MINISTRY OF ECONOMY OF POLAND AND WORLD BANK
SEMINAR ON LEGAL, ECONOMIC AND
IMPLEMENTATION ISSUES IN PPP PROJECTS
Wednesday, June 18, 2008, 9:00-9:30
Economic and Financial Feasibility of
Building and Highway PPP Projects
Mr. Carsten Glenting, Head of Department, COWI
(cag@cowi.dk)
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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
Agenda
1. Economic and Financial Feasibility of PPP Projects
–
Appraisal of PPP projects
–
Value for Money
–
Assessing private sector interest
2. PPP for Buildings (Sports arenas & Schools)
–
The economics of buildings of public interest
–
Performance specifications
–
Tendering under EU competitive dialogue
–
Case studies
3. PPP and donor support - synergy or competition?
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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
Economic and Financial Feasibility of PPP Projects
Appraisal of PPP projects
General project appraisal

Technical feasibility

Economic and financial
feasibility
Organisational and legal
feasibility

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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP specific project appraisal

What are the key drivers for
proposing this project as a PPP

Is it likely that Value for Money can
be obtained through a PPP solution

Is the public sector project sponsor
ready to accept a different role
compared to a traditional
procurement

Is the private sector ready to accept
a different role compared to a
traditional procurement
Economic and Financial Feasibility of PPP Projects
Appraisal of PPP projects
PPP should be a conscious, professional and competitive
process
- even for privately financed projects, the money have in the end to be
paid by a combination of user charges, budget allocations and donors
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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
Economic and Financial Feasibility of PPP Projects
Assessing Value for Money
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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
Economic and Financial Feasibility of PPP Projects
Assessing private sector interest
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
Competition during the tendering of a PPP is a key prerequisite for
obtaining Value for Money for the public sector

Competition requires that the tender is sufficiently attractive to attract
several experienced private sector operators

To facilitate this, a mini market sounding of selected local and regional
private sector operators may be performed
Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP for Buildings (Sports arenas)
The economics of buildings of public interest
Financing of Construction costs may come
from 2 sources:

–
Public funding
–
Real estate development (residential,
corporate, hotels, retail)

European Sports arenas have a catchment
Area of 3,5 - 10 mio. inhabitants in a radius of
100 km

Operation of sports arenas CANNOT cover
investment

Sports arenas in dense populated areas may
be able to be operated without deficit
(e.g. O2 Arena in London, Color Line Arena in
Hamburg, The Globe in Stockholm, Parken
Stadium in Copenhagen, Dortrecht Stadium in
Holland)
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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP for Buildings (Sportsarenas)
The economics of buildings of public interest
Commercial revenues

–
Commercial activities like Congresses,
trade fairs, meetings parties generates
surplus
–
Concerts, plays, sports events combined
with SPONSORS, may balance
–
Restaurant, café, beer sales & fast food are
important sources of revenue
Other revenues

–
Municipality rent the facility for community
purposes
–
Professional sport clubs
Few Leisure PPP in the UK, because it is
considered to be high risk projects, unless the
public is willing to guarantee rent on weekdays

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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP for Buildings (Schools)
The economics of buildings of public interest
Construction costs

–
Financing of construction costs through availability payment
–
Little other income. If any it comes from excess capacity (evenings and
week-ends) which may be rented to private parties
Operation & Maintenance costs

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–
Fixed payment for utility costs (electricity, heat and water), i.e. costs
related to building
–
Variable cost for utility costs related to user behaviour
–
Penalty if PPP Co does not live up to standard service level (for instance
repair whole in the roof within a certain time)
–
Incentives to ensure that PPP Co and procuring agency cooperates (for
instance the parties share savings on maintenance cost due to reduction
in vandalism)
Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP for Buildings
Performance specifications (example a school)

Vision : Sports, Health & Science theme

Scope: School for 1000 pupils with 3 independent departments:
–
Primary level ( 0-3rd grade)
–
Medium level ( 4-6th grade)
–
Senior level (7-10th grade)
And a common area with administration, library, sportsfacilities
room for special subjects (Physics, biology etc)

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Architecture: Building(s) must be flexible in other to accommodate
changes in number of pupils and in educational principles
Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP for Buildings
Performance specifications (example a school)

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Technical standards, examples:
–
The building must meet the requirement for energy efficiency
level 2 (the need for energy for heating, ventilation, cooling,
hot water and light, must not exceed 70 kWh/m² per year)
–
Indoor climate (example: Ventilation must ensure maximum of
0,1% CO2..)
–
Lighting (200 Lux required )
–
Acustics (reverberation must not exceed 0,5 seconds)
–
Hot water utility must be dimentioned so it can accomodate
hot water need of 84 persons, who take 5 minutes showers
within 15 minutes
Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP for Buildings
Performance specifications (example a school)

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O&M standards, all tasks are described as
–
Short description of the task (The PPP Co is responsible for
cleaning of all building and equipment)
–
Objective (The school must be clean and hygienic, and there
must be a high customer safisfaction)
–
Quality and service standards (The service is measured by the
cleaning standards system as described in…)
Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP for Buildings
Tendering under EU competitive dialogue

The competitive dialogue is a procurement method for use in the
award of complex contracts, where there is a need for the
procuring agency to discuss all aspects of the proposed contract
with candidates

Steps:
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–
Contract Notice
–
Selection of candidates and invitation to dialogue
–
Dialogue Phase
–
Final Tender
–
Evaluation of tenders
–
Selection of Preferred Bidder
–
Contract Signature
Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP for Buildings
Case studies
Langeland School:

Financed through availability payments
from the municipality

DBFO

Procured through competitive dialogue

Service level definition describes as a
school for 1000 pupils with a number of
facilities - but no specification of m2 etc.

Key issues:
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–
Creative approach to meet energy
efficiency requirement
–
Bidders have to learn to work cost
efficiently under competitive
dialogue
–
Fixed budget envelope
–
Tax treatment is approved on case
by case basis
Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP for Buildings
Case studies
Næstved Arena:

Financed through sale of
surrounding land for residential
development

Concession

Procured through competitive
dialogue

Municipality pays investment
(availability payment) and
fixed low O&M fee

Municipality gets public access
Monday-Thursday + limited
number of weekend days

Commercial concerts and
enterprise events FridaySunday
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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP for Buildings
Case studies
Gentofte Arena:

Financed through sale of
adjacent land for commercial
development of office space
and public contribution

DB + O&M

Procured through competitive
dialogue

Municipality pays investment
(upon completion) and annual
O&M fee

Municipality gets full access to
facility
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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP and donor support - synergy or competition?
Challenges in combining PPP and EU funding
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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
PPP and donor support - synergy or competition?
Models for combining PPP and EU grants
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Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
COWI – Economic and Management
"Our competitive advantage is our ability to provide consultancy on
economics, finance and law in natural integration with engineering
and environmental disciplines"
PPP advisory services:
–
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Setting up the institutional
framework for PPP
–
Structuring PPP solutions
for specific projects
–
Assessing market interest
–
Financial modeling of PPPs
–
Contract structures
–
Assistance during tender
and negotiation
Wednesday, June 18, 2008, 9:00-9:30
Economic & Financial Feasibility of PPP
Projects
Active PPP transaction advisory
assignments (June 2008):
–
Langeland School, Denmark
–
Gentofte Arena, Denmark
–
Næstved Arena, Denmark
–
Odense regional airport, Denmark
–
Dublin Waste to Energy, Ireland
–
Fingal Landfill, Ireland
–
Belgrade Landfill, Serbia
–
10 water concessions, Uganda