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Implementing PPPs in Italy: a real case

Rome, 12 May 2005. Implementing PPPs in Italy: a real case. by Guy Chetrit Project finance for infrastructure, Lending operations in Italy & Malta via Sardegna, 38 – Rome. Introduction. EIB is a key funder of PPPs across Europe Since the early 1990s, over 100 deals

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Implementing PPPs in Italy: a real case

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  1. Rome, 12 May 2005 Implementing PPPs in Italy: a real case by Guy Chetrit Project finance for infrastructure, Lending operations in Italy & Malta via Sardegna, 38 – Rome

  2. Introduction • EIB is a key funder of PPPs across Europe • Since the early 1990s, over 100 deals • In several countries (UK, Portugal, Netherlands, Spain, Ireland, Greece…) • Across sectors (transport, water, health, education,…) • Comparing Italian experience

  3. PPPs in Italy • Slow progress to date for large investments • Significant failure rate during procurement phase • Long and costly implementation times WHY ? Learning from experience : the case of a hospital project

  4. Case study • 28.5 year concession to design, build, finance and provide services Sponsors from the construction sector • EUR 130m financing from banks (of which EUR 70m from EIB) • English law financing documentation • A long and challenging process: 18 months for due diligence and negotiations

  5. (often forgotten) Lenders’ objectives • Stable and predictable cash flow (revenue and costs risks) • Bankable concession : sensible risk allocation • Transparency, clarity, predictability over the long term • Importance of due diligence and negotiations • Public sector to play its role (revenues, regulatory changes, etc)

  6. Issues faced (1) • Long term credit standing of the ASL • Regulatory uncertainties (changes in safety regulation, in laws, in tax, …) • Commercial revenues • Technology risks • Life cycle costs

  7. Issues faced (2) • Renewal of medical equipment • Clinical support services • Finding adequate service providers • Interfaces • Non insurability, planning risks…

  8. Legal issues (Merloni law) • Concession signed before financing • ‘Equilibrio economico-finanziario’ • Compensation on termination • Step-in rights • Interest-rate risk • Risk of legal recourse (tender, reclassification of contract, …)

  9. Lessons learnt • Unrealistic expectations (rather than value-for-money approach) • Lack of expertise of public sector, fragmentation of responsabilities • Private sector’s approach and industrial mix (focus on construction, …) • Concessions signed and PEF agreed without lenders’ involvement • Complex legal and regulatory framework

  10. The future • A step in the right direction but a lot still needs to be done • Need to capitalise on experience and promote best practices • Need to promote culture change for both public and private sector • Role of Unità Tecnica FP • Legislative changes?

  11. www.eib.org Lending operations in Italy & Malta via Sardegna, 38 – Rome

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