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PPP in the Road Sector - Latest Trends

Mathieu Verougstraete (ESCAP)
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Mathieu Verougstraete (ESCAP)

on 26 January 2015

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Transcript of PPP in the Road Sector - Latest Trends

escap-ttd@un.org

http://www.unescap.org/our-work/transport/financing-and-private-sector-participation

Thank you
Australia =
Major market for PPP Road Project
Example
Land Acquisition
Demand risk allocation  how is the private sector remunerated (availability payment vs. user fees)
Cross-state projects in decentralized environment
Limited potential for associated commercial revenues

Other common issue
Land acquisition has been a critical issue
Private sector remuneration
User fees
Availability payments
Toll
User
Private Operator
Government
Check against performance indicators
minimum travel time
limited number of road crashes
availability of all lanes
years
t
t+1
t+2
Private
Operator
Environmental Clearance - Cross-state approval
Inadequate traffic forecast led to significant failures
Sydney’s Lane Cove and Cross City tunnels
Brisbane’s A$3bn CLEM7 tunnel
Insufficient toll collection
Actual traffic was 1/3 of projection
Toowoomba Second Range Crossing A$1.6 (to be awarded in 2015)
Availability PPP Model
Transmission Gully Motorway (2014)
Republic of Korea
Selected PPP Road projects
Archeological discoveries
Availability ?
Ground Conditions
Environmental Clearance
Rehabilitation & Resettlement
Ownership ?
Poor quality construction
Two main models
Katmandu-Hetauda Tunnel Road Project (60km - $330 million - construction began in 2013)
Modernization of Lahore-Islalmabad Motorway (contract signed in 2014 for $466 million)
Dhaka Elevated
Turkey as an fast growing PPP market
($2.3 bn / 10 years concession / 2013)
Gebze–İzmir Highway PPP project - The $6.5bn road project will connect Gebze (located just east of the capital city Istanbul) and the city of Izmir in the Aegean region of Turkey with a 377km six-lane (three lanes in each direction) motorway. Access roads of 44km will also be built along with the motorway.
Financial close in 2013 was awarded in 2010 - phase $ 2.8 bn
Gebze–Izmir Highway PPP project
PPP in Roads
Overview and Recent Trends
Asia-Pacific Forum on Public-Private Partnerships for Transport Infrastructure Development
Mathieu Verougstraete
For example, Indonesia has enacted a new Land Acquisition Law (compensations, dispute settlements)
no enforceable legal
framework to expropriate land for public services (such as roads) and to agree on land
acquisition prices to expropriate land for public services (such as roads) and to agree on land
acquisition prices.
need for enforceable legal framework to acquire land for public services (such as road) with adequate compensation schemes
Long-track record in the road sector + significant resources mobilized
Decentralization can bring challenges
modern, well maintained roads are key to sustainable economic growth
Third Bosphorus bridge
(phase I reached financial close for $ 2.8 bn in 2013 / project awarded already in 2010)
Nepal
Conclusion
Potential
Private has limited influence on traffic flow (depends on economic growth, toll regime, competing alternatives)
Protection against construction overruns and delays
Higher scrutiny regarding testing project viability
benefit from the upside (escalating profit sharing)
17 countries
$230 bn / year
PPP in Rail
Overview and Recent Trends
Asia-Pacific Forum on Public-Private Partnerships for Transport Infrastructure Development
Mathieu Verougstraete
Country Distribution
19 ESCAP countries have used PPP for Road Development
Trends in PPP Road Projects for ESCAP Developing countries + Australia
Source: World Bank, PPI project Database & Infrastructure Australia (Republic of Korea not included)
> 500 PPP Road Projects in the ESCAP Region since 1990
Total investment value approx. >$160 billion
Needs
Around
$ 300 billion
required every year
large investments
Trends in the Region
What has been the tren
Timely maintenance is cost efficient
Key characteristics
PPP brings discipline in maintenance
Rest of Asia-Pacific
High-speed lines
Amortization of Civil Works
India
300,000 km of roads added every year
Needs
Maintenance costs are significant (often subject to budget cuts)
Can PPP be a solution?
Timely maintenance is cost efficient
Significant maintenance costs (subject to budget cuts)
Can PPP be a solution?
Country Distribution
Trends in PPP Road Projects for ESCAP Developing countries + Australia
Source: World Bank, PPI project Database & Infrastructure Australia (Republic of Korea not included)
> 500 PPP Road Projects in the ESCAP Region since 1990
Trends in the Region
Higher quality in construction
Resources mobilization
Was it successfully used in the region?
Toll
t+...
Australia =
Major market for PPP Road Project
India
Pacific
Inadequate traffic forecast led to significant failures
Sydney’s Lane Cove and Cross City tunnels
Brisbane’s A$3bn CLEM7 tunnel
Insufficient toll collection
Actual traffic was 1/3 of projection
Toowoomba Second Range Crossing A$1.6 (to be awarded in 2015)
Availability PPP Model
Transmission Gully Motorway (2014)
Republic of Korea
Selected PPP Road projects
80 to 90% of projects suffered delays from land acquisition (of 15 to 20% of project time)
Viability Gap Funding
(up to 40% of costs)
Archeological discoveries
Availability ?
Ground Conditions
Environmental Clearance
Rehabilitation & Resettlement
Ownership ?
Standardization of bidding documents and contracts
National Highway Development Programme (NHDP)
Katmandu-Hetauda Tunnel Road Project (60km - $330 million - construction began in 2013)
Modernization of Lahore-Islalmabad Motorway (contract signed in 2014 for $466 million)
Dhaka Elevated
Turkey as an fast growing PPP market
($2.3 bn / 10 years concession / 2013)
Gebze–İzmir Highway PPP project - The $6.5bn road project will connect Gebze (located just east of the capital city Istanbul) and the city of Izmir in the Aegean region of Turkey with a 377km six-lane (three lanes in each direction) motorway. Access roads of 44km will also be built along with the motorway.
Financial close in 2013 was awarded in 2010 - phase $ 2.8 bn
Gebze–Izmir Highway PPP project
Mainly brownfield concession (increasing number of lanes of existing roads)
Third Bosphorus bridge
(phase I reached financial close for $ 2.8 bn in 2013 / project awarded already in 2010)
Over 230 PPP projects (mostly after 2005)
Nepal
India

80 to 90% of projects suffered delays from land acquisition (of 15 to 20% of project time)

Viability Gap Funding
(up to 40% of costs)

Standardization of bidding documents and contracts

National Highway Development Programme (NHDP)

Mainly brownfield concession (increasing number of lanes of existing roads)

Over 230 PPP projects (mostly after 2005)
India
80 to 90% of projects suffered delays from land acquisition (of 15 to 20% of project time)
Viability Gap Funding
(up to 40% of costs)
Standardization of bidding documents and contracts
National Highway Development Programme (NHDP)
Mainly brownfield concession (increasing number of lanes of existing roads)
Over 230 PPP projects (mostly after 2005)
Long-term perspective in design
Long term solution for public infrastructure
Inadequate maintenance
(e.g. budget cuts)

Why PPPs?
Rest of Asia-Pacific
India
19 ESCAP countries have used PPP for Road Development
Total investment value approx. >$160 billion
India

80 to 90% of projects suffered delays from land acquisition (of 15 to 20% of project time)

Viability Gap Funding
(up to 40% of costs)

Standardization of bidding documents and contracts

National Highway Development Programme (NHDP)

Mainly brownfield concession (increasing number of lanes of existing roads)

Over 230 PPP projects (mostly after 2005)
Recent decline in the number of deals
Questions raised about risk transfers
(e.g. traffic/demand risk, land acquisition)
Cost to Government
Years
Tariffs paid by Government
Cost to Government
Years
Construction
Cost
Operation and Maintenance Cost
Cost to Government
Years
Construction
Cost
Operation and Maintenance Cost
Cost Overrun
Construction Delay
O&M Cost Overrun
Years
Cost to Government
Tariffs paid by Government
Traditional Procurement
Risks
Public-Private Partnerships
Construction & operation risks are transferred
Construction and Operation Risks
What type of government support?
(e.g. minimum revenue guarantee, viability gap funding, availability payments)
Replacing roads due to poor maintenance is 3 times more expensive than maintaining them well
Discipline in maintenance
(e.g. remuneration linked to the quality of the asset)
Lower funding pressure on the government
Around
$ 300 billion
required every year
300,000 km of roads added every year
Strong decline recently
In India, 80 to 90% of projects suffered delays from land acquisition (of 15 to 20% of project time)
source: McKinsey
Securing 100% of land before tendering?
Adapting land acquisition law?
Full transcript