Developing Public Private Partnership in
the Republic of Serbia
International Legal Options
Paul, Hastings, Janofsky & Walker (Europe) LLP
Kirk Lovric, Project Finance
16 November 2010
Outline
About Paul Hastings
International Expectations
International Options
Case Studies
PPP Market Development
Strategies for Success
Q&A
www.paulhastings.com
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
About Paul Hastings
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Paul, Hastings, Janofsky & Walker LLP is a global law firm with over
1,250 lawyers in 18 offices around the World.
We operate from the major business centers in Europe, North America
and Asia.
In Europe, we have key offices in London, Paris, Frankfurt and Milan.
We are a full service corporate law firm with a market leading project
finance and PPP practice.
We advice around the globe on PPP projects with particular emphasis on:
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Europe;
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North America;
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South America;
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Asia; and
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Middle East.
www.paulhastings.com
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
Selected recent PPP experience in Emerging Markets
Varna and Bourgas – Bulgaria Advising Vinci Airports and Vinci Concession in relation to their bid to expand and operate the
airports in Varna and Bourgas, Bulgaria on a BOT basis.
Istrian Toll Motorway – Croatia Advising the Government of the Republic of Croatia on the refinancing of the first phase of the
Istrian toll motorway and the financing of the construction, operation and maintenance of the Istrian toll motorway (European
Road Deal of the Year 2003).
Oman Airport Privatization – Oman Representing Alterra (a joint venture between Bechtel and Singapore Changi Airport) in its
bid for the Muscat and Salalah airport privatization in Oman.
Military Hospital – Czech Republic Advising the Czech Government in connection with the construction and financing of the
Military Hospital in Prague.
Mumbai and Delhi Airport Privatizations – India Representing Reliance Energy Limited in its bid for both of the Mumbai and
Delhi airport privatizations in India.
Croatian Ports – Croatia Representing Dubai Ports in respect of a port project in Croatia.
Jorge Chavez International Airport in Lima – Peru Representing Odgen Aviation in connection with a bid to acquire a
concession to operate the Jorge Chavez International Airport in Lima, Peru.
The PRC Ministry of Railways JC - Cina Advised NWS Holdings Limited, a Hong Kong listed company, in the establishment of
joint venture enterprise with a total investment of RMB20 billion to operate rail container terminal and related businesses in 18
cities in the People's Republic of China.
www.paulhastings.com
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
International Expectations
Western European PPP Procurement Requirements
 In the EU, PPPs that qualify as “public contracts” under the Public Contracts
Directives must comply with the EU Procurement Directives
(EU/Directive/17)
 Public Banks like to see that procurement has been completed in
accordance with EU rules.
Eastern European Procurement Practices
 Eastern European countries generally have not got EU compliant
procurement processes which makes it difficult for EIB and EBRD to lend
 Aim to comply with EU procurement law & the Public Contracts Directives,
otherwise PPP projects will not obtain competitive finance in the market
 Eastern European countries are often more reliant on funding from the
World Bank, EIB or the EBRD for funding aspects of their PPPs and,
consequently, EU procurement is more important
www.paulhastings.com
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
International Expectations
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Complete revenue forecasts using international qualified consultants (be realistic
about revenue and asset value not concerned about extracting a commercial
return on Government assets)
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Aim to access EU Cohesion Funds and Public Bank funds
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Use International Construction Contractors (even though construction prices
quoted by foreign contractors and the returns required for its equity will look
excessive when applied its public sector comparators)
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Use International Commercial Banks (even if the financing terms proposed by the
foreign contractor are considered to be too expensive)
Be concerned and focused on:
 Government Balance Sheet and budgetary restrictions (avoiding Sovereign
Guarantees) – aim to transfer Construction, Financing and Operations risk to a
large Private Sector partner with the balance sheet to take such risk
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Ensuring first projects are a success (Large PPP Partners are concerned about
development costs in emerging markets) – other PPPs will follow
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©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
International Options
Government Financial Support Options
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Availability Payments
Shadow Availability Payments
Revenue Guarantees
(Sovereign Government Credit Service Payment, Debt not Sovereign
Guaranteed)
Private Sector Revenue Options
 Hybrid
– Eg: Higher Tolls on Freight on Motorway than Public Usage
– Mixture of Different Pricing for Hospital Usage
Risk Allocation Options
 Ground Risk Allocation
 Repayment of Debt on Contract Termination
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©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
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International Options - Financing
Transport Projects Spectrum
PPP Projects Spectrum
Market Revenue
Sufficient Revenue
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Hybrid
Shadow Usage Payment/
Availability Payment
(Full Government Support)
Partial Revenue
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Insufficient Revenue
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International Options - Risk Allocation
Major Risk
Borne by
Government
Land Permit
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Land Acquisition
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Borne by
Concessionaire
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Final Design & Building Permit
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Ground Risks
Construction
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Operation & Maintenance
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Defects (New Works)
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Defects
Latent Defects
Demand
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Patent Defects
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Financing
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Contract Termination
www.paulhastings.com
Shared
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
Case Studies – Traditional Structure
Traditional PPP Structure
Government
Concession
Agreement
Private
Investor(s)
Shareholders
Agreement
Concessionaire
Construction
Contract
Construction
Contractor
www.paulhastings.com
Funding
Agreements
Lenders
O&M
Agreement
Operator
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
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Case Study – Bina Istra Motorway
Emerging PPP Structure
Tolls
Government
Private
Investor(s)
Concession Agreement &
Availability Payment
Private Hard Toll Revenue
Shareholders
Agreement
Funding
Agreements
Concessionaire
Government
Lenders
O&M
Agreement
Construction
Contract
Construction
Contractor
www.paulhastings.com
Operator
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
Case Study – Prague Military
Hospital
Emerging PPP Structure
Private
Hotel
Revenue
Government
Private
Investor(s)
Concession Agreement &
Availability Payment
Private Revenue
Shareholders
Agreement
Funding
Agreements
Concessionaire
Government
Lenders
O&M
Agreement
Construction
Contract
Construction
Contractor
www.paulhastings.com
Operator
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
PPP Market Development
Stage 1
Transport – Motorways and Tolling Systems
Stage 2
Transport – Airports, Railways and Ports
Stage 3
Social Infrastructure (Schools, Prisons and Hospitals)
Stage 4
Defence
Stage 5
IT
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©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
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PPP Market Development
Stage 1
Governments
Stage 2
Public Sector Banks
Stage 3 -1
Sponsors
Stage 3 -2
Commercial Banks/Bond Houses/Monolines
Stage 3 - 3
Private Equity Funds
www.paulhastings.com
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
Strategies for Success
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Identification of key public infrastructure for investment
Ensuring necessary legal framework is in place
Identification of “pathfinder” projects – select projects that are not
technically too difficult and will be attractive to the market (e.g. in terms of
amounts and duration) and can be achieved within a PPP structure
Ensure risk allocation will achieve off-balance sheet treatment
Identification of key personnel within Government to co-ordinate PPP
projects and to be a repository of PPP know-how
Establishment of market precedent
Standardisation for costs savings
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©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
Strategies for Success
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Recognise process involves a multi-party approach with a diverse
number of stakeholders
Recognise that some participants may be less sophisticated than others
Identify Government’s Key Concerns and the Private Sector’s Key
Concerns
Draw upon experienced participants and advisers
Formulate strategies to:
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Avoid Pitfalls and Obstacles
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Address Government’s Key Concerns
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Address Private Sector’s Key Concerns
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©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
Q&A
Q&A
www.paulhastings.com
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
Future Contacts
Jonathan Simpson
Partner, Head of European Projects, London
Paul, Hastings, Janofsky & Walker (Europe) LLP
T 44-20-3023-5153
jonathansimpson@paulhastings.com
Kirk Lovric
Senior Associate, London
Paul, Hastings, Janofsky & Walker (Europe) LLP
T 44-20-3023-5118
kirklovric@paulhastings.com
Pierre Kirch
Partner, Brussels
Paul, Hastings, Janofsky & Walker (Europe) LLP
T 33-1-42-99-04-23
pierrekirch@paulhastings.com
www.paulhastings.com
©2010 Paul, Hastings, Janofsky & Walker (Europe) LLP
Confidential - not for redistribution
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