The New Market ofThe New Market of

Public Private Partnerships Public Private Partnerships (PPPs) in Greece(PPPs) in Greece

by Alexandros Lykourezosby Alexandros LykourezosLykourezos Law OfficesLykourezos Law Offices

New York, November 17New York, November 17thth, 2006, 2006

Conventional types of Conventional types of

Public Procurement:Public Procurement:

Classical Public ContractClassical Public Contract

Concession Agreements Concession Agreements

Main Features/CharacteristicsMain Features/Characteristicsof Public Contracts: of Public Contracts:

Contract for Public Works (on Public Property)Contract for Public Works (on Public Property) State appoints Contractor (Public bid/Contract)State appoints Contractor (Public bid/Contract) Contractor undertakes the project (construction)Contractor undertakes the project (construction) State pays reward to Contractor State pays reward to Contractor

(installments/upon completion) (installments/upon completion)

Main Features/CharacteristicsMain Features/Characteristicsof Concessions:of Concessions:

Contract for Public Works (on Public Property)Contract for Public Works (on Public Property) State appoints Contractor (Public bid/Contract)State appoints Contractor (Public bid/Contract) Contractor undertakes the project (construction)Contractor undertakes the project (construction) State contributes in financing the projectState contributes in financing the project State concedes use and exploitation of the final State concedes use and exploitation of the final

project by Contractor for a long time periodproject by Contractor for a long time period

The basic practical weaknesses The basic practical weaknesses The burden on the Public side:The burden on the Public side:

Immediate Cost – On Balance SheetImmediate Cost – On Balance Sheet Breach of Public Contract (delays, faulty Breach of Public Contract (delays, faulty

construction)construction) Risk for bad performanceRisk for bad performance Initiative dependant on the National Economy Initiative dependant on the National Economy

((“only available when money is available”“only available when money is available”)) Unfair terms in Concession AgreementsUnfair terms in Concession Agreements Not flexibleNot flexible

Public Private Partnerships (PPPs)Public Private Partnerships (PPPs)

Definition:Definition:““any joint venture between a public body any joint venture between a public body and a private company, typically involving and a private company, typically involving the joint ownership of a special purpose the joint ownership of a special purpose

vehicle (SPV) established under company vehicle (SPV) established under company law, to work in collaboration on a variety law, to work in collaboration on a variety

of projects”of projects”

The basic facts about PPPs: PPPs are not new (UK Privatization scheme in the 80s)PPPs are not new (UK Privatization scheme in the 80s) PPPs, in principle, are a type of Public Procurement PPPs, in principle, are a type of Public Procurement

(requiring special legislation) (requiring special legislation) A “PPP” approach can be seen in conventional types of A “PPP” approach can be seen in conventional types of

Public Contracts (e.g. concessions)Public Contracts (e.g. concessions) However, PPPs introduce new financial tools and require However, PPPs introduce new financial tools and require

a new “attitude” by the Public and Private Sectora new “attitude” by the Public and Private Sector Considerable interest about PPPs all over Europe (EC Considerable interest about PPPs all over Europe (EC

Commission launched a wide debate with the “Green Commission launched a wide debate with the “Green Paper” on PPPs in 2004)Paper” on PPPs in 2004)

““PPP” is a generic term: Private Finance Initiatives (PFIs) PPP” is a generic term: Private Finance Initiatives (PFIs) is one form of PPP – is one form of PPP – “Procurement of services by private “Procurement of services by private sector that are delivered through public assets”sector that are delivered through public assets”

The basic characteristics of PPPs:The basic characteristics of PPPs:

Contract between a public body and a private Contract between a public body and a private entityentity

Relatively long duration of the contract Relatively long duration of the contract Private entity either Designs-Builds-Operates Private entity either Designs-Builds-Operates

(DBO) or Designs-Builds-Finances (DBF) facilities(DBO) or Designs-Builds-Finances (DBF) facilities Private entity is financed by Private Institutions Private entity is financed by Private Institutions

(agreement may include risk transfer, insurance (agreement may include risk transfer, insurance and “step-in” clauses)and “step-in” clauses)

Public body either pays upon completion of the Public body either pays upon completion of the project or agrees on a concessionproject or agrees on a concession

The basis features of PPPs:The basis features of PPPs: New Market for provision of Construction & New Market for provision of Construction &

ServicesServices The financial aspect of PPPs The financial aspect of PPPs Public Works Public Works Financial Instrument Financial Instrument Off-Balance Sheet – EUROSTAT 11 Feb. 2004Off-Balance Sheet – EUROSTAT 11 Feb. 2004 Allocation of RisksAllocation of Risks

Construction – Demand – Availability RiskConstruction – Demand – Availability Risk BankabilityBankability

Secondary Market – SecuritisationSecondary Market – Securitisation InsuranceInsurance Value for Money – Public Sector ComparatorValue for Money – Public Sector Comparator

Incentive for QualityIncentive for Quality

Basic conclusion on PPPs:Basic conclusion on PPPs:

Public sector: Public sector:

Saves money – Value for Money – Saves money – Value for Money – Allocation of RisksAllocation of Risks

Private sector:Private sector:

Makes money - Access to a new market – Makes money - Access to a new market – Investment incentiveInvestment incentive

Interested in PPPSource: IFSL

International Interest in PPP 1999

Interested in PPP Source: IFSL

International Interest in PPP 2006

Greek Law 3389/2005 on PPPs:Greek Law 3389/2005 on PPPs: Abolishes requirement of Parliament ratificationAbolishes requirement of Parliament ratification Adopts new EU Directives on Public Adopts new EU Directives on Public

ProcurementProcurement Regulates award and contractual scheme of Regulates award and contractual scheme of

PPPsPPPs Provides flexibility and allows shared better Provides flexibility and allows shared better

practicepractice Enhances bankability (step-in clauses and Enhances bankability (step-in clauses and

securitisation)securitisation) Complies with EUROSTAT regulationsComplies with EUROSTAT regulations

Practical layout - Award of a PPP contract Practical layout - Award of a PPP contract

(Greek Law 3389/2005): (Greek Law 3389/2005):

Government(Ministers’ Committee)

PPP Taskforce

Public Body (Municipality)

External Advisors Award Committee

Private entity(consortium)

SPV

Private entity(consortium)

SPV

Private entity(consortium)

SPV

Greek PPP projects in the pipeline:Greek PPP projects in the pipeline: Multi-schools projects:Multi-schools projects: 27 Schools in Attica and 31 Schools in 27 Schools in Attica and 31 Schools in

Macedonia Macedonia (€ 266 mil. + 20%)(€ 266 mil. + 20%) Prisons projects:Prisons projects: 3 prisons facilities in Salonika, Volos and Corinthos 3 prisons facilities in Salonika, Volos and Corinthos (€ 198 mil. + 20%)(€ 198 mil. + 20%) University of PeloponnisosUniversity of Peloponnisos

(€ 84 mil. + 20%)(€ 84 mil. + 20%) Courthouse projects:Courthouse projects: 2 courthouse facilities in Heraklion and Patras 2 courthouse facilities in Heraklion and Patras

(€ 100 mil. + 20%)(€ 100 mil. + 20%) Police facilities projectPolice facilities project in Attica in Attica

(€ 36 mil. + 20%)(€ 36 mil. + 20%) Fire department facilities projects:Fire department facilities projects: 7 facilities in Salonika, 7 facilities in Salonika,

Alexandroupolis, Veria, Lefkada, Giannitsa, Mesolongi & Gargaliani Alexandroupolis, Veria, Lefkada, Giannitsa, Mesolongi & Gargaliani (€ 31,5 mil. + 20%)(€ 31,5 mil. + 20%)

International Conference Center in AthensInternational Conference Center in Athens (Paleo Faliro) (Paleo Faliro)(€ 54 mil. + 20%)(€ 54 mil. + 20%)

MunicipalitiesMunicipalities (Article 224 of the New Municipalities Code) (Article 224 of the New Municipalities Code)

A quick case study: A quick case study: ““Athens International Airport”Athens International Airport”

A concession contract (with a PPP approach)A concession contract (with a PPP approach) EU funding: EU funding: Cohesion Fund 11%, EIB loan 47%Cohesion Fund 11%, EIB loan 47% Greek State contribution 19%Greek State contribution 19% Commercial debt 17%Commercial debt 17% Equity 6%Equity 6% SPV: Athens International Airport S.A (55% Greek SPV: Athens International Airport S.A (55% Greek

State, 45% Private Consortium)State, 45% Private Consortium) Construction delays: 3 months in advanceConstruction delays: 3 months in advanceSource: Patrick Boeuf, EIB, 2004Source: Patrick Boeuf, EIB, 2004

““Athens International Airport” – Duration of Project ImplementationAthens International Airport” – Duration of Project Implementation

Source: Patrick Boeuf, EIB, 2004Source: Patrick Boeuf, EIB, 2004

5 19 25 2 9 56

Announcement of theTender

Pre- selection ofBidders

Submission of Off ers

Signing of theConcession Contract(C.C.) Ratification of theC.C.by Law

Signing of FinancialContracts

Commencement Date ofthe C.C

Construction period

(Time in months elapsed in each phase)

Total (10 years)

5 19 25 2 9 56

Announcement of theTender

Pre- selection ofBidders

Submission of Off ers

Signing of theConcession Contract(C.C.) Ratification of theC.C.by Law

Signing of FinancialContracts

Commencement Date ofthe C.C

Construction period

Why invest in PPPs?Why invest in PPPs?

Access to a new market (services & Access to a new market (services & secondary market)secondary market)

Private investment (institutional & private Private investment (institutional & private investors)investors)

Project FinanceProject Finance Insurance and Risk TransferInsurance and Risk Transfer

Why is the Government using PPPs:Why is the Government using PPPs: Expand of Public Works - Private Expand of Public Works - Private

finance, off balance sheetfinance, off balance sheet Value for money – Risk transfer – Value for money – Risk transfer –

Performance-related rewardPerformance-related reward Commercial interest - InvestmentsCommercial interest - Investments Innovation, Efficiency, QualityInnovation, Efficiency, Quality New approach to “Privatization”New approach to “Privatization”

Arguments against PPPs:Arguments against PPPs: Burden on future balance sheetBurden on future balance sheet Excessive outsourcing/sale of public Excessive outsourcing/sale of public

propertyproperty Excessive private sector controlExcessive private sector control Commercialization of public servicesCommercialization of public services Corruption? Corruption?

Are these real concerns or Are these real concerns or

remainders of an old attitude?remainders of an old attitude?

The keys to a successful PPP:The keys to a successful PPP: Political support (focus on the public service)Political support (focus on the public service) Proper and complete legislation harmonized Proper and complete legislation harmonized

with international practice and expertisewith international practice and expertise Full and complete legal, financial and Full and complete legal, financial and

technical advice to the public bodiestechnical advice to the public bodies A good PPP contractA good PPP contract A level playing fieldA level playing field CollaborationCollaboration

Email:Email: allykourezos@lykourezos.gr allykourezos@lykourezos.gr

Website:Website: www.lykourezoslawoffices.gr www.lykourezoslawoffices.gr

Thank you for your kind Thank you for your kind attention!attention!