PPP projects in Israel September 2011 Public Private Partnership Division Inbal Insurance Company Ltd. Ministry of Finance The Division of PPP Projects
Vision Ø Ø Private sector’s involvement would improve level of government’s supplied services Ø 2 Investments in infrastructure would enable to sustain Israel’s economy growth Optimizing risk allocation between the public and the private sectors would contribute to public wealth Ministry of Finance The Division of PPP Projects
Industries under Focus The government has decided to focus primarily on the following industries: Ø Ø Roads Ø Water desalination and sewage treatment Ø Construction Ø 3 Railroads/Mass Transit Systems Energy (IPP; LNG; Solar) Ministry of Finance The Division of PPP Projects
PPP PPP/PFI – Major issues PPP/PFI In Israel 4 Ministry of Finance The Division of PPP Projects
Authorities Involved Along the Process The Tender Concession Agreement Management Governmental body Steering Committee Inter-Ministerial Tender Committee Designated Company WDA, JPTA, CTA Cross Israel Highway, Tel Aviv Mass Transit Ministry of Finance Relevant Government Ministries Inbal – The Division of PPP External Consultants 5 Ministry of Finance The Division of PPP Projects
Contractual Framework (Limited or Non-Recourse Structure) Government Sponsor(s) Equity Project vehicle (SPC) Lender(s) Financial Facility Construction Agr. (EPC) 6 Operating Agr. (O&M ) Ministry of Finance The Division of PPP Projects
Project Feasibility Study Phase 1 economic feasibility study: Cost/benefit analysis Phase 2 prior to and during tender process Phase 3 decision & implementation 7 Ministry of Finance Project is economically feasible No Project will not be implemented Yes Business environment fits PPP/PFI No Public sector implementation using alternative method Yes Project meets PPP/PFI criteria No Yes Analyzing the bids compared to the PSC Yes החלטת ממשלה Signing a concession agreement & Controlling its execution Ministry of Finance The Division of PPP Projects
Typical Risk Allocation Optimal Risk Allocation – each sector is responsible for the risks he can better mitigate Risk Public Private Shared Technology Land acquisition & Expropriation Detailed design Cost overruns Completion delay Archaeological findings (mainly Public) O&M costs Collection risk Force Majeure Discriminatory change in laws and legislation Political risk Market/Demand risk 9 Ministry of Finance The Division of PPP Projects
Typical PPP/PFI project Time Frame Excluding legislative related delays Project stage Time Frame (Months) • • • Appointing Tender Committee/Consultants PQ Documents Bidding the PQ 3 List/Short List after PQ Tender documents 2 Bidding of Tender process Best & Final 1 -2 Sub Total • Financial close 8 -12 • Total 10 Ministry of Finance 1 3 -4 1 4 -6 1 -2 16 -20 24 -32 Ministry of Finance The Division of PPP Projects
Improvements in the Tender Rules Changes and improvements in the Tender Rules in order to facilitate the implementation of the projects: Ø Ø Unified accounting principles (based on IASB). Easing of tax treatment Interest rate changes protection Various indexation and protection options in accordance, to risks at the different project stages Steps to encourage institutional investors to participate in the PPP financing : Ø Indicative Rating to the projects (by Israeli rating co. ) Ø Refinance option after Construction phase 11 Ministry of Finance The Division of PPP Projects
Encouraging foreign Participation Why foreign participation is needed? • • • Single borrower limitation (15%) Low competition (2 major banks) – Equity: NIS 54 B for the big 5; NIS 37 B for the big 2. – ROE: 13. 1% - 22% (9/2006 - big 5) 7 -8 major groups participating in all government projects Improvements in order to facilitate the participation of foreign bidders and foreign Lenders: Ø Foreign interest rate changes protection. Ø Foreign currency changes protection. Ø Various indexation and protection options in accordance, to risks at the different project stages Ø Payments to Concessionaire in foreign currency 12 Ministry of Finance The Division of PPP Projects
Foreign Entities participation • Technical Know-How Ø Bring professional expertise and experience. Ø Bring advanced technologies. Ø Bring more efficiency in the planning and execution of projects. Ø Improving the capability of Israeli entities. • Investment Ø Partnership between Israeli and foreign entrepreneurs. Ø Enlargement of foreign investments. 13 Ministry of Finance The Division of PPP Projects
Foreign Entities Involvement • Financing Ø Israel’s sovereign rating ( A – A+ ) attractive for international finance entities. Ø Improvements in Tender Rules encourages foreign participation : financing in USD / Euro with interest rate protection, various indexation protection at the different project stages. Ø Help to enlarge number of financing entities (single borrower limits for Israeli banks). Ø Stimulate competition – reduce financing costs Ø Offer new financing tools and solutions 14 Ministry of Finance The Division of PPP Projects
PPP PPP/PFI – Major issues PPP/PFI In Israel 15 Ministry of Finance The Division of PPP Projects
Volume of Operation by Sectors Construction costs Transport: $ 6. 3 billion Water: $ 2. 0 billion Construction: $ 0. 3 billion Energy : $ 1. 4 billion Total $ 10 billion 16 Ministry of Finance The Division of PPP Projects
Main PPP Projects in Israel Cross Israel Highway (H-6) Carmel Tunnels LRTs Railways Roads No 431 + 531 Fast lane Desalination facilities Prison, Police National Academy Solar Plants, LNG Army Training Basis City 17 Ministry of Finance The Division of PPP Projects
Status of PPP Projects Transportation Projects Status Foreign Entities Involvement Cross-Israel Highway Central Section Both in the operation and in the financng of the project. Highway 431 In operation Financing of construction phase: HSBC (together with 3 Israeli banks) Cross-Israel Highway – Section 18 18 In operation Construction – work began in June 2007 and is expected to be completed by September 2009. Both In the operation part and in finance part Ministry of Finance The Division of PPP Projects
Status of PPP Projects Transportation Projects Status Foreign Entities Involvement Tel Aviv and Jerusalem Fast Lanes “Siemens” is a subcontractor responsible for the unique toll system Jerusalem LRT Construction – Construction work began in August 2006 and is expected to be completed by the third quarter of 2010. A French company (“ALSTOM”) holds 20% share in consortium Tel Aviv LRT 19 Construction – Construction work began in August 2007 and is expected to be completed by the first quarter of 2010. Financial Closing – expected to be completed in April 2009. “Siemens” is part of the concessionaire. Financing of construction phase: RBS, Bayerische LB, KFW Ministry of Finance The Division of PPP Projects
Status of PPP Projects Transportation Projects Foreign Entities Involvement Carmel Tunnels Construction –work began in November 2006 and is expected to be completed by the end of 2010. A Chinese company (“CCECC”) is involved in the tunneling works Highway 531 20 Status Financial Close –to be completed in July 2009. Ministry of Finance The Division of PPP Projects
531 Cross Israel Highway Ayalon HW-20 Tel Aviv Geographic location: The ring roads around the Tel Aviv metropolitan area : North - 531 East - Cross Israel (Hw 6) South - 431 West - Ayalon (Hw 20) 431 21 Ministry of Finance The Division of PPP Projects
Status of PPP Projects Desalination Projects Status Foreign Entities Involvement Ashkelon (100 m 3/year) Palmachim (30 m 3/year) In operation Hadera (100 m 3/year) Construction construction of the facility will be completed by the end of 2009. Financing of the project : Calyon Bank , EIB, Espirito Santo Bank, Dexia Bank, KFW. Sorek (150 m 3/year) 22 In operation RFP released in January 2009. Proposals to be submitted in June 2009 Foreign companies are part of bidding groups Ministry of Finance A French company (Veolia Water ) is part of the consortium(50%) Ministry of Finance The Division of PPP Projects
Development of sea water desalination plants in Israel along the national system (100) Hadera Construction phase. Production at 12/09 Tendering stage Full production Since 9/07 (150) Sorek (30) (100) Tendering stage (100) Palmachim Ashdod Ashkelon Full production 23 Since 12/05 Ministry of Finance The Division of PPP Projects
Status of PPP Projects Status Energy Foreign Entities Involvement Solar Power Plants in the Negev Desert LNG 24 §RFP PQ to be released pending Government approval. Ministry of Finance for 2 Thermal power plants released in March 2009 §PQ for Photovoltaic plant expected to be released in April 2009. Foreign companies are part of bidding groups. Ministry of Finance The Division of PPP Projects
Status of PPP Projects Status Foreign Entities Involvement Beer Sheva Prison Construction - construction of the facility will be completed by June 2009. The operational company is going to be foreign Courts, Government Center Parking Lot, Knesset expansion In operation Training Center for The Israeli Police PQ –bids were submitted in June 2008. RFP expected to be released in Q 3/09 Ashdod Hospital PQ – bids were submitted in December 08. Construction Projects Foreign participant part of bidding group. RFP expected to be released in Q 2/09 25 Ministry of Finance The Division of PPP Projects
Expected additional Projects Ø Additional Roads & LRT lines (Tel-Aviv) including T/K & Build/Design projects Ø Additional Desalination Facilities Ø Hospitals (Including hotels, parking areas, shopping malls) Ø International Airport in Megido Ø Education (school PFI) Ø An international airport and the Peace Corridor projects (Coordination with Jordan) Ø Additional renewable energy projects Ø Protection of the Environment ( a committee has been appointed to make a preliminary study of potential projects ) 26 Ministry of Finance The Division of PPP Projects
Thank you for your attention 27 Ministry of Finance The Division of PPP Projects
Contacts Mr. Abraham Tenne Head of Desalination Division and chairman of the WDA Tel : 972 -3 -6369688/676 Mobile : 972 -50 -6221342 E-mail : abrahamt@water. gov. il 28 Ministry of Finance The Division of PPP Projects
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