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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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?

2 Wednesday, June 18, 2

Economic and Financial Feasibility of PPP Projects
Appraisal of PPP projects

General project appraisal PPP specific project appraisal

Technical feasibility
Economic and financial
feasibility
Organisational and legal
feasibility
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

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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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Economic and Financial Feasibility of PPP Projects
Assessing Value for Money

5 Wednesday, June 18, 2

Economic and Financial Feasibility of PPP Projects
Assessing private sector interest

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

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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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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, caf, 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 week-days

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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

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)

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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)
Architecture: Building(s) must be flexible in other to accommodate
changes in number of pupils and in educational principles

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PPP for Buildings
Performance specifications (example a school)

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/m 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

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PPP for Buildings
Performance specifications (example a school)

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)

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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:

Contract Notice

Selection of candidates and invitation to dialogue

Dialogue Phase

Final Tender

Evaluation of tenders

Selection of Preferred Bidder

Contract Signature

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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:

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

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PPP for Buildings
Case studies

Nstved 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 Friday-
Sunday

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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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PPP and donor support - synergy or competition?
Challenges in combining PPP and EU funding

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PPP and donor support - synergy or competition?
Models for combining PPP and EU grants

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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: Active PPP transaction advisory

assignments (June 2008):
Setting up the institutional
framework for PPP Langeland School, Denmark
Structuring PPP solutions Gentofte Arena, Denmark
for specific projects
Nstved Arena, Denmark
Assessing market interest
Odense regional airport, Denmark
Financial modeling of PPPs
Dublin Waste to Energy, Ireland
Contract structures
Fingal Landfill, Ireland
Assistance during tender
and negotiation Belgrade Landfill, Serbia

10 water concessions, Uganda

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