Building public infrastructure: will the business keep supporting?
Infrastructure in the form of roads and ports, electricity and water supply or schools and hospitals is a prerequisite for long-term economic growth. As a rule, the investment requirements go far beyond the financial possibilities of public budgets in developing countries. Hybrid forms in the form of public-private partnerships (PPP) are a successful way of involving private investors in building public infrastructure. In addition to private capital, these also provide valuable technical know-how.
In order to be effective, PPPs have to be structured efficiently, tendered internationally and awarded transparently to private investors. They have to be sustainable in the long term in order to minimize financial risks and to guarantee the expected use of the infrastructure in the long term. Proper structuring is important, as insufficiently planned projects mean that private investors are reluctant to enter the market.
This is where the experience of multilateral institutions such as the European Bank for Reconstruction and Development (EBRD) and International Finance Corporation (IFC, the World Bank Group), comes into play. When structuring new PPP infrastructure projects by the IFC, German consulting firms are often used.
Since 2017, Bilfinger Tebodin in Ukraine has been actively involved in the EBRD/IFC financed projects aimed at preparation and structuring for financing of PPP projects. In such projects, it is vital to build an adequate financial model based on which concession payments (e.g., for ports) or availability payments (for roads) are determined. As a rule, such payments are calculated for the entire period of the PPP project (30+ years) and must suit both the public and the private partners; otherwise, there will be no deal.
Bilfinger Tebodin's role as technical and environmental consultant was to assess the project's technical and environmental risks and to prepare repair and maintenance schedules and scopes in accordance with the best international practices as well as provision of correspondent CAPEX and OPEX data for the financial model.
Ports and roads in Ukraine
In 2020, Bilfinger Tebodin together with its partners in Ukraine successfully prepared and conducted two pilot tenders with international concessionaires selected for the seaports Olvia and Kherson. Another PPP project in this sector – port of Chornomorsk – is in the phase of decision-making. Our team has made a pre-feasibility of their container terminal concession, and soon IFI will launch a feasibility study as a next phase.
PPP projects in the road sector in Ukraine received a drive when the state 'Big Construction' program was realized. In 2020-2021, Bilfinger Tebodin in Ukraine in cooperation with colleagues from Poland contributed to successfully completing pre-feasibility studies on structuring of six potential PPP projects, aiming at rehabilitation and subsequent maintenance of six road sections with a total length of 1,400 km, based on so-called availability payment approach.
Bilfinger companies join efforts in Ukraine for PPP projects
In May 2021, Bilfinger Tebodin in Ukraine with the support of Bilfinger Engineering & Maintenance took part in virtual event of Germany's Federal Ministry for Economic Cooperation and Development about the development of public-private partnerships (PPP) in the infrastructure sector.
At the event attended by the members of German parliament, the examples on the use of the ministry's budget funds for project preparation were presented. The aim of the event was to shed light on the mode of operation of PPP and to address special opportunities and risks in preparing and implementing such projects for the German companies as potential investors.
The presentation of Bilfinger Group experience in PPP projects was developed with the cooperation of Ukrainian and German colleagues and delivered by Philipp Kunz, Project Manager and BD Consultant, Bilfinger EMS, and Andriy Balanyuk, Deputy Director Consultancy, Bilfinger Tebodin in Ukraine.
Would you like to learn more?
Contact Andriy Balanyuk via andriy.balanyuk. @bilfinger.com