Asia s infrastructure trends and Case Study discussions

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Asia’s infrastructure

trends and Case Study

discussions

Lee Seng Chee

Partner

Capital Projects and

Infrastructure

October 2014

www.pwc.com Disclaimer:

The views expressed in this document are those of the author, and do not necessarily reflect the views and policies of the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this document, and accept no responsibility for any consequence of their use. By making any designation or reference to a particular territory or geographical area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.

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Section 1: Asia’s infrastructure trends and the Singapore Journey

3 Section 2: Case Study – Sport and Culture Category

10

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Section 1 Asia’s infrastructure trends and the

Singapore Journey

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Despite clear infrastructure deficits, APAC still

under-invests

Infrastructure investment as % of GDP (latest data available)

World

3.8

USA

2.6

Philippines

2.7

Indonesia

3.2

India

4.7

Japan

5

China

8.5

Vietnam

10

Under-investing in the future of their economies

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Infrastructure: growth in spending

2.0 2.5 3.0 3.5 4.0 4.5 2006 2007 2008 2009 2010 2011 2012 2013 $ trillions, current prices

Source : Oxford Economics/Haver Analytics

0 1 2 3 4 5 6 7 8 9 10 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 $ trillions, current prices

Source : Oxford Economics/Haver Analytics Forecast

• Government is a key driver of all infrastructure spend – public and

private

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Asia – Infrastructure spend

50.1% 17.0% 10.2% 9.7% 5.2% 3.1% 1.3% 3.4% China Japan India Australia South Korea Indonesia Thailand Others Percent of regional infrastructure spend

Source : Oxford Economics/Haver Analytics

•Government across region recognise need

for continued Infra spend.

• US9trn per annum by 2025

• US$78trn between now and 2025

Overall, the Asia-Pacific infrastructure

market will grow by 7% to 8% a year over

the next decade, approaching US$5.3

trillion by 2025

•Government requires private sector

finance and expertise to deliver on the

infrastructure promise

•Private sector capital and capability

critical to sustained delivery

11.1% 19.7% 22.6% 23.8% 25.6% 34.7% _30.4% 10.6% 12.9% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Extraction Utilities Manufacturing Transport and Comms Social Percent of total infrastructure investment

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The Asian Infrastructure Gap: Forecast (2009)

Infrastructure Deficit

of US$8 trillion (2010-2020)

Sectors Amt (US$ trn)

Telecom 1.1 Power 4.1 Transport 2.5 - Rail 0.04 - Road 2.3 - Others 0.09 Water & Sanitation 0.4 Total 8.0 Source: ADBi (2009), Bhattacharya (2008) Investment Barrier

• Poor project preparation

• Legal & Regulatory Framework • Poorly Defined and Unstructured

Procurement Processes

• Haphazard Pipeline Management • Risk Allocation and Commercial

Structure – imbalanced risks vs reward

• Lack of Capacity

• Political risks – stability and cycles • Lack of investment subsidy in

certain jurisdictions Supply of Capital • Government • Multi-laterals • Commercial lending • Private sector (15-30%, Indonesia-65%) – Infrastructure funds – Pension funds – Strategic investors o Constructors o Operators • Others

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The Singapore Journey - PPPs

• First PPP handbook issued by the

Ministry of Finance (Singapore) in

Oct 2004

• Provided guidance to all

implementing government

agencies

• Introduction to PPP – setting

out the rationale

• Structuring a PPP deal

• PPP Procurement Process

• Managing a PPP – critical

success factors

• Promoted the use of PPP for all

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The Singapore Journey – PPPs (Continued)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Incineration Plant

First PPP project awarded by National Environment Agency for the design build, own and operate of a new

incineration plant for 25 years

Singapore Customs

First IT PPP project

awarded for 10 year period for the development of software, maintenance and operation of the system

Changi NEWater Plant

25 year contract awarded for the design, build, own and operate of Changi NEWater Plant

2nd_{Tuas Desal Plant}

Awarded for the design, build, own and operate of 2nd_{Tuas Desalination}

Plant for a 25 year period

Ministry of Finance published the Public Private Partnership Handbook

Ongoing PPP tenders

6th_{Incineration Plant}

Changi NEWater Plant 2

Ulu Pandan NEWater Plant

Awarded a 20 year contract for the design build, own and

operate of Ulu Pandan NEWater Plant

ITE College West

First social

infrastructure PPP in Singapore for the design, build, finance and operate of a school facility for 27 years

Singapore Sports Hub

Landmark PPP deal for the design, build, finance and operate of the Sports Hub for 25 years

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PPP – Common Sectors (globally)

Sectors of Expertise – Across the PPP and Deals Advisory space

Water Power & Energy Transport Housing

Water treatment

Waste water

Desalination

Inside the fence

IPPs/PPA projects

Merchant plants

Inside the fence

District heating

Oil & Gas

•Light rail •Roads •Bridges •Rail •Airports •Ports Low income Affordable Defence accommodations

Healthcare Education Prison Other Sectors

New facilities Refurbishment Facilities management New facilities Refurbishment Facilities management New facilities Refurbishment Facilities management Sports Infrastructure Properties and Real Estate

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Section 2 Case Study – Sport and Culture Category

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Case Study – Sports and Culture Category

Singapore Sports Hub

Project Brief

The project cost of the Singapore Sports Hub was

c.S$1.8billion, making it the largest sports PPP project in the world. The project included the construction of a national sports stadium with capacity of 55,000, swimming complex with capacity of 6,000, aqua centre, a 41,000 square meter business development park, taking over the Singapore Indoor Stadium constructed in 1989, and other supporting facilities. PPP Project Company is responsible for the design,

construction, financing, operations and maintenance of the Singapore Sports Hub, concession length 25 years. PPP Project Company will create a multi purpose sports, recreation and lifestyle location to attract internationally renowned sports events and performances from all over the world.

PwC acted as the lead financial advisor to the government, and led other legal, technical and operational consultants in the advisory consortium.

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Case Study – Sports and Culture Category

Singapore Sports Hub – 2010 Awards

13 Asia Pacific PPP Deal of

the Year by《 PFI 》 Deal of the Year – PPP

by Infrastructure Journal 《IJ》

Deal of the Year by 《Euromoney》

Other awards include:

- Asia Pacific PPP Deal of the Year by《Euromoney》

- Asia Pacific PPP Deal of the Year by 《Infrastructure Investor》

- Financing Deal of the Year by 《The Asset》

- Asia Pacific Financing Deal of the Year by 《Asiamoney》

- Asia Pacific Financing Deal of the Year by 《Euroweek Asia》

- Asia Pacific Leisure Deal of the Year by 《Euromoney》

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Case Study – Sports and Culture Category

Singapore Sports Hub – Vision

Fully integrated sports entertainment and lifestyle hub as a landmark

Objectives

1. Integrated Lifestyle Hub for

World-Class Sports &

Entertainment Events

2. Commercially Viable

Business Model

3. National & Global

Landmark

1. Thriving sports & entertainment

ecosystem

2. Key driver for ‘Sporting Singapore’ vision

3. Platform for business partnerships

4. Preferred sports & entertainment

destination

5. Urban regenerator of Kallang area

6. Vibrant lifestyle hub with world-class

customer service

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Case Study – Sports and Culture Category

Singapore Sports Hub – Reason for using PPP

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Leverage on value of private sector

for Government projects &

objectives

• Government agency outsourcing of

‘non-core’

• Private sector can design, build,

finance and operate facilities

• Allows Government agency to focus on

‘core’ activities

PPP Co to provide integrated plan and

whole life costing:

• Integrated Design & Construction – end

use driven

• Optimised finance solution – equity and

debt

• Facilities Management

• Facilities Operator – attract, promote and

manage events

• Venue Management, Lifecycle and

maintenance

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Case Study – Sports and Culture Category

Singapore Sports Hub – Input vs. Output

Input Specification

(Technical Brief)

Output Specification

(Performance Brief)

---

---Compliance Based

Excludes Innovation

Building focused

Predictable outcomes

“more of the same”

RETAINS design RISK

LIMITS CREATIVITY

Architect/Builder Driven

Strategic Delivery

Performance Based

Encourages Innovation

Business focused

Optimised outcomes

TRANSFERS design RISK

PROMOTES CREATIVITY

End User Driven

E.g. In order to ensure the comfort of the spectators, the national sports stadium should have an ambient temperature maintained at 23-25 degrees celsius during operations. E.g. In order to ensure the comfort of the

spectators, the national sports stadium should have 10 large air conditioners per seating zone.

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Case Study – Sports and Culture Category

Singapore Sports Hub – Evaluation Criteria

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Appeal of sports,

leisure, and

entertainment

programming

Ability of the Bidder to deliver an appropriate

programming calendar, including proposed

events programs, facility promotion &

community development

40%

Functionality and

Quality of Design

Design and technical evaluation, including

program, deliverability, functionality and

urban integration

25%

Financial and Legal

Appeal

Compliance with the PPP Contract drafted by

SSC; legal & commercial qualifications;

financing of the construction program

25%

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Case Study – Sports and Culture Category

Singapore Sports Hub –Risk and Return

….a viable business model to attract private sector funding

R

IS

K

R

E

W

A

R

D

SSC PPP Co Unitary Payment ‘Availability’ Third-Party Revenue Share Payment Mechanism (Availability & Performance)

Demand Risk Incentive-based Design & Construct Risk Availability Risk Service Performance Risk Share d PPP Co PPP Co GOVT Operations

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Case Study – Sports and Culture Category

Singapore Sports Hub – Paymech

Revenue Availability Payment Variable Payment Debt service Capital Cost Recovery payment Fixed O&M Payment Variable O&M payment

Not linked to usage

Linked to usage

Deductions

3rd _{party revenue} （SSC Share) 3rd _Party Revenue （Shared with PPP Co) minus

• 3rd _{party revenue shared} with authority

• Incentivise sports events （over leisure events）

Reduced Availability • Frequency of occurrence • Importance of performance indicator • Severity of performance failure Reduced Performance • Importance of performance indicator • Severity of performance failure

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Section 3

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New water plant New water plant

PUB

User

Case Study – Water Category

Singapore Water Industry Value Chain

plant Waste water plant Desalination Plant Desalination Plant Water source Water source

SP Services

PPP framework

Outsourcing contract Meter reading/ billing/ collection of water charges Payment Bill Water provision Water provision network Water provision network Payment Deductions

Water provision flow Payment/ cash flow

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Case Study – Water Category

Singapore Water PPP Case Study



Singapore has successfully introduced the private sector in its water

industry



Common BOT structure for water and wastewater treatment- NEWater,

Desal, raw water



Private player is paid through a payment mechanism which has fixed and

variable components. Private player does not take on volume risk on water

consumption level



Public Utilities Board (PUB) is the regulator as well as the off taker

The relatively simple and robust structures for these PPPs mean that PUB is

able to attract wide interests from the private sector to participate

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Case Study – Water Category

Singapore Changi New Water

• After 3 months of competitive

tender, the consortium Sembcorp

Newater Pte Ltd was selected as

Preferred Bidder out of 5 bidders in

2008

• Contract term ：27 years

• Responsibility of consortium:

Design, construct, operate and

maintain Newater Plant, and

financing for initial design and

capex costs during construction

• Project Cost：SGD 120 million

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Case Study – Water Category

Singapore Changi New Water

Commercial Structure

Procuring Entity: Public Utilities Board

PPP Project Co Sembcorp NEWater Equity: Sembcorp Utilities Pte Ltd Debt: Financing banks

Design & Construction: Black & Veatch (Technical Consultant)

and other contractors

Operator: Project Co

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Case Study – Water Category

Singapore Changi New Water

• Construction period：PUB does not make payment to PPP Co. PPP Co will

need to finance costs during construction

Uses of funds:

- Capex

- Design fees

- Financing interests

Others

Sources of funds:

- Equity from sponsors

- Debt from financiers

Water provision flow Payment/ cashflow PUB PUB Changi New Water Plant Water Source Water Network Water Provision Network PPP Co

• Operations period：PUB will make payment PPP Co. in accordance to

agreed payment mechanism and price

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Case Study – Water Category

Singapore Changi New Water - Paymech

Tariff Availability payment Output payment Capital Cost Recovery Payment Fixed O&M Payment Fixed Power Payment Variable O&M Payment Variable Power

Not linked to usage

Linked to usage Reduced Availability Reduced storage Excessive Residual Waste Deviation from NEWater Quality Reporting Failures Reduced Availability Reporting Failures Reduced Availability Reporting Failures

Deductions

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Case Study – Water Category

Singapore Changi New Water - Paymech

Capital Cost Recovery

Variable power payment (indexed) Variable O&M payment (indexed)

Fixed O&M payment (indexed)

Fixed power payment (indexed/ unindexed)

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PwC Contact

Seng-Chee LEE, FCA 李成志

Partner 合伙人

Advisory – Capital Projects & Infrastructure

PricewaterhouseCoopers (Singapore)

Tel: +65 6236 4178 (Direct) +65 92330780 (Mobile) Email: [email protected] LinkedIn: Seng Chee Lee

Seng-Chee Lee is a Partner of PricewaterhouseCoopers (Singapore) and he provides financial advisory services to support complex transactions in particular in the Capital & Infrastructure projects

He has more than 17 years of experience in financial structuring , finance raising and M&A activities in both buy and sell side, government and private sector advisory roles, including expertise in Public Private Partnerships (“PPP”), Private Finance Initiatives (“PFI”) frameworks.

He has advised in the development of a number of milestone infrastructure projects and transactions in Singapore, Asia and Europe covering sectors including power, water/waste water treatment, transport infrastructure (toll roads, bridges, ports, mass rapid transport, airport etc). Seng-Chee has worked with many government agencies, major projects finance institutions, infrastructure funds, strategic investors (eg developers) and multilaterals/ bilaterals donor agencies on infrastructure development, investments and divestments.

In Singapore, he has supported many government agencies (including Public Utilities Board, Singapore Sports Council, Ministry of Education, Ministry of Trade & Industry, Singapore Cooperation Enterprise, IE Singapore) in many projects involving the promotion of Public Private Partnership to attract private sector expertise and investments into

Singapore’s public infrastructure. Seng Chee has also advised private sector consortiums in selected PPP projects tenders in Singapore including

wastewater, desalination, transportation, and education campus.

Seng Chee graduated from the London School of Economics (UK) and is a Fellow of the Institute of Chartered Accountants in England and Wales.

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Thank you!

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Asia s infrastructure trends and Case Study discussions