future challenges

Project & Infrastructure Financing in Portugal
Opportunities in the Portuguese Water and
Sewage Sector
October 23rd, 2008
F9 Consulting – Consultores Financeiros, SA
Edifício Amoreiras Plaza
Plaza, Rua Carlos Alberto da Mota Pinto,
Pinto 9 – 7
7ºA
A
1070-374 Lisboa, Portugal
T.+351 21 382 67 20 F. +351 21 386 20 32
© 2003 All rights reserved. F9 Consulting
INTRODUCTION
The Water and Sewage
g Sector have had p
profound changes
g during
g the
last 15 years.
In the future there may be even greater changes.
These changes may have the following consequences:
„ The creation of a “New
New Water Market
Market”
„ The entry of new players into the sector
„ The alteration of the “Financing Paradigm” for the sector
2
HISTORICAL OVERVIEW
PEAASAR I and set up of Multimunicipal Systems
„ Until 1995, with the exception of EPAL, the Water Sector was
almost exclusively operated by the municipalities.
„ Integrated and regional solutions (plurimunicipal) demonstrated
clear advantages considering technical, economical and financial
aspects, which lead to the set up of Multimunicipal and
Intermunicipal
p Systems.
y
„ These systems were set up with the aim of finding solutions for
existing problems in the “Alta” component.
3
HISTORICAL OVERVIEW
PEAASAR I and set up of Multimunicipal Systems
“Alta”
“Baixa”
o Abstraction
o Treatment
o Adduction
o Distribuition
o Transport
o Treatment
o Rejection
o Collection
Wholesale Activities
Retail Activities
4
HISTORICAL OVERVIEW
PEAASAR I and set up of Multimunicipal Systems
„ The multimunicipal concessions are managed by regional
companies which are owned by the municipalities and AdP - Águas
de Portugal
g which is the State entity
y for this sector,, which developed
p
a capacity to obtain funds.
„ PEAASAR and its service targets
g
accelerated the set up
p of
multimunicipal systems nationwide.
„ Between 1995 and 2005, 18 multimunicipal
p systems
y
were set up,
p
which guarantee “Alta” supply in 180 municipalities, and “Alta”
sewage in 178 municipalities.
5
HISTORICAL OVERVIEW
PEAASAR I and set up of Multimunicipal Systems
Water
Sewage
6
HISTORICAL OVERVIEW
PEAASAR I and Management Models
There are 6 different
Th
diff
t public
bli water
t supply
l and
d sewage managementt
options in Portugal:
Public Management
Corporate Management
o Municipal Services
o Empresas
Municipais
Municipal ePúblicas
Intermunicipal
o Municipal
p Services with
independent accounting
epublic
Intermunicipais
companies
o Concessões
Municipais
Municipal Concessions
o Empresas
dewith
Capital
Misto
Companies
p
p
public
and
private capital
o Concessões Multimunicipais
o Multimunicipal Concessions
7
HISTORICAL OVERVIEW
Other
Ot
e Management
a age e t Models
ode s
„ Besides the multimunicipal model,
together
g
with the alteration of legislation
g
for the sector, the concession to private
entities has become a possibility.
„ During 10 years, only 22 concessions
were granted, of which 10 since the
beginning of PEAASAR, from a total of
36 municipalities.
8
FUTURE CHALLENGES
The set up of multimunicipal systems created conditions for the
development of the “Alta”
Alta infrastructures, and consequently guaranteed
the reaching of goals.
The management entities for “Baixa”
Baixa made investments which allowed
the rate for water supply service to come near the final objective.
However,, 3 essential issues are still to be resolved,, these are:
„ To carry out investments in Alta-Baixa Interconnection
„ To reach the target set out for Sewage Service
„ Increase Tariff Levels in order to guarantee economic and
fi
financial
i l sustainability
t i bilit off the
th managementt entities
titi
9
FUTURE CHALLENGES
The service
ser ice rates for water
ater supply
s ppl (93%) have
ha e approached the final
target, nevertheless, the service rate for sewage (76%) is below the
established target.
Service (%)
1994
1999
2006
Target
W t Supply
Water
S
l
84%
88%
93%
95%
Sewage
63%
72%
76%
90%
10
FUTURE CHALLENGES
The tariffs for the “Baixa” final client are clearly insufficient to cover
exploration costs in most municipalities.
municipalities
The tariffs for sewage do not even cover the costs for “Alta”.
Number of Municipalities by Average Price of Services Class
Sewage
Water
0
50
100
<0
0,20
20
150
[0 20 0 40[
[0,20‐0,40[
200
[0 40 1 00[
[0,40‐1,00[
>1
1,00
00
250
300
11
FUTURE CHALLENGES
PEAASAR II and Strategic Targets
ECONOMIC-FINANCIAL
SUSTAINABILITY OF
MANAGING ENTITIES
ENVIRONMENTAL
SUSTAINABILITY
Price
of
Water
SOCIAL
SUSTAINABILITY
12
FUTURE CHALLENGES
PEAASAR II and Operating Objectives
„ To serve 95% of the country’s population with a public system of
water supply, with a minimum of 80% within the area of each
system.
„ To serve 90% of the country’s total population with urban public
sewage systems, with a minimum of 70% within the area of each
system.
t
„ Guarantee total recuperation of incurred costs .
„ Contribute to the development of private companies in the sector,
both locally and nationwide.
„ Nationwide, to establish tariffs for the final client, and progress
toward a tariff range which is compatible with the population’s
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economic capacity.
capacity
FUTURE CHALLENGES
Necessary investments to reach the target
Euro Millions
3.800
8.100
4 300
4.300
2000‐2013
(source: PEAASAR II)
Until 2006
Between 2007 and 2013
14
FUTURE CHALLENGES
Necessary investments to reach the target
2.200
Euro
o Millions
3.100
1.600
900
5.000
3.400
2000‐2013
(source: PEAASAR II)
Until 2006
Alta
Baixa
Between 2007 and 2013
+ than double the “Baixa” investment made until 2006
15
FUTURE CHALLENGES
Funding to be raised
"Alta"
"Alta" and "Baixa"
Subsidies
300
Equity
160
Subsidies
1.000
Debt
1.140
"Baixa"
Debt
2.420
Equity
q y
380
Subsidies
700
Debt
1.280
(source: PEAASAR II)
Equity
220
16
FUTURE CHALLENGES
PEAASAR II and Proposed Solutions
Improvement of “Altas”
• Merger of existing systems
• Improvement of tariffs
• Revision
R i i off C
Concession
i
assumptions
Sustainable Tariffs
• Capacity for depreciation and
generate cash-flow
• Standard and sociably acceptable
tariffs
Integration of “Baixa” systems
• Plurimunicipal integration
• Adoption of corporate
management models
Viable and guaranteed
Financing
• Subsidies
• Participation of the private sector
Participation of commercial banks
/ EIB
17
FUTURE CHALLENGES
The need for a new Management Model
„ Th
The majority
j it off municipalities
i i liti did nott find
fi d sufficient
ffi i t advantages
d
t
i the
in
th
management models foreseen in PEAASAR I, and frequently
requested the State to work on a new model which included AdP.
„ The new management models did not contain the necessary
dynamics to reach the PEAASAR I targets.
„ The conclusion of the multimunicipal projects makes it urgent to link
the “Baixa” systems and increase its network so as not to compromise
th viability
the
i bilit off the
th “Alta
“Alt “ investments.
i
t
t
„ The difficulties municipalities are having to raise their tariffs indicates
th t regional
that
i
l tariff
t iff policies
li i should
h ld be
b adopted.
d t d
18
FUTURE CHALLENGES
New Management Model
Tariffs
( social-economic context, present
t iff level,
tariff
l
l efficiency,
ffi i
ttypology
l
off
agglomerates, …)
Investment
(% current and foreseen network,
infra-structure functioning
g situation,,
population projections..)
Retribution
19
FUTURE CHALLENGES
New Management Model
„ Th
The New
N
M
Management
t Model
M d l will
ill allow
ll
t rapidly
to
idl meett the
th
PEAASAR II targets, through the set up of parterships between the
State and municipalities (in association).
„ The municipalities will delegate their legal responsibility of the “Baixa”
activity to the State, which will be managed by a partnership to be set
up.
„ The partnership will be responsible for construction and financing for
a long
l
t
term
period.
i d
„ The partnership will take on the function of Asset Manager, and of
grantor
t off the
th private
i t sector
t in
i Retail
R t il Activities.
A ti iti
„ The private operators will be responsible for operating the water
20
concessions
i
f a shorter
for
h t period.
i d
FUTURE CHALLENGES
New Management Model
VERTICAL MODEL
«baixa»
«alta»
«
AdP - Águas de Portugal
Multimunicipal
System 1
Multimunicipal
System 2
Municipalities
Multimunicipal
System 3
Other
Partnership for «Baixa»
21
FUTURE CHALLENGES
New Management Model
Municipalities
AdP - Águas de Portugal
«baixa»
Partnership for «Baixa»
Exploration
Unit 1
Exploration
Unit 2
Exploration
Unit 3
Exploration
Unit n
Operator
1
Operator
2
Operator
…
Operator
n
Municipality
1
Municipality
…
Municipality
n
Municipality
1
Municipality
…
Municipality
n
Municipality
1
Municipality
…
Municipality
n
Municipality
1
Municipality
…
Municipality
n
22
FUTURE CHALLENGES
New Water Market
The creation of a new market, the Operating Market, with the following
characteristics:
„ Reduced funding needs
„ Reduced
R d
d participation
ti i ti in
i construction
t ti activities
ti iti
„ Reduced Concession periods
New players in the sector
23
FUTURE CHALLENGES
New Financing Model for the Sector
„ Alteration of the financing paradigm through the increase in use of
structured finance: Project Finance, Future Revenues Securitization
and others.
„ Although municipal concessions are already being financed using
structured finance, its importance is not significant.
„ “Alta’s” financial needs has been fulfilled through AdP’s capacity to
raise funds (corporate finance with ownership clauses and State
guarantees) .
„ The new management model eliminates the municipalities role as
intermediary allowing for greater proximity to the generated cash
intermediary,
flows. The income flows will be structured in order to provide the
partnership with direct access to the cash flows.
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g
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