Odessa Maritime Days

1. Odessa Maritime Days 24 May 2013 – Odessa

2. Ports: Facts & Trends Transactions: Pre-Crisis Odessa Maritime Days

3. Ports: Facts & Trends Crisis • 2008-2009 • Global economic crisis impacted the global trade flows • Trade flows start to decrease and number of containers go down • Sea freight rates have gone down dramatically • Companies are in financial distress and are forced to sell stakes in port assets • Operators have difficulties closing a financial loan • Less appetite for port concessions • Even African projects slow down: syndication Odessa Maritime Days

4. Project Bankabilitya viable project is not yet a bankable one Economic & Financial Balance Financial Viability Bankability IRR NPV Secu-rities DSCR • Determined over a period of > 20 years • Includes future project phases • Determined over a period of < 20 years • Depending of project start-up phase Odessa Maritime Days

5. Project Bankabilitya viable project is not yet a bankable one • Debt service • Revenue protection (tariff and competition) • CAPEX/ OPEX aligned with revenues • Value Engineering and port planning aligned with business demands • Securities • Proper structuring • Proper risk engineering • Quantification (value) of impact of different structures and risk allocations: create value • Safeguarding in the mean time authorities interest to retain discretion over policy • New era of contract engineering Odessa Maritime Days

6. Value engineeringA viable project may not yet be bankable • Thisproject has a project IRR of 19% and a positive NPV. • However, the first year of positive Free Cash Flow is in year 6 • The pay-back period is 10 years from initial investment. • Vale created after the expansion investments in year 15 are not of interest for the lenders! • So, how bankable is this project for project financing? Odessa Maritime Days

7. Port Models Basic Port Management models Odessa Maritime Days

8. Cash Flows PA/TO Financial Structure Business Case Model Operator Port Authority Surplus profit is transferred back to PA Port dues Concession fees Handling fees Storage fees Commercial loans Soft loans Terminal Operator Assets Port Authority Assets Equity Subsidy Commercial loans Opex Concession fees Opex Odessa Maritime Days

9. Cash Flows PA/TO Financial Structure Business Case Model Minimal rate of return TO Surplus profit Minimal rate of return PA X% Revenue Handling fees Y% Concession fees • Create market appetite • Secure revenues operator • Concession contract (bankability) • Competitive tendering for concession • Maximise value to Port • Align concession fees with surplus profit (time and amount) Port dues BC TO BC PA Odessa Maritime Days

10. Tender Process Contract Award Criteria • Selection and awarding (give substance to objectives of Ministry/PA) • Value: • throughput guarantees • productivity • risk absorption • Money: • upfront fee • fixed fee • Royalty/ revenue share Odessa Maritime Days

11. Tender Process Transaction Costs – Classical Approach € transaction costs private public time 5 Candidates 1 Preferred Candidate preparation pre-qualification proposal negotiation Draft Contract Final Contract • High transaction costs at the tail of the tender procedure for both public and private sector • Time consuming negotiations as contract/critical topics are brought in the process (too) late Odessa Maritime Days

12. Tender Process Transaction Costs – Competitive Dialogue € Potential to deal with sensitive topics public transaction costs transaction costs private time 5-10 Candidates 3-6 Candidates 3-6 Candidates preparation + market consultation pre-qualification contract “dialogue” proposal BAFO Draft Contract Proposal Final Contract • Significant transaction costs at the beginning of the tender procedure for both public and private sector • No time consuming negotiations as contract/critical topics are brought in the process early and under competition Odessa Maritime Days