Sustainable infrastructure in water sector Philippe THIEL Projects

Sustainable infrastructure in water sector Philippe THIEL Projects Director - BOT/PPP Danube Water Conference, 18 May 2017

More than 3, 500 plants operated in 20+ countries … 2, 342 wastewater treatment plants 1, 261 drinking water plants 5, 240 Mm 3 treated in 2015 7, 144 Mm 3 produced in 2015 Taiwan Indonesia 2% 3% Others 7% Algeria 6% China 21% USA 6% France 13% Spain 9% Chile 11% China 3% Australia [NOM DE 11% CATÉGORI E] [POURCEN TAGE] 73 million people 2 I 2017 Danube Water Conference, 18 May 2017 India 3% Jordan 2% Others 6% France 23% Mexico 3% Annual volume by country Australia 5% Egypt 9% Spain 18% Chile 11% USA 16% 63 million Population Equivalent

… through long-term sustainable partnerships More than 20 years of track record, +25 years commitment 1993 extension Prospect (Australia) 1998 2026 Ciudad Juaruez (Mexico) 2001 2026 Medan (Indonesia) extension 2003 2037 Samra (Jordan) 2012 2039 Melbourne (Australia) 2013 Cornwall (UK) 2014 2036 Poznan (Poland) 2041 2016 Barka (Oman) 2017 3 I 2017 Danube Water Conference, 18 May 2017 2038

Most whole-life-cycle costs are Opex… Equipment Price Tools CAPEX Spare Parts Training Repair Work Maintenance Subcontracting Documentation Preventive Maintenance Technical Assistance Overhauls Renewal Upgrading Consumables 4 I 2017 Danube Water Conference, 18 May 2017 Global OPEX

Who does what ? Type of contract Construct only Scope of Work Public authority - Design & Build (DB) DBO 2 years (Design, Build &Operate) - Produces a design (or engages a private sector design Consultant to do so) Calls for tenders from private constructors Responsible for the maintenance of the facility Funds the project Scope of Work Private partner - Builds the facility to government’s design for a fixed price Produces a performance specification describing the outcomes that the facility must achieve and the requirements it must meet. - Calls for tenders from private sector contractors Responsible for maintenance Funds the project Designs and constructs a facility that meets the performance specification for a fixed price Produces a performance specification describing the outcomes that the facility must achieve and the requirements it must meet. Calls for tenders from private sector contractors Funds the project - Designs and constructs a facility that meets the performance 5 I 2017 Danube Water Conference, 18 May 2017 Maintains the facility for a specified period – usually corresponding to the Guarantee Period

Who does what ? (Cont’d) Type of contract DBO 10 -30 years Long Term Performancebased contract Scope of Work Public authority - - BOT (Build Own Transfer) Long Term Performancebased contract - - Scope of Work Private partner Produces a performance specification describing the outcomes that the facility must achieve and the requirements it must meet. - Calls for tenders from private sector contractors Funds the project Designs and constructs a facility that meets the performance Maintains the facility for a specified period – usually between 10 and 30 years - Designs and constructs a facility that meets the performance specification for a fixed price Maintains the facility for a specified period – usually between 20 and 30 years Finances the design and construction of the facility by raising equity and/or debt finance. Returns the facility in good operating condition at the end of the contract period. Produces a performance specification describing the outcomes that the facility must achieve and the requirements it must meet. Calls for tenders from private sector Pays the SPV a monthly or quarterly service payment commencing when construction is complete 6 I 2017 Danube Water Conference, 18 May 2017 -

Pros & Cons from the Public Authority view point Type of contract +/- Construct only - Technical options unchallenged - No feedback from operational experience considered - no incentive to optimise the operational efficiency - no incentive to optimize the whole-of life cost + Cheap financing solution Design & Build (DB) + Cheap financing solution + Fast and cost effective selection process + Reduces design time and construction calendar (as design and building elements run concurrently) + financial risk transferred (labour and materials) - Final costs can be reasonably higher than original estimates. - Eliminates the possibility of using an integrated design (i. e. no incentive to optimize the operational efficiency, nor the whole-of life cost) DBO 2 years (Design, Build &Operate) 7 I + Cheap financing solution + Fast and cost effective selection process + Reduces design time and construction calendar (as design and building elements run concurrently) + financial risk transferred (labour and materials) + performance certainty, but limited to the Guarantee Period - Final 2017 Danube Water Conference, 18 May costs 2017 can be reasonably higher than original estimates. - No incentive to optimize the whole-of life cost

Pros & Cons from the Public Authority view point Type of contract +/- DBO 10 -30 years + strategic control over service delivery + improved project scoping and risk assessment (i. e. thorough preparation) - preparation usually long and costly + Transfer of expertise to the local community + Superior whole-of-life cost outcomes : minimize the combined design, construction and maintenance costs BOT (Build Own Transfer) As for DBO 10 -30 years : + strategic control over service delivery + improved project scoping and risk assessment (i. e. thorough preparation) + Transfer of expertise to the local community + Superior whole-of-life cost outcomes : minimize the combined design, construction and maintenance costs - preparation usually long and costly plus : + greater budgetary certainty (stable price for the contract whole-life) + Freedom to pursue other essential projects - higher transaction costs - higher financing cost 8 I 2017 Danube Water Conference, 18 May 2017

BOT versus traditional DB – Risk transfer Tradition DB OPERATIONS CONSTRUCTION Authority Private BOT Authority Private Risk of failure to design to specifications Planning risk Construction contractor insolvency Handover/commissioning Defects post construction Operational cost risk Maintenance cost risk Availability payment na Archaeological event risk Increase in insurance premia Utility consumption / price risk 9 I 2017 Danube Water Conference, 18 May 2017

1/ Increase the utility of infrastructure (WEF Recommendations) Johor Potable Water Treatment Plant, Malaysia Assets transferred back in 2012 at the term of a 20 y BOT, now under operation by public authority Two conventional water treatment plants § One 136. 000 m 3/d water treatment plant extension (water source–dam) § One 318. 000 m 3/d built in two stages (water source –river water) § One interbasin raw water transfer, capable of 175. 000 m 3/d § Ground reservoirs and main feeders (100 km) JOHOR 636, 000 m 3/d of water produced accounting for 40% of total State production 4 million of people served A 20 years BOT contract transferred back in 2012 10 I 2017 Danube Water Conference, 18 May 2017 1992

2/ Decrease the total cost of infrastructure (WEF Recommendations) As Samra WWTP, Jordan Hybrid PPP, with US grants, delivering a cheap, stable whole-life tariff BOT 25 years Phase 1 with USAID Phase 2 with MCC 90% energy self-sufficient Cheapest water tariff in Jordan for MWI Millennium Challenge Corporation (MCC) Grant Arab Bank-led consortium B Loan SPV + Operator 11 I 2017 Danube Water Conference, 18 May 2017 Sponsor Consortium Equity

3/ Increase infrastructure’s value over its lifetime (WEF Recommendations) Maribor WWTP, Slovenia Nature : WWTP Size (m 3/d) : 30. 000 Contract value : 43 M. EUR Start date : 07/1998 Termination date : 10/06/2024 Current stage : Operation Client Partnership Suez/Suez International : 40% PETROL (Slo) : 26% AQUA. NET (A) : 21% PORR SOLUTIONS (A) : 10% Styrcon (A) : 3% Project description : : Municipality of Maribor Lender (refi 2008) Initial amount Outstanding amount Maturity date - primary, secondary, tertiary WW treatment, sludge dehydration (Dec 2016) DEXIA CREDIT LOCAL (refi 2008) 24 M. EUR 9, 7 M. EUR 23/08/2023 EPC : DGT (Leader) / PORR, Austria (civil works) O&M : Directly by SPC 12 I 2017 Danube Water Conference, 18 May 2017 - 195. 000 PE, (50% communal WW, 25% meteoric WW, 25 % industriual WW) - development: 1998 -2000 - construction: 2000 -2004 - operation: 2004 – 2024

Maribor WWTP - Project timeline July 29 th, 1998: Contract Signing 1998 April 28 th, 2000: Signing of the Loan Agreement June 9 th, 2000 : Start of the construction November 16 th, 1999: Construction contract signed 1999 June 10 th, 2002: Start of operation Phase I February 10 th, 2004: Start of operation Phase II 2002 2004 2000 Plant Construction 2005 June 10 th, 2024: End of operations Starting in 2013: Sludge project negotiations with Mo. M 2024 13 2017 Danube Water Conference, 18 May 2017 2013 August 25 th, 2008: Refinancing of the debt by Dexia (24 m€ loan) 2008 December 15 th, 2005: Final operating permit

A very reliable plant and a laboratory for small scale innovation Risk-sharing scheme Maribor Municipality Suez & partners Land acquisition for the WWTP construction Project management risks Regulation of the inflow Construction risks Service payment Operation risks • Operation activities: • Operation, Maintenance, Repair, Renewal, Monitoring, Laboratory, Quality control • Innovation promoted through : • • Sludge treatment - Innovative solutions tested (2013 -2014) Environmental management (ISO 14000) in 2011, renewed in 2016 Asset management (IS 0 55000) – Audit planned in May 2017 Energy efficiency – Actions taken 14 I 2017 Danube Water Conference, 18 May 2017

Benefits that WWTP brings to Maribor community Aquasystems contributes to sustainable development of the Maribor economy and well-being of its population: • Full compliance with most demanding slovenian and EU environmental protection standards • Local subcontractors have executed more than 70% of the costruction value • R&D cooperation with technological local actors • Good cooperation with schools and local organisations aiming to increase the environmental protection awareness of Maribor population(open door events, excursions, presentations) • Sponsoring and donations to Maribor’s educational institutions, local community 15 I 2017 Danube Water Conference, 18 May 2017

Maribor – Key success factors • Successful delegated management in the region, combining Private Sector, EBRD private loan, commercial banking sector and E. U. funds • Necessity of political support and commitment for a long-lasting partnering (20 to 30 years) • Balanced contract customized to the capability of the Client • PPP is a way of financing infrastructure in a context of increasing technical, financial and performance requirements 16 I 2017 Danube Water Conference, 18 May 2017

Sustainability / Affordability / Bankability : how can DBO/BOT model be improved? SELECTION Only use DBO/BOT models for suitable projects PREPARATION Improve pipeline Design robust financing structures Adequate risk sharing Minimise financing costs and risks EXECUTION Reduce transaction and bid costs Disclose weightings for evaluation criteria Encourage “owner-led” bids 17 I 2017 Danube Water Conference, 18 May 2017

Sustainable infrastructure in water sector Danube Water Conference – 18 May 2017 Thank You