7th Annual Meeting of Senior PPP OfficialsOECD Conference Centre, Paris

February 2014

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Project Finance Update

Global PF deal volume: by financing type

The overall project finance market continues to remain strong and steady (1,000 deals, USD400bn volume)

Project bond element is growing strongly, but project loans remain dominant

Government/DFI involvement still an important component

Liquidity has increased, leading to some margin contraction

Source: Dealogic Project Finance Review 2013

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Project Finance Update

Global PF deal volume: by region

Global PF deal volume: by sector

Some of the large markets are "domestic“ The nature of growth varies between the

different regions. Oil & Gas, Infrastructure and Energy remain

the predominant sectors Petrochemicals, Telecoms and Mining

contribute, but from small base,

Source: Dealogic Project Finance Review 2013

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Key considerations for a Successful PPP Framework

‘Bankable’Project

Value for Money

Funders’ requirements

Public Sector commitment and skills

Private Sector expertise and engagement

Adequate Risk Allocation

Favourable Legal and Regulatory Framework

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Key considerations for a Successful PPP Framework

Institutional Framework

• Stable political framework

• Well understood and appropriate legal and regulatory and financial environment – PPP law

• Good governance - PPP central government institutions

• Standardisation

• Deal flow: quantity, sufficient scale to justify a PPP strategy, quality

• Leverage: create more opportunities to attract new financing using credit enhancing

Public Sector Commitment

• Clear PPP policy statement; Government support, financial and human resources

• Multi-sector PPP/Concession law or regulations

• Planning and projects selection; market soundings, consultation, approvals process

• Clarity on output awaited from the authority

• Dialogue procedures (ability to discuss project specific issues with the bidders)

• Transparent and competitive procurement; clear, robust, and objective criteria (technical / price)

• PPP Contract performance monitoring capacity

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Key considerations for a Successful PPP Framework

Private Sector

• Project discipline

• Technical solutions / innovations

• Innovative financing

• Development of skills (sponsors, contractors, banks); training programmes

• How do authorities create the incentives for the private sector to deliver value for money

Securing the financing

• How attractive is a country and its PPP programme to (domestic and foreign) investors and lenders?

• Are lenders/investors comfortable with the law governing project documents?

• Are macroeconomic risks of inflation, exchange rate and interest rate allocated efficiently?

• Is a country’s lending capacity sufficient to finance its long term PPP programme?

• Funders’ requirements - risk allocation:

•Specific public credit enhancements; PPP & infrastructure investment fund

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Common Pitfalls

• Poor project scoping

• Under-scoping so bidders are unclear about the requirement

• Over-scoping so bidding is restricted and/or over guided

• Mis-costing – leading to unaffordable bids

• Overly complex projects with “combinations”

• Project on Project risk

• Difficult consortium combinations making EPC difficult (eg rolling stock / infrastructure)

• Limitations on supply chain

• Unrealistic or unclear risk allocation

• Patronage / market

• Quasi government counterparty rather than government

• “latent defect” risk on existing assets

• Inflexible procurement process

• Locking in funding too early

• Insufficient flexibility can lead to stranded bids

• Not considering funding early enough – too much flexibility can lead to unrealistic bids

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• New structures are emerging as a result of bank market constraints and governments initiatives to encourage institutional investors to fund infrastructure projects.

• First project bonds have closed in the UK, France and Spain in 2013

• Infrastructure financing In the emerging markets remains dominated by DFIs and ECAs

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Q3 Loan Bond Equity # of projects

Global Project Finance transaction volumes

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100 10560

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Europe Asia Americas MENA # of projects

Transaction volumes by region

Global project finance trends – bank debt still the preferred route

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Greenfield finance structures in EuropeNeed to adapt bank model and favour alternative funding options

A number of funding options

have emerged to support the more limited bank debt

that is currently available

Structure Types Examples

Bank debt

- International

- Domestic

• Long-term amortising debt of 20+ years

• “Soft” mini-perm (cash sweeps, large margin step ups)

• “Hard” mini-perm

• Bank debt bridge to bond

• PFI standard, French & Dutch PPP

• M25, Manchester waste, A41

• Utilities / brownfield / trains

Government Co-Lending / Support

• All funding from financial close

• Bank construction debt facility take-out

• Completion payment

• Debt Guarantee

• Direct funding

• IUK Guarantee Scheme

• UK Prudential Borrowing

• French rail projects

• Dutch Milestone Payment

• CDP’s involvement in Italy

Project Bond

• Public listed bond

• Private placements

• With our without credit enhancement (PCBE)

• Direct lending

• EU Project Bond Initiative

• N33 in the Netherlands

• Cité Musicale in France

• Several PFIs in the UK

Multilaterals / ECA

• EIB / EBRD

• IFC in emerging Europe

• ECAs

• EIB has lent to most TEN-T / TEN-E projects

• IEP in the UK

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Greenfield finance structures in the emerging marketsProject finance is still driven by the Multilaterals and the ECAs

In most cases, commercial banks

appetite will be maximized with

adequate ECA / PRI cover

Structure Types Examples

Multilaterals / DFI

• Direct lending up to a percentage of the project costs

• Take project risk

• USD funding is the preferred route

• A/B loans

• IFC

• EIB

• EBRD

• Proparco / DEG / FMO

Regional / national development banks

• Domestic / regional focus

• Usually provide local currency financing

• Direct lending

• ADB

• IADB

• IDB

• BNDES / BANOBRAS

• IDC /DBSA

Export credit

Cover

• ECA covered commercial facility

• 100% political risk and a significant portion of commercial risk

• Europe: HERMES, COFACE, SACE, etc..

• Asia: NEXI, KSURE, etc…

• South Africa: ECIC

• US EXIM

Export Credit

Direct Lending

• Some ECAs can propose direct funding in addition to insurance cover

• JBIC

• KEXIM

PRI Providers• Insurance product offering commercial banks

a 100% political risk cover

• MIGA

• Private insurers

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