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PPPs for East Africa

Competitiveness and Trade

Expansion Program (COMPETE)

Patricio Mansilla

Director Infrastructure

Chemonics International

Nairobi-Kenya,

April, 2009

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Agenda

1. Chemonics Relevant and Sucessful Experience in

Transport Multimodal Infrastructure Investment

2. Infrastructure Investment in East Africa Multimodal

Corridors

3. Main Expected Results of the Infrastructure

Investment Plan

3

Chemonics Relevant and

Successful Experiences in

Transport Multimodal

Infrastructure Investment

4

Our Approach to PPP

• Approach PPP infrastructure development as a Program rather

that ad-hoc transactions.

• Provide specialized Technical Assistance through the entire

project life-cycle

• Do not short-change project preparation costs

• Promote vigorous, open, and transparent competition

• Look for opportunities to leverage public sector funding

• Strengthen the legal/regulatory and institutional frameworks

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USAID Successful PPP Program in

Peru

Chemonics PRA Project

PRA PPP Unit

Demand and

FinancialEngineering Contracts Environment

Amazon North: 960 Km.

Investments: $220 mil.

O&M: $15 mil./year

Awarded in: April 2005

Amazon Central: 854 Km.

Investments: $115 mil.

O&M: $15 mil./yearSouth ContainerTerminal

Port of Callao$364-$617mil.

Awarded: June 2006

Transport PPP

Transactions

FBT: 480 Km.

Investments: $162 mill.

Paita Port$120 mil.

Awarded: April 2009

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West

East

Matucana

Ticlio

Lima

Chosica

La Oroya

Junín

DV

Cerro de

Pasco

Huánuco

DV Tingo María

Pucallpa

9000

1000

2000

3000

4000

5000

6000

0 100 200 300 400 500 600 700 800km km

m.o.l.s.

Challenging Altitude

of Peru´s Central

Corridor

• A 25-year Concession Contract

to improve, rehabilitate, operate

and maintain 960 Km. of road

infrastructure between Paita

and Yurimaguas

• Initial investments:

– Phase I (years 1-2): US$ 95.0

million

– Phase II (years 2-4): US$

120.0 million

– TOTAL:

US$ 215 million

• Average annual O&M: US$

15.0 million

Government of Peru´s

annual contributions

US$

Millions

Annual Payment for

Construction for 10

years

US$ 29

Annual Payment for

Operation and

Maintenance for 20

years

US$ 15

Bidders request Government

contribution as part of their

proposals.

Project Example:

Amazon North Road

Amazon North Transaction Structure

Ministry of

Transport

Concessionaire

Special Purpose

Company (SPC)

Amazon North

Road Concession

Inter-American

Development

Bank

Bond

Issue

25 year

Concession

Contract

Trust

Road Improvements,

Rehabilitation ($220

m), and O&M

($15m/year)

Partial

Credit

Guarantee

Tolls

International

Capital

Markets

Ministry of

Finance

Annual O&M

Payments ($15

mill)

15 annual

construction

payments

($29 mill.)

Coupon

Payments (i + p)

Transport

Regulator Regulation

and

Supervision

($60 mill.)

Multilateral Bank

Bridge Loan

(Advances)

Results: Reduced TransportCosts/Time

BEFORE: Unpaved Road Yurimaguas - Tarapoto (125 km)

Transport of cargo

Time: 12 hours

Cost: $53/T

Cost: T/km.= $0.50

Transport of passengers

Time: 6 hours

Cost: $10/passenger

AFTER: Paved road Yurimaguas - Tarapoto (125 km)

Transport of cargo

Time: 4 hours (-70%)

Cost: $30/T

Cost: T/km= $0.25 (-50%)

Transport of passengers

Time: 3 hours (-50%)

Cost: $5/passenger (-50%)

Average Transport costs for RICE, YELLOW CORN, and HARDWOOD

Amazon

IIRSA North

Deal of the

Year 2006

Callao Port

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Phase PPP Projects

Phase 1 (1990-2004)

Arequipa-Matarani Road

Matarani Port

Lima Airport

Red Vial 5 (Ancón-Huacho-Pativilca) Road

Phase 2 (2005-2007)

IIRSA North Road

Red Vial 6 (Lima-Ica) Road

IIRSA South (Segments 2-3-4)

South Container Terminal –Callao Port

North Group Regional Airports

Costa-Sierra Program (Buenos Aires-Canchaque Road)

IIRSA South Road (Segments 1-5)

Phase 3 (2008-2010)

IIRSA Central Road

Red Vial 1 Road

Red Vial 4 Road

North South Regional Airports

Ports of Pisco, Paita, Ilo and Salaverry

Total Investments US$3 billion

PPP Evolution in Peru

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USAID/ Chemonics Impact in Peru

Results

1. Increase productivity of 42.000 small business generating more

than $300 million in sales and 82,000 new jobs. New

investments $20 million

2. Technical assistance to design and implement PPP

transactions with investments for around $1 billion and $40

million in direct infrastructure investment. Currently the

Peruvian government has a PPP Program for $3 billion

3. GDP(1998) $52 billion to $134 (2009). Exports (1998) $5,6

billion to $28 billion

Mongolia Customs and Logistic ParkPrivate

Shareholders

Logistic Park

Development Co.

Regulatory

Agency or

Regulation by

contract

Users

Bond

Issue

Contributes

Equity

Tariff Regulation

Tariffs

Capital

Markets

Min.Finance

Min. Road, Transport

SPC-UBTZContributes

Land

Payment for

services

Coupon

Payments (i + p)

MFFA

Operation

Company

Services:

Parking

Road-Rail

Rail-Rail

Consolidation

Warehouse

Construction

CompanySpecific contract

Regulation

Contributes

Equity

Operation

Contract

Fee

Payment

Dividends DividendsDividends

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USAID/South Africa PPP Unit

Program (1999-2005)

• Established the PPP Unit within the National Treasury

• Developed the policy/regulatory framework for PPP –under Regulation 16 of PFMA

• Prepared guidelines and manuals on the regulatory requirements– National Treasury PPP Manual

– Companion manual on standardized provisions of PPP/agreements

• Establish a Project Development Fund to improve quality of PPP

• Built a portfolio of transactions

• Launched a highly effective stakeholder awareness campaign to educate the private sector in procurement requirements

Key Elements1. USAID Technical Support: through the transaction life cycle

(precept/alpha-omega)

2. Credibility and Transparency: in the bidding process

3. Competition²: lowest cost reduces opportunities for corruption

4. Risk Analysis: Allocate the risk to the partie better prepared. Example:annual minimum revenue guarantee.

5. Coherent and Consistent Technical Studies: This is Private Investmentnot Public Investment. Technical studies well designed to insure privatesector buying.

6. Shadow Rating: very important to discover if the transaction businessmodel is attractive for the private sector and financially viable.

7. Partial Credit Guarantee: bring more credibility to the process and makefeasible the financial operation

8. Environmental Studies: promote citizen participation and need tomitigate environmental problems in conformance of EPA section 216****

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Infrastructure Investment in East

Africa

Multimodal Corridors

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Northern and Central Corridors

NORTHERN

CORRIDOR

Mombasa

Dar Es Salaam

Kampala

Kigali

Bujumbura

CENTRAL

CORRIDOR

1530 kms

1800 kms

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Northern Road Corridor

21

Northern Rail Corridor

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Comparative Transport Corridors

CharacteristicsCallao Port

Peru

Paita Port

Peru

Mombasa Port

Kenya

Dar El Salaam

Tanzania

Container Terminal

Operation

Dubai Ports

Under

Construction

$700 million in 3

stages (30 years

BOT contract

Tertir Terminais-Translei

(Portugal) and Cosmos

(Perú)

Adjudicated April 1/2009

$120 milion (BOT

contract 30 years)

Kenya Ports Authority

Require invest in a

second container

terminal

Hutchinson Ports

10 years contract

Demand

1.1 million TEU

0.8 million TEU

(at the time of

bidding)

0.13 million TEU 0.6 million TEU 0.3 million TEU

Gantry Cranes

(Current situation)No Gantry Cranes No gantry cranes

4 40 tons ship to shore

gantry cranes2 gantry cranes

Population

GDP (IMF forecast

2009)

Trade-Exports

29 million

$134 bill ($44

year 1994 and

$60 year 2003)

$28bill

29 million

$134 bill ($44 bill year

1994 and $60 bill year

2003)

$28bill

39 million

$33 bill

$4,1 bill

43 million

$22 bill

$2,3 bill

Road

Inventory

Road

condition

Road Traffic

HDM4

Long Run Road Strategic Plan

Multi annualRoad Program

Level of Project

Policies and

standard

INPUTSOUTPUTS

HDM-IIIData Base

Costs

Road Management System

Financial Analysis

Revenues: Toll Roads, Port Tariffs andRailways Tariffs

Revenues: Commercial Services in Portsand Railways. Real Estate and Land Use inRoads

Costs: Maintenance Costs and OperationCosts

Taxes: Value Added Tax and Profit Tax

Depreciation or Amortization of Assets

Roads PortsRailways

Equity: Capital from investors (20%-30%of investment)

Co-Funds: Governments or Donors Funds

Debt: Between 70% - 80% of totalinvestment

International Capital Market: Sponsorsmust to have strong technical and financialcredentials. Partial Risk/Credit Guaranteesare highly desirable.

Consultation with key stakeholders: Build consensus, political commitment, and public support

Due Diligence / Technical Project Design

Demand Study /Financial Structuring

Risk Allocation & Mitigation

Tech/Fin/legal Transaction Design

Define Objectives/ Select PPP option

Shadow Rating/Credit Enhancement

Environmental Studies

TransactionDesign

TransactionImplementation

Local/International Promotion

Draft bidding documents/contracts

Pre-qualification

Bidder due-diligence

Interaction with Bidders “negotiation”

PPP Contracts/Procurement Process

Contract Award / Financial Closure

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Main Expected Results of the

Infrastructure Investment Plan

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Expected Impacts

Country/Transport

Sector

KenyaNorthern Corridor under PPP

$1 billon?

Technical and Economic

Support for the

current PPP $1 billon?

Appraisal of the business

Identify the Infrastructure Needs

Attract Financing $0.5 billion?

TanzaniaCentral Corridor under PPP

$1 billon?

Technical Assistance

for PPP Central Corridor

$3.5 billon?

Appraisal of the business

Identify the Infrastructure Needs

Attract Financing $0.1 billion?

UgandaPPP or Public Investment in

Central and Northern Roads

Technical Assistance

for PPP Central Corridor

Customs Efficiency

Financing/Port Tariffs

RwandaPPP or Public Investment in

Central and Northern Roads

Technical Assistance

for PPP Central Corridor

Customs Efficiency

Financing/Port Tariffs

BurundiPPP or Public Investment in

Central and Northern Roads

Technical Assistance

for PPP Central Corridor

Customs Efficiency

Financing/Port Tariffs

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Expected Impacts 1. Adequate understanding of the multimodal transport situation in the corridors

2. Identification of regulatory/institutional problems and lack of infrastructure

3. Promote coordination between authorities and stakeholders

4. Realistic Program to accelerate investment in infrastructure in both corridors

5. Identification and adequate implementation of the PPP opportunities

6. Promote sustainability of the Infrastructure Program

7. Reduce transaction costs for private and public investment in infrastructure

8. Motivate the expansion of the financial markets

CountryGDP

(2009 IMF forecast)

Competitiveness

Index Overall

Competitiveness Index

Infrastructure

Kenya 33.044 93 91

Tanzania 22.106 113 118

Uganda 14.863 128 115

Rwanda 4.188 - -

Burundi 1.309 132 129

Many Thanks!

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