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Tools To Mitigate Risks in Highway Ppps
Tools To Mitigate Risks in Highway Ppps
Highway PPPs
Ellis J. Juan
Infrastructure Economics & Finance Department (IEF)
Workshop, PPP in Highways, April 3rd , 2006
Toll Road PPP : Cash Flow Fluctuations (Proxy for risk)
Repaymentof
Repayment ofDebt
Debtisisbased
basedon onproject
projectcash-
cash-
flows (non-recourse to sponsors)
flows (non-recourse to sponsors)
Basic Structure : Relativelyhigh
Relatively highinitial
initialinvestments
investments
Needfor
Need
sponsors longerdebt
forlonger debttenors
tenorstotojustify
justifyIRR
IRRtoto
US$ sponsors
Investment
Equity
Debt
Cash Flows real
Equity
Completion Risk (engineering & Inflation, interest rate and exchange rate
construction cost / time cost control) fluctuations
Operational Performance Risk Political Risk (expropriation, political
(technical & operational know-how) violence, currency convertibility & transfer)
Environmental Risk (future liabilities, Regulatory Risks.
Risks (Government’s default on
project delays, costs overruns) contractual obligations, i.e., pricing
formulas, right of way – land acquisition
Credit Risk (project leverage)
risk, construction of alternate road, etc. )
Legal Environment (rule of law,
law i.e., judicial
system, regulatory procedures and
arbitration)
Key Stakeholders in the Risk Assessment and Risk Allocation of Toll Roads PPP
Finance
Shareholders
Shareholders
Granting
Granting
Lenders//
Lenders Shareholder’s Authority
Agreement Authority
Bondholders
Bondholders Concession
Agreement
Project
Project Services
Services
Operator
Operator End-users
Company
Company Purchaser
Purchaser
Operation &
Traffic
Maintenance
Purchase Agreement Demand
Agreement (O&M)
(e.g., shadow toll –
government entity)
Construction
Contracts
Construction
Construction Authority
Authority Land acquisition and
Contractor
Contractor Rightof
Right ofWay
Way further transfer to PPP
FX Risks and
Refinancing Risks
Shareholders
Shareholders Regulatory Risks
Granting
Granting
Lenders//
Lenders Shareholder’s Authority
Agreement Authority
Bondholders
Bondholders Concession
Agreement
Project
Project Services
Services
Operator
Operator End-users
Company
Company Purchaser
Purchaser
Operation &
Traffic
Maintenance
Purchase Agreement Demand
Performance Risks Agreement (O&M)
(e.g., shadow toll –
government entity)
Construction
Contracts
Construction
Construction Authority
Authority Land acquisition and
Contractor
Contractor Rightof
Right ofWay
Way further transfer to PPP
Non-sovereign Sovereign
Rolling Guarantee
Outstanding Principal
Debt /
Service
Coverage
Ratio
DSCR
1.5
1.0
Rolling Guarantee
Years
N N+I N+2
Partial Credit
Guarantee MLA
Layerof
Layer ofLower
Lower BBB Credit Rating
CreditRisk
Credit RiskQuality
Quality (a portion of
(PCG)
(PCG) the credit loss
on the
transaction, --
debt service)
Products Partial Credit Guarantees Non-commercial political PRG – IBRD & IDA
Hedges for clients (interest rate, risk insurance PCG & PBG – IBRD Only
currency and commodity swaps)
Clients Private sector investors, lenders for Private sector investors, Private lenders for public
private sector projects lenders for private projects projects
Loans Yes Yes Yes
Equity Yes Yes No
(Quasi-Equity)
Coverage (Risk) Full and timely payment of principal •Currency convertibility and Government contractual
and/or interest up to a specified amount - transferability Obligations including:
IFC covers all risks that may result in non- •Expropriation • Currency convertibility and
payment of a client’s obligations. •War and Civil Disturbance transferability
(incl. terrorism and sabotage) • Expropriation
•Breach of Contract • Political Violence
• Breach of Contract
• Regulatory
• Subsidy payment (e.g. OBA)
Tenors Market based but IFC’s Up to 15 years (20 years in Market based
involvement can lengthen some cases)
tenors
Limits Based on client’s needs Project: up to $110mm (net) Based on project and country
Country: up to $420mm (net) needs and CAS allocation.
Government Counter No No (through the MIGA Yes – for IDA in the event
Guarantee Convention) borrower is not the sovereign,
a sovereign guarantee may
not be required.
Public Sector Projects No No Yes
Areas of Collaboration Joint project preparation, environmental analysis, Board processing, etc.