3rd south east europe infrastructure forum
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Keynote presentation at the 3rd South East Europe Airport Infrastructure FORUM Chairman: Dr.Thomas FranklTRANSCRIPT
South East Europe Airport Infrastructure Forum
Zagreb, June 2013 Dr.Thomas Frankl
MD, Airport Development Partners, Geneva Principal, Brixton Capital, San Diego
* 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 head of state of Azurria; * Numerous consultants (PPP, traffic forecast, …) * 10 consortia, two of which are: * 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
THE DOUALA TRICK
* It’s early 2008, before the global financial crisis * Money is chasing infrastructure assets * Infrastructure PPP’s are drawing record interest, achieving record prices * They have come to be accepted as the ‘friendlier face’ of privatization * Government of Freedonia: Our capital airport is a (shame) but we don’t have the means to turn it into what it should be: ‘Let’s do a PPP !’
Chapter 1 – Early Days
* Traffic forecasters tell the government what it wants to hear: ‘your airport has the potential to become the region’s 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 * Heated public debate amid suspected corruption about rigged design selection process * 25-‐year BOT tender documentation is drafted and airport PPP consultants hired (on a part-‐success basis)
Chapter 1, cont’d – Early Days
* Global recession – now it’s assets chasing money and even ‘worst case’ traffic forecasts have been proven too optimistic * PPP projects that used to be bankable, aren’t so any longer… * …while governments are more in need than ever to implement PPP pipelines * Consequence for Freedonia’s capital airport: cancel, adapt terms & conditions, or pretend nothing has changed * ‘We stick with it ! – we have gone through worse crisis than this ...’
Chapter 2: The PP Plot Thickens…
* Consultants panic: we can’t get the minimum number of interested parties for the PQ * So they tell candidates: ‘don’t worry, Free-‐donia will finally ease up on the conditions’ – ‘just pre-‐qualify and you will be ok’ * They also make the PQ criteria fit to candidates who otherwise wouldn’t be able to participate
Chapter 2, cont’d : The PP Plot thickens…
* Government speaks to potential interested parties * ‘We like your project, there are just one or two problems…’ (aka show-‐stoppers) * Future bidders start high-‐profile lobbying campaigns, one head of state * In the meantime, the global crisis has led to a credit crunch, many banks are too busy avoiding bankruptcy
Chapter 2, cont’d : The PP Plot thickens…
* Pre-‐qualification: IM and supporting documents issued – full of errors, contradictions and ambiguities * Endless rounds of Q&A’s, requiring multiple deadline extensions * Consortia realize that conditions are unchanged – they attempt to change them via the Q&A process -‐ unsuccessfully
Chapter 3: Going live
* A number of consortia prequalify, anyway: ‘we are in a better position this way when the tender conditions will be relaxed’ * The short-‐listed consortia analyze the tender: no change. ‘We can’t make this work, it’s unbankable’ – no point of proposing to our investment committee. ‘We’ve had enough , we are out!’ * …except for the Flyover consortium
Chapter 3: Going live
* The Flyover consortium issues a valid bid * The other consortia are in disbelief:
Chapter 3: Going live
* They pulled the Douala trick ! * How can they get away with it AGAIN ?!
Chapter 4: The Douala Trick
‘All we may get out of this is an ethics award – but that won’t cover our costs…’
* Success – we have a final bidder ! * The PPP Agreement is signed with great fanfare, ground-‐breaking before April 11, 2013 * But nothing happens…no crane in sight * The concessionaire signals problems – ’we can’t get financing at acceptable term’ – very sorry, but not our fault’…could it be because the PPP is not bankable ? (now that would be a surprise !)
Chapter 5: Catch-‐22
Chapter 5: Catch 22
* The PPP agreement gets adapted to take account of ‘new realities’ * The drop-‐out consortia are too frustrated to sue – they have moved on… * …and they won’t bid a again for a PPP in Freedonia
Chapter 5: Catch-‐22
1. Governments must build their proper
PPP capacity – consultants won’t do it for them. * Difficulty of reconciling the interests
of government and consultants * PPP capacity also helps select
competent consultants
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 * Don’t overestimate bidder interest * Don’t raise unrealistic expectations – even if a future government will have to deliver * Define, and communicate, what success and what failure will be like (e.g. min. number of final bids) * Have a plan B in case of failure
How Avoid Future Catch-‐22 Situations ?
3. Re-‐structure and 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. Creation of a ‘grey list’ of 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 exclusion * World-‐wide exchange of PPP practices and experience * Not only success stories, more is often learned from tough challenges and from 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
How avoid future Catch-‐22 Situations ?