and the Netherlands. Eastern Europe has vast opportunities to develop infrastructure through PPP. Overall, the governments across many countries in the Eastern Europe show support for PPPs. Recently, however, some moved from talks to practical realisation. Currently several governments in the region, especially in Turkey and Russia are developing and implementing new regulation, make changes to laws to help boost PPPs in their respective markets. Turkey is leading way in social infrastructure with a number of hospital projects in tender this year. The countries to watch in 2012 are Turkey, Russia, and Poland. Examining PPP prospects by country, starting with the UK, IJ analysts note that over the last year UK PFI programme was under fire from the current government which has asked for several independent reviews into it. Despite the initial opposition, current government demonstrates support for PPP projects. It launched initiative to bring saving of US$2.5 billion (1.5 billion) on the cost of 459 PFI projects currently underway. PPP in Education is important for the UK government, and this summer Education Secretary announced a new 2 billion programme for the next generation of schools the programme will deliver between 100 to 300 new schools under PFI. UK project highlights for 2012: North Tyneside Housing PFI Avon & Somerset Police PFI Royal Liverpool University Hospital PFI Alder Hey Children's Health Park PPP South Lanarkshire Waste PFI University of Reading Accommodation Estates Transfer PPP Grangemouth Town Centre Redevelopment PPP Torbay LABV Somerset Pathology Services PPP Buckinghamshire Waste PFI Stoke and Staffordshire Fire PFI Phase II Blackburn and Darwen Waste PFI University of Essex PPP West Lothian Waste PPP North Wales Residual Waste Treatment PPP West Yorkshire Police PFI Edinburgh Food Waste Recycling PPP Essex Waste PFI Strathclyde Police Authority HQ PPP Penglais Farm Student Housing PPP Hounslow Highways Maintenance PFI
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Spain A308 Highway PPP A-357 Autova del Guadalhorce Expansion PPP BI-633 Urberuaga-Berriatura Phase I PPP (delay) Boroa-Apario and Amorebieta Etxano-Muxika Roads PPP (delay) N-636 Gerediaga-Elorrio PPP (delay) Seville Metro Lines 2-4 PPP Andalucia Justice Complex PPP Vigo Hospital PPP Madrid-Levant HSR Communications PPP Costa da Morte Highway PPP Autova del Cantbrico A-8 Expansion PPP Madrid-Extremadura High Speed Rail PPP - Contract 1 Madrid-Extremadura High Speed Rail PPP - Contract 2 Autova del Olivar Lucena-Estepa PPP Olmedo-Pedralba de la Pradera High Speed Rail PPP Olmedo-Pedralba de la Pradera HSR Electrification PPP Olmedo-Santiago HSR Telecoms and Traffic Control PPP Pedralba de la Pradera-Santiago High Speed Rail PPP Pedralba de la Pradera-Santiago HSR Electrification PPP Carboneras Port PPP Bermeo Bypass PPP A-334 Extension PPP - Purchena-Autova del Mediterrneo A-66 Benavente-Zamora Road PPP
France French Prisons Lot A PPP French Prisons Lot B PPP Perpignan Courthouse PPP A150 Motorway PPP Eco-Tax Electronic Toll System PPP Nimes-Montpellier High Speed Rail PPP Seine-Nord Europe Canal PPP Rocade Marseilles L2 Bypass PPP Paris Court of First Instance PPP (delay) Lorraine Schools PPP (delay) Espace Museal de La Seyne Sur Mer PPP Marcel Picot Tomblaine Stadium PPP Palais Omnisport de Paris Bercy Refinancing La Moselle Colleges PPP Bordeaux Stadium PPP University of Toulouse Mirail Campus PPP Green-Er PPP Caen State Courthouse PPP Dunkirk Sports Hall PPP Marseilles Prison PPP Aix-Marseille University PPP National Agency of Food, Environment and Labour Health and Safety PPP
Belgium Spartacus Express Tram PPP Lopold II Road Modernisation PPP Leuze Prison PPP Sambreville Prison PPP Kempen North-South Road PPP Charleroi Prison PPP
Netherlands Zaanstad Prison PPP (delay) Schiphol-Amsterdam-Almere Road PPP Phase I (delay) Twente Airport Expansion PPP N33 Assen-Zuidbroek Road PPP Groningen RegioTram PPP Eindhoven International School PPP Breda Courthouse PPP Dutch Centre for Biodiversity PPP Soesterberg Military Museum PPP The Hague High Court PPP Brede School Joure Zuid PPP
Russia Russia is a country with pressing need to modernise its old infrastructure a legacy of the Soviet times and develop a 21st century, functional, well-designed, and comfortable in use infrastructure. The current government recognises that the PPP model will be a good fit for boosting productivity, and help local companies to develop and operate an array of projects that need to be developed. Other driving factors behind the need to overhaul infrastructure are the successful bids to host 2014 Winter Olympics and 2018 FIFA World Cup in Russia. Russia requires around US$1 trillion to develop infrastructure over the next 10 years. Politicians and business in the country are debating which mechanisms should be applied for the realisation of infrastructure projects within the model of PPP. The best structure for PPP needs to be developed. Currently, there is a lack of sufficient understanding on the regional levels of the specifics of PPP projects, i.e. the way PPP projects should be initiated and administered. For this reason, better cooperation and open negotiations between the businesses and the governments should be established in order to find the best way of partnering interests of private businesses and public sector. Besides this, there should be a clear vision for the applicability of PPPs to different sectors transport, healthcare, waste, district cooling, education, etc.
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PPP in Russia started back in 2005 when the Law on Concession Agreements was enacted that year. After that a number of regional PPP laws started appearing and as many as 19 regional PPP laws were adopted in 2010 alone, but this does not provide additional clarity around application of PPPs. On a federal level, earlier in September, an improved version of the law on long term project contracts for the construction and maintenance of roads developed by the Ministry of Transport was introduced in the State Duma. This legislation aims to support mechanisms of PPP concessions in transport infrastructure (including availability based projects), and aims to lower the cost of assets, regulate maintenance works, and the operation of the asset. In addition, the Ministry of Economic Development is preparing a new version of project finance law in Russia that will help to create a necessary legal framework to support project financing of infrastructure. The new law may also help to attract more foreign capital to Russian projects. Moscow-St Petersburg High Speed Rail PPP Pushkin Schools PPP Kurumoch International Airport PPP St Petersburg Yanino Waste PPP Orlovsky Tunnel PPP Western High Speed Diameter Motorway (WHSD) PPP Moscow-Ekaterinburg High Speed Rail (BCM-2) PPP Neva Water PPP Perm Road Bypass PPP
Turkey Eurasia Tunnel PPP (Bosphorus Tunnel) Gebze-Izmir Toll Road PPP Kayseri Integrated Health Campus PPP Third Bosphorus Bridge PPP (delay) Elazig Integrated Health Campus PPP Bosphorus Tunnel PPP Ankara Etlik Integrated Health Campus PPP Konya Karatay Integrated Health Campus PPP Adana Integrated Health Campus PPP Gaziantep Integrated Health Campus PPP Mersin Integrated Health Campus PPP Isparta City Hospital PPP Izmir Bayrakli Integrated Health Campus PPP Kocaeli Integrated Health Campus PPP Psychiatric Therapy and Rehab Centres PPP Yozgat Education and Research Hospital PPP
North America North Americas PPP market is dominated by Canadian P3 projects but the USA is also targeting investments in infrastructure to boost productivity and economic activity. US President Obama made infrastructure a key part of his stimulus package. In the USA, a number of current and forthcoming regulations are shaping the future of infrastructure. The most recent one unveiled in September includes a 2012 Transportation, Housing and Urban Development funding bill which has trimmed down the previously announced government spending volume. The 2012 funding allocated US$16.7 billion for Transportation including highways, aviation, and rail, and a total of US$38.1 billion for the Department of Housing and Urban Development which will be spent for housing projects and community planning and development programmes[3]. The forthcoming Volcker rule, the deadline on which is October 18, could limit banks ability to invest in infrastructure where funds include the banks own money. However, the decision may be pushed to a later date due to lack of agreement amongst the regulators on the draft proposal. Most PPP projects across the USA and Canada are increasingly being developed using availability payment contracts for critical infrastructure projects. USA has a good track record of projects in Transport infrastructure. Today, the country has a number of transportation projects and supported by the recent government decision the sectors prospects remain stable. However many projects are at the relatively early stage of the pipeline. Social infrastructure is also emerging with a few projects currently in procurement: Highlights of deals in the USA and Puerto Rico for 2012: Virginia Midtown Tunnel US460 Virginia Highway Amtrak Rail P3 Presidio Parkway P3 Ohio River Bridges P3 North by northwest Corridor Segment P3 Illiana Expressway P3 Atlanta Multi-Modal Passenger Terminal P3 San Juan Prison P3 PR-22 and PR-5 Toll Roads P3 Luis Munoz Marin International Airport PPP
As the US government has no central framework for a federal PPP unit, and its PPP policy and programmes are fragmented - the future of PPP activity will depend of the policies set at the state and local levels Virginia, Texas, and Illinois will all be actively procuring projects in 2012. Canada, which by all accounts is the most stable PPP jurisdiction in todays global market, will continue to dominate in social infrastructure over next 18 months with a more diverse focus this year - healthcare, education projects, but also courthouse, detention centres, housing, waste projects and sports facilities. It also has a few Transportation projects approaching the funding stage. The highlight of deals in Canada for 2012: Humber River Regional Hospital P3 Surrey Pretrial Services Centre Expansion P3 Pan American Games Athletes' Village PPP
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Infrastructure journal - Research & Analysis - Infrastructure Journal: Global PPP/PFI O...
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Inuvik and Tuktoyaktuk Highway P3 Moncton SportSplex P3 Evan-Thomas Water and Wastewater Treatment Facility P3 Evergreen Line Rapid Transit P3 Saint-Justine Hospital Modernisation P3 Interior Heart and Surgical Centre and Royal Building P3 Ontario Air Rail Link P3 University of Toronto Scarborough Sports Hub AFP Highway 407 Eastward Extension P3 Toronto Port Pedestrian Tunnel P3 Campbellton Mental Health P3 Sorel-Tracy Detention Center P3 Toronto 2015 Sports Facilities P3 Maritime Radio Communications System P3 Northeast Edmonton Ring Road P3 Greater Sudbury Biosolids Management Facility P3
Latin America Latin America is growing into a promising market for infrastructure investors and financiers. Countries with most active pipeline in the region include Brazil, Peru, Mexico, Chile and Colombia. Although these countries have developed a good track record of PPP deals, some countrys procurement systems need to address issues of transparency, tender delays, and long-term strategic planning for sectors and sub-sectors where PPP model can be applied effectively. Accountability and contract enforceability, as well as transparency of procurement process, and lack of political consensus and direction in some countries are the issues that investors view as the most pressing that need to be addressed to enable more investments in PPP projects in the region. In Latin America, the markets to watch are Brazil, Chile, Colombia, Argentina, and Mexico. The highlights of projects for the coming year include: Brazil Belo Horizonte Primary Health Network PPP Rodoanel Sul e Leste Highway PPP Edoardo Gomes International Airport PT1 Expansion PPP Rio-Sao Paulo-Campinas High Speed Rail (TAV) PPP So Gonalo do Amarante Airport PPP
Mexico Peru Muelle Norte Modernisation PPP IIRSA Centro Highway Phase II Aguas de Lima Sur II Yurimaguas Port Terminal PPP Lazaro Cardenas Second Container Terminal PPP (delay) Salamanca-Len Highway PPP Monterrey VI Water Transfer PPP Riviera Maya Airport PPP (suspended) FARAC II Highway PPP - Pacifico Sur (suspended)
Argentina Costa Atlntica Bonaerense Toll Road PPP
PPP Analysis by Sector The first half of this year activity across sub-sectors saw a drop in deal size across all subsectors social infrastructure, telecoms, transport and water. In terms of deal volume however, Social infrastructure, Transport, and Water were slightly up as a number of big-ticket projects that closed in these sectors helped to push the volumes up. Chart 5
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Social and Water Infrastructure PPP Activity in the Water sector decreased to three projects, the largest of these was the US$400 million Sorek Desalination PPP project in Israel. In social infrastructure, two sectors that form a bulk of all deal activity - Education and Healthcare sub-sectors, fell by 47 per cent and 50 per cent respectively (see Chart 5 below). Education fell in volume; while last year the volume reached US$4.2 billion, and average investments equalled US$245.11 million over 17 projects, this half year - average investments per project equalled a mere US$44.88 million for schools in the UK, France, and Spain. The decrease was affected partly by the UK market where spending cuts and cancellation of the BSF programme may have stalled activity. In the UK a new school development scheme is expecting a decision from the private sector due in October. However, to a greater extent the sub-sector was affected by the lack of education projects across other countries, previously active in the sector notably, Canada, Australia, Ireland, Germany and Belgium and a few Middle Eastern countries. Healthcare saw increase in volumes, despite the reduction in the deal count - around US$6 billion was invested in H111, up from US$4 billion last year. On average investments equalling US$252 million per each hospital project was available last year, to this years average of US$748 million. Defence sector this year saw three projects with large debt tickets closed in project finance market. US$1.2 billion Balard Defence Ministry Pentagon - France US$1 billion Communications Security HQ Canada (bond financed) US$0.94 billion Single LEAP Phase 2 - Australia Streetlighting - five UK projects with total investment of US$369 million closed in H111. Rochdale Streetlighting PFI Oldham Streetlighting PFI Knowsley Streetlighting PFI Cambridgeshire Street Lighting PFI Croydon and Lewisham Streetlighting PFI
Waste/recycling investment volume increased in H111 despite the number of projects remaining the same. The total of US$978.9 million invested in four projects up from US$350.7 million invested in H1 2010. Most investments in the sub-sector went to two projects - the US$456 million Spains Waste Management Centre in Guipuzcoa and UKs US$400 million South Tyne & Wear Waste PFI. Chart 6
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Transport PPP The sector raised US$18.9 billion for 18 projects that closed in H1 2011, slightly up from the volume invested last year US$17.7 billion, invested over 26 projects. The uptick in the investment volume was mainly due to Rail and Metro projects which saw the total of four deals worth the total US$13.5 billion. All four projects had capital value above US$2.4 billion French HSR project, Australian rapid transit project, and Indian Hyderabad and Mumbai metro projects. Although the overall volume of Transport PPPs was up, the deal count fell sharply across all sub-sector asset classes. This is largely a reflection of the economic impact of the debt crisis on European markets; hitherto considered the most active for Transport PPPs. Other countries also suffered from delays and a fall in active pipeline - besides India and Spain, other countries closed only one or two transactions Italy, France, Australia, Canada, Australia, Germany, Chile, Peru and Turkey. The decline in deal count was primarily because of the Roads sub-sector, which was down by 47 per cent - nine deals in H111 from 17 projects in H110. The number of Roads projects was the lowest seen in any given half year period since 2005. The fall in investments in Roads was even greater - by 63 per cent, and the sub-sector slipped behind Rail and Urban transit market volumes. It is the first time Roads infrastructure is not the top sector for Transport PPP in terms of deal volume since IJ began the current series in 2006. Fewer countries closed Roads projects in H1 2011 owing to delays in procurement and cancellation in some cases due to the global recession i.e. seven countries down from 12 in H1 2010. This comes with the contraction of projects in Spain, and lack of projects in conventionally strong markets in Europe (Portugal, UK), in Asia (Australia), in the Americas (US, Peru, Mexico). Chart 7
Airports sector was also quiet in the first half year but the activity is rapidly picking up with more sales, privatisation, and debt refinancing planned in the next two-three years. Several airports debt maturities are approaching expiration - at least seven airports in 2012 and many more after that; in 2013 - at least nine airports and in 2014 - at least 10 airports. There is an active pipeline of airports projects waiting to change ownership. Spanish government is going ahead with the sale of two airports in Madrid and Barcelona, with contract award expected this year, and finalised in December or January 2012. Portugal also plans to privatise a number of state assets including Aeroportos de Portugal (ANA). In Italy, the Genoa Port Authority is selling its 60 per cent stake in Genoa Airport, and the bid opening is scheduled for the 21st of November this year. Hochtief is selling the portfolio of airports worth around US$2.1 billion, which may be finalised by the end of the year. BAA in the UK is involved in a lengthy battle against the forced divestment of its airports. It is now taking the decision of the Competition Commission that it has to sell Stanstead airport to the Competition Appeal Tribunal for the judicial review. Refinancing closed recently on Prague airport with US$386 million (280 million) of debt[4]. In Croatia, 192 million Zagreb Airport will be given under concession for 30 years and shortlisted bidders need to submit their bids by 31 October 2011. In Russia, Kurumoch airport in Samara invited bids for 96.2 per cent stake in the airport offered for purchase by the Samaran regional government. The airport will see the construction of a new passenger terminal with capex of approximately US$310 million. The terminal will have to be operational by 2016. The bids are due by 7th November 2011 and preferred bidder is expected to be known by 14 December. In Latin America, Brazil will see the array of airports up for sale over the next several months. The first airport concession was already awarded in August Sao Goncalo do Amarante airport was given for a 28-year concession to Inframerica - a joint venture of Argentinas Corporacion America and Brazils Grupo Engevix[5]. The second Brazilian airport Edoardo Gomes International Airport in Manaus was also awarded to Encalso consortium consisting of Engevix and Kallas for US$214.7 million. This airport is expected to be constructed by December 2013[6]. Mexico is struggling to find the right moment, and the agreement on when and how to carry on with the previously announced PPP projects, including Mayan Riviera airport worth US$250 million, which is currently stalled after the previous tender was declared void. Medina airport expansion in Saudi Arabia will be carried out by the Turkish TAV Holdings consortium which last month won a PPP contract for two phases of a 25-year concession. The first phase of the project is scheduled for 2011-2014 and the second phase for 2021-2024[7].
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Jamaica, with the help of the World Bank, is looking to tender second largest airport in the country for a PPP concession[8]. Nigeria made plans last year for a US$750 million Lekki Airport which will seek the sponsor until the end of 2011, and financing in 2012, at the earliest[9]. In Asia, Vietnam one of the priority projects include a new Long Thanh International Airport in Dong Nai province, which is estimated at US$1.4 billion and currently under approval for a PPP scheme[10]. Leading Market Players H1 2011 The charts below shows the top ten global investors, lenders and advisers in the PPP market in H1 2011 divided by Transport and Social infrastructure. Chart 8
(http://www.ijonline.com/cmsv2/Images/Uploaded/263-17-52-0-193_crp_LG.jpeg) Chart 9
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Chart 11
NOTES: [1] Macquarie, Cintra, ACS Group, Vinci, Bilfinger Berger, John Laing, Hochtief, FCC Group, Balfour Beatty, Sacyr Vallehermoso, HSBC, Innisfree, Carillion, Babcock & Brown, Bouygues, Royal BAM Group, Barclays, Obrascon (OHL), Plenary Group, COMSA EMTE, Interserve, Copcisa. [2] IJ estimate [3] US House unveils transportation spending, Infrastructure Journal, Sept 9, 2011. Click here(http:// 1. http://www.ijonline.com/articles/72316) [4] 280m Prague Airport refi closes, Infrastructure Journal, Sept 19, 2011. Click here(http://www.ijonline.com/articles/72486) [5] Brazil's first airport concession awarded, Infrastructure Journal, Aug 23, 2011. Click here(http://www.ijonline.com/articles/71950). [6] Preferred bidder for Manaus airport announced, Infrastructure Journal, Aug 24, 2011. Click here (http://www.ijonline.com/articles/71959) [7] Turkish team scoops Medina Airport PPP, Infrastructure Journal, Aug 9, 2011. Click here(http://www.ijonline.com/articles/71626) [8] Advisers sought for Jamaica airport PPP, Infrastructure Journal, Aug 22, 2011. Click here(http://www.ijonline.com/articles/71893) [9] Nigeria plans $750m airport P3, Infrastructure Journal, Nov 23, 2010. Click here(http://www.ijonline.com/articles/65882) [10] Vietnam to select pilot PPPs, Infrastructure Journal, Aug 19, 2011. Click here(http://www.ijonline.com/articles/71877)
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Muhabbat Mahmudova 21 September 2011

Global PPP/PFI Outlook H2 2011: Volumes up despite low activity

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(http://www.ijonline.com/cmsv2/Images/Uploaded/263-18-2-38-596_crp_LG.jpeg) Table 7: Pricing in transport

Argentina Costa Atlntica Bonaerense Toll Road PPP

Infrastructure Journal 2011

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