Financing Energy and Climate PPP based Infrastructures: Experiences and Emerging Trends. Venice, May 9th,2014

Transcription

1 Financing Energy and Climate PPP based Infrastructures: Experiences and Emerging Trends Venice, May 9th,2014

2 PPPs are no silver bullet solution... Potential challenges Misaligned incentives Imperfect regulation, regulatory lobbying & capture Incomplete contracts: renegotiations and disputes due to external changes Externalities (Civil consensus,...) Transaction & monitoring costs/time Fixed transaction costs (e.g. mgt time, advisor) relative to project size Supervision and monitoring costs Higher cost of capital Cost of capital of private sector often higher except developing countries Issue of unmanageable risks, e.g. currency, demand Loss of public sector control & flexibility Government with limited control over future system design/configuration as needs change 1

3 ...but PPPs have potential advantages (not just private finance)... Potential PPP advantages Examples / evidence Improved project selection Double due diligence No bias of green- vs. brownfield Less white-elephant projects Chile using PPP filters out about 30% of projects No bidder interest Improvement of projects after market sounding Accelerated infra provision Whole life-cycle cost optimization Overcoming public financing /funding constraints Accelerates macro benefits Life-cycle dependency (D-B-O-M) Risk unbundling and re-allocation (private vs public) Efficient operations, economies of scale & technology investment Good track-record of on-time project completion Example Australia: PPPs 3.4% ahead of schedule; traditional 23.5% behind time Cost savings of 10-20% Australia : 7-23% UK: 17% Revenue innovation Maximizing capacity & utilization Price segmentation Innovative & ancillary services High potential for ancillary revenues 2

4 ... and Private infra investments with attractive risk-return profile Financial analysis of publicly listed infrastructure operators Horizon Highways Railroads Ports Airports Electricity integrated Electricity generation Electricity T&D Oil & Gas T&S Water TSR (10 yrs.) 10% 5% 0% 4.6% 6.6% 6.9% 7.8% 4.1% 3.5% 7.6% 9.0% would be 4.7% excluding Veolia 0.9% Return Risk ROCE EBIT margin Volatility (%) Beta 20% 10% 0% 21.5% 8.7% 15.8% 10.1% 8.3% 7.8% 6.9% 10.7% 10.8% 45% 21% 25% 23% 16% 18% 14% 14% 13% Note: Volatility is calculated as the market-value weighted average of the standard deviation of monthly total shareholder returns (TSR) of individual firms over the last 5 years. Betas are derived from regressing local returns against broad local stock market indices using the last 5 years of monthly returns and aggregating individual firms by equal weighting. Source: BCG analysis; Datastream, Rothballer/Kaserer 2012: The risk profile of infrastructure investments, Journal of Structured Finance (forthcoming) 3 Copyright 2014 by The Boston Consulting Group, Inc. All rights reserved.

5 How to be sure to get it right (I)? BCG-WEF PPP best-practice framework Long-term contracts need long-term commitment & resources Project implementation Rigorous monitoring of B and O & ex-post evaluation A PPP programme not a series of transactions Integrated infra plan & cost-benefit based project prioritization Project origination Source: World Economic Forum, BCG Competitive, transparent tendering & financing support Conducive enabling environment Balanced risk allocation & regulation Public-sector readiness Private-sector readiness Civil-society readiness Bankable feasibility study Project preparation Life-cycle assessment of public vs. private delivery (VfM test) Whole life-cycle instead of opportunistic approach 4 Copyright 2014 by The Boston Consulting Group, Inc. All rights reserved.

6 How to be sure to get it right (II)? Economic regulation design framework 1 2 Objectives Operator attractiveness: Profit State & customer safeguarding: affordability, capacity, quality Design principles Risk allocation Market design Regulatory governance & enabling environment 5 Regulatory framework 6 Price / revenue regulation Service regulatio n Safeguards Link to financials Capex regulation Requirements & recognition Alignment Levers Concession duration, ownership, governance Legislation Design of politically independent institutions Public sector capacity Regulatory process Information gathering & monitoring Stakeholder consultation Rate reviews Appeals, arbitration and dispute resolution Copyright 2012 by The Boston Consulting Group, Inc. All rights reserved. PPP and privatization design - Economic Regulation - June2012.pptx 5

7 1 - Align the evaluation of the risks of the investment and allocate them properly Prototypical risk allocation between public and private sector Design Build Financing Operations Site acquisition Permits Ground conditions Protests Delay Cost overrun Sub-contractor Material Political Interest rate Financing availability Demand Commodity cost Maintenance Labour Technology Law change Tax change Change of regulation Macro Inflation, x-rate Force Majeure Economic growth Risk typically allocated to public sector Risk typically shared or allocated to public/private sector Risk typically allocated to private sector Changing perception of the risk in energy Copyright 2012 by The Boston Consulting Group, Inc. All rights reserved. PPP and privatization design - Economic Regulation - June2012.pptx 6

8 2 Clear definition and stability of the overall market design and segment bundling decision (I) A Assess competitiveness of B Decide on segment C value chain segments bundling/unbundling 1 Decide on market design Each value chain segment of the infrastructure service to be analyzed along the factors Economies of scale & scope Other entry barriers Value chain segments are then either bundled or unbundled Unbundled: preferred option due to benefits of competition Bundled: if high coordination costs or political constraints For each market segment, the type of competition or regulation needs to be decided In-market competition For-market competition Price regulation yielding an assessment of the potential competitiveness Example Infrastructure "Monopolistic" Terminal operation Ground services Facility mgt. "Competitive" Non- Aviation yielding the market segmentation Infrastructure Bundling Terminal operation Ground services 1. Unbundling is the separation of competitive and non-competitive value chain segments in an industry Source: BCG analysis yielding the final market design PPP and privatization design - Economic Regulation - June2012.pptx 7 Facility mgt. Unbundling Non- Aviation Infrastructure Regulated monopoly Terminal operation Ground services Facility mgt. Competition Non- Aviation Copyright 2012 by The Boston Consulting Group, Inc. All rights reserved.

9 2 Clear definition and stability of the overall market design and segment bundling decision (II) : Vertical integration : Unbundling ~ 2020+: Deconstruction Consumption Consumption Steered consumption Distributed generation Distributed generation and storage Sales and DSOs Sales Sales and decentral markets Transport TSO Centralized generation and storage DSO TSO Trading Centralized generation and storage Metering and communication Distribution DSO and transport (excluding metering) TSO Energy Trading trading Centralized generation and storage Copyright 2013 by The Boston Consulting Group, Inc. All rights reserved. Toward a New Balance of Power - Long version - English - 9Mar13.pptx 8

10 3 Clear definition of the pillars of the price regulation and their alignment with the industry specific requirements Price regulation Pricing Regulatory Key Review Capex methodology scope determinants for frequency management Usage based Rate of return Price / Full regulation revenue cap Partial regulation (I-X+-E) with subsidy Liberalization Partial regulation Availability w/o subsidy contracts Source: BCG analysis fair price WACC Regulated asset base Annual 2-3 years 4-5 years > 5 years Inclusion options Requirements Enforcement Hot issues Toward a New Balance of Power - Long version - English - 9Mar13.pptx 9 Copyright 2013 by The Boston Consulting Group, Inc. All rights reserved.

11 Usage-based models Overview Rate-of-Return regulation still dominant vs. I-X regulation However, over last two decades increasing use of I-X Electricity Sector Type of regulation Generation 15% 5% 80% 20 Transmission 67% 29% 4% 24 Distribution 55% 41% 5% 22 Gas/Water Transport Telecom Gas transmission 70% 26% 4% 23 Gas distribution 71% 25% 4% 24 Water supply 63% 19% 19% 16 Rail 63% 21% 16% 19 Road 38% 38% 25% 16 Ports 25% 6% 69% 16 Airports 42% 37% 21% 19 Fixed-line network 50% 29% 21% 24 Fixed-line services 35% 43% 22% 23 Mobile services 41% 36% 23% 22 RoR/Cost-based regulation I-X incentive regulations Liberalization Percentage of countries 1. Rate-of-return and other cost based approached 2. Price Cap as well as other incentive regimes Note: Data from OECD countries. Cost-based regulation includes Rate-of-Return regulation and other cost-based approaches. Incentive regulation includes Price Cap as well as other incentive regimes, e.g. revenue caps Source: Égert, B. (2009) Infrastructure investment in network industries: The role of incentive regulation and regulatory independence, CESifo Working Paper PPP and privatization design - Economic Regulation - June2012.pptx 10 Copyright 2012 by The Boston Consulting Group, Inc. All rights reserved.

12 4 - Adaptive regulation to cope with unpredictability & cyclicality if clear regulatory governance a b c d Regulator roles and responsibilities Political independence Decision-making autonomy Enablement and capabilitybuilding Copyright 2012 by The Boston Consulting Group, Inc. All rights reserved. PPP and privatization design - Economic Regulation - June2012.pptx 11

13 Thank you bcg.com bcgperspectives.com