European PPP Center

Event Summary

Keynote Welcoming Address
Miklós Tátrai, Secretary of State, Ministry of Finance, Hungary

Mr. Tátrai opened the conference outlining the importance of PPP projects for Hungary and the whole CEE region. He pointed out the actuality of the event since Hungary is currently solving two major PPP projects – the 2nd phase of the M6 Motorway and the Government District which is a truly unique project in the region. He also emphasized the experiences Hungary has gained with realized projects also of smaller size and agreed to the significance of experience exchange in the region.

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PPP from European Commission’s perspective
Zoltán Kazatsay,
Deputy Director General, DG Energy & Transport, European Commission

Mr. Kazatsay focused on 3 key topics in his presentation:

  • PPP and the Trans-European Network - The total cost of the TEN-T until 2020 is estimated around 600 billion € while a financing gap of 30 billion € is apparent. Mr. Kazatsay sees gap to be potentially overcome by implementing PPPs.
  • PPP implementation in the EU -The EU supports PPP by preparing and educating the public partner, making the PPP environment more favorable and adjusting the financial aid system to avoid exclusion of PPP projects.
  • Applicability of EU funding for transport infrastructure PPP -In principle the possibility to apply the PPP model to projects co-financed with the European grants is given.
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EIB Role in the Financing of PPP Projects
Manuel Duenas,
Senior Loan Officer, EIB

Mr. Duenas outlined in his presentation as main drivers of EIB’s involvement in PPP projects the possibility to control the public deficit, accelerate convergence, its catalytic effect and the benefits of know-how transfer.

As far as the critical factors for EIB involvement in a PPP project are concerned the most important ones are the following:

  • Legal framework
  • Political commitment
  • Public sector involvement
  • Economic fundamentals
  • Competitive procurement
  • Risk-reward transfer.

If all requirements for a feasible PPP projects are fulfilled the EIB engages in direct or intermediated lending. In the CEE region EIB has started lending to PPPs since late 80s. Up to now more than 150 PPPs financed and some EUR 20 bn has been lent to PPP projects. In 2006, PPP lending exceeded EUR 3 bn.
At the end of his presentation Mr. Duenas gave the following advices to implement a successful PPP project:

  • Avoid weak project preparation.
  • Public promoter shall be adequately equipped with experienced staff and advisors and have an informed decision making mechanism.
  • Procurement process shall be “crystal clear”.
  • Excessive pressure on bidders (e.g. timeframe, requirements, short-list) may have an impact on competition, quality and price.
  • Risk transfer shall be realistic.
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Investing in Development through PPP
Jose Carbajo,
Director for Strategy & Policy Development, EBRD

Mr. Carbajo gave a brief insight into the history of EBRD’s involvement in PPP projects. But more importantly he pointed out the growth of infrastructure PPP projects also in amount as well as in their size. In connection to this he outlined the potential role of the EBRD in PPP projects in the following areas:

  • Help improve the legal environment.
  • Support institution building - policy dialogue .
  • Be a “trust builder”.
  • Assess “Value for Money”.
  • Provide independent due diligence in project preparation.
  • Assist in tendering process.
  • Structure flexible EBRD finance.

To sum up, Mr. Carbajo emphasized the importance of real expectations from PPP projects and the need to strengthen public administration.

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PPPs in the view of the World Bank
Michel Audige,
Lead Transport Specialist, World Bank

Mr. Audige focused in his presentation on the advantages of PPP projects for governments. However, he also warned about the drop-backs of these projects hidden in the fact that:

  • PPP will help financing only a limited number of projects.
  • PPP transactions are uneasy to close.
  • Many PPP agreements have to be renegotiated.

In order to promote the bankability of PPP project the World Bank engages in Capacity Building and Knowledge Sharing as well as General and Specific Advisory Services to Governments and provides financial support.

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15 minutes presentations by government representatives summarizing current and expected PPP developments. Countries presenting in this session: Czech Republic, Hungary, Greece, Italy.

Bohdan Hejduk, Director General, State Budget Management, Ministry of Finance, Czech Republic

Mr. Hejduk introduced State Policy Framework in the Czech Republic, where an important milestone was the PPP Pilot Projects analysis improved in May 2007. In this document

  • the Ministry of Finance and the Ministry of Regional Development agrees to develop and publish manuals,

  • the Czech Statistical Office to cooperate with the ministries during preparation of the Project,

  • the Central Government institutions:
    • to respect published manuals during preparation of PPPs (aim: transparency, easy audit, lower transaction costs),
    • to consider continuously PPP solutions before the preparation of long-term projects.

However, political willingness hasn’t proved to be strong enough and 2 pilot projects (a university and a hospital project) had been canceled.

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Júlia Szűcs, Head of Special Financing Programs Department, Ministry of Economy and Transport, Hungary

Ms. Szűcs presented the Hungarian organizational background of PPP projects focusing on the role of the Inter-Ministerial PPP Committee. The Inter-Ministerial Committee follows these overall PPP goals:

  • Strengthen the long-term co-operation with the private sector.
  • Involve the experiences and effective management processes of the private sector.
  • Optimize the utilization of public resources in the long run.
  • Spare deficit of the state budget.

Hungary, with the most realized PPP projects in the CEE region, puts an emphasis on knowledge sharing. In the end of 2007 a PPP Handbook will be published by the Ministry of Economy and Transport.
Besides the numerous running PPP projects the following projects are in the pipeline:

  • Motorway M6 2nd section (in preparatory phase).
  • New Electronic Highway Toll Collection System (in preparatory phase).
  • Ferihegy Airport – Budapest Downtown high-speed rail project (in preparatory phase).
  • M44 Motorway and the new section of the M3 Motorway.
  • The Budapest Regional Court of Appeal.
  • New Government Quarter (in preparatory phase).

Since PPPs are actively developing in the country the government has further PPP plans, such as:

  • motorways and public roads,
  • reconstruction of railway stations,
  • hospitals and medical services.
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Leonidas Korres, Special Secretary, Ministry of Economy and Finance, Special Secretariat for PPP, Hellenic Republic

Greece belongs to the most active countries to implement PPP projects. The private sector is stimulated by a market-friendly environment and transparency. The market is evolving rapidly with a high potential with 3.1 bn Euros worth of opportunities, which represent 24 approved projects in the social infrastructure sector (schools, hospital, government houses, waste management, port security, etc).

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Gabriele Pasquini, Presidency of the Council of Ministers, Italian PPP Task Force, Italy

Mr. Pasquini gave a brief overview of the legislative changes in PPP on the EU level. In connection to this he introduced the composition and activities of the PPP Task Force. The Italian PPP Task Force is an entity established by law and is comprised of 15 professionals with legal, financial and technical background from both the public and private sectors. It fulfills an educational, assistance and policy making role. Within its competencies the PPP Task Force defines PPP pilot projects, promotes the cultural breakthrough of PPP projects, develops a PPP Network on the governmental level and ensures the implementation of the regulatory framework.

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15 minutes presentations by government representatives summarizing current and expected PPP developments. Countries presenting in this session: Croatia, Serbia, Latvia, Romania

Mate Jurisic, Assistant Minister, Ministry of the Sea, Tourism, Transport and Development, Croatia

Mr. Jurisic introduced the Croatian experiences with Motorway PPP projects. The country has 1501 km of planned of motorways out of which 1140 km were constructed. In Croatia the state provides 4 main types of support:

  • Concession companies are granted the right to use and operate the existing road and motorway sections.
  • Subsidy in case of insufficient traffic or traffic shortfall.
  • Financial contribution.
  • Tax reduction.

However, to each concessionaire a different type of support is given.

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Milica Zatezalo, Advisor to the Serbian Deputy Prime Minister on PPPs and Infrastructure Development, Office of the Deputy Prime Minister, Republic of Serbia

Ms. Zatezalo emphasized the need for infrastructural investments in the country, which is estimated around 3to 5 billion EUR per year. As a driver she sees the application of PPP project while she admitted that there is still room for improvement as far as the PPP legal environment in concerned. However, reforms are underway and Serbia will soon launch pilot projects. PPP project implanted to date are:

  • Horgoš-Požega concession contract signed, financial close expected in March 2008.
  • Concession for Vinča landfill is ongoing, tender should be published in November 2007.
  • Municipal PPPs implemented on the basis of the Municipal Activities Law.
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Andris Parups, Deputy Director PPP, Economic Policy Department, Ministry of Economy, Latvia

In Latvia an interesting situation prevails. Although, a PPP Policy Framework Document (adopted in 03/2005) and PPP Action Plan 2006-2009 was adopted, no strategic planning on where to deliberately channel PPP has been introduced yet. For achieving wider acceptance of PPP project Mr. Parups sees the main challenges in:

  • Raising the public awareness.
  • Progressing with the institutional set-up.
  • Introducing promotional and learning activities for the public sector.

He mentioned a selection of planned projects among which 6 projects of the Ministry of Transport and Riga Northern Corridor (est. 1 billion EUR) are present.

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Ciprian Gorita, Counselor, PPP Central Unit, Ministry of Public Finance, Romania

Mr. Gorita introduced the institutional structure of PPP coordination in Romania. The authority for PPP coordination is the PPP Central Unit established within the Ministry of Public Finance in 2005. In 2007 the Central Unit was transferred to direct coordination of the Secretary of State within the Ministry. The PPP Central Unit is responsible for the:

  • Elaboration of the Romanian Government policy concerning the promotion and implementation of PPP projects.
  • Development, promotion and implementation of PPP guidelines.
  • Ensuring technical, legal and financial assistance to the public administration authorities.
  • The procedural verification of the programming stage.

Romania as a new member of the EU sees an opportunity in blending EU funds with PPP financing. Currently, 8 such projects are in implementation. Two of them water and waste water treatment projects and 6 projects are focused on solid waste management. Romania also utilizes the technical assistance program JASPERS. Romania also hired a consultant for technical assistance for preparing a feasibility study on establishing a Local Infrastructure Investment Fund in Romania with the aim to create an innovative vehicle for mobilizing institutional resources. In the transport sector the Ministry of Transport, the Romanian National Road Agency and the PPP Central Unit are working on a motorway package consisting of 13 motorway sections. For all these projects the selection of the Consultant to assist the public authority until financial close is underway and the concession contract is expected to be sign in April 2008.

According to Mr. Gorita Romania has a strong PPP strategy with the motto ”PPPs are not Pool of Political Projects”. This reflects the need to achieve wider acceptance of these projects.

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Free Roundtable Discussions with Government Representatives and Lunch Buffet
Each roundtable had an assigned chairman – the government representatives of the invited countries. Everybody was welcome to join any roundtable at any time during this session. Lunch buffet was served during this session.

Chaired by: Robin Earle,
Director, Banco Espirito Santo

Presentations by:
Olivier Bonnin, CEO, AKA Zrt.

Mr. Bonnin introduced the M5 PPP project in details – its most important phases, the financing scheme and the restructuring decision. He focused on the availability fee component of the project, its structure, monitoring and report, penalties and deductions.

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Arne Speer, Regional Director Eastern Europe, Bilfinger Berger & Martin Schlor, Head PPP – Transport, PORR

Mr. Speer and Mr. Schlor presented the experiences with the 1st phase of the M6 Motorway PPP project in Hungary outlining the main challenges and benefits for the stakeholders, payment mechanism, contractual structure, risk allocation, financing and lessons learnt. They both emphasized the importance to:

  • Build infrastructure according to real demands.
  • Start with less complex projects.
  • Structure the projects according to a clear interface between the state and private sector.
  • Choose a payment mechanism allowing innovative financing.
  • Ensure continuity in political decision making and planning.
  • Build a dedicated team on the public side.
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Peter Snelson, Business Development Director, Atkins

Mr. Snelson started his presentation with suggestion for evaluating the suitability of PPPs according to different criteria both for the public and private partner. He mentioned that engaging in PPPs is becoming more important due to limits in public funds. For the private side it is becoming easier to raise capital as well to blend EU funds as a form of financing. He concluded that the most common issues in PPPs, often resulting in poorly structured contracts, lengthy and costly procurements, high bidding costs and reduced value for money, include:

  • Inappropriate levels of risk transfer (either too little or too much).
  • Inappropriate legal codes.
  • Political (institutional) instability.
  • Poorly defined procurement methodologies and a lack of standardization.
  • Poor co-ordination between government departments and agencies.
  • Insufficient consultation with key stakeholders at an early stage.
  • Reluctance to make appropriate use of professional advisers.
  • Lack of public sector commitment to PPPs.
  • Continued focus on input specifications rather than output specifications.
  • Over-optimism with regard to third party revenues.
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Mark Elliott, Partner, EC Harris

Mr. Elliott introduced the experiences of EC Harris with PPP. The company is active in a wide range of PPP projects. He sees the advantages of these projects in improved value for money, introducing commercial skills and private sector experience, delivering better value for clients and cost control over the whole project life cycle.
Before entering into a project every company has to consider:

  • Is PPP too much effort?
  • Which sectors/countries are relatively attractive?
  • What impact will Infra Funds have?
  • Where are there demonstrable pipelines?
  • Delivering better value results for clients.
  • Is competition rewarding innovation, value for money, technical competence?
  • What level of reward is tolerable?
  • What happens if things change?
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PPP Projects in light of EU Financing
István Vilmos Kovács, Vice President, National Development Agency

Mr. Kovács briefly introduced the Budget Structure of the New Hungary Development Plan which aims to increase employment and economic growth. The plan utilizes EU financing and state budget financing. However, to reach all its objectives the incorporation of PPP financing is anticipated. Mr. Kovács mentioned all sectors for potential PPP investments but also mentioned the challenges that have be overcome. Most importantly he pointed out:

  • Different public procurement procedure and strategy of EU co-funded and of PPP projects.
  • Limited institutional capacity for complex procurement.
  • Low level of experience.
  • Lack of detailed analysis of the key risks.
  • Detailed estimates of revenues, identification of the resources and costs.
  • Conflict between maximizing EU grant and
    • maximizing revenue generating elements
    • state aid rules.

In Hungary blending PPP projects and EU financing has also its pros and contras. In favor are the facts that it can help to meet the environmental Acquis, higher quality/cost ratio can be achieved and may ease short term budgetary constraints. Against are the large transaction costs, existing experiences under assessment and risk of budgetary burden for the long run. Mr. Kovács expressed a need to further examine whereas, the possibilities are open in the later phase of implementation and JASPERS may help explore PPP opportunities.

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M6 Project - Successful Continuation of Phase I - Subsequent Phases
Erik Aal, Project Manager, Ministry of Economy and Transport

Mr. Aal introduced in his presentation the project processes and structure. As a main positive driver he pointed out that the project was built on existing experiences of the previous phase of M6. Consecutively the project could be started with very clear goals and a challenging time frame. Among the goals set forth were also improving the structure by increasing competition between the candidates and defining the content more precisely. Further, he defined the success factors of the project in:

  • Managing the TIME FRAME as focus.
  • Nominating a competent and able project director.
  • Project-push approach: mandate as wide as possible.
  • Effective communication.
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Electronic Toll Collection
Dr. Lajos Csepi, Director General, Transport Development Coordination Centre

Dr. Csepi introduced the legal background and the cornerstones of the Toll Policy of Hungary which shall be operative from 2009. Collected toll should generate revenues for the operation, maintenance and reconstruction of the tolled road network and reflect real road usage. To eliminate avoiding tolled roads the parallel road network should be also tolled and for vehicles under 3.5 tons the vignette systems should remain. Apart from the weight of the vehicles additional differentiating criteria shall be introduced:

  • Fee differentiation according to the emission class of the vehicles.
  • Special charges/discounts regionally and for different time periods.
  • Permanent and occasional exemptions for special purpose vehicles.

He described in details the basic requirements of the EFC System to be operative from 2009 and the project plan. He also emphasized the differences between the EFC project model and other PPP projects whereas, the

  • EFC project is formally not covered by the regular preparation mechanism laid down by Government Decree 2028 of 2007.
  • Role of the public sector is much more significant in project implementation since the state reserved its rights with regard to certain part of project activities (e.g. operation of enforcement system).
  • The model implies more proportional risk management than in case of concessions as the typical construction of PPP-projects (fixed service fee).
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Ferihegy Airport PPP
Zita Király, PPP Advisor, Ministry of Economy and Transport

Ms. Király presented the FEREX Project – the railway link to connect Ferihegy Airport directly with the city center. The project despite its long history has even nowadays several alternatives as far as the track alternatives and the financing is concerned. She feels that this is caused by the fact that the project is not a necessity but an opportunity and it could be a pilot project for many viewpoints.

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Government District
György Görözdi, Prime Minister’s Commissioner

Mr. Görözdi introduced the New Government District, a truly unique PPP project in the CEE region. Main drivers for establishing a new Government District are increased economic efficiency and also restoring “rust zone” building a completely new city district for 11 ministries.
The project started out with 2 international tenders: architectonical tender and PPP tender for building and operation of the New Government District. The winning architectonical project "simply green" by Peter Janesch and Kengo Kuma was announced in August 2007. Following to this on 8 consortia qualified out of which 7 delivered an offer until the deadline in October. By the end of November the winner should be announced and the contract should be signed in mid-December. The total construction cost is limited to 57 million EUR and the deadline is set for August 2009.

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