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PPP project «Ķekava Bypass» Open daycija_OPENDAY.pdf · Funding of the European Investment Bank...
Transcript of PPP project «Ķekava Bypass» Open daycija_OPENDAY.pdf · Funding of the European Investment Bank...
PPP project «Kekava Bypass» Open Day© 2017 Deloitte Latvia 2
Agenda
• Project details
• Legal aspects
• Finance aspects
PPP project «Kekava Bypass» Open Day© 2017 Deloitte Latvia 4
Why Ķekava Bypass
• National Planning documents:o National Development Plan;o Transportation Development Guidelines 2014 –
2020
• Feasibility Study for Potential PPP Projects in the Road Sector
• Ķekava Bypass project was defined as one of the mostappropriate PPP projects in Latvia, reported to theMinistry of Transport by PricewaterhouseCoopers in2006
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• Over the past 15 years the population in project areaincreased several times
• One of the highest traffic intensities in Latvia (AADT exceeding 10,000 to 20,000 per day)
• Current traffic intensity is three times higher than amount this road section was designed for
• A7 is the only 2 lane single carriageway road crossing Riga
Why Ķekava Bypass
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Part of TEN-T Corridor
Part of the Trans-European Transport Network (TEN-T) Corridor I.
«Ķekava Bypass» project is included in the Final Report (Dec 2014) of the North Sea-Baltic Core Network Corridor Study of the European Commission with objectives to improve cross border connection, increase capacity and removing bottleneck.
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Details of the Project
Total length 17,5 km
Construction of the new road
14,4 km
Existing road reconstruction
3,1 km
4-lane road 11,1 km
2-lane road 6,4 km
CAPEX 80-100 m. EUR
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Advantages of PPP model and Socio-economic impact
Socio-economic impact
• Savings on value of time (increased average traffic speed)
• Economic benefits for traffic participants (savings on gas consumption, savings on vehicle operating cost)
• Reduction of risks related to road accidents
Advantages of PPP model
• Mutual financial benefits
• Optimal cost-effective risk distribution
• High quality road construction within the desired timeframe
• Innovative management and technologies
• Growth of industry expertise and enterprises
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• Declaration of the Government
• Initial decision of the Government from 12 Sept 2014 onpreparation of the project
• Approval of the Government from 13 Oct 2015 forpurchase of land properties for the needs of project
• March 2016 order of the Cabinet of Ministers was issuedabout launching procurement procedure for “E67/A7«Ķekava Bypass» PPP project”
Governmental support and PPP model
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Public-private partnership model
PPP model
Type of contract DBFM (design, build, finance and maintain)
Length of contract 23 years (3 + 20)
Type of payment Availability payment
Client The Ministry of Transport
Balance sheet treatment Off-balance from perspective of the Client
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Project timeline
Environmental Impact Assessment Approved, Q I, 2017
Further land acquisition In process until Q I, 2019
PPP tender Q IV, 2017
Financial close Q II, 2019
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Principles of implementation approach
Capital expenditure
Maintenance
KEY ELEMENT PRINCIPLE
DESIGN In accordance with EU standards.Open to innovative solutions.
CONSTRUCTION
COMPLETION & AVAILABILITY
In accordance with regulatory requirements (for completion certificate) and criteria of availability certificate.
MAINTENANCE Daily maintenance – subject to requirements of the Cabinet of Ministers Regulations for A1 road class.Periodic maintenance – subject to depreciation/technical indicators.
HAND-BACK In accordance with technical parameters.
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Funding of the European Investment Bank (EIB)
EIB appraisal mission
The appraisal mission in respect to technical, economic,environmental, procurement, implementation matters have beencompleted in April 2017
The first stage approval is being sought:• The project has been approved by Management Committee• The Board of Directors approval is expected on 18th July 2017• The project is a potential candidate for EFSI and Investment
Committee’s approval in respect of EFSI is expected on 17th
July
Final approval will be sought after the winning bidder isselected and the full due diligence has been made: beforefinancial close
15«Ķekavas apvedceļš» iepirkuma procedūras veikšanas nodrošināšana© 2017 Deloitte Latvia
Legal aspects
Procurement procedure
DeloitteDace Cirule
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Description Tender procedure with negotiations
Selection of candidates min 30 days
Minimum of invited candidates 3
If only one candidate corresponds Procedure must be discontinued
Initial proposal submission timeframe min 30 days*
Invitation is sent To all corresponding candidates
Content of negotiations procedure
Goal: improvement of the proposal content (except final submissions)Minimum requirements, appraisal criteria are not negotiated
Decision on the winning bidder without negotiations
Possible
* Minimum timeframe can be 10 days, if the mentioned conditions of Cabinet Regulations No 107, 28.02.2017 have been accounted for.
Key facts on procurement procedure
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Key facts on procurement procedure
Description Tender procedure with negotiations
Negotiation of the non-essential conditions of the PPP agreement after decision on the winner
Not possible
Harmonizing of procurement procedure documentation with CFLA
Before initiating the procurement procedure
Draft PPP agreement must be added to
Invitation to submit initial proposal (detailed, qualitative draft PPP agreement is elaborated prior to the tender announcement)
Draft PPP agreement during negotiations
• PPP agreement is harmonized with CFLA prior to commencement of the procedure;
• Specifically marked and non-essential parts of the draft PPP agreement can be altered during negotiations
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Project timeline
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Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Procurement timeline
6
Candid
ate
sele
ction
Negotiations &
develo
pm
ent
of
final solu
tion
0
4
Tender procedure with negotiations
Procu
rem
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t p
ub
licati
on
Su
bm
issio
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f can
did
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ap
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In
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su
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it in
itia
l o
ffer
In
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issio
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f o
ffers
Pre
para
tion
and
subm
issio
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f in
itia
l off
ers
Fin
al pro
posal
Waitin
g p
eriod
PP
P c
on
tract
fin
alizati
on
In
vit
ati
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su
bm
it t
he f
inal
off
er
Evalu
ation o
f pro
posals
Decis
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win
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Waitin
g p
eriod
PP
P c
on
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fin
alizati
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Fin
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Evalu
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6
12
Decis
ion
on
th
e
win
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10 6 10 44 4 2 WEEK
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Required qualifications to participate in procurement process
RANGE REQUIREMENT
ECONOMIC ANDFINANCIAL
• Average turnover from construction works• Requirement for equity capital level
• Ability to finance the project (support letter)• General working capital, liquidity, profitability, solvency
ratio
TECHNICAL ANDPROFESSIONAL
• Experience of construction in similar infrastructure (roads,other transport-related structure):
• Roads of the national significance (freeways,highways, regional)
• Annual average daily traffic volume• Experience of designing road infrastructure (main state
roads or regional roads or equivalent roads abroad)• Long term road maintenance capacity:
• Road type• Term of maintenance• Annual average daily traffic volume
• Capacity of professional staff in the above stated projects
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Lifecycle of the agreement
Conclusion of the Agreement(c. 6 months)
01
Preferred bidder decision
• Preferred bidder decision
02
• Fulfillment of the conditions precedent for the entryinto the force of the Agreement:
- Due Diligence of banks and “green light” for theproject
- Signing of financing agreements
- Submission of list of known subcontractors
- Compliance with insurance obligations
- Issuance of commencement guarantee
• Purchase of Land Necessary for Works / confirmationfrom landowners
•Signing of the information exchange agreement
•Compliance withavailability daterequirements
• AvailabilityCertificate
• Start of availabilitypayment
03
Design / Construction phase(c. 2/3 years)
Financial close / Contract date
Availability date
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Lifecycle of the agreement
Availability phase(20 years)
04
Completion date
• Compliance with completion date requirements
• Completion Certificate
• Availability payment in full amount
05
• Compliance with hand back requirements
• Hand back inspections
• Hand back guarantee
• Hand back Certificate
• Compliance with hand back requirements
06
Guarantee period(to be specified)
Hand back End dateAvailability
date
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Overview of the draft contract
Main provisions of the contract
Design of the Bypass
✓ Obtaining all permits for design
✓ Designing of the Bypass in line with the instructions of the Public Authority and Permits
Construction of the Bypass
✓ Obtaining all permits for construction
✓ Construction of the Bypass in line with the Design and Permits
Ensuring Availability of the Bypass
✓ Compliance with Availability Requirements
✓ Reinstatement obligation
Ensuring Maintenance of the Bypass
✓ Compliance with Maintenance Requirements
Hand Back of the Bypass
✓ Compliance with Hand Back Requirements
Termination & Step-in rights
Dispute resolution
Subject of the Agreement: DBFM
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Indicative financing plan
• Envisaged financial structure:
• Project finance type
• D/E ratio: 90/10
• Hedged interest rate risk
• Possible financing sources:
• Shareholder equity/sub-debt (10 %)
• EIB loan (up to 50 % senior debt)
• NIB loan (up to 50% senior debt)
• And/or commercial banks
• At BAFO: uncommitted financing
(up to 90 %)
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Cooperation of EIB with other potential lenders
• EIB can finance the lesser of up to 50% of total project costs and 50% of the total senior debt.
• EIB needs to be at least pari-passu with other senior lenders, meaning that the tenor of other lenders may not be shorter than EIB’s, etc.
• Except from being potential co-lenders for long term senior debt, commercial banks have other roles to play: account bank, security agent, intercreditor agent, equity bridge provider (if requested from bidders), etc.
• There are certain credit rating requirements for co-lenders, account banks, security agents, hedging banks, Letters of Credit providers: at the level of A-/BBB+
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Indicative structure
Project finance
The Ministry
of Transport
SPV
Prime Contracts
AvailabilityPayments
PPP Contract(DBFM
Agreement)
Debt funding:Commercial Banks,
EIB, NIB, other
Senior Bank Loan
Equity
EPC
Private Shareholders
Maintenance
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Requirements for financing plan
Financing plan
The Bidders shall be required to submit:
• Finance Plan (explaining financial structure, financing sources/availability, including their preliminary term sheets/letters);
• Financial model (in Excel format with all formula’s and macro’s used):
• Information also to be reflected in the financial model:
• Rates: IRR; WACC; D/E ratio.• Covenants: DSCR; LLCR; PLCR.• Accounts: DSRA; MMRA.
• Finance plan and financial model to be prepared for the whole project life.
Inputs CapexOpexDebt/sub-debt; equity costsManagement and insurance costsApplicable taxesIndexation
Outputs The Cash flow waterfallThe Statement of CFsThe Income Statement (P&L)The Balance Sheet
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General requirementsFinancial model
• Format and presence of supporting documents;
• Supporting documentation substantiating calculations and assumptions and descriptions should be comprehensive and detailed enough so that any competent finance analyst could evaluate logic and correctness of used assumptions without any additional information;
• Financial Model has to be prepared for the entire term of the PPP Agreement;
• Financial Model must include evaluation of all expenses relating to liabilities assumed and taxes payable by the Private Entity.
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Key elements
Financial model
• Financial model basis• e.g. Financial model preparation, Dates, Payment term, IRR,
Indexation, WACC, Price assurance, Principles of Availabilitycalculation etc.
• Sensitivity analysis• Requirements for the funding plan and
substantiation of financial capacity• e.g. Evaluation of the need for funding and the planned
structure of capital, Funding terms and conditions (borrowerand own capital), Refinance etc.
• Requirements for substantiation of investments and costs• e.g. Construction costs, Maintenance costs, Admin and
management costs, Risk management costs etc.
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Key elements
Financial model
• Requirements for substantiation of revenue, other than the Availability Payment• e.g. Interest, Other revenue.
• Requirements for the financial model, spreadsheet• e.g. Format, Binding terms, Input/Output level of details etc.
• Requirements for the Financial Model User Documentation• e.g. User Manual, Assumption book.
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Payment mechanism
General principles of Availability payment
𝑷𝒏 = 𝑷𝟏𝒏 + 𝑷𝟐𝒏
P1 Non indexed annualpayment related toconstruction cost
▪ Covers:▪ construction costs▪ debt financing costs▪ equity/sub-debt cash flows
P2 Indexed annualpayment related tomaintenance cost
▪ Covers:▪ maintenance costs ▪ major maintenance costs
(periodic investments)
• Spread from availability to contract end date
• Paid periodically and only during availability phase
• Fixed at the time final bid is submitted (certain exceptions exist)
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Payment adjustment structureOutput specification
Output specification structure:
• Technical requirements
• Availability requirements
• Performance requirements
Penalty regime is applicable:
• Unavailability deductions (proportional to availability)
• Under-performance deductions (deduction points)
Deductions are not applicable in case of:
• Relief events
• Rectification periods (except failures to meet rectification periods)
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Compensation on early terminationCompensation principles for different scenarios
Termination due to Public Entity Fault (or authority voluntary termination)
• The amount of senior debt outstanding at the date of termination
• Sponsors’ equity and sub-debt (including loss of return)
Termination due to Private Partner Default
• Compensation on the basis of an estimated market value of the contract
• Applicable if step-in/re-tendering options fail
Termination without Fault of the Parties (Force majeure)
• The amount of senior debt outstanding at the date of termination
• Sponsors’ equity and sub-debt actually contributed (but not loss of future return)
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Indicative risk sharing (list is not exhaustive)Identified main risks and critical aspects
Key risks Private sector Public sector Shared
Obtaining site ownership X
Granting access rights X
Site conditions X
Obtaining permits X
Authority inaction X
Design X
Construction (incl. delays) X
Variations requested by Authority X
Availability of bypass X
Failure to meet quality standards X
Changes in traffic volumes(capped)
X
Legislation changes: general X
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Indicative risk sharing (list is not exhaustive)Identified main risks and critical aspects
Key risks Private sector Public sector Shared
Legislation changes: discriminatory
X
Legislation changes: taxes X
Changes in VAT X
General price changes (excl. Indexation)
X
Availability of financing (after financial close)
X
Interest rate risk (after financial close)
X
Environmental damages X
Damage by users (accidents) X
Liability to 3rd parties X
Force Majeure X
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Financial Institution of the Nordic and Baltic countries
• International Financial Institution of the Nordic and Baltic countries
• Long-term lending in member countries and selected non-member countries
• The Bank complements commercial lending
• Funds acquired on international capital markets
• AAA/Aaa issuer credit rating
• Based in Helsinki
• Founded by the Nordic countries in 1975, the Baltic countries joined in 2005
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Based in Northern Europe
Iceland 0.9%Baa3/BBB-
Norway 21.5%Aaa/AAA
Sweden 34.6%Aaa/AAA
Denmark 21.1%Aaa/AAA
Finland 17.7%Aaa/AAA
Estonia 0.9%A1/AA-
Latvia 1.3%Baa2/A-
Lithuania 2.0%Baa1/A-
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Long-term lending instruments
• Corporate loans, 5–15 years
• Financing via financial intermediaries, 5–12 years
• Sovereign loans to states or against state guarantee, 15–30 years
• Loans to municipalities, 10–20 years
• PPP financing, 10–30 years
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Financing the PPP projects
• Nordic market leader in PPP debt finance
• Experience in transaction structuring & execution
• Long maturities
• Ability to evaluate and price the risk of PPP projects
• Loan amount: EUR 30-100 million.
• however, not more than 50% of the total project cost
• Non-exclusivity
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NIB's involvement in PPP procurement process
Pre-qualification phase
Competitive Dialogue / Negotiated procedure
Preferred Bidder, up to Financial
close
NIB's involvement:
- Familiarising with PPP agreement and with the Project
- Discussions with all pre-qualified bidders
- Meeting/-s with Procurement Authority
- Partial due diligence of the Project
- Providing indicative term-sheet
- Full due diligence of the Project
- Changes to PPP contract
- Internal credit approvals
- Committed financing offer
- Signing the Loan documentation (in 3-4 months after the Preferred Bidder announcement)
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Key factors in PPP financing
• PPP Agreement must be bankable:
− Risk allocation / Pass-down of risk from SPV to those best able to manage it
− Payment mechanism
− Termination events and Compensation on termination
− Step-in rights (Three party/ Direct agreement)
− Relief events, compensation events
• Experience and credit quality of Contractor and O&M provider
• Availability based projects cannot bear refinancing risk
• Interest rates must be hedged for the whole period of the loan
• Independent advisers assigned on behalf of senior lenders and independent engineer supervision during the investment and maintenance period
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Example of financing of the typical availability based PPP project
• Shareholder funds: 10-20%, bank loans: 80-90%
• Shareholder funds invested upfront or pro-rata (however, in this case
additional guarantees, Letters of Credit are needed).
• Base case financial ratios:
− min. DSCR > 1.25-1.30 , etc.
• Loan tenor: concession length minus 2-3 years, however not longer than 25-30 years
• Required reserve accounts:
− Debt service reserve account (DSRA): 6 months
− Maintenance reserve account (MRA): 3-4 years forward looking
• Standard PPP Security package, including step-in rights, performance guarantees, etc.
• Due diligence reports by independent advisers: Technical, Legal, Insurance, Model Audit
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PPP projects financed by NIB
Sweden Finland Norway Poland Russia
Arlanda express PPP project, 1994
E75 Järvenpää-Lahti road PPP project, 1997
E39 Klett-Bårdshaug road PPP project, 2003
A1 Gdansk-Torun road I phase PPP project, 2005
St. Petersburg waste water PPP project (LCC Nordvod), 2002
New KarolinskaSolna hospital PPP project, 2010
E18 Lohja-Muurla road PPP project, 2005
E39 Lyngdal-Flekkefjord road PPP project, 2004
A1 Gdansk-Torun road II phase PPP project, 2008
St. Petersburg Pulkovo airport PPP project, 2010-2011
E18 Koskenkylä-Kotka road PPP project, 2011
E18 Grimstad-Kristianstad road PPP project, 2006
E18 Hamina-Vaalimaa road PPP project, 2015
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E39 Klett-Bårdshaug road PPP financing
• Project cost: EUR 188 million
• NIB's loan amount: EUR 38 million
• Loan tenor: 26 years
• The 22 km road section, of which almost half is tunnels, was completed in only 26 months.
• Norway's first road PPP project.
• Project sponsors: Skanska ID AB (50%), John Laing Infrastructure Ltd (50%). Now the shares are sold to pension funds.
• Availability based payments
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