75838 Emerging Partnerships 40 essential infrastructure projects at the top 40 ppps forefront IN of PPP inEMERGING MARKETS emerging markets Emerging Partnerships was researched and written by James Kenny and René Lavanchy and edited by John Kjorstad and James Kenny. A special thanks to the following individuals from Infrastructure Journal and IFC for their tireless work and valued contributions: Victoria Adams-Kotsch, Dana Babb, Kimberly Coates, Jeanine Delay, Chrysoula Economopoulos, and Tanya Scobie Oliveira. This publication was made possible through the generous support of PPIAF. Terms of use and copyright conditions This publication is copyrighted. All rights reserved and no part may be reproduced, stored in retrieval system or transmitted in any form without prior permission of the publishers. This publication was commissioned and partly funded by IFC, a member of the World Bank Group, through its IFC Advisory Services in Public- Private Partnerships department, with additional funding from PPIAF. While IFC and Infrastructure Journal make every attempt to provide accurate and timely information to readers of this publication, neither IFC nor Infrastructure Journal guarantee its accuracy, timeliness, completeness or usefulness, and are not responsible or liable for any such content. The views and opinions expressed herein are those of the interviewees and authors and do not necessarily represent the views and opinions of Infrastructure Journal, PPIAF, IFC or its Board of Directors, the World Bank or its Executive Directors, or the countries they represent. Emerging Partnerships top 40 ppps IN EMERGING MARKETS 2 Emerging Partnerships Foreword Well-planned and thoughtfully implemented infrastructure is the foundation for reliable access to quality basic services such as clean water, education, health care, power, and transportation. Research shows that infrastructure investment correlates with higher growth and poverty reduction. Yet worldwide, nearly 1.3 billion people lack access to electricity while 780 million people­—or one in seven—lack access to clean water. These stark realities, felt most acutely in the developing world, are compounded by a large infrastructure funding gap facing emerging market governments. Particularly in challenging economic times, well-structured public-private partnerships are one solution for helping governments raise the large sums of capital required to meet infrastructure needs and, consequently, spur development. IFC, a member of the World Bank Group, has been providing advice to national and municipal governments on designing and implementing PPP transactions to improve infrastructure and access to basic services such as water, power, agribusiness, transport, health and education since 1989. Working with the private sector to promote investment in infrastructure is a priority for IFC, and we have a global group dedicated to providing transaction advice and an investment group providing financing for PPPs. By partnering with Infrastructure Journal to produce this publication, along with the generous support of PPIAF, our intention is to highlight these top 40 PPPs as a source of inspiration and as a catalyzing element for governments, the private sector, donor partners, other multilaterals, and PPP practitioners at large to embark on this path. Ultimately, the goal is this: To improve the quality of life in local communities in emerging markets where the gaps are greatest and the benefits of infrastructure investment can be most widely felt. As you read through Emerging Partnerships, we invite you to consider how similar ideas and the broader concept of partnership between the public and private sectors can positively impact your own communities. We congratulate all those who played a role in each of the Top 40 PPPs for serving as a source of inspiration, responding to some of the greatest challenges in international development. Nena Stoiljkovic, Laurence Carter, Vice President, IFC Business Director, IFC Advisory Services Advisory Services in Public-Private Partnerships Emerging Partnerships 3 4 Emerging Partnerships Welcome Partnership is a word you often hear in the world of infrastructure, but it can be widely misunderstood. Developing a true partnership is not easy. It requires commitment from all parties to work together for mutual benefit. Success is measured not by individual gains, but the combined results achieved by all stakeholders. Partnership is more than a successful transaction or a service contract—it’s a shared vision and collective achievement. In infrastructure, public-private partnerships (PPPs) have to be more than a means to an end. PPPs are about transparency, service, risk transfer and delivering long-term quality and affordability from procurement and financing through construction, operation and maintenance. Value-for-money extends beyond a project’s capital expenditure. Partnership is about delivering critical infrastructure for local development and long-term economic growth. This is especially true of emerging markets, which present unique growth opportunities but often lack the political framework to facilitate local or international PPP investment. IFC and Infrastructure Journal, along with PPIAF through its generous support, are pleased to present this publication, Emerging Partnerships, a selection of 40 impressive and noteworthy PPPs from around the world—each at the heart of development in the markets that need it most. By giving these projects the visibility they deserve, our partners—the esteemed judges that supported us with their time and expertise—have provided an independent and objective appraisal of the rapidly developing world of PPPs. They have rewarded and recognized those applied partnerships that tackle difficult issues and those that may be replicated, paving the way for further development. Throughout the selection process, which included more than 130 submissions from all over the world, a story began to unfold. The PPP dynamic is changing. In emerging markets, it has shifted from predominately utility and transportation concessions ten years ago to include many more social infrastructure projects including hospitals, schools, prisons and even agribusiness. The partnership model is an effective tool for addressing global infrastructure funding challenges, and within some of the examples here, we can already see it evolving yet further to overcome new obstacles including climate change, urbanization, and water and food security. Private sector development in public infrastructure requires more than just finance. It requires partnership. Please join us in reading this publication, and celebrating true partnership and best practice in infrastructure and international development. Vipul Bhagat, John Kjorstad, IFC Advisory Services in Editor, Infrastructure Journal Public-Private Partnerships Emerging Partnerships 5 6 Emerging Partnerships 10 East Asia, Pacific, & South Asia 34 Europe, Central Asia, Middle East, & North Africa 12 Regional Overview 36 Regional Overview 14 Judges Profiles 38 Judges Profiles 16-28 Project Profiles 40-52 Project Profiles 16 Punjab Grain Silos 40 Queen Alia International 20 CLIFF Community Airport Sanitation 44 Pulkovo Airport 22 Bhutan Education City 46 New Cairo Wastewater 24 Nong Saeng Power Plant 48 R1 Expressway 24 Central Java IPP 48 Medina Airport 25 Gorai Dumping Ground 49 Rosvodokanal Closure 50 Amman East Power Plant 26 NKTI Hemodialysis Project 50 KAIA Desalination 26 24/7 Water Supply 51 Jeddah Water Contract 27 Aurangabad Water 52 Sabiha Gökçen Supply International Airport 28 Gujarat Rooftop Solar 54-57 Project Data 30-33 Project Data 58 Latin America & the Caribbean 82 Sub-Saharan Africa 60 Regional Overview 84 Regional Overview 62 Judges Profiles 86 Judges Profiles 64-76 Project Profiles 88-100 Project Profiles 64 São Paulo Metro Line 4 88 KivuWatt 68 Atotonilco Wastewater 92 Chiansi Irrigation Project Treatment Plant 94 Port of Cotonou 70 IIRSA Norte 96 Lekki Toll Road 72 Porto Maravilha 96 Addax Makeni Bioenergy 72 Toluca and Tlalnepantla 97 Cape Verde Wind Power Hospitals PPP 73 Peru Health Care Portfolio 98 Centrale Thermique de Bond Financing Lomé 74 Panama Pacifico SEZ 98 Lesotho: National Referral 74 Hospital do Subúrbio Hospital 75 Ciudad Victoria Hospital 99 Gautrain Rapid Rail Link 76 Ribeirão das Neves Prison 100 Henri Konan Bédié Bridge Complex 102-105 Project Data 78-81 Project Data Emerging Partnerships 7 8 Emerging Partnerships Criteria In order to find the most unique and groundbreaking PPP’s for Emerging Partnerships, IJ and IFC undertook a global outreach campaign to encourage governments, industry, academia, nongovernmental organizations, multilaterals and anyone with a vested interest in PPPs to nominate projects that have set new standards for efficiently developing and financing critical global infrastructure. Nominations were accepted from August 6, 2012 until September 14, 2012. During this period, over 130 online submissions were received with 120 eventually being put forward as eligible to be considered by regional judging panels. Candidate projects were distributed geographically among four regions and must have been implemented in a qualifying emerging market country within these regions (see www.emerging- partnerships.com/Criteria?Length=4 for country listing): • East Asia, Pacific and South Asia • Europe, Central Asia, Middle East & North Africa • Latin America & the Caribbean • Sub-Saharan Africa In order to be considered for Emerging Partnerships, projects nominated must also have reached financial close for at least part of the project between January 2007 and June 2012, and could encompass both hard and soft infrastructure, such as agribusiness, education, forestry, health, hospitality, information technology, mining, municipal services, power/energy, telecommunication, transport, waste, water and any other form of critical infrastructure. Finalists were then selected by four independent judging panels, with each judging panel comprised of an esteemed group of PPP industry experts from that region. Each project that was eligible for consideration in a region was scored by the judging panel based on the following criteria: • Financial Innovation: Delivery of infrastructure through the use of creative finance structures • Technological Innovation: Delivery of infrastructure using new technologies • Developmental Vision: • Does the infrastructure project have a social impact and promote further advancement? • Does the infrastructure project promote sustainability and put minimal stress on the environment? • Replicability that sets a commercial standard and can be repeated elsewhere in the country or region. • Impact on the population and the number of people who will directly benefit as a result of the PPP. Judges who had any affiliation with a project up for consideration recused themselves from scoring on that project in order to maintain independence. During the judging panels, scores for all of the projects were tallied and, based on these numbers as well as additional judging panel deliberation, the top 10 PPP projects were selected for each region. Then from the top 10 list in each region, the top three highest scoring projects which the judges also felt had a particularly significant impact and embodied all the Emerging Partnerships selection criteria are now showcased through in-depth profiles within this publication. Emerging Partnerships 9 East Asia, Pacific & South Asia Regional Overview East Asia, Pacific & South Asia by James Kenny In terms of regions, Asia is probably the most polarized when it comes to PPP activity with countries like India, Singapore and China forging ahead with new and innovative infrastructure while others such as Mongolia, Bangladesh and Pakistan make tenuous steps on the PPP ladder. Most countries in East Asia, Pacific and South Asia have ambitious plans and programs for increasing the role of the private sector in closing the infrastructure gap through PPPs. With the exception of China, few have yet to achieve concrete results. However, this is beginning to change and countries such as the Philippines, an early leader in PPPs during the 1990s, Indonesia, Vietnam, as well as smaller countries in the Pacific have either completed PPP transactions or are actively working on developing a pipeline of PPP projects. Of those featured in this publication, India proved to be the dominant country with unique projects such as the $6 million Punjab Grain Silos and $15 million Gujarat Solar Rooftop project. This is hardly surprising considering the country has the second highest population in the world and PPP activity has been entrenched since the early 1990s with the opening up of India’s electricity generation to private players in 1991, which set up the structure of Independent Power Producers (IPPs). However according to Isabel Chatterton, manager of IFC’s Advisory Services in PPPs for the South Asia region, there is still polarization within the country itself with PPP projects and their success altering between different states: “In India, although successful in the PPP market, we can see opportunities vary dramatically with the replicability of existing PPP models in wealthy states compared to ones with lower incomes. Outside of road projects, other sectors are not always successful models of government PPPs across the country so this is something we are trying to work on and advise to change.� According to Chatterton, IFC is working on a number of projects to address this imbalance, such as engagement in the health PPP sector and forming different state partnerships with specific governments to move beyond certain projects and problematic PPP initiatives. IFC is also attempting to establish health networks that will comprise primary, secondary and tertiary care and enable the building of larger health facilities. Work is also ongoing in the renewable energy space. A successful model has already been implemented in the state of Gujarat and IFC is now assisting in developing it across the lower income states in the north and northeast. While positive steps are being made in India, it has not been the case across the wider region as the country still towers above others when it comes to PPP activity. Help is on hand however with the Asian Development Bank (ADB) implementing its Public-Private Partnership Operational Plan 2012-2020 in order to promote project financing in cooperation with the private sector across other countries in the region. According to the ADB, the Asia and Pacific region requires infrastructure investment of at least $8 trillion until 2020, 68 percent of which will be for new capacity and 32 percent for maintaining and replacing existing infrastructure. The average annual infrastructure investment during this period is about $750 billion. Available funding from traditional sources falls far short of the investment need. In order to address these massive infrastructure requirements, the ADB states countries have three principal options: review traditional sources of funds and explore additional funding from them, investigate mechanisms for generating more resources from off-budget sources, and finally consider a greater role for PPPs in procuring infrastructure and identifying and addressing impediments to the development of PPP transactions. As well as the implementation of the overall plan, the ADB is also doing its part to help countries: more specifically by providing assistance to the government of Mongolia in preparing a concession law to support private-sector infrastructure projects; in Cambodia, it is working to provide technical assistance on policy and pathfinder projects; and most recently announced it is open to extending more funds for the pre-feasibility studies of PPP projects in the Philippines, should the government require it. The IFC is also assisting in the spread of PPP growth in newer frontier countries. “Outside of India we are trying to facilitate the first PPP transaction within certain countries or aid countries with an already burgeoning PPP market,� Chatterton said. In Sri Lanka, she added that it’s the right time for the government to work with PPPs. IFC is advising on several aspects of real estate PPPs and development of assets that have to do with the country’s core infrastructure. Other regional examples of IFC work that she noted included a health transaction in Bangladesh, hotels in Nepal, and an urban transport project in Bhutan. Emerging Partnerships 13 The judges Judges Sanjay Mehta Victor (Chuan) Chen Profiles Layth Irani Steve Gross Sanjay Mehta is Director of Essar Global Limited, London, the holding company of Essar Group. He is also CEO of Essar Shipping & Logistics Limited, Cyprus. Mehta joined Essar Shipping Limited in June 2000 as Managing Director and CEO. During his tenure he successfully restructured and made further investment decisions for the Ruia family (major shareholder of Essar Group of companies) in their shipping and logistics portfolio. Essar Shipping & Logistics Limited today is the world’s leading integrated sea logistics company with a focus on crude oil transportation and crude oil transportation management services for the global oil majors. In addition, it provides integrated supply chain logistics services to the steel making industry and thermal power generators based in South East Asia and Asia Pacific. Mehta has an MBA from London Business School, London. He graduated with an Honours degree from London School of Economics, London. Mehta has over 15 years experience in the international shipping and investment banking sectors. Prior to joining Essar Shipping Limited, from 1994-2000 he headed up the investment banking desk (South East Asia and Asia Pacific) at American Marine Advisors, Inc., New York. Prior to his tenure with American Marine Advisors, he was with Goldman Sachs, New York, and Hambros Bank, London. Mehta sits on the board and audit committee of Protection & Indemnity Club, Steamship Mutual, London. He is also a board member at the American Bureau of Shipping. 14 Emerging Partnerships Chuan Chen is the Professor of Engineering Management at the Business School of Sichuan University, Chengdu, Sichuan Province, China. Chen previously worked at Tsinghua University as an assistant professor and then Melbourne University as a lecturer in construction management. He also acts as a consultant to the Private Participation in Infrastructure (PPI) Database of the World Bank and a member of the World Economic Forum Global Agenda Council on Infrastructure. He holds a B.Eng. from Tsinghua University, M.Eng. from National University of Singapore, and Ph.D. from Pennsylvania State University, with specialization in construction and project management. Chen also received a master’s degree in applied finance from Melbourne University under a staff scholarship. Chen’s research and teaching interests include risk management, project financing, strategic infrastructure development, and public-private partnership. Chen is an author of more than 50 publications. Layth Irani is joint General Manager and head of the Infrastructure Finance Unit at Sumitomo Mitsui Banking Corporation Europe Ltd. He has 25 years experience of acting as advisor, arranger and lender in the transport, infrastructure and telecoms sectors. He has experience in arranging financing for road, rail, port, airport and rolling stock project and acquisition financing. He has worked on projects in Europe, the Middle East, Africa, North and South America and Asia. Clients have included local and national governments, multilaterals and export credit agencies, construction companies and financial sponsors. Steve Gross is Head of the Asian Business Development team for Macquarie Infrastructure and Real Assets (MIRA). Gross sits on the boards of a number of portfolio companies in China and oversees a team based across Asia that develops all new Asian funds and separate managed accounts as well as managing key stakeholder government and client relationships. This team led the successful development of MIRA’s third Korean infrastructure fund, first Chinese infrastructure fund, the Macquarie Everbright Greater China Infrastructure Fund, and the first Philippines infrastructure fund. Prior to this, Gross was the Chief Operating Officer (COO) of the European infrastructure fund business with €7.3 billion under management. During his time as COO, the team grew from 25 to over 60 staff and capital invested increased to €6.3 billion including investment in the largest water and wastewater business in the United Kingdom - Thames Water. Other projects Gross has been involved in include the acquisition of Bristol International Airport and acquisition of DCT Gdansk SA, a greenfield container terminal in Poland. Gross holds a Bachelor of Commerce (degree with honors) from the University of Melbourne, where he developed research into the crowding in of private sector expenditure by government infrastructure spending. Following that Gross completed a Master in Business Administration from the London Business School where he graduated with distinction. Emerging Partnerships 15 Gold selection Punjab Grain Silos Punjab State, India 16 Emerging Partnerships As the world plunged into the global recession in The concession, which was one of the first of its kind, 2008, food prices began to rise, causing panic in had a number of bidders and was awarded in July 2010 many countries with violence even erupting in places to LT Foods Limited, a large Indian grain exporting, such as Bangladesh and India as citizens rioted to commodity trading and handling company. Under protest soaring costs. Since then governments and the terms of the 30-year concession LT Foods agreed policymakers have been taking tentative steps at to finance, build, own, operate and maintain grain stockpiling food supplies. silos using state-of-the-art technology and inventory management methods. At the end of the concession, With wheat a basic staple of nutrition in India, the the operator will be able to use the facility for private Punjab State Grain Silos is a project that was called purposes. The new silos now ensure that, on a yearly “hugely important� and one that “addresses a very basis, 500,000 of India’s poorest will receive better serious issue,� according to the judging panel. It not nutrition. only provides a real alternative to future food shortages but is also a replicable model that can and is already IFC estimated the total project cost, including the cost being adopted by other countries concerned about of land and preliminary expenses, at approximately storage and feeding their growing populations. INR 400 million ($8 million). The IFC’s advisory work was supported by DevCo, a multi-donor The idea was spawned in India’s Punjab State, known program affiliated with the Private Infrastructure as the breadbasket of the country. According to a Development Group. The project was implemented in report published by the Planning Commission of India April 2011 and operational by March 2012. in late 2011, the warehousing capacity for rice and wheat in the public, cooperative and private sector According to Neeraj Gupta, senior investment officer in India was estimated to be 108.75 million metric for South Asia with IFC, the move towards grain silos tonnes (MT) however there was need for an additional and storage is a global strategic issue with parts of 35 million MT. As one of India’s prime grain Sub-Saharan Africa and the Middle East investigating producers which also faced critical shortage of storage storage facilities. capacity, the state government of Punjab engaged IFC to advise on a pilot PPP scheme that would develop “In the context of what’s happening globally with food state-of-the-art, long-term storage silos with a capacity shortages, this silo project, its influence and reach are for 50,000 metric tons. extremely important. The success of the silos means we In the context of what’s happening globally with food shortages, this silo project, its influence and reach are extremely important. Emerging Partnerships 17 have been able to push the boundaries of reform and now we are seeing the results with 10 other states in India attempting to adopt a similar strategy. We are also seeing replication internationally, where plans for similar silos are in various states of process in both Pakistan and Africa.� As a result of Punjab Silos’ success, IFC is now advising on a similar program, albeit on a much larger scale, in Pakistan’s Punjab and Sindh provinces. Speaking about the project, panel judge Chuan Chen said: “To date there are very few PPPs in the agriculture sector in the Asian region and the silo project not only fulfills an important role but can also be adapted elsewhere. This makes it very exciting.� IFC is now advising on a similar program, albeit on a much larger scale, in Pakistan’s Punjab and Sindh provinces. *For more information on this project and others in the region please see the project data at the end of this chapter. 18 Emerging Partnerships Silver selection CLIFF Community Sanitation Maharashtra and Tamil Nadu, India 20 Emerging Partnerships As a partnership between the public and private effective means of providing sanitation in India’s sectors and based on the enthusiasm of the judges, dense slums. This program introduced a number of the Community-Led Infrastructure Finance Facility innovations, including a genuine partnership between (CLIFF) Community Sanitation Project in India saw local government, NGOs and communities of slum the development rise to the top of the list. CLIFF dwellers. The local government provided water and provides nonprofit organizations working in the sewerage connection, access to land, and funds for the developing world access to flexible finance, enabling construction; SSNS was responsible for construction them to deliver housing and infrastructure for the management, and in many cases slum dwellers urban poor. themselves built the toilets. The local communities were also involved in assessing the demand. With this project, CLIFF provided approximately $1.5 million to Samudaya Nirman Sahayak (SSNS), a Importantly, rather than the municipality managing non-profit arm of the Indian-based nongovernmental the toilets, the program supported local communities organization (NGO) Society for the Promotion of to do this. Communities collected regular fees from Area Resource Centres (SPARC). The funding enabled users and employed a caretaker to maintain the toilets. SSNS to deliver sanitation schemes worth over $7.2 The government only released payments for toilet million. This has resulted in the construction of over blocks once set construction milestones were met. This 230 toilet blocks, totaling 4,610 toilet seats, serving meant that to initiate the construction, SSNS needed an estimated 230,000 slum dwellers in the states of substantial working capital, which was not available Maharashtra and Tamil Nadu. SSNS continues to from commercial financial institutions at affordable replicate the program, and by the end of 2013 it will rates. To overcome this, CLIFF initially granted funds have completed another 630 toilet blocks serving an to SSNS which they were able to recycle locally. Today, estimated additional 630,000 people. however, SSNS also receives returnable funds from CLIFF. As SSNS’ reputation and capital base grew, Speaking about the project, the judges said although and with support of a loan guarantee from Homeless it is not a formal PPP model, it should really be International, SSNS was able to approach banks for considered as it addresses such an important and loans. Now, SSNS is able to secure bank finance to sometimes overlooked issue. partially fund construction. Judge Sanjay Mehta, said: “It will be very interesting CLIFF is managed by Homeless International and if such a project can be replicated elsewhere and it funded by U.K. and Swedish governments. SSNS involves two very important issues, sanitation and works in partnership with SPARC, and community- urbanization.� based organizations Mahila Milan and the National One-hundred thirty million households in India Slum Dwellers Federation. currently lack latrines. Community sanitation blocks, when delivered and managed correctly, can be an Emerging Partnerships 21 Bronze selection Bhutan Education City Thimphu, Bhutan 22 Emerging Partnerships A pamphlet outlining the concept and strategy behind signed memoranda of understanding to work with the Bhutan Education City (BEC) presents the leading global educational institutions such as the Kingdom of Bhutan, nestled in the foothills of the Indian Institute of Management, Ahmedabad; Raffles Himalayas, as a land of happiness and natural beauty Institution in Singapore; TERI University in New committed to sustainable development. Delhi; and the Earth Institute of Columbia University in New York. “Economic growth,� it states, “must be subject to the happiness and wellbeing of the people.� Plans for the BEC include student and faculty accommodation, a sports complex, retail areas, service As the country’s first major PPP infrastructure project apartments and research facilities. The campus will (and the first to require its own legislation), the BEC is include 500 acres of reserved green space, and employ the cornerstone of the Royal Government of Bhutan’s renewable energy and sustainable development plan to develop the country’s knowledge economy techniques. within its Gross National Happiness framework. Rather than continue to export bright young minds In terms of urban development, the campus will to universities abroad, the BEC aims to keep students provide an extension to Thimphu, the country’s in Bhutan while having robust international standards capital and largest city, as well as direct and indirect that will attract students from neighboring India and jobs to over 30,000 people. All economic industries other parts of the world. including tourism, construction, the service sector, and the financial sector are expected to benefit from this “The main market for the education hub is India project. and the region, where the demand for good quality education is huge,� said Kinga Tshering, the chief The BEC is being spearheaded by DHI which is executive of Druk Holding & Investments (DH), the investment arm of the Royal Government of in a released statement. “India has only 450-odd Bhutan. In October 2012, a 13-member board universities against a demand for almost 1,000. comprising secretaries from key ministries including Foreign universities are not keen to open campuses education, economic affairs, finance, home and labor in India because of its regulatory environment, which and the Gross National Happiness Commission was makes it difficult for them to earn profit. Therefore, announced under the chairmanship of the works and Bhutan would like to offer an alternative destination human settlement minister to oversee the project. for higher education.� Having the board formed, DHI will hand over the project to the statutory body, which will manage it On this premise, the Bhutan Education City Act according to the roles, responsibilities and powers was passed by parliament in 2012 with $9 million defined in the BEC Act. committed to ancillary infrastructure development. Since then, the BEC has institutionalized the Initial ground works on the project were expected to governance structure, completed the bid process and begin in early 2013. Emerging Partnerships 23 Nong Saeng Power Plant Nong Saeng, Thailand Thailand has long had strong support for PPPs in its infrastructure projects and continues to push for growth in the sector. In 2012 the country engaged the Asian Development Bank for project preparatory technical assistance on a PPP motorway project and policy and advisory technical assistance on Reform and Renewal of Thailand’s Railway Sector. Thailand is also launching a 1,600 megawatt (MW) gas turbine combined-cycle power generation plant in the Nong Saeng district of the Saraburi Province. The plant will consist of two 800 MW power generation plant trains and is being aimed at responding to increasing power demand in a country associated with robust economic growth. It aims to provide reliable and least-cost power to prevent supply shortfalls; promote efficient combined cycle technology and baseload alternatives to coal-fired generation; and support PPPs that enhance efficiency in the sector. The project is part of the governments’ electricity plan, which expects the country’s demand for electricity to grow by an annual average of 4.19 percent by 2030. To meet such increasing demand, the Thai authorities have formulated the plan to increase the national capacity of power generation from 31,349 MW in 2010 to 65,547 MW by 2030. The project is also the first PPP project since the credit crisis of over $1 billion in Thailand that taps international financial markets. The two units are slated to go on-stream in June and December 2014, respectively. The plant is being developed and implemented under a 25-year power purchase agreement with the Electricity Generation Authority of Thailand (EGAT), and a 25-year gas supply agreement with PTT Public Company Limited (PTT). Project costs and fuel are passed through an offtake agreement. An interconnecting pipeline from the plant connects to PTT’s existing Wangnoi-Kaengkoi transmission pipeline 20 kilometers away. A new transmission line is also being constructed to connect to EGAT’s system 1.5 kilometers away. The plant is being developed by Japan’s electric power development company J-Power with long-term debt provided by the Asian Development Bank, which funded around $170 million. The other lenders are the Japan Bank for International Cooperation (JBIC), Siam Commercial Bank, Kasikornbank, and Mizuho. Central Java IPP Central Java, Indonesia The $4 billion Central Java IPP (independent power producer) project involves building a new 2,000 megawatt (MW) coal-fired power plant in Central Java, Indonesia in order to keep up with growing electricity demand and to attract further private investment into the country. An equity bridge loan was signed in August 2012 with full financing on-going at the time of publication. It is estimated that the plant will improve access to electricity to 7.5 million people and mobilize over $3 billion in investment. The project is the first to benefit from a new form of government guarantee provided by the Indonesia Infrastructure Guarantee Fund (IIGF), established not only to guarantee PPP projects, but also to provide consistent risk assessment of PPP projects. The project is set to go online by 2016. A consortium of Indonesian company Adaro Energy and Japan’s Itochu and J-Power won the bid for the 25-year power purchase agreement. The plant will use ultra-supercritical coal-fired facilities, which will be able to burn domestic sub-bituminous coal as fuel. The project ties into a Japanese government initiative to “project package� abroad to promote its growth. The Deployment of Integrated Infrastructure Systems Overseas initiative, focused 24 Emerging Partnerships mainly in the generation and transportation sectors, is being planned for various emerging Asian countries, including Indonesia. Indonesia’s demand for electricity is expected to rise by 9 percent annually and the Central Java project is one of the first in state-utility PLN Persero’s second fast track program to add more than 10 GW of new capacity by 2014. IFC was transaction advisor to PT Perusahaan Listrik Negara (PLN), the government-owned Indonesian electricity company, and proposed the risk allocation structure in the power purchase agreement to maximize bankability of the IPP while minimizing the risks to PLN. The guarantee mechanism and revised PPP regulations will pave the way for future PPPs in infrastructure in Indonesia, bringing much-needed investment to the sector. Gorai Dumping Ground Closure Gorai, India Considered a groundbreaking initiative in India, the Gorai Dumping Ground Closure was an essential PPP that transformed an area of densely populated Mumbai that had been used for dumping waste since 1972. The site spanned 19.6 hectares and had approximately 2.34 million tons of waste, up to 26 meters in height. Clo- sure of the site was completed in 2009. The dump had contaminated water supplies and was killing surround- ing mangroves, while local residents were unable to open windows that faced in the direction of the dump because of the overpowering smell. Creek waters were also being contaminated due to the inflow of leachate. The Municipal Corporation of Mumbai (MCGM) appointed Infrastructure Leasing & Financial Services (IL&FS) to manage the scientific closure of the site, which was the first of its kind in the country. MCGM received a carbon advance of Rs 250 million ($4.5 million) against future delivery of carbon credits from the Asia Pacific Carbon Fund of the Asian Development Bank for the project. The project was contracted out on a design, build, own, operate and transfer framework for a 25-year period. The PPP structure ensured that the municipality retained a high degree of control over the project while bringing in the expertise of the private sector. The dumping ground closure was implemented by United Phosphorous Limited (UPL) along with their consortium partner, Van Der Wiel, Netherlands, over a period of 15 months. The project proved important for the country as it provided a model PPP structure that could be implemented elsewhere, while also demonstrating that carbon financing can catalyze management of solid waste projects and enhance the financial viability. On a practical scale the closure of the dump has seen a marked improvement in the quality of life of people in Gorai living within these 19 hectares of green space in Mumbai. Property value in the area increased with higher property tax collection for the municipality. Improvement in the environmental quality is also noticed with elimination of foul odor in the atmosphere after three decades. Elimination of fire, health hazards and breeding of flies and rodents in the area helps improve public health and hygiene. Emerging Partnerships 25 NKTI Hemodialysis Project Quezon City, Philippines Although relatively small in scale compared to some of the other projects considered, the National Kidney Transplant Institute (NKTI) Hemodialysis Project in the Philippines proved popular among the judges due to its more personable impact and its innovative procurement of equipment. NKTI initially invested in a new hemodialysis center, however due to an annual budget deficit, the institute found it difficult to furnish the center with new machines and equipment. As the budget only allowed the purchase of five new machines per year compared to the pressing needs of doubling its treatment capacity, a PPP solution was sought. The procurement process was successfully concluded in 2003 through a PPP lease arrangement between NKTI and Fresenius Medical Care AG. Foreseen as Asia’s model in renal care, the new hemodialysis center now provides the highest level of hemodialysis service in the Philippines, as well as in Asia. The center started servicing patients in August 2003, with the first five-year contract concluded and renewed once again in 2009. The new center alone is now serving more than 120 outpatients a day. There are also now 47 machines in operation at the new hemodialysis center. Aside from offering this improved service and top quality hemodialysis, NKTI has been relieved of its responsibility to maintain the new set of equipment. Most importantly, there has been no price increase to patients, with cost per treatment considered affordable and minimal. No hard impact evaluation study has been done to quantify how the project has enhanced access to services and information, especially for poor households. However, interviews with hospital administrators indicate the following: NKTI was able to acquire the latest available technology in dialysis treatment and expand its services to more patients at the same cost of treatment and at less risk to the government. And because of more machines and higher reliability of these machines, hemodialysis treatment was extended to more Filipinos. 24/7 Water Supply Nagpur, India Uninterrupted, 24-hour access to clean drinking water is the foundation for the long planned 24/7 Water Supply Project in South Nagpur, India. The project marks the first ‘full city’ PPP contract in India and aims to provide potable water round-the-clock to all citizens, including those living in slum areas, by replacing an old and leaking water network. The water quality will meet World Health Organization water quality standards and will be available under constant pressure. The project was first proposed by the Nagpur Municipal Corporation in 2009 and was to be completed by 2012; however the project began construction in 2011 due to delays. Vishvaraj Environment Pvt. Ltd. (subsidiary of Vishvaraj Infrastructure Limited) won the contract, which includes the operation of the Water Utility of Nagpur for 25 years. To operate the contract, Vishvaraj Environment has associated with a global partner, Veolia Water through its subsidiary Veolia Water India, to create a special purpose company named Orange City Water Limited (OCWL). Not only will OCWL provide 26 Emerging Partnerships drinking water on an uninterrupted scale to 2.5 million people, but it will also include managing the drinking water cycle of production, treatment, transport, storage and distribution to customers’ taps. Surface water is produced and treated in five plants for a total of 550 million liters per day and distributed through 2,100 kilometers of pipeline to 250,000 water connections. The contract includes an initial five-year program of works (mainly network and house service connections rehabilitation, and upgrading) amounting to $100 million, with 70 percent funded by the government of India through the Jawaharlal Nehru National Urban Renewal Mission city-modernization program and the State of Maharashtra, and 30 percent funded by Vishvaraj Environment. Addressing a question raised by several judges about the willingness or ability of some citizens to pay for clean water, the local chamber of commerce stated, “The pilot experience has proven that the poor are willing to pay (a subsidized tariff) for such better access to water.� As well as revolutionizing the water supply, the development will reduce overall water loss and the city’s carbon footprint by spending less energy to pump water. The project was nominated by FICCI ( Federation Of Indian Chambers of Commerce & Industry) on behalf of VIL. Aurangabad Water Supply Aurangabad (Maharashtra), India Access to clean water is still a major issue in many parts of Asia. The Aurangabad Water Supply project in the state of Maharashtra in India was recognized by the judges as not just a vital project that will provide drinking water for a population which exceeds one million people, but also one which sets a precedent and has a major developmental impact on the region. With Aurangabad being one of Asia’s fastest-growing cities, the project will have a direct impact on an expanding population. The development involves the laying of 1,200 kilometers of water pipes from the Jayakwadi dam and is being developed on a build-operate-own-and-transfer (BOOT) basis for a 20-year concession period. Judge Chuan Chen said: “The project is intriguing and can be replicated elsewhere, which is a major factor in India or other parts of Asia. The project is a practical solution to a practical problem.� The partners in the project are SPML Infra, Essel Infraprojects, Vatech Wabag, and National Water and Sewerage Corporation, Uganda. Emerging Partnerships 27 Gujarat Rooftop Solar Gujarat, India With over 300 days of sunshine a year, the state of Gujarat in western India is hoping to harness this plentiful resource by pushing forward with the Gujarat Rooftop Solar project and a carbon emissions reduction program. The state plans to install 500 megawatts (MW) of solar capacity by March 2014, and IFC is appointed to help execute this rooftop initiative and to advise on technical, legislative, analytical and marketing support. The pilot project will produce 5 MW of power entirely from solar photovoltaic panels installed on the city of Gandhinagar’s rooftops (public buildings and private residences)—a clean and efficient way to address the growing need for power in a developing country that is growing rapidly. Azure power and SunEdison each won one of the two 2.5 MW projects, with the 25-year concession agreements signed in April 2012. The pilot received financial support from the Netherlands and Finland. Besides attracting $15 million in private investment, 10,000 people will benefit from increased access to clean power at affordable prices and 6,000 tons of carbon emissions are expected to be avoided per year. The government also stands to benefit from a net annual revenue stream of $400,000 for 25 years. Overall the project is a standout as it demonstrates the technical, regulatory, and financial viability of rooftop solar panels, which will enable the expansion of solar power in Gandhinagar and elsewhere in India. Due to the success of the PPP, IFC is already working on similar projects in five other cities in Gujarat and in other states in India. 28 Emerging Partnerships Gujarat Rooftop Solar Project Data East Asia, Pacific & South Asia 30 Emerging Partnerships Punjab Grain Silos CLIFF Community Sanitation Punjab state, India maharashtra and tamil nadu, india Total initial $8 million Total initial $7.2 million investment investment Government Punjab State Grains Procurement Government Various local governments in the client Corporation (PUNGRAIN) client states of Maharashtra and Tamil Equity sponsors LT Foods Limited Nadu Lenders DevCo (Private Infrastructure Equity sponsors Samudaya Nirman Sahayak Development Group) Lenders Community Led Infrastructure Advisers to IFC (lead), SNC-Lavalin Finance Facility (Homeless authority (technical), Trilegal (legal), Mott International) MacDonald (technical) Bhutan Education City Nong Saeng Power Plants Thimphu, Bhutan Nong saeng, Thailand Total initial Bhutanese Ngultrum 20 billion Total initial $1.185 billion investment ($364 million) for Phase I and II investment Government DHI Infra, a wholly owned Government Electricity Generating Authority client subsidiary of Druk Holding and client of Thailand Investments (investment arm Equity sponsors Gulf JP NS Company, Limited of the Royal Government of in Thailand, a wholly owned Bhutan) subsidiary of Gulf JP Company Equity sponsors Infrastructure Leasing & Limited which is 90% owned Financing Services Limited and by a local subsidiary of Electric Infinity Infotech Parks Limited Power Development Company, Limited (J-POWER) of Japan and Lenders National Société Générale Bank, 10% owned by Gulf Holding Commercial International Bank, Company Limited, a local power Arab African International Bank, development company and Ahli United Bank Egypt Lenders Japan Bank for International Advisers to Project Advisory Group, Cooperation, Asian authority Empowered Group, Ernst & Development Bank, Mizuho Young Corporate Bank Limited, The Siam Commercial Bank Public Company Limited, and KASIKORNBANK Public Company Limited Advisers to Baker & McKenzie sponsors Advisers to Allen & Overy lenders Emerging Partnerships 31 Central Java IPP Gorai Dumping Ground Closure Central Java, Indonesia Gorai, India Total initial $4 billion Total initial $9.31 million investment investment Government PT Perusahaan Listrik Negara Government Municipal Corporation of client client Greater Mumbai Equity sponsors J-Power, Itochu Corporation and Equity sponsors United Phosphorus Limited and Adaro Power Van Der Weil Lenders The $270 million Bridge Facility Lenders Asian Development Bank’s Asia closed in 2012 included Tokyo- Pacific Carbon Fund Mitsubishi UFJ Limited, DBS Advisers to Infrastructure Leasing & Bank Limited, Mizuho Corporate authority Financing Services Limited Bank Limited, Oversea-Chinese Banking Corporation Limited, Sumitomo Trust & Banking Company Limited, Sumitomo Mitsui Banking Corporation; DevCo (Private Infrastructure Development Group) provided a technical assistance grant for IFC’s advisory work Advisers to IFC (lead), K&M Engineering and authority Consulting (technical), Norton Rose (legal) NKTI Hemodialysis Project 24/7 Water Supply Quezon City, Philippines Nagpur, India Total initial Php 54 million ($1.33 million) Total initial INR 578 crore ($100 million) investment investment Government National Kidney and Transplant Government Nagpur Environment Services client Institute client Limited, a wholly owned subsidiary of Nagpur Municipal Equity sponsors Freseneus Medical Care Corporation Philippines Inc. Equity sponsors Orange City Water Limited, a Advisers to Build-Operate Transfer Center special purpose vehicle owned authority (now renamed PPP Center of the by Vishvaraj Environment Private Philippines) Limited (Vishvaraj Infrastructure Limited) and Veolia Water India Private Limited Lenders Industrial Development Bank of India (IDBI Bank Limited), Central Bank of India, and India Infrastructure Finance Company Limited Advisers to Dinesh Rathi & Associates authority 32 Emerging Partnerships Aurangabad Water Supply Gujarat Rooftop Solar Aurangabad (Maharashtra), India Gujarat, india Total initial $200 million Total initial $15 million investment investment Government Aurangabad Municipal Government Gujarat Energy Research client Corporation client and Management Institute, Equity sponsors SPML Infra Limited, Essel promoted by the Gujarat State Infraprojects Limited, Vatech Petroleum Corporation Limited Wabag Limited (India), and Equity sponsors Azure Power and SunEdison (for National Water and Sewerage separate transactions) Corporation (Uganda) Advisers to IFC (lead), Deloitte Touche authority Tohmatsu India Private Limited (technical), CMS Cameron McKenna LLP (legal), Hemant Sahai & Associates (legal) Emerging Partnerships 33 Europe, Central Asia, Middle East & North Africa Regional Overview Europe, Central Asia, Middle East & North Africa by René Lavanchy The past seven years have seen governments all over Eastern Europe, Central Asia and the Middle East express their support for PPPs. Advisers have been brought in, legislation has been passed and PPP centers of excellence have been set up. Why, then, have so few been able to get a credible pipeline of projects off the ground? Panel judge Geoffrey Hamilton of UNECE observed: “Governments… don’t have the capacity to use PPPs in the volume that we feel can really make a difference… The challenge is not really the first project; the challenge is to turn the first project into a real pipeline. That really demands no short cuts; it demands PPP units and good legal regulation and transparency. And that demands getting governments to improve their capabilities and build their capabilities up. It has to be addressing this if we’re really going to release the logjam and get governments to embrace PPPs in a more systematic way.� Judges identified a discrepancy between administrations’ promises to pursue a PPP program and effectiveness in delivering a pipeline. According to Infrastructure Journal data, countries such as the Czech Republic, Romania, Slovakia, Kazakhstan and Dubai have closed fewer than six PPPs between them, despite having political and legislative support for the model. Having a well-staffed PPP unit does not translate directly into getting projects off the ground. Such places seem at first in stark contrast to Russia and Turkey, two countries picked out by judges for their strong economic base and enthusiastic political backing for PPPs. National and local governments in both countries have promised and, in some cases, launched PPP procurements with a high capital value. However, when it comes to successfully closed projects procured in line with international best practice, the differences vanish. Russia, whose federal concession law is often criticized for not offering enough comfort to investors, has only signed two such deals in recent years—the Pulkovo Airport concession (featured) and the Western High-Speed Diameter—while Turkey’s transport and health care PPPs are understood to be held up by issues around contractual rigor and risk allocation. 36 Emerging Partnerships Thierry Déau of Meridiam and a member of the Emerging Partnerships judging panel commented: “What I would focus on is the contractual and administrative framework. I would urge governments to generally spend a lot of work on [that]. The big hurdle is still bankability of contracts.� Croatia, which has already closed several PPPs with international investors, has taken note and brought a new PPP law into force in July 2012. It reduces the approvals process for projects from 120 to 30 days. Half the projects shortlisted in this section are based in the Middle East, which has seen an exotic range of procurements and approaches to financing infrastructure over the past decade. Judges were pleased by the procurement of water projects in the area, as well as by the success of project developers in marrying the project finance model born in the West to Islamic finance, in some cases closing transactions with conventional loans sitting alongside Islamic facilities—no easy task. Wealth in these states is no indicator of propensity to carry out a PPP program; closed projects are just as likely in countries without large hydrocarbon revenues (Jordan, Egypt) as the richer oil states, arguably because lack of government cash encourages alternative financing techniques. Meanwhile Jordan, with negligible oil revenues, is recognized here for its airport concession and string of independent power plant projects, while Egypt’s New Cairo Wastewater project was also scored highly. In both cases, international financial institutions—IFC, the World Bank and Japan Bank for International Cooperation—proved indispensible in providing long-term finance and absorbing country risk. Infrastructure practitioners in the Middle East affirm that Egyptian officials are committed to delivering a pipeline of PPPs, but the upheaval of the Arab Spring and its impact on financial markets has obviously affected their ability to do this—as well as stalling PPP procurements in new markets such as Syria and Yemen. Muneer Ferozie, IFC’s head for Advisory Services in PPPs in the Middle East and North Africa (MENA) region, says: “Before the Arab Spring, PPP was a solution to better infrastructure provision which most governments in the MENA region were either pursuing or considering… Whilst it is true that the Arab Spring impacted the PPP programs, it has also highlighted the need for creating more jobs and providing better infrastructure to the people—the reality is requirements are large and PPPs provide a neat solution to address this challenge.� PPP procurements for several large Middle Eastern projects, such as Abu Dhabi’s $2.7 billion Mafraq- Ghweifat Highway and Saudi Arabia’s $7 billion Landbridge Railway, have been cancelled in recent years. Panel judge Cathy Harris of K&L Gates commented: “Many of these countries have gone for huge, often economic infrastructure projects and from time to time, certainly within the Middle East in my experience, some of these have just been pulled. Perhaps to try trialing some pathfinders which are more straightforward... may lead to greater confidence for developing markets.� And there are positive signs in this direction, including from unexpected places. Moldova, Europe’s poorest country by some estimates, has been pursuing a PPP program with IFC help since 2010 and last year signed a concession for a $7 million radiology and imaging center, one of several pilot projects too small to trouble some international investors but which could have a major impact in a country of 4.2 million. “The project is a typical example of an equally important trend of increased south-south investment in Eastern Europe that we face daily,� said Georgi Petrov, IFC’s head of Advisory Services in PPPs in the Europe and Central Asia region. Petrov added that due to the economic crisis in Europe, the typical Western European investor has retreated and been replaced with either domestic or other emerging market investors. Emerging Partnerships 37 The judges Judges Geoffrey Hamilton Thomas Maier Profiles Thierry Déau Cathy Harris Geoffrey Hamilton is Chief of the Cooperation and Partnerships Section of the Economic Cooperation and Integration Division in the United Nations Economic Commission for Europe (UNECE) in Geneva. The UNECE is an intergovernmental body of 56 member states with a focus on developing economic standards for pan-European integration and support for the transition economies. His current responsibility is promoting PPPs for infrastructure development where he leads a program on building the capacity of governments to undertake successful projects. Currently he is setting up an International Center of Excellence in PPP involving different countries around the world who will as part of the initiative be hosting specialist centers. These centers will be responsible for developing guides, maintaining information and training government officials on PPP best practices in sectors, such as health, roads, water, schools and sustainable energy. His other interests include good governance, attracting foreign direct investment, the economic aspects to peace building and security, property rights for the poor and the protection of intellectual property rights for innovation. Before joining the UNECE he worked at the United Nations Conference on Trade and Development, the International Labour Organization, the Commonwealth Secretariat and the Institute for Research on Multinational Enterprises in Paris. He holds a Ph.D. and a Master’s from the University of Glasgow, Scotland. 38 Emerging Partnerships Thomas Maier is the Managing Director in charge of the infrastructure sector at the European Bank for Reconstruction and Development (EBRD). Maier joined the EBRD as Senior Project Manager in August 1993 from NatWest Markets where he worked on acquisitions, management buy-outs and highly leveraged transactions in the United Kingdom and Western Europe. At EBRD, he worked as Senior Banker in the Country Team Romania/Moldova/Croatia/Ukraine and later as Director for the Municipal and Environmental Infrastructure Team. Maier is a board member in various investee companies of EBRD. Thierry Déau is the founding partner and CEO, Meridiam Infrastructure. Déau joined Egis Projects, a leading international project developer and operator and subsidiary of the French Caisse des Dépôts in 1994, and was involved in managing and financing infrastructure projects worldwide before being appointed chief executive of Egis in 2001. He joined AECOM as a director in late 2004 to concentrate on developing and managing the Meridiam Project, which was established in 2005 to enable public authorities to procure and manage the infrastructure essential to the development of their local communities. Cathy Harris is a partner in the London office of global law firm, K&L Gates LLP, where her practice focuses on infrastructure and energy projects. She has been involved from the inception of the PFI/PPP process in the United Kingdom and with the adoption of similar models in other European countries, the Middle East and India. Harris has advised on the development of numerous acute hospitals, ranging from the landmark University College London Hospital to the recently opened first PFI hospital in Northern Ireland. She is also experienced in the transport, defense, education, emergency services, social housing and technology sectors. Cathy is recognized by the independent legal directories including Chambers, Legal 500 and Best Lawyers and holds a Masters of Law from the University of Queensland, Australia. Emerging Partnerships 39 Gold selection Queen Alia International Airport Amman, Jordan 40 Emerging Partnerships The marriage of public infrastructure and private Having appointed White & Case as legal adviser finance was virtually unknown in Jordan when in and Naco as technical adviser, IFC structured the late 2005 the government appointed IFC to advise transaction in the first half of 2006 on a build-operate- on the rehabilitation and expansion of Queen Alia transfer basis. Initially, the authority thought the International Airport (QAIA), the country’s largest airport could be financed on the successful bidder’s airport and one of only two international gateways corporate balance sheet. A competitive procurement into the kingdom. along standard international lines followed, in which six prospective bidders were prequalified to bid. Before Yet despite being the first airport PPP in the country bidding, consortia negotiated with the government to and despite the region’s perceived risk, the project allow a project financing, a structure they were much secured $900 million of private investment, with IFC happier to work with. taking another role as the biggest lender and joined by six commercial banks. In April 2007, Airport International Group (AIG) was chosen as the preferred bidder, having offered to pay QAIA’s infrastructure dated back to its opening in over 50 percent of revenues to the government in fees 1983. Years of almost uninterrupted growth meant over the life of the 25-year concession. With Ernst & that by the mid-2000s, the airport was increasingly Young in place as their financial adviser, the project crowded and approaching capacity. In addition, Jordan sponsors turned their attention to securing financing. was by now depending on tourism for around 10 percent of gross domestic product and foreign travelers In the run-up to the global financial crisis, bank were arriving at an increasing rate. liquidity was at an all-time high—but Jordan was an untested market and the first project of its kind usually Olivier Prudhomme, head of corporate development carries a risk premium. at J&P-Avax, which has invested in the airport concession and is building the new facilities, recalls: “Banks were attracted by PPP projects and were very “It was an unprecedented bid for our company. Many aggressive. Most responses were ‘we are interested, we factors made the project challenging at the beginning. have some appetite, but we’re not going alone’... The There was no track record of PPP projects in Jordan condition was for a multilateral to be involved, to except for one wastewater project. There were no mitigate the political risk. That appeared to be a strong project finance or PPP models.� requirement for the banks,� Prudhomme says. Without Many factors made the project challenging at the beginning. There was no track record of PPP projects in Jordan except for one wastewater project. Emerging Partnerships 41 the support of a multilateral, commercial lenders were offering tenors of up to ten years, insufficient for a project where the large investment would be recovered over most of the 25-year concession period. QAIA is not only the Middle East’s first full airport concession, but the first to use sharia-compliant finance. IFC lent $120 million in mainly 17- and 18-year facilities, as well as underwriting a $160 million commercial bank syndication, while the Islamic Development Bank (IsDB) lent another $100 million. This required an innovative structure whereby only the IsDB had security over airport assets, and other banks’ rights were secured through the inter-creditor agreement in order to give all lenders equal status. Although the revenue of the project was mainly in Jordanian dinars and the debt in U.S. dollars, IFC negotiated this foreign exchange risk by agreeing a clause with the government under which their concession fee would fall if the dinar was devalued by over 10 percent. The sponsors provided $380 million equity and $258 million is coming from airport cash flow. The government is released from subsidizing the airport and is now earning concession fees. Since AIG took over operations in November 2007, traffic has continued to rise from 3.86 million that year to 5.47 million passengers in 2011. The new terminal is almost complete and due to become operational at the beginning of 2013, bringing capacity to nine million initially. A second phase expansion will eventually raise capacity to 12 million. The new airport, expected to create 23,000 jobs, will allow Jordan’s importance as a tourist and economic center to grow. The government is released from subsidizing the airport and is now earning concession fees, which reached $71.7 million in 2011. *For more information on this project and others in the region please see the project data at the end of this chapter. 42 Emerging Partnerships Emerging Partnerships 43 Silver selection Pulkovo Airport Saint Petersburg, Russia 44 Emerging Partnerships The $1.5 billion Pulkovo Airport concession in Russia remains a unique achievement in the Russian market, broke new ground when it signed financing in April where state-controlled banks and development lenders 2010. Not only was it the first major PPP in the predominate. country backed by international banks, it was the first that did not require state subsidy or guarantees, the Judges praised the Pulkovo project for securing first financed by commercial as well as development financing in the aftermath of the 2008 financial crisis, banks, and the first to be signed under the city of Saint and for overcoming problems posed by federal laws. Petersburg’s PPP law. This is the best-regarded PPP The project’s lenders benefit from improved security law in Russia and the one that most closely resembles to previous projects closed in Russia, while the public comparable laws in mature markets, because of sector makes no financial contribution and receives features such as the protection afforded to lenders and a concession fee. As the first PPP in the country ownership rights over assets. delivered to international standards of project structure and financing, it is likely to encourage both the The project, with equity backing from Russian bank public and private sectors to follow its example. Saint VTB Capital, Frankfurt Airport operator Fraport, and Petersburg has already signed another, even larger PPP Greece’s Copelouzos Group, will see construction of project: the $3.7 billion Western High-Speed Diameter a new international terminal, already well underway, urban highway. as well as refurbishment of existing infrastructure, replacing a terminal opened in 1973 and allowing Commenting on the project in 2011, Oleg Pankratov, traffic to grow from around 10 million passengers now head of infrastructure capital at VTB Capital, said: to 30 million by the end of the concession in 2040. It “In our view, the Pulkovo financing has become the will remove a key transport bottleneck and promote yardstick against which infrastructure transactions in the economic growth of Saint Petersburg and the Russia and CIS [the Commonwealth of Independent surrounding area, according to IFC analysts. States] will be measured in the years to come.� Using the airport’s hard currency revenues, IFC and the European Bank for Reconstruction and Development were able to underwrite some $260 million of euro-denominated loans from a syndicate of eight European banks after signing financing. This Emerging Partnerships 45 Bronze selection New Cairo Wastewater New Cairo, Egypt 46 Emerging Partnerships The New Cairo Wastewater plant in Egypt is one Degwy, concessions director at Orascom, comments: of only two successfully closed PPPs out of over “It was not easy, given that this was the first. We had six projects launched by the previous government. to provide some [corporate] guarantees to cover the However, several features of the project indicate that construction period, which is not a guarantee that it could be replicated elsewhere, a key criterion of would be typically required in project finance.� the Emerging Partnerships judging panel. The project addresses an important but relatively neglected Attracting long-term lending from local commercial demand in Middle Eastern countries for wastewater banks rather than international financial institutions treatment among growing populations. is a remarkable achievement for a pilot project and should make New Cairo Wastewater both a replicable The New Cairo settlement now numbers some and an economically rewarding transaction for Egypt. 550,000 residents and is expected to grow to three Some of the contract documentation is being used to million by 2029, according to IFC data, with procure another wastewater PPP at Abu Rawash. academic as well as domestic customers generating wastewater. Unfortunately, local sources and satellite The resulting project will treat 250,000 cubic meters images indicate that wastewater from the settlement is of wastewater a day, about 2.3 percent of national currently being dumped in the desert, losing valuable wastewater capacity in 2008. With a total upfront water resources. cost of around $130 million at the time of closing, the project is one of the smaller PPPs in Egypt’s original A competitive procurement process was launched pilot program, reflecting judges’ views that successful in 2008, attracting five bids. The winning bidder, a inaugural PPPs be not too ambitious in scale and team of Egypt’s Orascom Construction Industries and should have a social as well as economic impact. Spain’s Aqualia, closed the project in February 2010 and are preparing to begin the 18-year operational El Degwy believes that further PPPs are a political and period. social necessity in Egypt: “[Given] the public pressure on public services… the government needs to do a Despite the local banking market never having lot of infrastructure projects to address these public financed a PPP, four Egyptian banks agreed to concerns. We will carry the burden of handling design lend about $110 million in local currency—a key issues, providing financing, and providing proper requirement since the government, having suffered operation of facilities.� the effects of heavy inflation on its power purchase contracts, refused to absorb foreign exchange risk. Another innovation was the tenor of the debt, a record for Egyptian project finance at 15 years. Khaled El Emerging Partnerships 47 R1 Expressway Slovak Republic Despite being the Slovak Republic’s first proper PPP, the $1.67 billion R1 Expressway that closed in August 2009 is an ambitious project. When fully complete, the new dual carriageway built by France’s Vinci and Meridiam will be 51.6 kilometers long with 81 bridges, and is expected to improve health and safety as well as economic competitiveness. Local roads in the area have been some of the most dangerous in the Slovak Republic in recent years, and the expressway is reducing congestion in towns along the route, particularly the city of Banska Bystrica it bypasses. By paying the sponsors a unitary charge in return for road availability, safety and performance, the authority, the Slovak Republic’s Ministry of Transport, Post and Telecommunications, hopes to raise standards in road management. Judges praised the project for securing financing in the eye of a financial crisis: the winning bidders, a team of France’s Vinci and Meridiam Infrastructure, were appointed preferred bidder in December 2008, shortly after the collapse of Lehman Brothers, at a time when banks’ liquidity dried up and their negotiating techniques hardened overnight. Despite this, the sponsors were able to attract some $1.45 billion of lending from 12 commercial banks plus the European Bank for Reconstruction and Development (EBRD) and Germany’s KfW. The EBRD in particular agreed to lend about $286 million in euro financing, a larger commitment than usual. The awarding authority provided no public subsidy and declined to take on responsibility for debt repayment in the event of the concessionaire going bankrupt, thus avoiding unwanted public balance sheet consequences. The project nonetheless closed successfully in August 2009 in spite of competition for funding from other large road PPPs in Europe. The road opened in October 2011. Medina Airport Medina, Saudi Arabia The $1.2 billion expansion of Medina Airport in Saudi Arabia is the first full airport PPP in the Gulf Cooperation Council region, and fully funded by Islamic compliant finance. The project, designed in two phases, will see a consortium of Turkey’s TAV, Saudi Oger and Al-Rajhi increase capacity from four to eight million passengers a year when the first phase is completed in 2015. They will continue to operate the airport until 2037 under the 25-year concession agreement. Currently, Medina Airport is almost full and airlines’ requests for landing slots are being denied. The PPP will deliver a new terminal, an extended and upgraded runway, a new lighting system for runways and new taxiways, along with a number of other airside and landside developments. As well as improving the travel experience for millions of pilgrims to the holy city every year, the project aims to obtain the region’s first LEED silver certification through energy efficiency, recycling, low emissions and water use. Subsequent expansion phases will increase capacity to 18 million passengers by 2037. IFC was lead adviser to Saudi Arabia’s General Authority of Civil Aviation (GACA) and saw the project through its entire life from structuring to financial close. Medina Airport was the third successful PPP procured by GACA after two projects at Jeddah’s King Abudulaziz International Airport (KAIA): the Hajj airport terminal, and the KAIA desalination project (also featured). This, and the fact that it was financed by Saudi banks with most of the debt in local currency, indicates that local money is readily available for public infrastructure as well as for more traditional energy projects, and that these transactions can be replicated. 48 Emerging Partnerships Rosvodokanal Russia Rosvodokanal is the largest privately owned water operator in Russia, serving six cities and one region with a total population of about 5.5 million through leasing contracts lasting up to 25 years. Water supply and wastewater networks across Russia have not been upgraded for decades, and are in need of both rehabilitation and extension, according to European Bank for Reconstruction and Development (EBRD) data, but there was a mismatch between the short-term finance available and the time needed to generate a return on investment. In May 2008 and November 2011, the EBRD intervened to support this work with two 13-year, 1.5 billion ruble loans. The facilities will be used to fund upgrade works in all seven areas where Rosvodokanal operates— Barnaul, Kaluga, Krasnodar, Omsk, Orenburg, Tver and Tyumen—and to help acquire other water companies. “With no private sector interest in funding infrastructure projects for longer than five years, the EBRD’s 13-year loans provide the long-term finance essential for such an ambitious program of capital expenditure projects to modernize the supply of drinking water and treatment of sewerage,� Rosvodokanal said in a 2011 statement. The EBRD also used the negotiation of the first loan to tighten up the transparency and competitiveness of water services procurement in Russia. Under the terms agreed, Rosvodokanal was to amend all seven of its contracts to introduce public disclosure requirements, service targets and penalties for underperformance, and to place the contracts under the supervision of independent monitors. The operator has agreed to follow this contract model for future agreements, which it is actively pursuing. Emerging Partnerships 49 Amman East Power Plant Amman, Jordan Jordan’s $300 million Amman East Power Plant was the first independent power plant (IPP) in the Hashemite Kingdom when it was inaugurated in 2009; it has proved its replicability. Since the project reached financial close in 2007, a second IPP has also been signed, built and commissioned, with two more in development. These combined cycle natural gas turbine plants are seen by the Jordanian government as important in reducing its reliance on imported oil and achieving a more sustainable energy balance. Building on the success of this project, half of Jordan’s power generation now comes from IPPs, according to IFC data. The 370 megawatts plant generates over 11 percent of Jordan’s 2012 generating capacity, and is helping maintain a safe margin between capacity and demand of at least 10 percent in a country where electricity demand has grown steeply in the first decade of the twenty-first century. For lenders, Jordan presented significant macroeconomic and exchange rate risks which could impact on the government’s ability to make power purchase payments. Nonetheless, the project sponsors, the United States’ AES Corporation and Japan’s Mitsui & Co, succeeded in attracting finance from the U.S.-based Overseas Private Investment Corporation, Japan Bank for International Cooperation (JBIC) and Japanese commercial bank SMBC. This was enabled by the World Bank’s decision to provide two risk guarantees covering SMBC’s loan and most of the project equity. As such, it is the first project financing in Jordan supported by JBIC. KAIA Desalination Saudi Arabia The King Abdulaziz International Airport (KAIA) Desalination project is helping to address the increasing demand for water in Saudi Arabia. Closed in June 2007 and operational since 2009, it is providing 30,000 cubic meters of potable water a day for the busiest airport in the country. Since the city of Jeddah is unable to supply any water to the airport, this is crucial to ensuring the viability of a site that houses both airport, housing and Royal Saudi Air Force staff, and caters to over 22 million passengers a year. As well as increasing water production at KAIA, the new plant replaces unreliable and inefficient heat-based machinery with modern reverse osmosis technology, increasing energy efficiency, reducing emissions and carbon footprint. IFC estimates that the project will save the General Authority of Civil Aviation (GACA) about $12 million a year through various efficiencies. The plant’s capacity will rise to 35,000 cubic meters in the eighth year of the 20-year concession, and is ready to be expanded when demand requires. The sponsors are a consortium of Greece’s SETE, Italy’s WTD, the United States’ Aquatech and Saudi Arabia’s Haji Abdullah Alireza, with the project structured under a build-operate-transfer PPP arrangement. IFC was lead transaction adviser to the grantor, GACA. 50 Emerging Partnerships Jeddah Water Contract Saudi Arabia As Saudi Arabia seeks to diversify its economy away from oil and sustain a rapidly growing population, a constant problem for the government is the lack of reliable access to water: even in the capital Riyadh, water supply cannot be guaranteed 24 hours a day. To resolve this, the government created the National Water Company (NWC) in 2008 to oversee massive investment in infrastructure and supervise management contracts with the private sector, intended to improve continuity of service. That same year, it awarded a seven-year contract for Jeddah’s water network to a joint venture of France’s Suez Environnement and Saudi Arabia’s Acwa Power. The joint venture, known as Jeddah Water Services Company (JWS), has 21 key performance indicators to meet under the contract. Water coverage must be raised to 100 percent of the four million inhabitants, and wastewater coverage—about 40 percent in October 2012—must rise to 80 percent by 2015. Other targets include increasing network efficiency and raising the debt collection ratio. The variable component of the joint venture’s monthly fee is paid or deducted according to how targets are met. NWC staff continues to operate the network, overseen by JWS managers, who are also responsible for overseeing an ambitious investment program that has spent $300 million a year for the past four years. JWS is currently helping the NWC design its business model and management is due to be handed back to the state in 2015. However, although its plans are unclear, the contract may pave the way for further private participation in the Saudi water network. Emerging Partnerships 51 Sabiha Gökçen International Airport Istanbul, Turkey While Sabiha Gökçen International Airport, serving the Asian side of Turkey’s largest city Istanbul, was not the first airport in the country to be concessioned out, the project was one of the most ambitious. The consortium of Turkey’s Limak, India’s GMR and Malaysia Airports Holding that won the 20-year concession in 2007 had to increase capacity from 3.5 million to ten million passengers a year. Under the agreement signed in March 2008, they had 30 months for construction, but Turkish Prime Minister Recep Tayyip Erdoğan asked them to deliver it in only 18 months. This they did, signing project finance loans of €336 million in June that year and completing all works, including a 210,000 square meter terminal, by October 2008. According to Limak, the expanded airport has transformed the surrounding area, stimulating the appearance of a new commercial district. The concessionaires have drawn up a masterplan that would see a technology business park also built nearby. Because the region is prone to earthquakes, the new terminal is seismically isolated, the largest such structure in the world. Passenger figures have more than justified the project, rising to 13.7 million in 2011 and were on target to reach 15 million in 2012. The new terminal’s eventual capacity is designed to be 25 million. It was designated the world’s fastest growing airport in 2009 and 2010 by Airports Council International. The government is promised €1.93 billion in fees over the concession period, and since then has successfully launched similar projects to expand Izmir Adnan Menderes Airport and build the new Zafer and Çukurova airports. 52 Emerging Partnerships Emerging Sabiha Airport53 Partnerships Gökçen International Project Data Europe, Central Asia, Middle East & North Africa 54 Emerging Partnerships Queen Alia International Airport Pulkovo Airport Amman, Jordan Saint petersburg, russia Total initial $900 million Total initial $1.5 billion investment investment Government Ministry of Transport Government City of Saint Petersburg client client Equity sponsors Invest AD (Abu Dhabi Equity sponsors VTB Capital, Fraport, and Horizon Investment Company), Noor Air Investments (Copelouzos Financial Investment Company, Group) Edgo Group, Aéroports de Paris Lenders Vnesheconombank, Eurasian Management, J&P Avax and J&P Development Bank, Nordic (Overseas) Limited Investment Bank, Black Sea Lenders Islamic Development Bank, IFC, Trade & Development Bank, IFC, Crédit Agricole, Natixis, Europe European Bank for Reconstruction Arab Bank, Crédit Industriel et and Development, KfW, DZ Bank, Nordea, Espirito Santo Investment Commercial, Alpha Bank, and Bank, UniCredit, Standard Bank, Piraeus Bank Mediobanca and Raiffeisen Advisers to IFC (lead), White & Case (legal), Advisers to Citi (financial), Dewey & LeBoeuf authority Dajani & Associates (legal), and authority (legal), Capital Legal Services NACO (technical) (legal), Mott MacDonald Advisers to Ernst & Young (financial), (technical), Airport Strategy and sponsors Ashurst (legal) and Arup Marketing (traffic) and World (technical) Bank (transaction advice) Advisers to Norton Rose (legal) Advisers to VTB Capital (financial), Freshfields lenders sponsors Bruckhaus Deringer (legal) and Halcrow (technical) Advisers to Clifford Chance (legal), Scott lenders Wilson now URS Scott Wilson (technical) and Willis (insurance) New Cairo Wastewater R1 Expressway New Cairo, Egypt Slovak Republic Total initial $200 million Total initial $1.67 billion investment investment Government New Urban Communities Government Ministry of Transport, Posts client Authority client and Telecommunications of the Slovak Republic Equity sponsors Orascom Construction Industries and Aqualia Industrial (FCC Equity sponsors Meridiam Infrastructure and Group) Vinci Lenders National Société Générale Bank, Lenders BayernLB, Banco Bilbao Vizcaya Commercial International Bank, Argentaria, Crédit Agricole, Arab African International Bank, Dexia, HypoVereinsbank, KfW, and Ahli United Bank Société Générale, BNP Paribas, Erste Bank, ING, Natixis, NIBC, Advisers to IFC (lead), Gide Loyrette Nouel and UniCredit authority (legal), Parsons Brinckerhoff (technical) Advisers to PwC (financial), CMS (legal) and authority Arup (technical) Advisers to Baker & McKenzie (legal) and sponsors DLA Piper (legal) Advisers to BNP Paribas (financial), sponsors Linklaters (legal), and Willis Advisers to Zulficar & Partners (legal) and (insurance) lenders Environmental Civil Engineering Consulting Center (technical) Advisers to Ashurst (legal), Atkins (technical, lenders and Aon (insurance) Emerging Partnerships 55 Medina Airport Rosvodokanal Medina, Saudi Arabia russia Total initial $1.2 billion Total initial $63 million (2008) and $49 investment investment million (2011) Government General Authority of Civil Government Various Russian city and regional client Aviation client water authorities Equity sponsors TAV Airports, Saudi Oger Equity sponsors Rosvodokanal Limited, and Al Rajhi Holding Lenders European Bank for Group Reconstruction and Lenders Sumitomo Mitsui Banking Development Corporation, SABB (formerly Advisers to CMS (legal) Saudi British Bank), National sponsors Commercial Bank, and Arab National Bank Advisers to White & Case (legal) and Mott lenders MacDonald (technical) Advisers to IFC (lead) and White & Case authority (legal), Cowi/SH&E (technical) Advisers to Sumitomo Mitsui Banking sponsors Corporation (financial), Norton Rose (legal), Atkins (technical), Mott MacDonald (technical) Advisers to Baker & McKenzie (legal) lenders King Abdulaziz International Amman East Power Plant Airport (KAIA) Desalination Amman, Jordan Saudi Arabia Total initial $300 million Total initial $40 million investment investment Government Ministry of Energy and Mineral Government General Authority of Civil client Resources client Aviation Equity sponsors AES Corporation, Mitsui & Co Equity sponsors SETE Energy Saudia for Industrial Limited Projects Limited, Water Treatment and Desalination Lenders Overseas Private Investment (WTD), Aquatech and Haji Corporation, Japan Bank for Abdullah Alireza and Company International Cooperation and Sumitomo Mitsui Banking Lenders SABB (formerly Saudi British Corporation Bank) Advisers to K&M Engineering and Advisers to IFC (lead), Gide Loyrette Nouel authority Consulting (technical) authority (legal), and Nippon Koei (technical) Advisers to Chadbourne & Parke (legal) sponsors Advisers to White & Case (legal) sponsors Advisers to Freshfields Bruckhaus Deringer Advisers to Baker & McKenzie (legal) lenders (legal) and Mott MacDonald lenders (technical) 56 Emerging Partnerships Sabiha Gökçen International Jeddah Water Contract Airport Saudi Arabia Istanbul, Turkey Total initial $61 million (value of seven-year Total initial $696 million investment contract) investment Government National Water Company Government Undersecretariat for Defense client client Industries Equity sponsors Suez Environnement and Equity sponsors Limak Holding, GMR Miahona (ACWA Power Infrastructure Limited, and Development) Malaysia Airports Holdings Berhad Advisers to CRA International (Charles authority River Associates), Ernst & Young Lenders ABN AMRO, Royal Bank of (financial), Freshfields Bruckhaus Scotland, and Yapi Kredi Deringer (legal), Prima Law & Advisers to ABN AMRO (financial) and Consultations Office (legal), and sponsors Pinsent Masons (legal) Hyder Consulting (technical) Advisers to Clifford Chance (legal) lenders Emerging Partnerships 57 Latin America & the Caribbean Regional Overview Latin America & the Caribbean by René Lavanchy Containing one of the world’s biggest economies, Brazil, and several of its smallest, it is no surprise that Latin America and the Caribbean are home to every variety of PPP market: the mature, the energetic, the hopeful and the non-existent. Even the wealthier countries in the region have sharp social inequalities which improved access to social and economic infrastructure could do much to address. Brazil, for example, is one of the fastest growing major economies in the world but suffers from shortages of health care provision in places, an underdeveloped penal system and the need to keep up with a rapidly growing population. Colombia’s prosperity is also rising and the investment climate has improved immeasurably recently, but the country’s interior remains poorly connected to major cities and 37.2 percent of the population live below the poverty line according to 2010 World Bank data. Mexico has leveraged billions of dollars of public money in support of infrastructure in the past five years, but the exploding population in Mexico City has left its water supply badly exposed. Chile, the region’s most mature market, has been successfully procuring PPPs since the 1990s and is not covered in this report. At the other extreme, countries such as Bolivia, Ecuador and Venezuela have yet to show an interest in PPP. Argentina has done several PPPs in the past, but also does not show much of an interest these days. A third group, including Brazil, Colombia, Mexico, and Peru, have all closed a respectable pipeline of projects in the last decade but are still growing and exploring new areas and techniques. Most of the remaining countries are making efforts to embrace the model, according to Richard Cabello, manager for IFC Advisory Services in PPPs in the region. What are the key challenges? In countries still preparing to launch their first PPPs, lack of budgetary resources and lack of expertise tend to go hand-in-hand. Cabello notes: “When we 60 Emerging Partnerships discuss [PPPs] with newcomers, they haven’t done all technical studies needed at the early stage. They haven’t the funding to do that. For us to engage, somebody has to do the upstream work.� Even when studies are done, they are not always of the quality needed to attract international investors. In civil law jurisdictions, including all of Latin America and part of the Caribbean, specific enabling legislation has had to be passed in recent years in order to allow procurement of projects to international standards. Mexico, Uruguay, Honduras and Colombia are all good examples, according to Cabello. “The procurement regulations are normally designed to acquire standard goods and services,� he said. “Bidding processes of PPPs are a different animal and you need regulations to deal with that.� In the case of both Colombia and Peru, PPP legislation has been revised in the last three years in order to more clearly define the model and increase bankability. As of 2012, most countries in the region that require PPP legislation have it and are moving to the stage of increasing their capacity to deliver projects. Honduras set up a PPP unit in 2010, and Uruguay did so the following year. Colombia set up a national concessions institute, INCO, in 2003, only to reshape it into a new agency, the Agencia Nacional de Infraestructura (ANI), eight years later amid dissatisfaction with its predecessor. All three countries are currently procuring and preparing projects. The Caribbean has also embraced the PPP model, with Jamaica in the vanguard. However, shallow domestic financial markets mean multilaterals are key. In October 2012, the government of Grenada, advised by IFC, appointed a preferred bidder for its inaugural health care PPP. The largest share of PPP procurements in Latin America and the Caribbean has been in transport and energy, perhaps reflecting the difficulties in mobility and power transmission across challenging geographies and climates. New road, rail, airport and port concessions are helping to shorten distances within and between countries. One notable program is the South American Regional Infrastructure Integration Initiative (IIRSA); and one of its projects, the Amazonas Norte toll road in Peru, is featured in this publication and showcases the triumph of financial and civil engineering over natural obstacles. Health care is also an active new market for PPPs—Mexico did not launch its first health care PPP until 2004—but has seen notable innovation. Several projects in that sector, some also featured here, have transferred clinical services—and risk—to the private sector, a phenomenon not observed in more mature markets in Western Europe and Canada. Education projects are newer still: Brazil’s first schools PPP in Belo Horizonte has yet to reach financial close. Once it does, Cabello is hopeful that Colombia and Peru will follow up with similar projects. Financially, Latin American governments such as Peru and Panama have innovated through the use of payment certificates for construction and for operation and maintenance, which are awarded to project sponsors to create payment obligations on the state’s part. These can be securitized and used to raise finance on the capital markets, by which governments seek to draw pension funds into providing long-term finance for infrastructure projects. Emerging Partnerships 61 The judges Judges Henrique Pinto Ana Corvalan Profiles Geoffrey Cleaver Chris McMonagle Henrique Amarante da Costa Pinto has worked for BNDES, the Brazillian Development Bank, since 1982, where he performed, among other roles, the following positions: Manager for Mining and Metallurgy; Manager for Investment at Capital Market Division; and Superintendent and Chief of Operational Division at BNDESPAR. He is presently the Deputy Director for the Project Development Division at BNDES where his main responsibility is to structure concessions and PPPs. He’s been a member of several investment committees for private equity and on the board of directors for many different companies. He is a mechanical engineer graduate of the Federal University of Rio de Janeiro (UFRJ), with a master’s degree in administration from COPPEAD-UFRJ and in international securities investment and banking degree from the University of Reading—United Kingdom. 62 Emerging Partnerships Ana Corvalan is an economist by background with over 26 years of experience in corporate and investment banking. She worked in Latin America for 11 years before moving to Amsterdam and soon afterwards to London, where she has been based since 1998. Ana started her career at Chase Manhattan Bank and has subsequently worked for ABN AMRO, Calyon, Banca Intesa, BBVA and most recently for Espirito Santo Investment Bank. She has worked in project and structured finance for over 15 years with a main focus on the infrastructure, oil and gas, power, and metals and mining sectors, covering Europe, Middle East, Africa, Central Asia, Latin America and Australia. She is actively involved in promoting investment and project finance activities in Latin America, with special emphasis in the infrastructure, energy and waste/water sectors. She is regarded as an expert in the region and provides consultancy services to various public and private entities across Europe and Latin America. Corvalan is a director of Euro Latam Financial Consultants and a non-executive director of the International Project Finance Association, with headquarters in London. Geoffrey Cleaver is the head of Banco Santander’s Brazil private equity team since 2004, where he manages InfraBrasil, an infrastructure fund. Prior to Banco Santander he worked for eight years at Latin America Enterprise Fund (LAEF), a private equity general partnership focused in Latin America. At LAEF he was co-responsible for the investment portfolio of the funds LAEF I and LAEF II in Brazil. Prior to this, Cleaver worked for ten years in investment banking and private equity at JPMorgan. Cleaver has a bachelor’s degree in business administration from FAAP—Fundação Armando �lvares Penteado. Cleaver is a board member of Renova and Haztec, and a member of the joint ABVCAP (Brazilian Private Equity Association)—ANBID (Investment Banking National Association) Regulatory Committee. Chris McMonagle is Development Director for Mott MacDonald’s Infrastructure Finance and Investments business. An experienced transaction advisor, management consultant and civil engineer, McMonagle has a considerable deal of experience, originating, leading and delivering across numerous sectors. Key expertise is in strategic, commercial and operational due diligence with a special interest in top down due diligence to identify and improve business fatal flaws. Emerging Partnerships 63 Gold selection São Paulo Metro Line 4 São Paulo, Brazil 64 Emerging Partnerships When the World Bank began to consider supporting still unfinished when the 30-year concession was the construction of São Paulo’s fourth metro line awarded to the ViaQuatro consortium in 2006. in 2001, the city’s metropolitan area was home to 16.8 million people and growing. An extensive The winners promised not only to deliver the metro public transport network was indispensable, but, as trains on time but to introduce new technology to the World Bank noted in a report, even with 270 the country: the first driverless trains in Brazil and kilometers of rail network and three metro lines, the automatic doors on platforms. Luís Valença, president existing services were inadequate. High fares and lack of ViaQuatro, recalls: “It was not an obligation but an of interconnectivity between metro and rail lines was option. We have done that not because it’s cheaper­­ —in driving up car use and congestion on the roads, and fact it costs a little more—but because it’s modern. access to jobs was uneven across the area. To have the best available technology in the first PPP project to give more to society in comfort, safety and The state government wanted to introduce private quality of service.� capital and management to the public transport system, but with the country’s PPP law not yet in Using the latest technology meant ordering trains from force, civil works were procured conventionally abroad: the trains are built by South Korea’s Hyundai instead. When the law passed in 2004, a concession Rotem and the train control system is supplied by project was prepared to finance and commission the Siemens. As such, the project was ineligible for a loan new trains and systems, and operate the trains and the from Brazil’s national development bank, BNDES. line according to service targets. This presented the sponsors with a problem. “In Brazil we don’t have commercial banks directly to Although the scope of the project was limited, its finance this kind of project,� Valença says bluntly. In aim—to close the first successful PPP in Brazil fact, commercial banks would eventually take part, structured under the law of 2004—was challenging, but as part of a 12-year, $240 million syndication by especially as the metro operator needed to be (literally) the Inter-American Development Bank (IDB). This perfectly aligned with the infrastructure, which was allowed the concessionaire to benefit from the bank’s Traffic is now broadly in line with forecasts, carrying 650,000 people a day and rising. Emerging Partnerships 65 long-term, low-cost financing and grace period. The IDB directly lent a further $69 million to the PPP in a 15-year A loan. Financing was signed in October 2008. Inauguration of the line was delayed by problems with the civil works, rather than with the PPP, and sections began to open in 2010 until in October 2011 the whole line was in service. Traffic is now broadly in line with forecasts, carrying 650,000 people a day and rising. According to an independent survey carried in 2011, 89 percent of Line 4 passengers expressed satisfaction with the service. Line 4 connects up with three metro lines and three commuter rail lines, as well as bus services. Despite rising car ownership, the metro system’s share of motorized trips in the region increased from 16 percent in 2001 to 19.3 percent in 2011. The concessionaire is remunerated in three different ways: a charge per passenger carried on the line daily, fixed payments to cover operation and maintenance costs (subject to performance targets), and revenues from commercial development at the metro stations. If passenger traffic is within 10 percent of the 10-year forecast, they absorb the upside or downside; if above or below, then the public authority shares in the gains or losses. Ticket revenues are retained by the authority. The new line has been revenue positive for the state-owned metro company, improving its profitability. After capacity building work by the World Bank, São Paulo is now preparing a PPP for line 6 that will include infrastructure works. Valença approves: “The main problem was the split of the authority between the granting authority and the concession. [The solution would be] transferring 100 percent the investment to the concessionaire... We believe it’s the best solution. You can guarantee that the schedule will be met.� *For more information on this project and others in the region please see the project data at the end of this chapter. 66 Emerging Partnerships Emerging Partnerships 67 Silver selection Atotonilco Wastewater Treatment Plant Mexico 68 Emerging Partnerships The Atotonilco Wastewater Treatment Plant is the of the project size and the relatively low tariffs charged largest infrastructure project in Mexico yet and has to water users. The majority of capital remained in been cited as the biggest wastewater treatment project the form of debt and equity—Banobras leading the anywhere in the world, with an impact to match. debt financing and attracting commercial banks in syndication—so that most funding is still dependent The Valley of Mexico is the most populous metro- on the sponsors successfully completing the project. politan area in the Americas, with over 20 million With the subsidy fixed at 49 percent during the tender inhabitants in 2010, yet only about 6 percent of process, the winning bid was chosen on the basis of the wastewater generated is treated. According to national lowest tariff requested. The concessionaire is repaid, water authority Conagua, this has caused the spread of however, from Conagua budgets. toxic organisms and pollution of aquifers and surface water bodies as the septic water is dumped and reused. Construction has been underway since 2011 on a 159-hectare site and the first phase is expected to In 2009 Conagua launched a tender for a plant to become operational in May 2014. When it does, the treat 60 percent of the Valley of Mexico’s wastewater. plant will handle 23 cubic meters of wastewater per Federico Patiño, director of the state-owned national second, rising to 35 cubic meters during heavy rainfall. public works bank Banobras’ investment bank, notes: Mexico’s overall water treatment rate is expected to “It’s more complex [than previous PPPs] because of the rise from 36 percent to 60 percent, and 300,000 size of the project. Also, there were only two proposals people living in areas irrigated by the wastewater will in the bidding process because it was more convenient be protected from pollution. Other wastewater PPPs for the companies to participate in association. have since been closed in Mexico; three are currently in Nonetheless, it was well-structured financially. This preparation or procurement. allowed the tender to take place successfully.� Despite its considerable cost, the 25-year concession project was closed without the support of a multilateral financial institution. From the outset Conagua could rely on Banobras to support the deal through its investment bank and through its national infrastructure fund, Fonadin. Normally Fonadin subsidizes up to 40 percent of the costs of PPPs; in this case, the threshold was raised to 49 percent on account Emerging Partnerships 69 Bronze selection IIRSA Amazonas Norte Highway Peru 70 Emerging Partnerships This 955 kilometer highway crossing northern Peru Under the deal, the concessionaire would have to passes through settlements housing 1.3 million people, build, rehabilitate or renew about 750 kilometers among the country’s poorest. Not only does it link of road in collapse or disrepair, installing bridges, the Pacific coast to the relatively isolated hinterland, drainage and emergency communications. Financing it is also part of a multimodal transport corridor that was closed in August 2006: the CRPAOs were extends across Brazil via the Amazon River. The road securitized to issue a $213 million bond acquired and crosses the Andes and rainforest terrain, landslides then issued offshore by Morgan Stanley. were a constant threat and its unpaved sections easily reduced to mud. Traffic was heavily constrained and Works were challenging, demanding stabilization journey times unpredictable. of landslide-prone mountainsides and the fitting of concrete walls. After weather-related delays, In the early 2000s, Proinversión, Peru’s private construction was completed in 2010. The highway investment promotion agency, structured a project is now passable all year round. Whereas previously to improve and operate the road as the country’s first it took over 36 hours to cross in perfect conditions, PPP, despite having had enabling legislation since the “today it takes 15 [hours] from the coast to the jungle,� 1990s. Part of the problem was the country’s sub- Loor says. One-week waits to clear the road are a thing investment grade credit rating. To increase bankability, of the past. The interior has been opened up providing the government created the works annual payment greater access to health care and education; goods can recognition certificate, or CRPAO. These certificates be transported reliably at last, promoting business in form irrevocable, unconditional promises to pay and the Pacific port of Paita and trade between Peru and are issued on completion of construction milestones. Brazil. Their monthly frequency represents a regular cash flow and provides comfort to investors. The concessionaire is paid for operation and maintenance by the government, which retains tolls. Ronny Loor, general manager of the IIRSA Norte The project’s model was quickly replicated: in 2007, concessionaire, says: “People in the financial market the much bigger IIRSA Sur highway concession understood it quickly and liked it. It was the first reached financial close with the same payment time it was [used] in the market.� The government mechanism. also obtained a $60 million guarantee from the Inter- American Development Bank, which partially covers CRPAO payments in the event of government default. Emerging Partnerships 71 Porto Maravilha Rio de Janeiro, Brazil Many major coastal cities have had to deal with derelict post-industrial docklands, and Rio de Janeiro in Brazil is no different. The alarmingly high (90 percent) office building occupation rate in the late 2000s presented an opportunity to develop the city’s former docks. The result was Porto Maravilha, a special economic zone covering five million square meters. To deliver the necessary infrastructure for this area, a 15-year concession was structured under the PPP law and signed in 2010 with the Novo Porto consortium. Seventy kilometers of streets will be renewed, and the concessionaire will install 84 kilometers of drainage channels, 26 kilometers of gas pipelines, 75 kilometers of optical fibre lines and 500 kilometers of electric cable. The old Perimetral overpass that crosses the area will be demolished in 2013, beautifying the area and reducing pollution; but not before nearly 4 kilometers of expressway tunnels and viaducts are built to carry the traffic. After five years of construction, the consortium will provide services and maintain infrastructure for 10 more years. The cost of this investment, 4.2 billion reais for construction, is being met with the city’s sale of additional construction potential certificates (CEPACs) that the city government, via its investment vehicle, sold for 3.5 billion reais to the state-controlled bank Caixa Econômica Federal which is now selling them on to developers. CEPACs allow the developer of a building in the area to build additional floors to the maximum allowed by regulations. The proceeds will reimburse the concessionaire and fund restoration of heritage buildings. Toluca and Tlalnepantla Hospitals Mexico IFC took a scalpel to the public authority’s plans for health care PPPs when it was hired by the social security institute of Mexico State in Mexico to structure transactions for the Toluca and Tlalnepantla hospitals. The two urban centers in this central state are both home to major industrial zones. The growth of businesses and the population had outstripped health care capacity, and some of the hospitals were out of date. ISSEMyM (El Instituto de Seguridad Social del Estado de México y Municipios) originally proposed a new oncology center and tertiary care hospital; but on evaluating their needs, IFC recommended that the existing oncology center could be retained and no tertiary hospital was needed. Instead, it proposed two new secondary care hospitals providing a full range of non-specialized hospital services. After competitive bidding in 2009 to 2010, the Toluca contract was awarded to Prodemex and Tlalnepantla to Marhnos, both Mexican firms. The financing for Tlalnepantla was signed in August 2011, and brought in not only conventional long-term project finance debt but also securities known as development capital certificates, equity from institutional investors such as Afore Banamex and New York Life Insurance. It is the first time such investors have backed a Mexican PPP at the construction stage. Together, the hospitals are expected to serve 6,000 inpatients and 20,000 outpatients a year. The performance- based hospital contracts introduced a new level of risk sharing in Mexican PPP by making the sponsors responsible not only for construction and maintenance, but also equipment installation, consumables and certain clinical services, to ensure that the facilities remain fully functioning over their 25-year agreements. This is expected to reduce hospital costs by one-third. 72 Emerging Partnerships Peru Health Care Portfolio Bond Financing Lima and Callao, Peru An innovative deal in 2012 saw three different health care projects in Peru, developed by three different consortia, financed through one bond issue. Bank of America Merrill Lynch (BAML) approached the consortia, offering to finance construction of the projects through a bond issue. The projects will result in construction of two new hospitals in Lima and Callao provinces and a new central distribution center for health care supplies, as well as refurbishment of existing distribution facilities. They are the first social infrastructure projects to make use of a government-backed security known as investment remuneration according to works progress certificates (RPICAO). This sees the government or its agencies pay money into a master trust to fund payment obligations to contractors, which in turn can be used to raise construction finance. Social security authority EsSalud agreed to channel a portion of its income from mandatory payroll deductions into the trust, enough to ensure a minimum level of debt service. The three concessionaires then sold the payment rights to BAML, who in turn bought them with a $230 million zero-coupon bond issued through an offshore vehicle. The RPICAOs are issued over a 10-year period, longer than actual construction, spreading out the cost and budgetary impact for the government while offering a guaranteed return to investors. Other payments covering operation and maintenance were similarly securitized. Gianluca Bacciochi of DLA Piper, who advised BAML, comments: “One of the most intriguing aspects of the deal is bringing in multiple operators, which took a tremendous amount of cooperation. They needed to get enough similarity across the projects to describe it to the bondholders.� The completed hospitals are expected to treat about 500,000 in- and outpatients a year. With payment by performance, including criteria for complaint numbers and complaints resolved, the hospitals are expected to raise satisfaction with the health insurance system. Emerging Partnerships 73 Panama Pacifico SEZ Panama At first glance, the reconversion of the former U.S. Air Force base on the west side of the Panama Canal on the Pacific coast may simply resemble a rather large real estate project, but the Panama Pacifico Special Economic Zone (SEZ) required IFC to deploy its PPP expertise to structure a project that transferred enough risks and obligations to the concessionaire to deliver a sustainable mixed development. The base had reverted to the Panamanian government in 1999. The project faced several challenges. The 2,500 hectare site dwarfed any plot the government had previously developed. It had no connectivity to the country’s main ports on the Atlantic and Pacific coasts, and only an old saturated bridge ensured access to the property from Panama City, the country’s capital. The project aimed to bring additional investment and create more jobs in the country. It could not displace activity from other areas, including the Colón Free Trade Zone on the Atlantic side. With IFC help, in 2004 the government passed a law establishing the Panama Pacifico special economic zone and the regime applying to it. The law also created the agency in charge of regulating and monitoring development in the zone, and to which land ownership was later transferred. The 40-year concession was tendered in January 2007 and awarded to London & Regional Properties. The concessionaire can buy/rent plots of land at a fixed price from the agency with a sharing mechanism with government on any capital gains made on the land, and is obliged to spend at least $408 million over the first eight years, and $700 million in total. Already 118 businesses are registered on the site—Dell alone employs 2,500 people there—and the airfield is put to commercial use, both supporting an aircraft maintenance center for Singapore Technologies, as an alternative airport to Tocumen, and also receiving charters and unscheduled flights. Hospital do Subúrbio Salvador, Brazil As Brazil’s first health care PPP, the Hospital do Subúrbio in Salvador, capital of Bahia State, is well-placed to make an impact. According to the United Nations Development Programme, the district where it is based ranks much lower than the state and national average on the Human Development Index. Though not initially planned as a PPP, in 2009 with construction underway the state government hired IFC to structure a project to supply equipment and carry out all services and maintenance. Brazil had engaged private operators to run hospitals since the 1990s on short contracts, but with little investment and mixed results. Because construction was excluded, less time was needed to recoup investment and the concession was set at 10 years. In February 2010 a consortium of Brazil’s Promedica and France’s Dalkia won an auction for the concession at the São Paulo stock exchange, requesting maximum annual payments of 103.5 million reais. Seventy percent of payments would be volume based, corresponding to bands of patient numbers, and the rest linked to quality indicators. The deal closed in just three months from when the contract was awarded until the project reached financial close. 74 Emerging Partnerships The results demonstrate not only quality of service, but the potential to improve a project after award. Because patient numbers were much higher than expected (380,000 instead of the forecasted 175,000), the concessionaire added beds and negotiated a higher payment from the authority. The building is constrained in its capacity, and IFC believes the project points the way to more full PPPs including design and construction, several of which are underway elsewhere in Brazil. Ciudad Victoria Hospital Victoria, Mexico When the High Specialism Regional Hospital reached financial close in February 2008, it set new standards for PPP project structure in Mexico. The second project in the government’s first-generation PPP hospital program, it called for the concessionaire to take on clinical risk by supplying medical equipment and maintaining it for five years, the “main point of contention� according to the lead sponsor, Mexican contractor Marhnos. This was unprecedented in the country and came soon after a scandal over faulty equipment at France’s privately run Toulouse-Rangueil University Hospital. Eventually one of the sponsors, France’s Dalkia, agreed to provide a corporate guarantee if liabilities exceeded insurance cover. Impressively, the legal tenor of the finance provided by Dexia is just two years short of the 25-year concession. Payment of the concessionaire is on an availability basis, with payments increased for the five-year equipment maintenance period. Inaugurated ahead of schedule in March 2009, the 100-bed hospital serves about 980,000 residents—580,000 in Tamaulipas State and 400,000 in neighboring Veracruz and Hidalgo—referred from primary care centers and general hospitals, by providing the most specialized health care including neurosurgery, transplants, maxillofacial surgery and haemato-oncology. As a result, according to Mexican president Felipe Calderón, 30 million patients in Tamaulipas who have previously needed to travel to other states will have specialized health care in their region for the first time. Meanwhile, the federal government has pressed on with other hospital PPPs, and has continued to successfully procure and close projects. Emerging Partnerships 75 Ribeirão das Neves Prison Complex Minas Gerais, Brazil Rarely do PPP projects get the chance to drive a major improvement in a country’s human rights record. Brazil is seeking to reduce the number of people provisionally detained in police stations where, according to reports by human rights nongovernmental organizations, prisoners have previously been subject to abuse. In 2003, the government of Minas Gerais State declared its ambition to be the best state in Brazil in which to live and invest. One obstacle was the deficit of prison places. Procurement of a new prison complex at Ribeirão das Neves began in 2008, and a preferred bidder was picked the following year. Despite the authority losing its advisory team owing to the rigidity of Brazilian procurement regulations, the PPP unit managed to fully financially close the deal by August 2010. The prison, now ready for operation, will house 3,040 inmates in semi-open and closed systems, significantly reducing the state’s 8,000-place deficit. Uniquely for Minas Gerais, every prisoner is guaranteed education, work and recreational facilities; yet despite higher service levels, the complex is estimated to cost 10 percent less than conventional facilities. The concessionaire is responsible for all operation and maintenance, including security, and is paid according to performance. This is Minas Gerais’ first PPP funded without user charging. To overcome investor caution about the risk associated with payments from the state, a guarantee structure was set up using a flow of state revenues that would cover all capital expenditure, without creating any extra debt obligation for the authority. The stage is set for future availability-based projects and prison PPPs. 76 Emerging Partnerships Emerging Ribeirão Prison Complex77 Partnerships das Neves Project Data Latin America & the Caribbean 78 Emerging Partnerships Atotonilco Wastewater São Paulo Metro Line 4 Treatment Plant São Paulo, Brazil Mexico Total initial $450 million Total initial $820 million investment investment Government Companhia do Metropolitano de Government Comisión Nacional del Agua client São Paulo client (Conagua) Equity sponsors Companhia de Concessões Equity sponsors Atlatec (Mitsui & Co Limited), Rodoviárias, Montgomery Promotora del Desarrollo Participações, Mitsui & Co de América Latina (Ideal), Limited, Benito Roggio Controladora de Operaciones de Transporte, and RATP Dev Infraestructura (ICA), ACCIONA Agua, Desarrollo y Construcciones Lenders Inter-American Development Urbanas, and Green Gas Pioneer Bank, Espirito Santo Investment Crossing Energy Bank, Banco Bilbao Vizcaya Argentaria, KfW, Santander, Lenders Banco Nacional de Obras y Servicios Públicos (Banobras), and Sumitomo Mitsui Banking Santander, Banorte, El Banco Corporation Nacional de México (Banamex), Advisers to Unibanco (financial) and and Scotiabank authority Demarest & Almeida (legal) Advisers to Galaz Yamazaki Ruiz Urquiza Advisers to ABN AMRO (financial), Mayer authority (Deloitte), Thompson & Knight sponsors Brown (legal), and Machado (legal), Instituto de Ingenieria Meyer Sendacz Opice (legal) UNAM (technical), and CH2M Hill (technical) Advisers to Fulbright & Jaworski (legal), lenders Felsberg e Associados (legal), Advisers to White & Case (legal) Arup (technical), Sinergia lenders Estudos e Projetos (traffic), Willis (insurance), and DFREIRE (environment) IIRSA Amazonas Norte Highway Porto Maravilha Peru Rio de Janeiro, Brazil Total initial $213 million Total initial $2.44 billion investment investment Government Ministry of Transportation and Government Companhia de Desenvolvimento client Communications (Peru) client Urbano da Região do Porto do Rio de Janeiro (CDURP) Equity sponsors Odebrecht, Andrade Gutierrez (until June 2008), and Graña y Equity sponsors Grupo OAS, Odebrecht, and Montero Carioca Christiani-Nielsen Engenharia Lenders Morgan Stanley (bond arranger) Lenders Caixa Econômica Federal and Advisers to Chemonics (funded by USAID) Banco do Brasil authority Advisers to Bocater Camargo Costa Silva Advisers to Astris Finance (financial), Clifford authority (legal) and Amaral D’avila sponsors Chance (legal), and Rosselló (technical) Abogados (legal) Advisers to Machado Meyer Sendacz Opice Advisers to Davis Polk & Wardwell (legal) sponsors (legal) lenders Advisers to Bocater Camargo Costa Silva lenders (legal, joint mandate with the authority) Emerging Partnerships 79 Toluca and Tlalnepantla Peru Health Care Portfolio Hospitals Bond Financing Mexico Lima and Callao, Peru Total initial $48 million (Toluca) and $57 Total initial $115 million investment million (Tlalnepantla) investment Government Instituto de Seguridad Social del Government El Seguro Social de Salud (EsSalud) client Estado de México y Municipios client (ISSEMYM) Equity sponsors Funcional Card and Unihealth Equity sponsors Prodemex (Toluca) and Marhnos Logistica (distribution center); (Tlalnepantla) IBT Group, BM3 Obras y Servicios, Ibérica de Mantenimiento, Ribera Lenders Banco del Bajío (Tlalnepantla) Salud, Eresa Grupo Médico, and Advisers to IFC (lead), Jáuregui y Navarrete MENSOR (Villa Maria Salud and authority (legal), Currie & Brown Mexico Callao Salud hospitals) (technical) Lenders Bank of America Merrill Lynch Advisers to Banco del Bajío (financial), (bond arranger), Citibank sponsors Woodhouse Lorente Ludlow (verification agent), and FiduPerú (Peruvian trustee) (legal) for Tlalnepantla Advisers to Rodrigo, Elías & Medrano for sponsors distribution center; Milbank, Tweed, Hadley & McCloy, Estudio Echecopar, and Carrizales & Vidal for the hospitals (all legal) Advisers to DLA Piper and Rubio Leguía lenders Normand (both legal) Panama Pacifico SEZ Hospital do Subúrbio Panama Salvador, Brazil Total initial $408 million over the first eight Total initial $32 million investment years investment Government Government of Panama Government State of Bahia, Salvador client client Equity sponsors London & Regional Properties Equity sponsors Promedica and Dalkia Lenders Morgan Stanley (bond arranger) Lenders Banco do Nordeste do Brasil Advisers to IFC (lead), White & Case (legal), Advisers to IFC (lead) in partnership authority Icaza Gonzalez-Ruiz & Aleman authority with Banco Nacional de (legal), LeighFisher (airport Desenvolvimento Economico e consultant), and Infrastructure Social (BNDES), and the Inter- Management Group (land use) American Development Bank (IDB) Advisers to Aleman, Cordero, Galindo & Lee sponsors (legal) and Atkins (technical) 80 Emerging Partnerships Ribeirão das Neves Prison Ciudad Victoria Hospital Complex Victoria, Mexico Minas Gerais, Brazil Total initial $75 million Total initial $130 million investment investment Government Secretaría de Salud (México) Government Minas Gerais State client client Equity sponsors Marhnos, Dalkia, and IGSA Equity sponsors Concessões e Construções de Power Infra-Estrutura (CCI), Augusto Velloso, Empresa Tejofran de Lenders Dexia Saneamento e Servicos, and N.F Advisers to Mancera (financial), Jáuregui y Motta Construções e Comércio authority Navarrete (legal), and Forma y e o Instituto Nacional de Concepto (technical) Administração Prisional (INAP) Advisers to Dexia (financial) and Barrera Lenders Banco Nacional de sponsors Siqueros y Torres Landa (legal) Desenvolvimento Economico e Social (BNDES) and Itaú Unibanco Advisers to Chadbourne & Parke (legal) lenders Advisers to PwC (financial), Azevedo Sette authority (legal), and Manesco Ramires Perez Azevedo Marques Sociedade de Advogados (legal) Advisers to Itaú BBA (financial), Albino sponsors Advogados Associados (legal), and AGR Projetos e Construções (project management) Advisers to QG Engenharia (technical) lenders Emerging Partnerships 81 Sub-Saharan Africa Regional Overview Sub-Saharan Africa by James Kenny More than any of the other regions featured in Emerging Partnerships, Africa faces some of the most difficult challenges when it comes to infrastructure development due to rugged geography, political instability and the limited financial resources available. Despite it being one of the world’s fastest growing economic hubs, the lack of physical infrastructure hampers the wider continent’s development and the gulf in private investment between certain countries can also be disproportionally large. In spite of this, and from the projects featured here, there is groundbreaking and innovative work taking place in Sub-Saharan Africa in the PPP sector. The $142 million KivuWatt Project has gained the world’s attention and is set to transform power in Rwanda, while smaller projects such as the Lesotho National Referral Hospital and the $30 million Chiansi Irrigation project in Zambia are set to make an equally big impact on a human scale. With such admirable and eye- catching projects in place, why does the region still lag behind other parts of the world in terms of PPP volume? Emmanuel Nyirinkindi, manager for IFC Advisory Services in PPPs in the Sub-Saharan Africa region says while there is quite a lot of funding available for projects and investors can expect strong returns, the disparity between countries can be an issue. “PPPs such as power stations, ports, toll roads and hospitals represent a significant investment opportunity and present both strong public sector benefits and private sector returns. Africa is at the start of an infrastructure boom; however the current insufficiency of actual physical infrastructure poses a hindrance as well as an opportunity to governments, their citizens, and the business community. The disparity in implementing projects between countries like Kenya and other more fragile and less experienced countries that haven’t undertaken their first PPP can be daunting.� In order to launch a successful PPP, countries need the political will to make decisions quickly and transparently. Transparency in particular is a crucial ingredient—something not always available with some governments. 84 Emerging Partnerships Commenting further on some of the challenges the region faces, Edward Farquharson, executive director at the Private Infrastructure Development Group and Emerging Partnerships judge, said: “In Africa, there is often a problem of lack of capacity in the public sector which is an issue to a certain degree all over the world. This sometimes manifests itself in the need to have a clear understanding of what is needed of advisors, how to select and manage them, and how much they should be paid. Good advice costs money but bad advice costs more. Affordability of good advisors is clearly a challenge for cash-strapped governments, although for countries richer in natural resources it is perhaps more a question of priority and knowing how to spend money wisely on advisors and, more generally, on good project preparation.� According to the World Bank’s 2010 report, Africa’s Infrastructure: A Time for Transformation, the countries of Africa can be grouped into different categories and the infrastructure challenges facing these groups differ markedly. Countries such as Cape Verde and South Africa are middle income countries while Nigeria and Zambia are resource-rich with economies heavily reliant on petroleum and/or minerals. Fragile states emerging from conflict include Côte d’Ivoire and the Democratic Republic of Congo, while the remaining low-income countries are neither fragile nor resource rich, such as Senegal and Uganda. The most daunting infrastructure challenges are those facing the fragile states. Recent conflicts affecting these countries have often resulted in the destruction or dilapidation of their already modest national infrastructure platforms. For example, in the Democratic Republic of Congo, about 50 percent of infrastructure assets need rehabilitation. The World Bank’s 2010 report on Africa’s infrastructure also points out that non-fragile, low- income countries such as Uganda need to allocate about 23 percent of their gross domestic product (GDP) to build and sustain a basic infrastructure platform, a level difficult to envisage in practice. Therefore, these countries will have to make difficult choices about the prioritization of their infrastructure estate, as most have a long way to go in improving the efficiency of operating existing infrastructure. Resource-rich countries such as Zambia are in principle much better placed to meet their infrastructure spending needs; in practice they have not tended to do so. Resource-rich countries could meet their infrastructure spending needs for a more manageable price tag of about 12 percent of GDP. Moreover, the large royalty payments they received during the recent commodity boom provide a ready source of finance. Yet resource rich-countries actually lag behind non-fragile, low-income countries in their infrastructure stocks and spend less on infrastructure. One of the more lively debates brought up among the judges for this publication was the importance of water and power, and which PPPs in these spaces are more crucial for the region. According to the judges, while both power and water (and sanitation) are sectors where demand far outstrips supply and the impact of inadequate services is significant in terms of barriers to economic growth and alleviation of poverty, the water sector in particular presents huge challenges in terms of attracting significant private sector investment. This is often due to inappropriate tariff policies and the political risks in the minds of investors associated with the sector. While not every deserving country could be represented here, the projects chosen by the judges show there are many positive strides being made within the electricity sector. PPPs such as the €65 million Cape Verde Wind Power project and the $196 million expansion of Centrale Thermique de Lomé in Togo show Africa is pushing for new capacity which in turn will power schools, businesses and other enterprises needed for the continent to keep pace with the demands of a growing economy. Emerging Partnerships 85 The judges Nick Rouse Judges Ed Farquharson Simon Jackson Profiles Steven Gamble Gavin Noeth Nick Rouse became Managing Director of Frontier Markets Fund Managers, the fund manager of the Emerging Africa Infrastructure Fund (EAIF) and GuarantCo, in May 2005, having worked for Barclays Bank for 33 years. Both funds are owned by four European governments: the Netherlands, Switzerland, Sweden and the United Kingdom. His involvement with EAIF dates from the fund’s inception and he was a member of its Credit Committee and a non-executive director between 2002 and 2005. He was also a non-executive director of GuarantCo from 2004 to 2005. Rouse had worked in Africa with Barclays for the seven years preceding his appointment, initially running Barclays Corporate Business in East Africa and more recently as head of Credit Risk for Africa and the Middle East. 86 Emerging Partnerships Ed Farquharson is Executive Director of the Project Manage- ment Unit of the Private Infrastructure Development Group (PIDG). Farquharson joined the PIDG in November 2011 from Infrastructure UK in Her Majesty’s Treasury, where he advised overseas governments on the establishment of their PPP programs. Prior to HM Treasury, Farquharson headed the international team at Partnerships UK, the United Kingdom’s PPP/PFI implementing agency. Farquharson previously worked for CDC Capital Partners where he led the transport infrastructure team developing investments in road, rail, airport and port projects in emerging markets. Prior to this, Farquharson lived for six years in Zimbabwe and Mozambique where he was responsible for establishing and managing CDC investments. From 1983 to 1991, Farquharson was on Morgan Grenfell’s international banking team, developing limited recourse project financings. Farquharson has an MBA from Manchester Business School and is an alumnus of London Business School and INSEAD. He also received a degree in philosophy, politics and economics from Oxford University. Simon Jackson has over 30 years of commercial banking experience, mostly in the loan syndication market. During the 2.5 years up to July 2012, he established the syndication function for the African Development Bank (ADB) in Tunis, including an A/B loan co-financing program with commercial investors, and enhancing the ADB’s role in the growing market for syndication between development finance institutions. He was previously Head of Syndication for Sumitomo Mitsui Banking Corporation in London, and has also worked for the European Bank for Reconstruction and Development, Credit Suisse, Chase Manhattan Bank, N.A., Morgan Grenfell & Co. and Grindlay Brandts. He is a graduate in engineering science from Corpus Christi College, Cambridge. Steven Gamble is the Chairman of the African Loan Market Association (ALMA) and a director of Norton Rose. He is based in Johannesburg, South Africa, and has a wealth of experience in advising international and domestic banks and companies in relation to structured finance, project finance, asset finance, acquisition finance, banking and general commercial transactions, with a particular focus on cross-border and emerging markets work. Before joining Norton Rose’s Johannesburg office in 2007, he spent time in their London, Singapore and Hong Kong offices before heading up the company’s English law banking and finance practice in Thailand in 2005. Gamble is admitted to the law societies of England & Wales, Hong Kong and Scotland and is recognized as managing a leading finance practice by IFLR 1000’s Guide to the World’s Leading Financial Law Firms. He is also ranked as a leader in the field of corporate/commercial work in Africa by Chambers & Partners. Steven Gamble was assisted by Gavin Noeth. Noeth is a banking & finance lawyer based in Sandton, South Africa. He specializes in project finance and PPPs. Emerging Partnerships 87 Gold selection KivuWatt Lake Kivu, Rwanda 88 Emerging Partnerships Situated in Rwanda on Lake Kivu, the world’s In the project’s first phase, processed methane will eighteenth deepest lake, the KivuWatt Project ticks power three gas engine generator sets to produce all the boxes when it comes to a ‘game changer’ for its roughly 25 megawatts of electricity for the local grid. technological and financial innovation and the sheer Phase two is expected to add another 75 megawatts of impact it will have on the country’s development and capacity, employing nine additional generator sets to socioeconomic prospects. expand KivuWatt to 100 megawatts of power. The project involves the construction of an integrated William Barry, senior vice president of new projects methane gas extraction and production facility and an at ContourGlobal and also project director on associated 25-megawatt power plant. Once completed, KivuWatt, states that not only is it the technological, the project will raise and process methane gas trapped financial and political innovations of the project that deep in the waters of Lake Kivu for use as fuel to make it unique, but also the sheer number of people generate critically needed electricity for the people of and organizations working together that makes it Rwanda, while simultaneously removing harmful gases impressive. safely. The lake from which the gas will be harvested is naturally hazardous, as methane from the lake bed “In addition to the active involvement of Contour bubbles to the surface and has caused a number of offices in New York, Paris and Rwanda, the project spontaneous explosions. has engaged contractors, subcontractors and equipment suppliers from a dozen different countries ContourGlobal will develop, construct and operate representing a total contract value of $90 million. the platform-based gas extraction system that will This is in addition to our lenders, their advisors, and be moored 13 kilometers off the Rwandan coast and MIGA [Multilateral Investment Guarantee Agency]. extract methane gas from a depth of 350 meters. The The coordination and commitment of our partners gas will be processed and transported by pipeline has been critical to the success of this project. As to ContourGlobal’s power plant being developed challenging as it’s been, everyone involved has been in Kibuye, Rwanda. By tapping an indigenous fuel pulling together and understand how important this source, the project will significantly lower the cost of project is for the people of Rwanda and the region. electricity necessary to drive Rwanda’s fast growing Nothing of this scale and complexity has been done economy. before and we are grateful for their support.� As challenging as it’s been, everyone involved has been pulling together and understand how important this project is for the people of Rwanda and the region. Emerging Partnerships 89 ContourGlobal signed the power purchase agreement and concession agreement with the government of Rwanda and the state electricity utility, the Energy, Water and Sanitation Authority (EWSA), in March 2009. EWSA agreed to purchase power from the project on a take-or- pay basis for the 25-year concession period, backed by a full sovereign guarantee of the offtake and the termination payments. The tariff is denominated in U.S. dollars but payable in Rwandan francs due to the lack of foreign exchange reserves. The debt funding of $91.5 million was arranged by the Emerging Africa Infrastructure Fund and FMO (the Netherlands Development Finance Company), which respectively provided $25 million and $31.5 million. The remaining funding was provided by the African Development Bank ($25 million) and BIO, the Belgian Development Bank ($10 million). Debt tenor is 15 years with a combination of fixed and floating interest rates. Supported by a large upfront equity contribution from ContourGlobal and buy-down of part of the debt, lenders were prepared to accept uncertainties regarding the potential capacity achievable owing to the novel nature of the technology being employed and the gas source. Another issue for the project was the potential environmental and social impact. As well as the requirements imposed by the government of Rwanda, each lender and MIGA had its own list of environmental and social requirements that needed to be met. Of particular concern was the impact on the ecology and stability of the lake and the risk that, given the novel nature of the technology being deployed, the gas extraction operations could potentially upset the balance of the lake. As a result, numerous baseline surveys have been contracted by KivuWatt and the project’s lake effects will be actively monitored during operations to ensure there is no detrimental impact. Speaking about the financing of the project and also about the question over its technology, Emerging Partnerships judge Simon Jackson, said: “Robust completion guarantees are essential to a financing of this nature. The wonderfully innovative technology makes the outcome of the project, both financial and developmental, close to binary—either it works, in which case the numbers are impressive, or it does not, in which case there would be little realizable value. In the absence of completion guarantees, it would be very difficult to build a credit case for debt funding.� *For more information on this project and others in the region please see the project data at the end of this chapter. 90 Emerging Partnerships Emerging Partnerships 91 Silver selection Chiansi Irrigation Project Kafue District, Zambia 92 Emerging Partnerships Although a smaller project in terms of scale and Phase 2 will entail the construction of major bulk finance compared to others listed, the $30 million water irrigation infrastructure which will ultimately Chiansi Irrigation Infrastructure Project in Zambia serve up to 3,800 hectares of land following future represents a major innovation in the financing of expansion phases. Phase 2 will also include additional irrigation infrastructure in Africa and demonstrates infield infrastructure and market garden plots, further that public and private finance sources can be enhancing the incomes of an estimated 600 local combined to make a unique agribusiness partnership. smallholder households. Phase 1 of the project has been operating successfully since 2009 and an expanded phase 2 is on track for a Phase 1 was financed through an innovative flexible 2013 launch. repayment income note structure by a group of development finance institutions (DFIs) and Situated in the Kafue district of Zambia, the core foundations including InfraCo Limited, FMO (the objective of the project is to establish an equitable Netherlands Development Finance Company), the partnership between smallholder and commercial Emerging Africa Infrastructure Fund, and the Lundin farmers in the project area, creating a centrally Foundation. Phase 2, which includes expansion to managed irrigated farming enterprise which will serve a further 137 hectares of smallholder land as well generate sustainable incomes for smallholder as 1,290 hectares of commercial land, will see grant households. In addition, the project will leverage finance sourced by the government of Zambia from the bulk water canal and pumping infrastructure the Dutch Facility for Infrastructure Development constructed to provide irrigated market garden plots (ORIO) combined with private sector equity and for use by smallholder framers, enabling them to farm debt finance sourced from DFIs and foundations. year-round for the first time. An experienced commercial farm operator will manage both the bulk water system and the farming According to Richard Avery and Paul Cartwright operations providing extension services to participating from eleQtra (InfraCo) one of the key themes for the smallholders. success of the project has been the hands-on work with the local communities and autonomy provided for participating smallholder farmers. Commenting on this structure, Cartwright said: “Through the first phase, by working closely with the local communities and people on the ground, we have developed a fantastic road map for the next phase and how to refine the model as we expand to full scale.� Emerging Partnerships 93 Bronze selection Port of Cotonou Cotonou, Benin 94 Emerging Partnerships The Port of Cotonou in Benin impressed the Emerging concession agreement) and outlined a termination Partnerships judges due to its financing structure and procedure: if the construction is not completed 34 its possible long-term impact. The project consisted months after the signing, the concessionaire can of the building of a new container operator and was terminate the agreement and be reimbursed for the part of a major port sector reform plan. In the past, entry fee paid at the signing. The agreement also a number of attempts to revitalize the port had been spelled out the concessionaire’s responsibility to pay attempted however none had been successful. the Port Authority a fixed fee when the wharf is delivered. The project is set to begin operation in early In 2009 Groupement Bolloré, composed of Bolloré of 2013, and is expected to yield $200 million to $300 France and the Société de Manutention du Terminal million in fiscal impact and create more than 450 jobs. à Conteneurs de Cotonou, won the bid for a 25-year concession to build and operate the South Wharf Container Terminal. The project is of vital importance as it has the potential to be of huge economic benefit not just to Benin, but also to the wider region as a potential trade gateway to landlocked West African countries. The judges were particularly impressed with the project’s financing structure. The winning proposal included an entry fee of $33 million, ongoing fees of $29 per twenty-foot equivalent unit (TEU), and guaranteed annual traffic levels. The proposal also included a commitment to pay $200 million in concession fees during the first eight years of operation and invest $256 million in operating equipment and civil works over the life of the concession. The concession specified a completion date for wharf construction (21 months after the signing of the Emerging Partnerships 95 Lekki Toll Road Nigeria The 49.36 kilometer Lekki Toll Road is the first ever PPP toll road concession in Nigeria and West Africa. The road serves the Lekki Peninsula of Lagos State, the fastest growing development corridor in the region. The 30- year concession impacts a population of over 3 million people living, working and doing business in and around the corridor. When it closed in 2008, the project attracted multi-sourced, multi-currency project finance from top international market participants and achieved the longest ever tenored project finance loan in Nigeria—15 years with a foreign exchange swap hedge and a certain portion as fixed interest rate. Overall the road has provided critical access to new developments in the area such as the Lekki Free Zone, future Lekki International Airport, Lekki Hydrocarbon Park, and Lekki Deep Seaport, all of which will become significant catalysts of economic development and higher real estate values in the area. Travel time has been reduced from two hours on the average to less than 45 minutes. New green belt and vegetation along the road has also improved the environment. Additional benefits of the project to the population of Lagos State include a number of services such as added security, street lighting, breakdown assistance, an ambulance service, and a customer call center. Addax Makeni Bioenergy Sierra Leone The Addax Makeni Bioenergy Project in Sierra Leone involves the construction of an ethanol plant with the capacity of 85,000 cubic meters per year and a bagasse-fired power plant with an output of 100,500 megawatt hours per year. The project was held in high regard by the judges as it represented a number of firsts for the country. This will be the first sugarcane ethanol project of its kind in Africa, and as such represents a major step forward in Sierra Leone’s efforts to become a hub for renewable energy alternatives and a model for sustainable investment in Africa. It was also the first independent power project with the first power purchase agreement (PPA) the country entered into. The project anticipated that the PPA would need to be transferred under the upcoming restructuring of the electricity sector in Sierra Leone. It was also the first-ever project financing for the country outside the mining sector, the first water extraction license ever to be agreed, and the country’s largest ever inward investment in the agricultural sector. The project is an impressive PPP in Sierra Leone and can be expected to have a strong development impact, contributing not just to the reduction of greenhouse gas emissions but also to food security and socioeconomic development. The project also expects to create 2,000 jobs in 2013. Its success will directly affect the extent to which the sponsors make further investments in other bioenergy projects in the region. 96 Emerging Partnerships Cape Verde Wind Power PPP Cape Verde The 25.5 megawatt Cape Verde Wind Power PPP, also known as the Cabeolica wind farm, was conceived in 2009 and involved the development of four onshore wind farms on the four main islands in the Cape Verde archipelago (Santiago, São Vicente, Sal, and Boa Vista).The €65 million project is the first independent power project in Cape Verde and the first large-scale wind power project in Sub-Saharan Africa, providing an important demonstration of the commercial viability of renewable energy PPPs across the continent. The project provides 20 percent to 25 percent of Cape Verde’s energy demands from a renewable supply, providing 95 percent of the estimated 500,000 population with reliable and cleaner energy at 20 percent lower cost than previously, including new connections to the national grid for 50,000 households. The project reached financial close in 2010. It was financed by a combination of debt supplied by the European Investment Bank and the African Development Bank, and equity from principal shareholder the African Finance Cooperation (a private equity firm in West Africa), Finnfund and the lead project developer, InfraCo Africa. The project has established a model for large-scale renewable power projects with private investment, which can be replicated elsewhere in Sub-Saharan Africa. Furthermore, the project helps reduce greenhouse gas emissions on the archipelago by 92,000 tonnes of carbon dioxide equivalent per year, as well as establishing wind as a reliable energy source on the islands and creating local employment. The project has now been fully built and is producing power in all four sites at projected output levels. Centrale Thermique de Lomé Lomé, Togo Fuel flexibility is imperative for reliable electricity generation, particularly in Togo which has one of the smallest electricity supply centers. In October 2007, ContourGlobal Togo S.A. signed a 25-year concession agreement with the government of Togo for the rehabilitation, expansion and operation of the 100 megawatt Lomé thermal power plant, called Centrale Thermique de Lomé (CTL). The project’s financing was arranged and funded by the Overseas Private Investment Corporation (OPIC), a U.S. government agency, via a $147 million loan. OPIC also underwrote the political risk insurance for the project. The financing structure had a debt/equity ratio of 75/25. The total cost of the project was $196 million including transmission line rehabilitation and soil decontamination investment. Technological innovation is displayed by six Wärtsilä 50-DF generators, which are tri-fuel burning engines that are capable of switching between natural gas, heavy fuel oil and diesel. The plant will ultimately use natural gas supplied by the West Africa Gas Pipeline, constructed to deliver natural gas to Benin, Ghana and Togo from Nigeria. Until the natural gas supply is available, the plant is currently burning heavy fuel oil, in compliance with the World Bank’s environmental standards. The choice of the tri-fuel burning engines is helpful for Togo because heavy fuel oil is substantially cheaper than the diesel and jet fuel previously used for all thermal generation of electricity in the country. The reliable power generated by ContourGlobal Togo will accelerate economic development in Togo and significantly increase access to distributed electricity for the population, local businesses and industry. The full social and economic impact will be reached when natural gas becomes available to fully fuel the plant. The plant was designed by Wärtsilä and is fully standardized so it can be repeated elsewhere in the country or in the sub- region. A similar project is ongoing in the neighboring country of Benin. Lesotho: National Referral Hospital Maseru, Lesotho In October 2011, the IFC-advised Lesotho Hospital PPP replaced the country’s main public hospital, Queen Elizabeth II Hospital, with the new 425-bed Queen Mamohato Memorial Hospital, supported by a network of refurbished urban clinics that were opened in May 2010. The new, advanced referral hospital at Bots’abelo, the site of the government’s medical campus in the capital of Maseru, provides a wide range of tertiary-level clinical services, highly-trained staff, and specialized medical equipment. It also serves as the nation’s primary clinical training facility for health professionals. The project is managed by the Tsepong Consortium led by Netcare, a leading South African healthcare provider. Judges were impressed with the new referral hospital’s ambitious and achieved plans to replace Queen Elizabeth II Hospital with a new facility and network of refurbished urban clinics that provide vastly improved services and also address the previous facility’s shortages of hot water, heat, medical supplies, pharmaceuticals, trained staff, and reliable equipment. 98 Emerging Partnerships Edward Farquharson, an Emerging Partnerships judge, said: “It’s a fascinating project as it’s the first full-service health PPP in Africa, excluding South Africa. What’s interesting about this project is it includes clinical services, which is a really difficult process to take on and manage.� The project not only transforms health services in Lesotho but also provides a strong example of PPP in action. The facilities employ over 700 people, and directly serve the greater Maseru region’s population of over 500,000, with Queen Mamohato Memorial Hospital also standing in as the national referral hospital for Lesotho’s total population of just under 2 million people. Gautrain Rapid Rail Link South Africa Although regarded as a slightly older project by the judges, they concurred that the Gautrain Rapid Rail Link in South Africa was extremely impressive and had made a major impact on the lives of both citizens and tourists in South Africa. In June 2012 the project was completed with the final section of track being finished ahead of the World Cup, enabling a safe, cost-effective and environmentally-friendly transport solution. It supports economic growth for the region and has facilitated Black Economic Empowerment, a program launched by the South African government to redress inequalities of Apartheid, through skills transfer between international law firm Pinsent Masons and local law firm Ledwaba Mazwai. The all-new system was a game-changing concept in public transport in a country where under-funding and political indifference had reduced the existing transport networks to a level where they were unsafe and decrepit. Financing was complicated by the necessary financial involvement of Gauteng Province as the grantor, providing generous subsidies during construction and into the operating period to ensure the economic viability of the project. The local banks that underwrote the project were financing the first rail PPP in Africa, which at the same time has the largest debt funding requirement of a South African PPP to date. The 80 kilometer route includes a 15 kilometer section under the center and northern suburbs of Johannesburg—a major civil engineering undertaking. The tunnel had to be constructed using different methods, including the use of a custom-built 160-meter tunnel boring machine imported from Germany, in order to cope with the changing ground conditions. Emerging Partnerships 99 Henri Konan Bédié Bridge Côte d’Ivoire The 1.9 kilometer Henri Konan Bédié Bridge is significant as the first PPP project in Africa to use a minimum revenue guarantee. It is also the first part of a new program of privately-funded infrastructure developments implemented by the government of Côte d’Ivoire. The project involves the design, build, maintain, finance and operation of a 6.4 kilometer highway, including a 1.9 kilometer bridge close to the Port of Abidjan, the largest port in West Africa. It is expected the bridge will help address significant congestion and pollution in Abidjan. The existing bridges and infrastructure are under severe strain and unable to manage the city’s growing traffic. The Henri Konan Bédié Bridge will provide important demonstration effects for future initiatives in the transport sector, and approximately 840 direct jobs will be created during the construction phase. A senior debt tranche of €127 million has been agreed, €58 million of which is supplied by the African Development Bank with the remaining €69 million supplied by the West African Development Bank, ECOWAS Bank for Investment and Development, Africa Finance Corporation, Dutch Investment Bank and the Moroccan Bank of External Trade. Bouygues Travaux Publics and Pan African Infrastructure Development Fund have contributed a total of €28 million in equity and a further €44.5 million in subordinated loans to the deal. The Côte d’Ivoire government has supplied the remaining €76.2 million. The Multilateral Investment Guarantee Agency, the political risk insurance arm of the World Bank Group, provided $145 million in insurance covering equity investments and subordinated loans on the deal. 100 Emerging Partnerships Emerging Lesotho: Referral Hospital101 National Partnerships Project Data Sub-Saharan Africa 102 Emerging Partnerships Kivu Watt Chiansi Irrigation Project Lake Kivu, Rwanda Kafue District, Zambia Total initial $142.25 million Total initial $30 million investment investment Government Energy, Water and Sanitation Government Ministry of Agriculture and client Authority (EWSA) client Cooperatives, Ministry of Equity sponsors ContourGlobal Finance and National Planning, Ministry of Lands, and Lenders Netherlands Development Department of Water Affairs Finance Company (FMO), Emerging Africa Infrastructure Equity sponsors Chanyanya Smallholder’s Fund, African Development Cooperative Society and eleQtra Bank, and Belgian Investment (InfraCo) Limited Company for Developing Lenders The Facility for Infrastructure Countries (BIO) Development (ORIO) Advisers to Mott MacDonald (technical) authority Advisers to Iv-AGA (technical), Exponent sponsors (gas extraction modeling), Norton Rose (legal), Trust Law Chambers (legal), and Marsh (insurance) Advisers to Royal Haskoning (technical), lenders Netherlands Organisation for Applied Scientific Research (TNO – gas extraction modeling), Clifford Chance (legal), K-Advocates (legal), Independent Consultation Services of Ebasco (INDECS – insurance), and Mazars (model audit) Port of Cotonou Cotonou, Benin Total initial $256 million investment Government Cotonou Port Authority client Equity sponsors Bolloré and the Société de Manutention du Terminal à Conteneurs de Cotonou Lenders DevCo (Private Infrastructure Development Group) and Millennium Challenge Corporation Advisers to IFC (lead), Gide Loyrette Nouel authority (legal), Consortium Grand Port Maritime du Havre/Catram Consultants/Amyot Juridique et Fiscal (technical) Emerging Partnerships 103 Lekki Toll Road Addax Makeni Bioenergy Nigeria Sierra Leone Total initial 50 billion Naira ($313 million) Total initial €267 million ($347 million) investment investment Government Lagos State Government Government Government of Sierra Leone client client Equity sponsors Asset & Resource Management Equity sponsors Addax & Oryx Group, Netherlands Company Limited (ARM), Larue Development Finance Company Projects Limited, and African (FMO), and Swedfund Infrastructure Investment International Managers (AIIM) Lenders African Development Bank, Lenders African Development Bank, Emerging Africa Infrastructure Standard Bank, Stanbic IBTC Fund, Infrastructure Crisis Facility Debt Pool (IFC), Netherlands Bank, United Bank for Africa, Development Finance Company First Bank of Nigeria, Zenith (FMO), Belgian Investment Bank, Diamond Bank, and Company for Developing Fidelity Bank Countries (BIO), German Advisers to Ministry of Justice - Lagos State Investment and Development authority Government (legal), Steer Davies Corporation (DEG), and Industrial Gleave (traffic), and Operis Development Corporation of (model audit) South Africa (IDC) Advisers to Allen & Overy Standard Bank Advisers to Herbert Smith (legal) and Tony sponsors (financial), Rand Merchant Bank authority Blair Africa Governance Initiative (financial), Trinity International Advisers to BNP Paribas (financial), Eversheds (legal), Aluko & Oyebode (legal), sponsors (legal), SNR Denton (legal), Froriep High-Point Rendel (technical), Renggli (legal), Homburger and GOBA Consulting Engineers (legal), Basma and Macaulay (traffic) (legal), Coastal and Environmental Services (technical), De Smet Advisers to United Bank for Africa Agro Engineers and Contractors lenders (financial), FBN Capital (technical), and Agricane (financial), Orrick Herrington (agriculture) & Sutcliffe (legal), G Elias & Co (legal), GOBA Consulting Advisers to Norton Rose (legal), CLAS Legal lenders Solicitors (legal), SGS Engineering Engineers (traffic), and Operis UK Ltd (technical), Independent (model audit) Consultation Services of Ebasco (INDECS – insurance), PKF (model audit), and Schaffer (agriculture) Cape Verde Wind Power PPP Cape Verde Total initial €65 million ($86 million) investment Government Government of Cape Verde and Electra (Empresa de Electricidade e �gua) client Equity sponsors African Finance Corporation, Finnfund, and InfraCo Limited (eleQtra) Lenders European Investment Bank and African Development Bank Advisers to Clifford Chance (legal), Gabinete de Advocacia, Consultoria e Procuradoria Jurídica (legal), sponsors Sinclair Knight Merz (technical) and Willis (insurance) Advisers to Linklaters (legal), Eva Caldeira Marques Advocacia e Consultoria (legal), Altermia lenders (technical), CME Energy (technical), MegaJoule (technical), and Willis (insurance) 104 Emerging Partnerships Lesotho: National Referral Centrale Thermique de Lomé Hospital Lomé, Togo Maseru, Lesotho Total initial $196 million Total initial $100 million investment investment Government Government of Togo Government Government of Lesotho client client Equity sponsors ContourGlobal and IFC Equity sponsors Netcare SA Healthcare Group, Excel Health, Afri’nnai, Women Lenders Overseas Private Investment Investment Company, and D10 Corporation Investments Advisers to Shearman & Sterling (legal), Lenders Development Bank of Southern sponsors Gide Loyrette Nouel (legal) Africa (DBSA) Advisers to Allen & Overy (legal) Advisers to IFC (lead), Phatshoane Henney lenders authority Attorneys (legal) Gautrain Rapid Rail Link Henri Konan Bedié Bridge South Africa Côte D’ivoire Total initial $513 million Total initial €232 million ($285 million) investment investment Government Gauteng Provincial Government Government Gouvernement de Côte d’Ivoire client client Equity sponsors Bombardier, Bouygues Travaux Equity sponsors Bouygues Travaux Publics, Publics, Murray & Roberts and Total Côte d’Ivoire, Pan African Strategic Partners Group Infrastructure Development Lenders Standard Bank, Rand Merchant Fund (PAIDF), and National Bank Bank, and Société Générale of Investment (BNI) Advisers to Kagiso Tiso Holdings (financial), Lenders African Development Bank, authority Pinsent Masons (legal), and African Finance Corporation, Ledwaba Mazwai (legal) ECOWAS Bank for Investment Advisers to Société Générale (financial), and Development, West African sponsors Webber Wentzel (legal), and Steer Development Bank, Netherlands Davies Gleave (legal) Development Finance Company (FMO), Banque Marocaine du Advisers to Freshfields (legal), Bowman Commerce Exterieur (BMCE), lenders Gilfillan (legal), and Capita and Multilateral Investment Symonds (technical) Guarantee Agency (MIGA) Advisers to White & Case (legal), Egis lenders International (technical), MVA Consultancy (traffic), and Marsh & McLennan (insurance) Emerging Partnerships 105 106 Emerging Partnerships Credits Front cover (left to right): Apa Nova, Luc Benevollo for Vinci, Jonathan Ernst/World Bank, Alejandro Perez/IFC Page 16 (all): IFC Pages 18-19: IFC Page 20 (all): Homeless International Page 22: Druk Holding and Investments Page 29: IFC Page 40 (top left): J&P - Avax Page 40 (top right): J&P - Avax Page 40 (bottom): Foster + Partners Pages 42-43: J&P - Avax Page 44: VTB Capital Page 46 (all): Orascom Construction Industries Page 53: Limak Page 64 (all): ViaQuatro Pages 66-67: ViaQuatro Page 68: Banobras Page 70: ODEBRECHT PERÚ OPERACIONES Y SERVICIOS Page 76: The Minas Gerais PPP Unit Page 88 (all): Orli Arav Pages 90-91: U.S. Airforce/Sgt Samuel Bendet Page 92: EleQtra and InfraCo Africa Page 94: Vredeseilanden Page 101: IFC Emerging Partnerships 107 108 Emerging Partnerships Contacts International Finance Corporation IFC is the only multilateral organization that offers direct advisory services on designing and implementing public-private partnership (PPP) transactions to national and municipal governments. Since 1989, IFC has worked on over 330 PPP transactions in 99 countries, helping governments achieve long-term economic growth and better living standards by harnessing the potential of the private sector to increase access, enhance quality, and improve efficiency in public services such as water, power, health and education. IFC Advisory Services in PPPs www.ifc.org/ppp 2121 Pennsylvania Ave. NW www.facebook.com/ifcinfrastructure Washington, D.C., 20433 USA www.twitter.com/IFC_Advisory Infrastructure Journal Whether you are looking for a global view or are more focused on specific regions or sectors, IJ gives you access to a team of experts and the largest database in the industry. By tracking projects throughout the lifecycle, IJ provides detailed information on financial structure, policy, pricing and key players influencing transactions and trends. We help hundreds of clients to make more informed decisions and grow their businesses. Our services enable you to manage risk, identify leads, raise your market profile, secure investment and ultimately win more deals. IJ’s clients include equity providers, funds, institutional investors, lenders, multilaterals and ECAs, governments and advisers. We work with 80% of the top project finance lenders, 90% of the top law firms, and 85% of the top financial advisers. Infrastructure Journal www.ijonline.com TRG 4C Group Limited www.twitter.com/ijonline 2nd Floor, AirW1 Building +44 (0) 20 7715 6441 20 Air Street London, U.K. W1B 5AN PPIAF PPIAF is a multi-donor trust fund that provides technical assistance to governments in emerging markets to develop enabling environments that facilitate private investment in infrastructure. In particular, it helps governments prepare and review policy, legal and regulatory frameworks; design and develop institutions to support private participation and financing in infrastructure; and build capacity and awareness to enhance governments’ technical know-how. PPIAF also supports governments by providing technical assistance for specific infrastructure projects. The World Bank www.ppiaf.org 1818 H Street, NW Washington, DC 20433 USA Emerging Partnerships 107 Emerging Partnerships is the result of collating information and submissions from the public, conducting judging panels with worldwide industry experts and research and interviews conducted by both Infrastructure Journal and IFC. In partnership with 2013