Southeast Europe

PPP Infrastructure Forum

12-13 June 2013

PPP Privatization in SEE

A Private Equity Perspective

Thomas Frankl, PhD

Airport Development Partners
Brixton Capital
There are
many PPP
success
stories out
there but THE
little is
known DOU ALA
about the
failures
 THE DOUALA TRICK

This is the story of an airport PPP

told from the perspective of a
member of the Firefly consortium
A purely fictional, subjective and
subversive account
Any resemblance with real PPPs
would be entirely coincidental
 THE DOUALA TRICK
The Cast:
The government of Freedonia (transport ministry
and PPP agency);
The Prime Minister of Azurria;
Numerous consultants (PPP, traffic forecast, )
Ten consortia, among which:
The Firefly consortium made up of a major public
airport operator, a leading construction firm and a
private equity fund
The Flyover consortium made up of a major private
airport operator, a leading construction firm (in
which the government of Azurria holds 11%) and a
finance institution
 Chapter 1 Early Days

Its early 2008, before the global financial crisis

Money is chasing infrastructure assets
Infrastructure PPPs are drawing record interest,
and achieving record prices
PPP has come to be accepted as the friendlier
face of privatization
Government of Freedonia: Our capital airport
has become a disgrace it should be the pride
of our nation but we lack the funds: Lets do a
PPP !
 Chapter 1, contd Early
Days
Traffic forecasters tell the government what
it wants to hear: your airport has the
potential to become the regions hub before
your bigger archrival, Sylvania, will be able
to build the infrastructure, and traffic will
come
Freedonian government commissions breath-
taking design for a landmark airport terminal
based on highly aggressive traffic forecasts
25-year BOT tender documentation is drafted
and airport PPP consultants hired (on a
success basis)
 Chapter 2: The PP Plot
Thickens
Global recession now its assets chasing
money; even worst case traffic forecasts
have been proven too optimistic
PPP projects that used to be bankable,
arent so any longer
while governments are more in need
than ever to implement PPP pipelines
Consequence for Freedonias capital
airport: cancel, adapt terms & conditions
- or pretend nothing has changed
We stick with it ! we have gone through
worse crises than this ...
 Chapter 2, contd : The PP Plot
thickens

Consultants panic: we cant get the minimum

number of interested parties for the PQ so we
wont be able to collect our fees
They tell candidates: dont worry, Freedonia
will ease up on the conditions just pre-
qualify and you will be fine
They also make the PQ criteria fit to some
candidates who otherwise wouldnt be able to
bid probably without government approval
 Chapter 2, contd : The PP Plot
thickens
Government of Freedonia speaks to potential
interested parties
Their feedback: We like your project, there are
just one or two problems (aka show-stoppers)
Future bidders start lobbying Flyover
consortium mobilizes Azurrias PM (close friend
of Flyover consortium member CEO)
In the meantime, the global crisis has led to a
credit crunch, many banks are busy avoiding
bankruptcy
 Chapter 3: Going live
Pre-qualification: IM and supporting
documents issued: errors, contra-
dictions, ambiguities
Endless rounds of Q&As, requiring
multiple deadline extensions
Consortia realize that conditions
remain in fact unchanged they
attempt to change them via the
Q&A process. Unsuccessfully.
 Chapter 3: Going live
A number of consortia
prequalify, regardless
The short-listed
consortia analyze the
PPP tender: no change.
We cant make this
work - unbankable.
Weve had enough , we
are out!
except for the Flyover
consortium
 Chapter 3: Going live
which issues the only valid bid
The other consortia are in disbelief:
 Chapter 4: The Douala Trick

They pulled the

Douala trick ! (All we may get
How can they get out of this is an
away with it AGAIN ethics award but
?! that wont cover
our expenses)
 Chapter 5: Catch-22
Freedonia government declares success
we have a final bidder !
PPP Agreement is signed with great fanfare
Ground-breaking before April 11, 2013 at
the latest
But nothing happensno cranes, no
workers, no trucks in sight
Concessionaire signals problems we
cant get financing at acceptable terms
very sorry, but its completely outside our
controlcould it be because the PPP is not
Chapter 5: Catch 22
 Chapter 5: Catch-22
Freedonia is a proud country but it
depends on Azurrias political support
Cancelling the PPP would therefore carry
high risks for Freedonia
Instead, the PPP agreement gets adapted
to take account of new realities
The drop-out consortia are too frustrated
to sue they have moved on
but they wont bid again for a PPP in
Freedonia
EPILOGUE THE
DOU ALA
 How avoid future Catch-22 situations?
1. Governments must build their own PPP
capacity consultants wont do it for them.
Difficulty of reconciling the interests of
government and consultants
PPP capacity also helps select competent
consultants
There is nothing warm & fuzzy
about PPP be prepared for
the usual tricks & manoeuvers
The United Nations has
Established a PPP Centre of Com-
petence in Geneva happy to
make the introductions !
How Avoid Future Catch-22 Situations ?

2. Manage public expectations

effectively:
Establish a communications strategy
Be (very) wary of traffic forecasts
understand the forecast methodologies
Dont overestimate bidder interest
Dont raise unrealistic expectations even
if a future government will have to deliver
Define, and communicate, what will
constitute success and failure
Have a plan B
How Avoid Future Catch-22 Situations ?

3. Re-structure or re-organize projects in

response to a changing environment (e.g.
higher private sector risk aversion, interest
rates, etc.)
Communicate early to stakeholders and
the wider public
Consider conversion into a shorter-
duration management contract and re-
issue when the environment has improved
How Avoid Future Catch-22 Situations ?

4. Grey list dodgy bidders

Successful non-fair play bidders can damage the
reputation of governments and of PPP in general
Grey Listed parties would flag warning signal,
not mean automatic exclusion
World-wide exchange of PPP practices and
experience
Dont just look at the success stories - more is
often learned from tough challenges and failures
How Avoid Future Catch-22
Situations ?
5 . Immunize PPP projects from
external political influence
Anticipate political influence for
high-value and high-profile PPPs
Communicate policies and
procedures clearly from the
beginning
Refer to them and stick to them
THANK YOU !

Thomas Frankl
tfrankl@adp.aero
+41 797 161 161