Planning Commission, Indian Railways & World Bank Joint Workshop on Generating & Implementing Visionary Railway Strategies A Vision for Financing: PPPs in Railways
New Delhi, March 26, 2009
IFC Member of the World Bank Group IFC is owned by its 179 member countries International Bank for Reconstruction and Development, 1945 Lends to Governments of middle-income developing countries
International Finance Corporation, 1956 Invests and advises to promote sustainable private sector development
International Development Association, 1960 Provides concessional loans to Governments of the poorest developing countries
International Centre for Settlement of Investment Disputes, 1966
Multilateral Investment Guarantee Agency, 1988 Provides guarantees to foreign investors against non-commercial risk
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IFC Investment & Advisory Services Financing IFC is the world’s largest multilateral provider of financing for private enterprises with over US$26 billion in outstanding investment commitments
Advisory Services IFC also provides technical assistance and advice to Governments and businesses
Enterprise Assistance
Public-Private Partnerships
Environment & Social Sustainability Loans
Equity
Guarantees
Business Environment
Access to Finance 3
IFC Infrastructure Advisory What is a PPP?
Possible PPP Models Full Divestiture
State's Risk Concession Contracts Lease Contracts Management Contracts
BOT, BTO, BOO, DBO
Affermage Enhanced Affermage
Service Contracts Outsourcing
Investor's Risk
Technical Assistance 4
Major Forms of PPPs for New Rail Projects Finance & Build Rail Line Train Availability Public Contract Train Operating Concession Infrastructure Build Concession
Operate & Maintain Rail Line
Finance & Maintain Trains
Operate Train Services Public/Private
Public
Private
(Hire payments to private) Public/Private
Public
Public
Private
(Hire payments to private)
Public/Private
Public/Private
Public/Private Private
(Lease Payments to private)
Infrastructure “BOT” Concession
Private
Private
(Access charges paid to Public/Private private)
Integrated Concession
Private
Private
Private
Public/Private
Private
The defined assets are transfered to public sector at end of concession in each of the cases
Source: www.worldbank.org/transport
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Typical Challenges for Governments to Revitalize/Maintain Railway Market Share • Competition esp. from trucking sector • Mobilizing funding for heavy investments • Technical complexities • Keeping level playing field • Politically economy of sector
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Indian Railways : Future Strategies • Indian Railways turnaround story from 2001-2007 remarkable • Limited utility of that growth model for long-term and sustained growth—need for investment in infrastructure expansion, rationalization of services & infusion of managerial efficiencies • Narrowing fiscal space has vacated greater room for private-sector participation • PPP experience in Railways offer many lessons & could play a role in Indian Railways growth strategy • Globally Railways transforming due to competitive pressures from other modes of transport & declining revenues • Segmentation of assets & services into ‘core’ and non-core’ important • Pricing strategy—flexibility needed for both passenger and freight traffic
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Indian Railways : Salience of PPPs to Maintain Growth Momentum As per Eleventh FYP 2007-2012: Salience of PPPs Of the more than $50 billion funding requirement for expansion & modernization of the railway infrastructure $15 bn (30%) is expected to be raised from non-budgetary resources
Possible areas for PPP • World Class Railway Stations (22 Stations in major cities)
• SPVs for Rolling stock Units (Fill supply gap in locomotives & coaches) • Operation of Container Trains (14 contracts allowed already) • Multi-modal Logistics Parks (12 locations identified) • Agri-retail Chain • Commercial Utilization of Surplus Land • Dedicated Freight Corridor Projects (Approx. $5.2 bn reqd.) • High-speed Rail Corridors • Hospitality, Tourism and Catering (BOT models)
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PPP Trends in Developing Countries Total PPP Projects by Sector 1990-2007
Total Investment ($ mn) by Sector 1990-2007
Total Projects: 1225
Energy 44%
Total Investment: $ mn 276,184
Energy
o/w Energy: $ mn 100,676
36%
o/w Energy: 545
Telecom: $ mn 77,092
Telecom: 68
Transport: $ mn 71,191
Transport: 330 Telecom 6% Water and sewerage 23%
Water and Sewerage
Water & Sewerage: $ mn 27,225
10%
Water & Sewage: 282
Telecom Transport
Transport 27%
28%
26%
Source: World Bank PPI Databse 9
PPP Trends in Developing Countries: Transport Sector
Global Transport PPP 1990-2007: Number of Projects
Global Transport PPP 1990-2007: Investment Volume $ bn
Roads
Roads 100 (47%)
546 (49%) Railroads 100 (9%) Airports 128 (12%)
Railroads 39 (18%)
Seaports 325 (30%)
Airports 31 (15%)
Seaports 42 (20%)
Source: World Bank PPI Databse 10
India PPP Trends : Infrastructure Sector 1990-2007 Number of Projects Water & Sewerage
9 24
Seaports Roads
0.255 4
133
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Railroads
3
Airports
6 34
Telecom Energy
Investment Vol. $ billion
0.218 5 43
97
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Source: World Bank PPI Databse 11
IFC Infrastructure Advisory: Kenya-Uganda Railways Joint Concession •The Kenya-Uganda Railways Joint Concession, designed and implemented by the two governments with advice from IFC, became operational on November 1, 2006 •It was designed to avoid the shortcomings of previous concessions and to maximize the long-term benefits for all stakeholders •The lessons of the previous concessions were taken into account, and other features added that have made the KRUR concession an attractive and promising one.
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Kenya-Uganda Railway Joint Concession: Full Privatization Key IFC PPP lessons •Incentivize investment by concessionaire •Minimize public funding of concession •Allow rationalization – exit flexibility for investors •Find innovative ways to maintain passenger services •Minimize inability to remove concessionaire if not performing •Make strong effort to recognize & optimize social objectives
Pre-requisites for rail concessioning •Amendment of the Railways Act or legislation •Safety and environment regulators •Retrenchment of surplus staff •Adequate funding of the pension Fund •Liquidating past environmental liabilities •Disposal of unwanted assets •Containing track encroachments
•Build in safety and environmental regulation into the concession contract •Help ensure increase in allocative efficiency
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Kenya-Uganda Railway Joint Concession: Full Privatization Key Term
Kenya
Uganda
Form of Contract
Operating and Infrastructure management, maintenance and investment concession
Operating and Infrastructure management, maintenance and investment concession
Infrastructure to be concessioned
1920 kms out of existing 2210 kms of track related infra. and workshops/depots
270 kms out of existing 810 kms related infra. and workshops/depots
Rolling Stock & Ferries
Existing assets remain property of Govt. New assets belong to concessionaire
Existing assets remain property of Govt. New assets belong to concessionaire
Freight
25 year operating concession
25 year operating concession
Passenger
5 year operating concession
N/A
Competition Exclusivity
For period of concession
For period of concession
Concession Fee Structure
Annual payment of 11.1% of freight revenue
Annual payment of 11.1% of freight revenue
Investment Obligation
$25 mn in the first 5 years
$5 mn for the first 5 years
Government Obligation to finance Capex
Lower of $1 mn or 50% of the cost of rehabilitating the coaches
N/A
Kenya-Uganda Railway Joint Concession: Full Privatization Expected benefits to Kenya of concessioned KRC: • Concession fees: US $5-10 million per annum • Corporate Tax: US $5 million per annum • Depreciation Account: To guarantee investment in conceded railway network US $200 million, equivalent to US $3million per annum (using 8% discount) • Savings in road maintenance: US $4million per annum • Savings in fuel import: US $2 million per annum • Saving in tariff US $18 million in Year 2 to US $30 million by Year 5 for 50% increase in rail market share at US $0.02 per tonne-km price differential • Part excess labour to be re-employed on other economic activities • No GOK financial support for investments or operations •except outside conceded network or on Public Service Obligation • Real Estate rental to Concessionaire: 800 units US $ 825,000 per annum • Real Estate rental to 3rd parties: 6,500 units US $2.25 million per annum
Fiscal Benefits > US $40 million per annum to the Kenyan economy 15
IFC Infrastructure Invesments: Track Record in Railways •IFC has been investing in Railways in emerging markets since concessions and/or privatization commenced in the 1990s •To date, IFC has invested in freight railway concessions in Argentina, Bolivia, Brazil, Chile, Panama, Peru, Mexico, Russia, Kenya, Uganda, Tanzania and Estonia Total Project Cost (USD $mm)
Fiscal Year Client
Country
Type of Financing
1993 1996 2000 2001 2002 2002 2004 2004 2005 2005 2005 2006 2007 2007
Argentina Chile Panama Mexico Estonia Peru Russia Russia Russia Russia Brazil Russia Kenya/Uganda Tanzania
Rehabilitation / Modernization Rehabilitation / Modernization Expansion / Modernization Rehabilitation / Modernization Modernization Expansion / Modernization Fleet Expansion Fleet Expansion Rail Cars Acquisition Rail Cars Acquisition Expansion / Modernization Rail Terminal Construction Rehabilitation / Modernization Rehabilitation / Modernization
FEPSA FEPASA PCRC FCCM AS Eesti Raudtee PeruRail Russkiy Mir Severstal Trans Brunswick Rail Leasing Eurosibtrans MRS Logistica Eurosib Terminal Kenya Uganda Rail TRL
47.5
227.0 47.7 125.0
62.0 890.0 181.9 111.0 111.0
IFC Senior Loan Syndications Quasi-Equity (USD $mm) (USD $mm) (USD $mm) 16.0 14.5 15.0 10.5 25.0 7.5 15.0 25.0 5.0 30.0 50.0 33.0 22.0 44.0
20.0 12.0 30.0 10.0 25.0
312.5
218.5
Total IFC Financing:
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2.0 6.0 5.0 1.9 1.5 15.0 10.0
50.0 71.5
15.0 10.0 66.4 597.4
IFC Infrastructure Investment: Tanzania Railway (2007) Description
Sponsor
Project Cost
• Rehabilitate, develop, and operate the approximately 2700km railway network under a 20 year concession
• RITES (51%)
• Project Cost = $111mm
• Government of Tanzania (49%)
• Equity = $34mm • World Bank IDA Credit = $33mm • IFC A Loan = $44mm
Development Impact: • Enhance safety, reliability, and efficiency of the railway system • Improve transportation of goods and people, particularly into the poorer and more central regions from the coast • Provide a connection to neighboring six countries, some of which are landlocked 17
IFC Infrastructure Investment: MRS Logistica (Brazil - 2005) Description
Principal Sponsors
Project Cost
• Increase company’s freight handling capacity by 60-80% through way expansion, track reconfigurations, signaling improvements, and rolling stock acquisitions/upgrades
• CSN (32%) • MBR (32%) • CVRD (10%) • Usiminas (10%)
• Project Cost = $890mm • IFC A Loan = $50mm • IFC B Loan - $50mm
Development Impact: • Enhance safety, reliability, and efficiency of the railway system • Increase freight cargo volumes and support the growth of Brazil’s export market • Reduce transport cost required to access domestic and international markets 18
IFC Infrastructure Invesment: Peru Rail (2002) Description
Principal Sponsors
Project Cost
• Upgrade and rehabilitate the railway network
• Orient-Express Hotels Ltd.
• Project Cost = $47.7mm
• Rehabilitate rolling stock
• Peruval Corp. S.A. (50%)
(50%)
• IFC A Loan = $7.5mm • IFC C Loan - $1.5mm
• Purchase communication equipment
Development Impact: • Transport large amounts of minerals, petroleum derivatives, and other bulk commodities that constitute a substantial part of total exports • Help in the strategic regional development of the ports and in the attraction larger tourism inflows to the country
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