Public Private Partnerships
THE CHANGING LANDSCAPE OF
INFRASTRUCTURE FINANCE
Jill Jamieson
Deloitte Consulting, LLP
Astana Economic Forum
22 May 2012
MEP PPP COMPONENT
Market Maturity Curve by Country
• Kazakhstan is still in early
stage of PPP development
High
• Project design, legislative
shortfalls and other factors
have been key impediments
in attracting international
investors.
Stage Three
Sophistication
UK
Australia
Spain
Stage Two
Canada
Ireland
Netherlands
Italy
New Zealand
Greece
Portugal
Potential to
Leapfrog
France
US
Japan
Germany
Stage One
China
Hungary
India
Czech Republic
Slovakia
Bulgaria
Latvia
Croatia
Russia
Albania
Kazakhstan
Low
Low
Belgium
South Africa
Denmark
Mexico
Finland
Brazil
Activity
High
• Push for reforms : “PPP has
a great potential to attract
private investment - we
launched this mechanism in
Kazakhstan but it needs to
be improved in accordance
with international best
practice.” – President
Nazarbayev January 2010
2
GLOBAL CONTEXT
• Kazakhstan is launching its PPP program
at a very complicated time for
infrastructure finance
• Global investor flight to quality
• Kazakhstan must consider the global
infrastructure finance market if it hopes
to gain credibility with global investors
• While local investors may be an option
in the medium term, Kazakhstan does
not yet have the local financial
infrastructure in place to launch a local
PPP market
• Kazakhstan’s New Finance Initiative
makes the application of international
best practice in PPP critically important
to the country’s fiscal stability
3
CHANGING LANDSCAPE
Financial crisis has changed the economics of PPP as financial transactions:
Pre-Credit Crisis Trends
Current Trends
Demand
• Limited public money available for
infrastructure
• Fiscal dynamics encouraging
government to explore alternative
delivery models
Demand
• Infusion of public money for
infrastructure (stimulus)
• Fiscal distress solidifying interest in
alternative delivery models
(austerity)
Supply
• Well functioning debt capital
markets and international project
finance loan market
• Dominance of active equity
investors and emergence of
infrastructure funds
Supply
• Challenged debt capital markets
• Price and tenor constraints in
international project finance market
• Impairment of some equity
investors balanced by continued
growth in infrastructure funds
4
RECENT CAPITAL STRUCTURES
Capital Structure of recent PPP deals
Transaction
Date
Value
(US$ millions)
Debt/Equity
Ratio
Embraport (Brazil)
11/2011
US$1,015
75/25
Lake Turkana Wind Power
(Kenya)
4/2011
US$ $867.7
70/30
Pristina International Airport
(Kosovo)
6/2011
US$186
65/35
Florida I-595 (USA)
3/2009
US$1,670
87/13
St. Petersburg Pulkovo Airport
(Russia)
6/2010
US$1,600
60/40
Karaganda Kindergarten
Concession (Kazakhstan)
10/2011
US$40
0/100
5
INFRASTRUCTURE INVESTORS
Strategic buyers /
Concessionaires
•
•
•
•
Traditionally, sector operators, developers or contractors
Benefit from sector expertise, which can enhance the VfM
Long-term investment strategy
Always take part in consortium (to control results)
Infrastructure
Funds
•
•
•
•
•
•
Equity funds focused on infrastructure investments
Strong liquidity awaiting investment opportunities
Lower equity returns than for financial sponsors
Typically look to take part in a Consortium
Medium to long-term investment
Smaller investments than financial sponsors
•
•
•
Equity firms with short exit strategies
High equity returns may limit value-for-money
Normally look for short-term investments with clear exit
strategies
Typically take part in a consortium
Financial Sponsors
•
6
CURRENT TRENDS
 PPP is being employed as part of both
austerity and stimulus programs
 Investors are in pursuit of quality transactions
 Known strategic partners /
concessionaires
 Transparency and balanced risk
 Innovation in risk distribution has revitalized
investors in some areas
 Infrastructure funds are dominating the
markets
 Sector preferences (i.e. clean energy) are
jump-starting PPP programs
 Increased emphasis on fiscal impact of PPP
7
RECOMMENDATIONS




Global crisis has evidenced a strong flight towards quality projects, so if Kazakhstan
hopes to attract serious foreign investment, it must place more emphasis on
transaction design:
 Hire qualified transactions advisors
 Seek balanced risk allocation
 Insist on transparency in procurement
 Ensure contractual and regulatory compliance
Undertake legislative reforms, but with an aims towards:
 Simplification of the legal framework
 Overcoming known deficiencies in legal framework
 Drive legislative reform through pilot projects
Desperate need for Institutional reform:
 Institutional structure for PPP in Kazakhstan is an obstacle to investment
 Approval processes are excessive and ineffective
Pilot Projects
 Enable line ministries and regions for project development
8
USAID Macroeconomic Project