PPP / BOT Equity Portfolio                                   

Nigel Hawke used his banking and industry experience to help establish an equity portfolio that at its peak reached € 200 million with average returns in excess of 15% per annum.  Higher exit returns were achieved by selling equity and / or refinancing.  No losses have been made on this portfolio and all lenders have been paid on time and interest payments met as expected.  The portfolio includes transport and power generation projects.

Many models for project finance and development exist as a review of the "Links" for "Project Finance" will easily demonstrate and some of the common forms are listed below.  Nigel Hawke has experience with all the major forms of ownership and development, both as banker and investor working in industry. His work has to date involves more than 30 power projects in 15 countries and in excess of 20 transport projects in 11 countries.  He has worked on short term financing assignments in more than a dozen countries.

Governments seek increasingly to transfer the risks of financing major infrastructure to the private sector. This risk transference is in addition to the risks of design and construction, which have been transferred for many years.  Finance is raised by the private sector usually against the right to earn revenues associated with the availability, maintenance and / or operation of the completed infrastructure project for either a fixed term or in perpetuity.

Many models of ownership and finance have developed to suit the characteristics of the particular type of infrastructure. Governments and bidding consortia have developed new methods of allocating risk economically in an effort to achieve competitive advantage.

Such models can encompass:

• privatisation, including sale of government assets or share of all or part of ownership, usually subject to regulation to ensure standards are safeguarded.

• long-term agreements for private sector operation of publicly owned assets.

• PPP - Public Private Partnerships - including in the UK the former Private Finance Initiative (PFI).  Such arrangements can involve many forms of allocating risks and responsibilities.

• BOT (Build Operate Transfer) private sector construction and operation pending "transfer" (of operation) back to government.  Often involves the private sector being responsible for financing the construction. Legal ownership  is frequently retained by the government especially in the site of the project.

• DCMF - Design, Construct, Manage and Finance by the private sector.

• BOOT - Build, Operate, Own and eventual Transfer of ownership and operation back to government.

• BOO - Build, Operate and permanent Ownership (subject to meeting performance standards).

Private sector companies seeking to construct, supply equipment to, provide services to, operate and invest in such facilities need to establish a policy for managing their exposure to such projects.

Sponsors need to establish a fully competent team with all the skills of managing the total development process.  Competences include marketing and forming appropriate liaisons with co-sponsors, finance and legal expertise, and staff able to master the complex contractual arrangements necessary to share risks to those parties best able to manage such risks economically.  Note that it is a mistake to force through non-economic risk transfer as value for money will not be achieved.  It also important to be able to manage negotiation of the commercial and financing documentation including the insurance for the project.  Operations skills will be necessary to support commissioning of the facilities.  Effective operation generates the revenues necessary to create surpluses over operation costs.  Such surpluses are the source for repaying the construction finance and for earning returns for the investors. The investors will try to optimise returns to achieve results better than target levels.

Vital to the success of a project tender is understanding the objectives of the client.  Failure to appreciate the true objectives even where these may appear novel or unlikely will result in the bid not succeeding.  Trying to negotiate a side understanding with the client on an "alternative bid" agenda is often misconceived.  This will jeopardise the ability of the client to demonstrate transparency of its decision to other competing bidders and also to the wider public to which public sector clients or promoters are ultimately accountable.  Transferring risks back to the client will result in a loss of value for money to the client.  This is true even where the alternative bid has a lower stated cost.  Many clients employ the equivalent of a "Public Sector Comparator" giving a means of valuing the rejection of certain risk transfer or adding value for offering to accept greater risk transfer. Using such techniques, clients and their advisers, can compare very divergent bids on a broadly equitable basis.

Nigel Hawke is experienced in managing such projects, particularly from the financing perspective.

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