Gerardo Gavilanes Director of the Economic Advisory Division Wednesday, 20 th June 2007 FINANCING...

Gerardo GavilanesDirector of the Economic Advisory Division

Wednesday, 20th June 2007

FINANCING INFRASTRUCTURE IN

SPAIN:

Budget, State owned Companies, and PPP´s

World Bank Study Tour

THE FINANCING OF SPANISH INFRASTRUCTURE THE FINANCING OF SPANISH INFRASTRUCTURE

• AS IN MANY OTHER COUNTRIES, INFRASTRUCTURES IN SPAIN ARE FINANCED BY MEANS OF A RANGE OF VARIANTS THAT GO FROM THE PURELY BUDGETARY PUBLIC FINANCING TO THE PURELY PRIVATE.

• THE DEMANDS OF CONTROL ON THE PUBLIC DEFICIT AND THE NECESSITY TO INTRODUCE PRIVATE MARKET APPROACHES HAVE RESULTED IN AN INCREASE OF THE FINANCING BY MEANS OF PPP´s IN THE LAST YEARS.

• THE NEW STRATEGIC INFRASTRUCTURE AND TRANSPORT PLAN PEIT) 2005-2020, HAS SET AN OBJECTIVE OF 20% TO BE FINANCED BY THIS SCHEME.

THE PASTTHE PAST

Inversión Estatal en Infraestructuras de Transporte en porcentaje del PIB

0,60%

0,80%

1,00%

1,20%

1,40%

1,60%

1,80%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

(P)

2004

(P)

2005

(A)

2006

(Pr)

2007

(Pr)

EVOLUTION OF THE INVESTMENT IN TRANSPORT INFRASTRUCTURES OVER TIME

End of the works for Olimpics Games (1992)

Euro incorporation

Maastricht exam

State investment in Transport Infrastructure (% GDP)

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

20.000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007(pr)

Mill

on

es

de

€

Inversión Pública Inversión Concesional

EVOLUTION OF THE INVESTMENT IN TRANSPORT INFRASTRUCTURES OVER TIME.

PUBLIC INVESTMENT AND CONCESSIONS

EVOLUTION OF THE INVESTMENT IN TRANSPORT INFRASTRUCTURES. 1996-2007

PRESENTPRESENT

COMPARISON OF THE INVESTMENT IN TRANSPORT INFRASTRUCTURES. YEARS 2006 AND 2007

Mean of transport 2007 vs 2006 %∆

2007 % (according to

total investment)

RAILWAYS 0,9 48,4

ROADS 22,8 27,0

PORTS -9,0 8,0

AIRPORTS 14,2 12,9

BUDGET. YEAR 2007

EXPENSES IN TRANSPORT INFRASTRUCTURES. YEAR 2007

BUDGET. YEAR 2007

INVESTMENTS. YEAR 2007

Railways

Airports

Ports

Mail Services

Other

Roads

PORCENTAJE DE ENDEUDAMIENTO DE ENTES PÚBLICOS 2000-2003

Endeudamiento de entes públicos 2000 2001 2002 2003

Ratio deuda/ fondos propiosAena 19 32 56 99Puertos del Estado 9 11 12 12GIF 6 10 12 14RENFE 294 298 291 313FEVE 95 133 178 194

Ratio deuda/ inversiónAena 14 44 26 65Puertos del Estado 11 14 11 21GIF 1 0 0 9RENFE 100 202 128 138FEVE 0 104 47 53Los datos en cursiva corresponden a estimaciones de cierre en PGE 2004

Fuente: Datos cerrados de Balance de situación y cuadro de financiamiento de cada ente en Presupuestos

Generales del Estado (2000-2005)

THE FUTURETHE FUTURE

Origin

% TotalMean of

transportBudgetary Non-budgetary

Roads 75,0 % 25,0 % 26,81%

Railways 81,4 % 18,6 % 48,00 %

Airports 2,2 % 97,8 % 6,50%

Ports 9,7 % 90,3 % 9,72 %

Other 27,7 % 72,3 % 8,97 %

TOTAL 59,5 % 40,5 % 100 %

THE FUTURE: DIVERSIFYING FINANCING

THE FUTURE: DECREASING BUDGET IMPORTANCE

-14%

Evolución del Peso del Presupuesto en la financiación de las infraestructuras de transporte. 1990 vs Escenario PEIT (2005-2020)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 PEIT

Resto Inversión

Inversión Presupuestaria

PPP´SPPP´S

EVOLUTION OF THE PERCENTAGE BETWEEN PUBLIC-PRIVATE FINANCING AND TOTAL ONE

0%

5%

10%

15%

20%

25%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Inversión Estatal en Infraestructuras de Transporte en porcentaje del PIB

0,60%

0,80%

1,00%

1,20%

1,40%

1,60%

1,80%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

(P)

2004

(P)

2005

(A)

2006

(Pr)

2007

(Pr)

EVOLUTION OF THE INVESTMENT IN TRANSPORT INFRASTRUCTURES OVER TIME

End of the works for Olimpics Games (1992)

Euro incorporation

Maastricht exam

State investment in Transport Infrastructure (% GDP)

THE 1972 ACT OF TOLL HIGHWAYS THE 1972 ACT OF TOLL HIGHWAYS

• IT HAS FACILITATED MORE PPP´S HIGHWAYS HAVE BEEN BID FOR IN SPAIN THAN IN OTHER COUNTRIES.

• THE PREPONDERANCE OF PPP HIGHWAYS IS EXPLAINED BY THE EXISTENCE OF A LAW ESTABLISHED IN 1972 THAT DEFINES A CLEAR AND STABLE LEGAL FRAMEWORK

• THE MASTERLINES OF THIS LAW ARE NOW EXTENDED TO ALL MODES OF TRANSPORT AND TO ALL KIND OF INFRASTRUCTURE BY THE NEW ACT OF CONCESSIONS

Transport privateTransport private investment in Spain :investment in Spain :Distribution by ModeDistribution by Mode

Transport privateTransport private investment in Spain :investment in Spain :Distribution by ModeDistribution by Mode

COUNTRY ROAD RAILWAY AIRPORTSEAPORT & HARBOUR TOTAL

Spain 11.345 1.010 1.122 363 13.840

Europe 90.040 78.064 15.434 2.260 185.798

Spain/Europe 12,6% 1,3% 7,3% 16,1% 7,4%

World 236.441 245.918 85.783 37.988 606.130

Spain/World 4,8% 0,4% 1,3% 1,0% 2,3%

(*) It includes concessions in use or in execution of roads, railroad, airports and seaports from 1985 to 2001

A MODAL UNBALANCEA MODAL UNBALANCE

TOLL MOTORWAYS RAILROADS (*)TOTAL PERIOD

2000-2011

2000 229,94 291,79 -- 521,73

2001 596,95 423,08 -- 1.020,03

2002 1.204,74 501,27 -- 1.706,01

2003 1.618,12 657,20 -- 2.275,32

2004 1.520,10 876,81 156,80 2.553,71

2005 1.812,75 1.048,19 320,50 3.181,44

2006 1.294,45 1.190,93 (A) 248,10 2.733,48

2007 (A) 620,89 1.574,69 172,70 2.368,28

2008 (A) 551,41 1.732,74 54,00 2.338,15

2009 (A) 494,93 942,67 -- 1.437,61

2010 (A) 180,09 746,00 -- 926,09

2011 (A) 70,31 -- -- 70,31

TOTAL 10.194,68 9.985,37 952,10 21.132,15

SEA PORTS AND HARBORS

Investments carried out through Concessions depending on the Ministry of Fomento.

WHY PPP´S? WHY PPP´S?

• PPP´s is just a tool to provide infrastructure. So it is not better nor worst than other way of doing it.

• It has several advantages but also disadvantages, that make advisable to think why are we going to use it before doing so

• In Spain PPP´s are being use basically because more infrastructure is needed than budget can afford. And, up on that the extra costs of using PPP´s are less than extra benefits of doing it.

• Never forget that a PPP project is more expensive than a traditional one.

• In other countries, the drivers for using PPP´s can be totally different.

THE CONCESSION LET THE HIGHWAY TO BE OPERATING EARLIER

• From the definition of the necessity of the highway until its opening to operation

• 70 months (average)

•With the budgetary traditional system, including the last improvements to reduce terms, at least

• 91 months

• This means a saving in time of

• 21 months

ADVANTAGES OF CONCESSIONS IN COMPARISON TO BUDGETARY FINANCING

MORE AGILITY (FASTER)

ADVANTAGES OF CONCESSIONS IN COMPARISON TO BUDGETARY FINANCING

MORE AGILITY (FASTER)

Tenders of the first phase of Toll Highways PlanWEAKNESSES AND STRENGTHS

Tenders of the first phase of Toll Highways PlanWEAKNESSES AND STRENGTHS

The group of highways of the first phase of the national plan of toll freeways based the bids on an economic financial study. The performances were divided into two groups:

• Those that the studies predicted of a high profitability. It was lessened by adding additional public works, and contemplating more reduced terms.

It is the case of the radial highways of Madrid that have been used to finance the ring Madrid-50.

• Those that presented a low profitability. The Ministry improved this by increasing the terms and contributing with public funds.

The funds have been made as grants, participating loans and, in some cases, repayable money advances.

• The high concurrence demonstrated that this position was right.

The group of highways of the first phase of the national plan of toll freeways based the bids on an economic financial study. The performances were divided into two groups:

• Those that the studies predicted of a high profitability. It was lessened by adding additional public works, and contemplating more reduced terms.

It is the case of the radial highways of Madrid that have been used to finance the ring Madrid-50.

• Those that presented a low profitability. The Ministry improved this by increasing the terms and contributing with public funds.

The funds have been made as grants, participating loans and, in some cases, repayable money advances.

• The high concurrence demonstrated that this position was right.

A NEW FOCUS A NEW FOCUS

A N D O R R A

Palm a deM allorca

A C oruña

L ugo

O viedo

L eón

B urgos L ogroño

Sor ia

Valladolid

Z am ora

Salam anca

Á vila

Segovia

G uadala jara

C uenca

A lbacete

M adrid

C iudad R eal

C ácere s

B adajoz

Santander

B ilbao San Sebastián

Vitoria Pam plona

H uesca

L leida

G irona

B arc elo na

Tarragona

C astellón de la Plana

Valencia

A licante

M urcia

A lm ería

G ranada

M álaga

H uelva

Sev illa

C órdoba

Jaén

C ádiz

Z aragoza

Teruel

O urense

Pontevedra

M EN O RC A

M ALLO RC A

C ABRERAIBIZA

FO RM EN TERA

Toledo

Sta . C ruzde Tenerife

L as Palm as deG ran C anaria

LA PALM A

G O M ERA

TEN ERIFE

HIERRO

G RAN C ANARIA FUERTEVEN TURA

LAN ZARO TE

Palencia

C eutaM elilla

N im es

M a rse lla

Pe rp ig na n

To ulouse

Pa u

M o ntp e ll ie r

To ulonB ia rritz

B ra gaO p o rto

C o im b r a

Av eiro

S a m ta remS intr a

L isb oa

E sto ril

S etu ba l

B ejaS ine s

Fa ro

Radial 5 y M-50

S antiago-Alto deS to. Domingo

Ávila-A6-S egovia

FIRST PHASE OF THE FIRST TOLL HIGHWAYS PLANFIRST PHASE OF THE FIRST TOLL HIGHWAYS PLAN

1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0

0

5.000

10.000

15.000

20.000

25.000

30.000

S cen a rio : IR R 7 % , Av erage To ll 0 ,06 € /K m , 10% eq u itiy, In terest ra te 7%

Cost per Km (M €/Km )

VP

D

35 year term

50 year term

75 year term

ECO N OM IC VIAB IL ITY ARE A

NO N EC ON O M IC VIA BILITY ARE A

M adrid-Navalcarnero

M adrid-Ocaña

M adrid-Arganda

M adrid-Guadalajara

New radial highw ay

Estepona-Guadiaro

Alicante-Cartagena

Intercities m otorway

Ávila-N VI

Santiago-Alto deSto. Domingo

León-AstorgaSegovia-San Rafael

Highway for regional developement

M-50 ring

M-50 ring

M-50 ring

Public fund

Public fund

PRELIMINARY ANALYSIS OF THE ECONOMICAL VIABILITYPRELIMINARY ANALYSIS OF THE ECONOMICAL VIABILITY

• IN SPITE OF THE SUCCESS OF THIS FIRST PHASE, SOME WEAKNESSES WERE DETECTED IN THE BIDDING PROCESS.

Often highways were bid for according to approaches that were opposed. So the term, and the toll prices, and the requested funds were asked for. It is preferable to fix all these parameters within a limited range, increasing thus the efficiency of the bid.

In some cases the winning offer got very reduced terms.In these cases, it may be preferable to give more additional public works, although it increases the duration of the concession.

Too long terms of bidding are not convenient, since its translation in financial profitability is practically null. Also the present financial products in the market don't fit into such long terms.

• IN SPITE OF THE SUCCESS OF THIS FIRST PHASE, SOME WEAKNESSES WERE DETECTED IN THE BIDDING PROCESS.

Often highways were bid for according to approaches that were opposed. So the term, and the toll prices, and the requested funds were asked for. It is preferable to fix all these parameters within a limited range, increasing thus the efficiency of the bid.

In some cases the winning offer got very reduced terms.In these cases, it may be preferable to give more additional public works, although it increases the duration of the concession.

Too long terms of bidding are not convenient, since its translation in financial profitability is practically null. Also the present financial products in the market don't fit into such long terms.

SOME POINTS SOME POINTS

THE TOLL HIGHWAY "AXIS AIRPORT" A NEW FORMULA FOR INFRASTRUCTURE´S BID

THE TOLL HIGHWAY "AXIS AIRPORT" A NEW FORMULA FOR INFRASTRUCTURE´S BID

THE CONCESSION OF THE HIGHWAY WAS BID BY MEANS OF A NOVEL SYSTEM OF BIDDING

• A first technical approach: the aspects of functional and environmental quality of the highway are valued.

• 400 points.

• A second approach that measures the solvency and economic viability of the tender:

• 250 points.

Anyone who doesn't reach half of the punctuation in each one of the previous sections goes out of the

competition, since automatically it divides by three their total punctuation .

• Finally a third approach of economic efficiency that ascends to

• 150 points.

A NEW SYSTEM OF BID (1) MORE TRANSPARENCE

A NEW SYSTEM OF BID (1) MORE TRANSPARENCE

THE ECONOMIC PARAMETERS TO BE BID WERE REDUCED

• Fixed term of the concession.

•25 years.

With the option to renounce on the year 20 by means of the income of certain quantity from the Administration.

Option to one more term year by the attainment of certain safety and good administration standards during the concession

• The prices are not a bid object, being fixed the toll.

Although it is allowed to forfait payment in certain hours.

A NEW SYSTEM OF BID (2) LESS PARAMETERS


• The ratios of solvency and capitalization were not valued directly but rather, being demanded superiors to some

minima, they were valued as an element that reinforces the Company.

• So it is possible to avoid the coexistence of economic parameters that go in different direction

The more term minor rates, the more capitalization smaller financial profitability, etc.

• Consequently the only parameter that is bid is the “reversion price”.

It could be a maximum of 36 million €, that means that a payment is requested by the Administration, or if it is negative, that means that it will be paid at the end to the Administration.



• The concessionaire will pay to the Administration at the end of the contract (year 2026 or 2027 if he wins the" bonus")the equivalent to 53 million euro of 2001. The tender that offered more didn´t win it, but indeed it has been an important approach, together with the evaluation of the technical analysis and the solvency. The final advantages for the Administration can be summarized in:

Highway in use in May 2004.

other roads of free use carried out by the concessionaire by an amount of more

than 60 million euro.

Possibility to build new performances in 2026 with the final payment.

FINAL RESULTS FINAL RESULTS

•As the new system was proved as efficient, five more toll highways were bidden (2003) under the same process.

•Results were quite beneficial:

Bidding and awarding processes were carried out in only 5 months.

Only 100 million euro (540 million were available as public funds) were requested.

Only 1 of the 5 highways was not awarded.

The whole process was carried out by a group of only 20 civil servants.

It is preferable the Public Sector to be cautious to the use of high traffic levels. However, it is necessary to conceive any system that avoids payments from concessionaire to the Administration, what has been proved as inefficient. (Though it is risky to entrust everything to the competitor)

CONCLUSIONS CONCLUSIONS

THE BID OF “MALAGA LAS PEDRIZAS" AGAIN LESS PARAMETERS

THE BID OF “MALAGA LAS PEDRIZAS" AGAIN LESS PARAMETERS

THE CONCESSION OF THIS HIGHWAY WAS BID BY CUTTING OF THE EVALUATION OF PUBLIC FUNDING

• It was decided not to considered as a basis to award the concession the amount of public funding.

• The reason for that is try not to force the bidder to reject the use of a public funding that Administration's studies show as necessary.

Once open the offers, some request for public funding, some others do not.

• So, for the evaluation of this concession project, only two criteria remain

• 350 points. Technical criterion

• 350 points. Economical and financial criterion

A NEW SYSTEM OF BID (4) MORE SIMPLIFICATION

A NEW SYSTEM OF BID (4) MORE SIMPLIFICATION

THE USE OF QUALITY INDICATORS AS A BASIS FOR CONTRACT BONUSES

THE USE OF QUALITY INDICATORS AS A BASIS FOR CONTRACT BONUSES

• The idea of giving prizes to increase the quality of the service given, arise from the unbalanced legislation.

• Spanish, and many countries, legislation forces the concessionaire to operate the road according to standard conditions.

• This means that, if the service is not given in a proper way, then some penalties are applied, as fines, and also finishing the contract.

• In return, there is not a legal possibility to give the opposite “bonuses” to the concessionaire when it carries out much better than standard services.

• This resulted in a quality of the service not bad but very ordinary.

• With the aim to increase the quality of the service given it was decided to introduce as a part of the contract (in the bid sheets) the possibility of obtaining bonuses for a very good service.

• It was used for the very first time during the 5 bids of 2003-2004.

• The idea of giving prizes to increase the quality of the service given, arise from the unbalanced legislation.

• Spanish, and many countries, legislation forces the concessionaire to operate the road according to standard conditions.

• This means that, if the service is not given in a proper way, then some penalties are applied, as fines, and also finishing the contract.

• In return, there is not a legal possibility to give the opposite “bonuses” to the concessionaire when it carries out much better than standard services.

• This resulted in a quality of the service not bad but very ordinary.

• With the aim to increase the quality of the service given it was decided to introduce as a part of the contract (in the bid sheets) the possibility of obtaining bonuses for a very good service.

• It was used for the very first time during the 5 bids of 2003-2004.

WHY A PRIZE FOR A GOOD MANAGEMENT?WHY A PRIZE FOR A GOOD MANAGEMENT?

WHY A PRIZE FOR A GOOD MANAGEMENT?WHY A PRIZE FOR A GOOD MANAGEMENT?

• The concession will last for one more year when, simultaneously:

• At least 90% of time during the 35 first years of concession, at least 35% of total heavy traffic in the corridor use the highway.

• At least 90% of time during the 35 first years of concession, at least 40% of total heavy traffic is in night time.


• At least 90% of time during the 35 first years of concession, at least 35% of total heavy traffic in the corridor use the highway.

• At least 90% of time during the 35 first years of concession, at least 40% of total heavy traffic is in night time.

PRIZE FOR GOOD MANAGEMENT.PRIZE FOR GOOD MANAGEMENT. First indicator: heavy trafficFirst indicator: heavy traffic

PRIZE FOR GOOD MANAGEMENT.PRIZE FOR GOOD MANAGEMENT. First indicator: heavy trafficFirst indicator: heavy traffic


a) At least 90% of time during the 35 first years of concession, accident ratio (number of accidents per 100 Million veh*km) and casualty ratio (casualties per 100 Million veh*km) remain lower than 90% of average value of those ratio in Ministry's equivalent(+-5.000 ) highways.

b) At least 90% of time during the 35 first years, the congestion index remains lower than 100.


a) At least 90% of time during the 35 first years of concession, accident ratio (number of accidents per 100 Million veh*km) and casualty ratio (casualties per 100 Million veh*km) remain lower than 90% of average value of those ratio in Ministry's equivalent(+-5.000 ) highways.

b) At least 90% of time during the 35 first years, the congestion index remains lower than 100.

PRICE FOR GOOD MANAGEMENT.PRICE FOR GOOD MANAGEMENT. Second indicator: Road characteristicsSecond indicator: Road characteristics

PRICE FOR GOOD MANAGEMENT.PRICE FOR GOOD MANAGEMENT. Second indicator: Road characteristicsSecond indicator: Road characteristics

L

lnnI

EFCD

2

c) Waiting time at tolls is lower than 15 s, at least 80% of time during the 35 first years of concession,

d) At least 90% of time during the 35 first years, simultaneously

i. Sideway force coefficient higher than 0,45 for all length and higher than 0,5 for 90% of length.

ii. International Regularity Index lower than 2m/km for 90% of total length

c) Waiting time at tolls is lower than 15 s, at least 80% of time during the 35 first years of concession,

d) At least 90% of time during the 35 first years, simultaneously

i. Sideway force coefficient higher than 0,45 for all length and higher than 0,5 for 90% of length.

ii. International Regularity Index lower than 2m/km for 90% of total length

PRIzE FOR GOOD MANAGEMENT.PRIzE FOR GOOD MANAGEMENT. Second indicator: Road characteristicsSecond indicator: Road characteristics

PRIzE FOR GOOD MANAGEMENT.PRIzE FOR GOOD MANAGEMENT. Second indicator: Road characteristicsSecond indicator: Road characteristics

• The concession will last for other 2 years if, in the same way as

defined previously:

a) accident ratio and casualty ratio lower than 75%.

b) Congestion index lower than 80

c) Waiting time lower than 15s 90% of time

d) IRI lower than 2m/km for 95% of total length

• And

e) Quality service index, remains higher than 80 points (from 0 to 100).

This indicator is obtained by the Ministry taking into account users surveys.

• The concession will last for other 2 years if, in the same way as

defined previously:

a) accident ratio and casualty ratio lower than 75%.

b) Congestion index lower than 80

c) Waiting time lower than 15s 90% of time

d) IRI lower than 2m/km for 95% of total length

• And

e) Quality service index, remains higher than 80 points (from 0 to 100).

This indicator is obtained by the Ministry taking into account users surveys.

PRICE FOR GOOD MANAGEMENT.PRICE FOR GOOD MANAGEMENT. Best of the crop: 2 more yearsBest of the crop: 2 more years

PRICE FOR GOOD MANAGEMENT.PRICE FOR GOOD MANAGEMENT. Best of the crop: 2 more yearsBest of the crop: 2 more years

• So the concession could last four extra years in the event that all this requirements are fulfilled.

• This means an 11% in terms of time

• But could mean an extra 25% in terms of income.

• And an extra 50% in terms of profit.

• So there is a great interest for the contractor to try to provide all this indicators in a right way.

• So the concession could last four extra years in the event that all this requirements are fulfilled.

• This means an 11% in terms of time

• But could mean an extra 25% in terms of income.

• And an extra 50% in terms of profit.

• So there is a great interest for the contractor to try to provide all this indicators in a right way.

Prize for good management: Sum upPrize for good management: Sum upPrize for good management: Sum upPrize for good management: Sum up

NEW SHADOW TOLL CONTRACTS IN THE MINISTRY OF FOMENTO

NEW SHADOW TOLL CONTRACTS IN THE MINISTRY OF FOMENTO

These highways, which were built in the 80s, present lack of the modern techniques of design , building and funds availability that the highways built in the 90s could enjoy (in most cases, these are actually as current highways but with no toll).

These highways, which were built in the 80s, present lack of the modern techniques of design , building and funds availability that the highways built in the 90s could enjoy (in most cases, these are actually as current highways but with no toll).

WHAT ARE THE “FIRST GENERATION” HIGHWAYS?WHAT ARE THE “FIRST GENERATION” HIGHWAYS?

• They fit in the I to IV “national roads”

– 4 Radial Highways (1.500 Km.) so called of “first generation”

Nacional I Madrid-Burgos (350 km.)

Nacional II Madrid-Zaragoza (350 km.)

Nacional III Madrid - Cuenca (250 km.)

Nacional IV Madrid -Sevilla (550 Km.)

• They fit in the I to IV “national roads”

– 4 Radial Highways (1.500 Km.) so called of “first generation”




Nacional IV Madrid -Sevilla (550 Km.)

WHAT ARE THE “FIRST GENERATIONS” HIGHWAYS?WHAT ARE THE “FIRST GENERATIONS” HIGHWAYS?

FIRST GENERATION CONTRACTSFIRST GENERATION CONTRACTS

SHADOW TOLLS IN THE MINISTRY OF FOMENTOSHADOW TOLLS IN THE MINISTRY OF FOMENTO

A N D O R R A

Palm a deM allorca

A C oruña

L ugo

O viedo

L eón

B urgos L ogroño

Sor ia

Valladolid

Z am ora

Salam anca

Á vila

Segovia

G uadala jara

C uenca

A lbacete

M adrid

C iudad R eal

C ácere s

B adajoz

Santander

B ilbao San Sebastián

Vitoria Pam plona

H uesca

L leidaG irona

B arc elo na

Tarragona

C astellón de la Plana

Valencia

A licante

M urcia

A lm ería

G ranada

M álaga

H uelva

Sev illa

C órdoba

Jaén

C ádiz

Z aragoza

Teruel

O urense

Pontevedra

M EN O RC A

M ALLO RC A

C ABRERAIBIZA

FO RM EN TERA

Toledo

Sta . C ruzde Tenerife

L as Palm as deG ran C anaria

LA PALM A

G O M ERA

TEN ERIFE

HIERRO

G RAN C ANARIA FUERTEVEN TURA

LAN ZARO TE

Palencia

C eutaM elilla

N im es

M a rse lla

Pe rp ig na n

To ulouse

Pa u

M o ntp e ll ie r

To ulonB ia rritz

B ra gaO p o rto

C o im b r a

Av eiro

S a m ta remS intr a

L isb oa

E sto ril

S etu ba l

B ejaS ine s

Fa ro

N-IV

N-I

N-III

N -II

Ba ilé n

• CONTRACTS FOR THE MANAGEMENT OF HIGHWAYS (LGPE 1999).

– It would be used for redesigning the first generation radial highways (1.500 Km.) , including the maintenance. There were 5 “super contracts”




Nacional IV Madrid -Bailén (300 Km.)

Nacional IV Bailén-Sevilla (250 Km.)

– The total amount was estimated in 1.800 millions €.


– It would be used for redesigning the first generation radial highways (1.500 Km.) , including the maintenance. There were 5 “super contracts”




Nacional IV Madrid -Bailén (300 Km.)

Nacional IV Bailén-Sevilla (250 Km.)

– The total amount was estimated in 1.800 millions €.

THE EVIDENCE OF A PROBLEM: 1999THE EVIDENCE OF A PROBLEM: 1999


“…To solve the problem of the different parameters and technical issues between “first generation” and current highways that demands more security…” (Introduction)

“…Will settle expropriations…” (art.6.b)


“…To solve the problem of the different parameters and technical issues between “first generation” and current highways that demands more security…” (Introduction)

“…Will settle expropriations…” (art.6.b)



– In the “Attached Act” of 1999, art. 60, this kind of contract is introduced.

– Concessions Act is much later, 2002.

– A maintenance contract is the aim: the useful life concept is the point of reference, with the following characteristics:

– Maximum term; 20 years.

– Maintenance, redesign and updating

– Replacement and “big repair”


– In the “Attached Act” of 1999, art. 60, this kind of contract is introduced.

– Concessions Act is much later, 2002.

– A maintenance contract is the aim: the useful life concept is the point of reference, with the following characteristics:

– Maximum term; 20 years.

– Maintenance, redesign and updating

– Replacement and “big repair”


The Ministry studied the possibility of using the so called “Highways management contracts” to update and maintain the first generation highways during 20 years.

Finally, the Ministry has decided to bid “shadow toll contracts” with the aim of updating and redesigning of these roads.

The Ministry studied the possibility of using the so called “Highways management contracts” to update and maintain the first generation highways during 20 years.

Finally, the Ministry has decided to bid “shadow toll contracts” with the aim of updating and redesigning of these roads.

THE INTERMEDIATE YEARS THE INTERMEDIATE YEARS

The Ministry of Fomento has raised the possibility of focusing this project as a PPP one, with the double aim of:

getting the achievement without a specific impact in the deficit, with the use of the near future funds for maintenance and, on the other hand,

fastening the quality of maintenance of the high capacity axis during the concession period, which supports a high percentage of traffic of our Country.

The Ministry of Fomento has raised the possibility of focusing this project as a PPP one, with the double aim of:

getting the achievement without a specific impact in the deficit, with the use of the near future funds for maintenance and, on the other hand,

fastening the quality of maintenance of the high capacity axis during the concession period, which supports a high percentage of traffic of our Country.

THE FOCUS AS A CONCESSION CONTRACT (1)THE FOCUS AS A CONCESSION CONTRACT (1)

So, a concession system has been planned. The system includes the building and maintenance of these infrastructures with a shadow toll, (which means that the Public Administration pays the concessionaire depending on the kind and number of vehicles that drive through these roads). The payment is modified in a significant way depending on demanded parameters (related to quality of service).

So, a concession system has been planned. The system includes the building and maintenance of these infrastructures with a shadow toll, (which means that the Public Administration pays the concessionaire depending on the kind and number of vehicles that drive through these roads). The payment is modified in a significant way depending on demanded parameters (related to quality of service).


The project is split in 2 phases,

the first one studies the updating of the main priority axis (A-1, A-2, A-3 y A-4) which have the preprojects done and

a second phase should study the updating of the Highways A-5 and A-6. (and a stretch of A2)

The project is split in 2 phases,

the first one studies the updating of the main priority axis (A-1, A-2, A-3 y A-4) which have the preprojects done and

a second phase should study the updating of the Highways A-5 and A-6. (and a stretch of A2)


The whole updating will be included, with more than 2100 Km of highways and a total amount of foreseen expenses higher than 6300 million €.

16 stretchs (1st phase): 1500 km. (2007). 4800 M €.

xx stretchs (2nd phase): 600 km (2008). 1500 M €.

The whole updating will be included, with more than 2100 Km of highways and a total amount of foreseen expenses higher than 6300 million €.

16 stretchs (1st phase): 1500 km. (2007). 4800 M €.

xx stretchs (2nd phase): 600 km (2008). 1500 M €.


The main characteristics and expenses of the first phase are the following:

Necessity of investment for the updating and rebuilding around 1850 Million €.

Total length 1.522 Km.

So, the initial investment per Km rises to 1,2 Mill €.

The main characteristics and expenses of the first phase are the following:

Necessity of investment for the updating and rebuilding around 1850 Million €.

Total length 1.522 Km.

So, the initial investment per Km rises to 1,2 Mill €.


VPD is known and is very high

About 17500 million Veh * Km /year in 2006.

VPD is known and is very high

About 17500 million Veh * Km /year in 2006.


The aim of the contract foreseen 3 kinds of actions:

• Works for adapting, repairing and updating• Replacement and “big repairs” • Periodical maintenance and management of the

infrastructures

The aim of the contract foreseen 3 kinds of actions:

• Works for adapting, repairing and updating• Replacement and “big repairs” • Periodical maintenance and management of the

infrastructures

PURPOSE OF THE CONTRACTPURPOSE OF THE CONTRACT

The main characteristics that define a PPP and that are essential in the establishment of these contracts are the following:

It must be a long term contract between a Public Administration and a private organization.

The main characteristics that define a PPP and that are essential in the establishment of these contracts are the following:

It must be a long term contract between a Public Administration and a private organization.

ANALISYS UNDER THE CONCESSION POINT OF VIEW (1)ANALISYS UNDER THE CONCESSION POINT OF VIEW (1)

To operate the highway, the private partner must invest in assets or, at least, to rebuild the existent asset.

Through measuring the equity value of the roads, including its depreciation, it is found that investments for updating are higher than 50% of the replacement value of each stretch in which the works are divided. So, it is considered enough.

To operate the highway, the private partner must invest in assets or, at least, to rebuild the existent asset.

Through measuring the equity value of the roads, including its depreciation, it is found that investments for updating are higher than 50% of the replacement value of each stretch in which the works are divided. So, it is considered enough.


The private partner is obliged to give the service following the quality standards established in the contract.

The Administration is the main payer in spite of not being the final user. The future payments are determined depending on the light and heavy traffics and are adjusted automatically according to the observance of strict quality standards settled down in the contract.

The private partner is obliged to give the service following the quality standards established in the contract.

The Administration is the main payer in spite of not being the final user. The future payments are determined depending on the light and heavy traffics and are adjusted automatically according to the observance of strict quality standards settled down in the contract.


Once the project has been chosen as PPP one, it is necessary to study the effects in terms of Public Accounts.

As the initial investment must not be considered into the public deficit, it must join several simultaneous conditions:

Building Risk in the side of private partner

At least one of the following risks, availability or demand, must be in the side of the private partner.

Once the project has been chosen as PPP one, it is necessary to study the effects in terms of Public Accounts.

As the initial investment must not be considered into the public deficit, it must join several simultaneous conditions:

Building Risk in the side of private partner

At least one of the following risks, availability or demand, must be in the side of the private partner.

ANALYSIS UNDER THE POINT OF VIEW OF NATIONAL ACCOUNTING (1)ANALYSIS UNDER THE POINT OF VIEW OF NATIONAL ACCOUNTING (1)

Related to the first risk, the bidding sheet defines its private assumption: the private partner must assume the total risks that comes from the construction.

Related to the second risk, it would be illogical to base it on demand (there is an important reason that explains it): The traffic in the corridor is known, it is not a new itinerary.

Related to the first risk, the bidding sheet defines its private assumption: the private partner must assume the total risks that comes from the construction.

Related to the second risk, it would be illogical to base it on demand (there is an important reason that explains it): The traffic in the corridor is known, it is not a new itinerary.


In spite of future fluctuations, that will probably appear, It is not reasonable to think in large fluctuations related to the forecasts, as a contract based on demand risk runs the risk of being understood as a non-existent risk assumption.

In spite of future fluctuations, that will probably appear, It is not reasonable to think in large fluctuations related to the forecasts, as a contract based on demand risk runs the risk of being understood as a non-existent risk assumption.


Thus, it is preferred to introduced in the bidding sheet a double system: the canon is based on demand, applying a price. Nevertheless, this canon is not calculated itself but its NPV and its yearly payment, are going to be limited according to the tenders. (Cap)

Besides, this canon is going to be under several automatic discounts, (Triggers) related to the achievement of some quality goals in the operation level. This is an essential part of the contract as it lets the concessionaire to assume the availability risk.

Thus, it is preferred to introduced in the bidding sheet a double system: the canon is based on demand, applying a price. Nevertheless, this canon is not calculated itself but its NPV and its yearly payment, are going to be limited according to the tenders. (Cap)

Besides, this canon is going to be under several automatic discounts, (Triggers) related to the achievement of some quality goals in the operation level. This is an essential part of the contract as it lets the concessionaire to assume the availability risk.

ANALYSIS UNDER THE POINT OF VIEW OF NATIONAL ACCOUNTS (4)ANALYSIS UNDER THE POINT OF VIEW OF NATIONAL ACCOUNTS (4)

The fact of having substantial, automatic and laid out discounts in the contract, explains the assumption of risk by the private partner.As an example, in this contract, 41 figures in order to value the quality of service given (from roughness surface through cleanliness or service levels) are laid out.

The fact of having substantial, automatic and laid out discounts in the contract, explains the assumption of risk by the private partner.As an example, in this contract, 41 figures in order to value the quality of service given (from roughness surface through cleanliness or service levels) are laid out.


The periodical measuring system, perfectly defined, establishes several thresholds that are useful for corrections and, if not fulfilled, automatic discounts in the prices paid by the Administration are applied. These discounts can be determined as a percentage of reduction or as a fixed amount.

The periodical measuring system, perfectly defined, establishes several thresholds that are useful for corrections and, if not fulfilled, automatic discounts in the prices paid by the Administration are applied. These discounts can be determined as a percentage of reduction or as a fixed amount.


Sensitive analysis shows that, if these correction methods are applied, can cause a significant effect in the private partner income, thus it is by sure that the availability risk is in its side.

Together with this goals system, a penalties system is established for applying them when breaching of serious thresholds, response times and measurements calendars. This will be applied together with the automatic discounts in prices, but with a punishment aim, legally considered as a fine.

Sensitive analysis shows that, if these correction methods are applied, can cause a significant effect in the private partner income, thus it is by sure that the availability risk is in its side.

Together with this goals system, a penalties system is established for applying them when breaching of serious thresholds, response times and measurements calendars. This will be applied together with the automatic discounts in prices, but with a punishment aim, legally considered as a fine.


The fact of bidding several dozens, joint to the hope of great competition coming from several Companies, unconnected to concesional field, causes the normalization of the bidding sheets that are different from the traditional ones.

The fact of bidding several dozens, joint to the hope of great competition coming from several Companies, unconnected to concesional field, causes the normalization of the bidding sheets that are different from the traditional ones.

STANDARDS BIDING SHEETS DIFFERENT FROM USUAL ONESSTANDARDS BIDING SHEETS DIFFERENT FROM USUAL ONES

Bidding Sheets are between a concession and a traditional one.

Technical Competence is listed exhaustive.

technical proposal is listed in “areas” Area 1: New Works vs RepairingArea 2: “Large repairing” Works Area 3: Operation and maintenance

Bidding Sheets are between a concession and a traditional one.

Technical Competence is listed exhaustive.

technical proposal is listed in “areas” Area 1: New Works vs RepairingArea 2: “Large repairing” Works Area 3: Operation and maintenance

Unos Pliegos Normalizados y Distintos a los habitualesUnos Pliegos Normalizados y Distintos a los habitualesSTANDARDS BIDING SHEETS DIFFERENT FROM USUAL ONES (2)STANDARDS BIDING SHEETS DIFFERENT FROM USUAL ONES (2)

An Operation proposal is added.This is divided into 15 groups, from tunnels to safety at work.

An Operation proposal is added.This is divided into 15 groups, from tunnels to safety at work.

STANDARDS BIDING SHEETS DIFFERENT FROM USUAL ONES (3)STANDARDS BIDING SHEETS DIFFERENT FROM USUAL ONES (3)

Finally, as in the toll bidding sheets, an economic proposal must be made:

Financial and Economic Plan (FEP)

Economic Proposal

Finally, as in the toll bidding sheets, an economic proposal must be made:

Financial and Economic Plan (FEP)

Economic Proposal


This EFP maintains the same structure as a traditional concession contract:

Introduction reportFEPBorrowingGuaranteesSummary

This EFP maintains the same structure as a traditional concession contract:

Introduction reportFEPBorrowingGuaranteesSummary


Economic Proposal replace the toll proposal, and it is split as:

Toll veh/km. (depending of kind of vehicles)(It is limited to a maximum level in the bidding sheet).Traffic level in the tender(it is limited to a maximum level during the year) It is offered in the different stretches and depends on the kind of vehicle, veh*km.% toll that will be applied on the traffic level in excess.(It is limited to 10% - only for maintenance)

Economic Proposal replace the toll proposal, and it is split as:

Toll veh/km. (depending of kind of vehicles)(It is limited to a maximum level in the bidding sheet).Traffic level in the tender(it is limited to a maximum level during the year) It is offered in the different stretches and depends on the kind of vehicle, veh*km.% toll that will be applied on the traffic level in excess.(It is limited to 10% - only for maintenance)


The punctuation of the proposals is different:

Economic Proposal: 100 pointsEconomic Plan: 25 pointsEconomic Tender (automatic) 75 points. 45 points (Toll)25 points (maximum level)5 points (percentage of Toll)


Economic Proposal: 100 pointsEconomic Plan: 25 pointsEconomic Tender (automatic) 75 points. 45 points (Toll)25 points (maximum level)5 points (percentage of Toll)



Technical proposal:TP= TP+MPbelow 60 points: OUT.60 means 30 and maximum means 100. Others follow lineal distribution


Technical proposal:TP= TP+MPbelow 60 points: OUT.60 means 30 and maximum means 100. Others follow lineal distribution


To reduce the technical punctuation range to a maximum of 40 points instead of the 70 of the bidding sheet.

With the current text, the best tenders the most points.

“Related to Reckless”: To come back to the terms of the Contracts of Public Works Sheet of the Ministry of Fomento. As it is a concession bid, reckless will be reflected in the economic and financial plan of the tender in addition to the low in prices to be quantified. The sheet points out “Unusual supposition”

To reduce the technical punctuation range to a maximum of 40 points instead of the 70 of the bidding sheet.

With the current text, the best tenders the most points.

“Related to Reckless”: To come back to the terms of the Contracts of Public Works Sheet of the Ministry of Fomento. As it is a concession bid, reckless will be reflected in the economic and financial plan of the tender in addition to the low in prices to be quantified. The sheet points out “Unusual supposition”

CRITICS AND COMMENTSCRITICS AND COMMENTS

At last, the sheet sets some “Additional duties of the concessionaire” that consist of including in the contract price the replacement and maintenance of works , up to 20 % of initial repair, unknown when bidding the contract. (art.1.4)

This caution obliges to improve the road in the future, even including an uncertainty fixed in the purpose of the contract.

At last, the sheet sets some “Additional duties of the concessionaire” that consist of including in the contract price the replacement and maintenance of works , up to 20 % of initial repair, unknown when bidding the contract. (art.1.4)

This caution obliges to improve the road in the future, even including an uncertainty fixed in the purpose of the contract.

CRITICS AND COMMENTSCRITICS AND COMMENTS

Gerardo Gavilanes Director of the Economic Advisory Division Wednesday, 20 th June 2007 FINANCING...

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Transcript of Gerardo Gavilanes Director of the Economic Advisory Division Wednesday, 20 th June 2007 FINANCING...