Nicholas Jennett

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PPP drivers and challenges in CEE countries
Nicholas Jennett European PPP Expertise Centre
Warsaw, 6 May 2009
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The CEE regions PPP market made good progress
in 2006 delivering financial close on a number of
projects, in a range of sectors. (DLA Piper PPP
Report 2007)
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Underlying challenges for PPP in CEE

• Incomplete legal frameworks and risk of
  procurement challenge
• Currency exchange risk
• The impact of EU structural / cohesion funding
• Depth in the contractor market
• The importance of programmes, not projects
• Building public sector capacity.

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The impact of the financial crisis

• Lack of liquidity in the banking market
• Issues in securing capital allocations for PPPs
• Difficulty of securing funding increases with
  project size
• Syndication market has stalled club
  transactions
• Bank margins (and bond spreads) increased
  substantially
• Senior debt tenors significantly reduced
• No viable capital market solution has emerged to
  replace wrapped bond market
• Banks are highly selective
• Some inconsistency in terms and conditions
  required by funders

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Some public sector responses

• Debt guarantees
• Public sector infrastructure funds
• Separation of funding from procurement
• Syndication support
• Refinancing guarantees

? 3 categories of actions
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1. Remedial actions by the procurement authorities

• Adjust procurement programmes
• Adjust the procurement process
• Competitive dialogue
• Funding competition
• Reduce contract durations/loan maturities
• Encourage Mini-perms, refinancings
• Improve risk-reward balance
• Impose higher project ratings.

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2. Remedial actions by national authorities

• Increase multilateral lending
• Provide additional liquidity through guaranteed
  facilities
• Co-lending facilities
• Guarantee facilities
• Direct guarantees
• Indirect guarantees
• Underpinning
• Sub-sovereign
• Refinancing

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National authorities responses - Examples

• Governments funding facilities
• - UK Credit Guarantee Facility French Fonds
  dEpargne
• Co-lending by governments
• - UK Treasury lending facility, KFW
• Public guarantees
• - Indirect (sub-sovereign, underpinning,
  refinancing)
• - Direct (French, Portuguese guarantee
  facilities)

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3. Facilitate the entry of new investors

• Stimulate the unwrapped project bonds market
• Improve credit quality through structural
  changes
• Develop Infra bonds and organize liquidity
• Revive the monoline model
• Debt funds

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Implications and issues for Central and Eastern
Europe

• The public investment injection into CEE in
  coming years is unprecedented but so is the need
  for private sector funding
• Will the financial crisis will hit CEE
  disproportionately?
• Scale of funding requirements matter
• Attitude of international banks / importance of
  relationship banking
• How are CEE governments responding?
• Analysis of the crisis
• Identification of tailored solutions
• Importance of addressing the underlying issues
  (public sector skills, focus on programmes
  encouraging local sponsor and contractor
  capacity)
• European PPP Expertise Centre (EPEC)
• Addressing the information and skills gap
• Promoting effective responses to the crisis
• Assisting Members to structure programmes

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Contacting EPEC
For more information epec_at_eib.org jennett_at_eib.org