GAMA 2010

A Strategy for Consulting Engineers to Develop Infrastructure Projects by using Master Planning, Funding Institutions and Public Private Partnerships (PPPs)
Jonathan Cornish KV3 Engineers

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Contents
Background Opportunities for Consulting Engineers Project Development Phases Resources Required Identifying Projects Funding Institutions Public Private Partnerships (PPPs) Conclusion
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Background
Africas opportunity Infrastructure constraint, 14 - 50% value of exports are transport costs versus 8.6% for other developing countries Possible causes - governance, institutional capacity, funding, over reliance on donor organisations, etc.

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Economic transformation and accountability Economic Growth 5% Income improved 25% Poverty down to 51% from 58% 20 democracies versus 3 in the 1980s Growth in Development Funding Institutions (DFIs) DBSA and AfDB

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Background cont.
With a growing demand in resources, better governance and funding being available:
No significant progress has been made in regional and inter regional co co-operation and infrastructure delivery Projects generally have not been planned, investigated, scoped, prioritised, bankable studies undertaken, funding secured or budgeted for

The result is that a number of Bankable projects do not get to the procurement phase which impacts negatively on downstream consulting engineers.
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Opportunity for Consulting Engineers
Migrating up the value chain to include Project Development into their service offering Market differentiator versus commodity Leading role through Master Planning, Funding Institutions and PPPs

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Project Development Phases
Phase 1 2 3 Title Enabling Environment Project Definition Project Feasibility Description Legislation, regulatory, capacity ID of outputs, prioritisation, partners, planning and pre-feasibility studies Organisational, administration, financial modelling, economic studies, technical, engineering and environmental studies PPP options, project finance, legal, technical and engineering activities Project financing, legal, technical and procurement Monitoring, evaluation, refinancing
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4 5 6

Project Structuring Transaction Support Post-Support

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Project Development Skills
Engineering, business/financial, strategic, lateral thinking and networking Project Intelligence and knowledge on DFIs and funding institutions Target sector networking Recommendation Project Development Champion and matrix structure
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Identifying Projects
Traditionally challenging and risky to private sector and DFIs Money goes where money knows, know what the funders want and what risks they are concerned about Key Risk - Project must be part of a Master Plan Master Plan Demonstrates - Planning, investigation, prioritisation, scoping and even budgeting in some instances.
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Master Planning
Definition - Master Planning is defined as the principal strategic instrument guiding all future planning, management, investment, development and implementation decisions Master planning is a blueprint of future projects requiring further development Funding for Master Planning is available from various funding agencies Recommendation Use Master Planning to identify a solid project, that has political backing, a revenue stream and bankability potential.
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Funding Institutions - Types
Multilateral Agencies Funding comes from multiple governments and nonnon-government sources and is distributed to many different countries (World Bank) Bilateral Agencies Government Agencies in a single country which provide aid to developing countries (Development Banks and Export Credit Agencies) Commercial and Investment Banks Driven by credit and ROE
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Funding Institutions Risks
Project Development key risks :
Political risk Possible adverse government action Regulatory risk What laws apply Environmental risk Possible adverse environmental consequences Foreign Exchange risk Are proceeds convertible and is there currency available Credit risk Can the project service debt Supply risk If uncertain long term agreements Market risk Off Off-take agreements or government guarantees Completion risk Turnkey projects Technology risk Proven but competitive Operations and Maintenance risk Long term risk, operators and funding are key Infrastructure risk Access to roads, rail, ports and power grids

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Funding Institutions
Funds rarely requested by engineering consultants A project that forms part of a Master Plan, satisfies funders risk requirements and is motivated properly has a good chance of being funded Recommendation - Select a few funders that operate in your sector, are geographically close and pose no language barriers. Networking and intelligence gathering is key.

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Public Private Partnerships (PPPs)
Definition - This is defined as a 5 5-30 year partnership contract between government and the private sector in performing an institutional function where substantial risk, either financial, technical or operational, is transferred to the party that can best manage it. The PPP project process typically follows the following cycle:
Inception Government registers the project with National Treasurys PPP unit Feasibility Study Government appoints private sector advisors to do a feasibility study on the most appropriate mechanism for procuring the project Procurement If the feasibility study shows that a PPP is a viable option, government invites the market to submit bids for the infrastructure project Implementation The project is implemented once a suitable bidder has been chosen and a PPP agreement signed.
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PPPs
Initiative is growing South Africa, Mozambique, Uganda, Kenya, Zambia and Nigeria Can be done in multiple sectors - hospitals, government buildings, game park concessions, rail systems, municipal bulk infrastructure and fleet management Robust framework to deliver large projects PPPs are complex, expensive and time consuming to get to financial closure, thus not an easy way out!!
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PPPs
Traditionally management consultants and auditing firms have occupied this space High fees and challenging work can be found in this sector There are opportunities for consulting engineers to skill themselves and take a leading role as TAs (Transaction / Technical Advisors)
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Conclusion
Infrastructure delivery is slow and governments generally don't have the skills or capacity to get projects to bankable level which impacts negatively on our industry Consulting engineers are well positioned to take a leading role in the project development sector with various value adding strategies that were touched on:
Developing skills to operate in the Project Development sector How to identify low risk projects using master planning Understanding funders and what is important to them PPP frameworks as a possible delivery vehicle

With the skills that Consulting Engineers have, more projects will be identified, prioritised, bankable studies undertaken and funding secured which will accelerate Africas development.
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Thank you
Jonathan Cornish, B.Tech. B.Tech. Eng (Ind (Ind), ), MBL Technical Director International KV3 Engineers, South Africa jcornish@kv3.co.za

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