Japan PFI Association 1

Kazuo Ueda
President, Japan PFI Association

Purpose and Process of PFI
Japan PFI Association 2
Contents
1. Purposes of PFI
2. Process of the Selection of a Preferred Bidder
3. Risk Allocation and Contractual Issues
4. Monitoring Methodology
5. Project Finance
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1. Purposes of PFI
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1.1 Minimization of LCC
(1) PFI is a scheme to challenge the minimization of Life Cycle
Cost (LCC) of public services such as schools, hospitals,
waste management, government office, etc.
Japan PFI Association
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PFI Project Company
Special Purpose Company
(SPC)
Direct Agreement
Design
Residents
PFI Project Screening Committee
(Selection of Preferred Bidder, etc.)
Equity Investors
(SPC Consortium)
Lender
Construction
3
rd
Party
Management Operation
Public Sector
Public
Services
Contract
Investment
Loan
Agreement
Payment for
Public
Services
PFI Project
Contract
Loan
Repayment
PFI Project
Committee
(Judgment, etc.)
Advisor
Dividends
Advice
Residents
1.1 Minimization of LCC
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(2) PFI is a scheme to utilize private finance (project finance)
for the construction of public facilities for the provision of
public services.
1.2 Utilization of Private Finance
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PFI Project Company
Special Purpose Company
(SPC)
Direct Agreement
Design
Residents
PFI Project Screening Committee
(Selection of Preferred Bidder, etc.)
Equity Investors
(SPC Consortium)
Lender
Construction
3
rd
Party
Management Operation
Public Sector
Public
Services
Contract
Investment
Loan
Agreement
Payment for
Public
Services
PFI Project
Contract
Loan
Repayment
PFI Project
Committee
(Judgment, etc.)
Advisor
Dividends
Advice
Residents
1.2 Utilization of Private Finance
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2. Process of the Selection of
a Preferred Bidder
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Contract
Sealing
1
2.1 PFI Process before Contract Sealing

SPC Foundation
F/S & VFM
Test
Min 12 months
Selection of
Preferred Bidder
3 - 4 months
Tendering
_PFI Screening
Committee
Conceptual
Planning
Guideline
Announcement
of Projects
3
1
3 4
Invitation to
Tender
Q&A Q&A
Negotiation
Announcement of
PFI Implementation
LOI
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Contract
Sealing
2.2 PFI Process after contract sealing
(BTO) Asset
transferred to
Public Sector
End of
Contract
_Monitoring & Payment
_PFI Project Committee
Design &
Construction
Completion
Maintenance
& Operation
Start
Operation
(BOT) Asset
transferred to
Public Sector
Loan
Agreement
Sealing
Direct
Agreement
Sealing
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Group C Group B
PFI Project Screening Committee
(Selection of Preferred Bidder, etc.)
3
rd
Party
Group A
Design
Firm
Construction
Company
Maintenance
Company
Operation
Company
Public Sector
2.3 Selection Process of a Preferred Bidder
Open Q&A & Negotiation
Advisor
Advice
Local Council
Financier
Design
Firm
Construction
Company
Maintenance
Company
Operation
Company
Financier
Design
Firm
Construction
Company
Maintenance
Company
Operation
Company
Financier
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PFI Project Company
Special Purpose Company
(SPC)
Direct Agreement
Design
Residents
Equity Investors
(SPC Consortium)
Lender
Construction
3
rd
Party
Maintenance Operation
Public Sector
Contract
Investment
Loan
Agreement
PFI Project
Contract
Loan
PFI Project
Committee
(Judgment, etc.)
2.4 Start of PFI Project
Residents
Japan PFI Association
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PFI Project Company
Special Purpose Company
(SPC)
Design
Residents
Construction
3
rd
Party
Public Sector
Contract
Monitoring &
Reporting
PFI Project
Contract
PFI Project
Committee
(Judgment, etc.)
2.5 Design & Construction Period
Monitoring
Lender
Loan
Agreement
Monitoring
Direct Agreement
Reporting
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PFI Project Company
Special Purpose Company
(SPC)
Residents
3
rd
Party
Public Sector
Contract
Monitoring
& Reporting
PFI Project
Contract
PFI Project
Committee
(Judgment, etc.)
2.6 Management & Operation Period
Monitoring
Lender
Loan
Agreement
Monitoring
Direct Agreement
Reporting
Maintenance Operation
Public
Services
Payment
for Public
Services
Equity Investors
(SPC Consortium)
Repayment
Dividends
Residents
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PFI Project Company
Special Purpose Company
(SPC)
Residents
Public Sector
2.7 Termination / End of Contract
Lender
Direct Agreement
Public
Services
Assets
Residents
3
rd
Party
PFI Project
Committee
(Judgment, etc.)
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3. Risk Allocation and Contractual
Issues
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3.1 Risk Allocation
PFI Project Company
Special Purpose Company
(SPC)
Design Construction Maintenance Operation
Public Sector
Contract
PFI Project
Contract
RISK RISK RISK
RISK
RISK
Equity
Investors
(SPC Consortium)
Lender
RISK
RISK
RISK
RISK
RISK
Insurance
company
RISK
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3.2 Direct Agreement
PFI Project Company
Special Purpose Company
(SPC)
Direct Agreement
Design
Residents
PFI Project Screening Committee
(Selection of Preferred Bidder, etc.)
Equity Investors
(SPC Consortium)
Lender
Construction
3
rd
Party
Maintenance Operation
Public Sector
Public
Services
Contract
Investment
Loan
Agreement
Payment for
Public
Services
PFI Project
Contract
Loan
Repayment
PFI Project
Committee
(Judgment, etc.)
Advisor
Dividends
Advice
Residents
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3.2 Direct Agreement
(1) Establishment of security by Lender
(2) Statement of the political importance & the priority
project
(3) Confirmation of the fulfillment of PFI project contract
(4) Mutual reporting & meeting for the continuity of the
project
Public Sector agrees with Lender the following:
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3.3 PFI Project Committee
PFI Project Company
Special Purpose Company
(SPC)
Direct Agreement
Design
Residents
PFI Project Screening Committee
(Selection of Preferred Bidder, etc.)
Equity Investors
(SPC Consortium)
Lender
Construction
3
rd
Party
Maintenance Operation
Public Sector
Public
Services
Contract
Investment
Loan
Agreement
Payment for
Public
Services
PFI Project
Contract
Loan
Repayment
PFI Project
Committee
(Judgment, etc.)
Advisor
Dividends
Advice
Residents
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3.3 PFI Project Committee
_To deal fairly and smoothly with possible arguments
between Public Sector and PFI Project Company (SPC)
during the execution of the project
_Judgments of service monitoring outcome and contract
termination
_Assessment of the quality of the asset transferred to
Public Sector at the end of the contract, etc.
2 from residents
2 from the Public Sector
2 from the PFI Project company
2 from the 3
rd
party
*people of experience or
academic standing
*specialists (lawyer, etc)
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4. Monitoring Methodology
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4.1 Monitoring Methodology
PFI Project Company
Special Purpose Company
(SPC)
Direct Agreement
Design
Residents
PFI Project Screening Committee
(Selection of Preferred Bidder, etc.)
Equity Investors
(SPC Consortium)
Lender
Construction
3
rd
Party
Maintenance Operation
Public Sector
Public
Services
Contract
Investment
Loan
Agreement
Payment for
Public
Services
PFI Project
Contract
Loan
Repayment
PFI Project
Committee
(Judgment, etc.)
Advisor
Dividends
Advice
Residents
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_Project to be sustainable
_Agreed leveled services to be maintained
purpose
4.1 Monitoring Methodology
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Monitoring by PFI
Project company
Payment
Monitoring by Public Sector
Questionnaire survey
against users
Inspection
by Public Sector
Monitor how much the performance
satisfies the agreed leveled services
Determine the deduction of payment
monitoring procedure
4.2 Monitoring System &
Payment Mechanism
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Payment
Availability
Performance
For Design & Build
For
Maintenance
& Operation
_Public Sector to PFI company
_Periodically
_During M&O
_Building & Facility Mgt.
_Garden Mgt.
_Cleaning Mgt.
_Safety Mgt.
_Environment Mgt., etc.
monitoring
payment structure
4.2 Monitoring System &
Payment Mechanism
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1 2 3 4 period
Payment
Deduction
Stop of payment
For performance
For availability
For D&B
Full payment
Recovery
Termination
Change contractors
_PFI project committee
_Discussion with Lenders
payment type
4.2 Monitoring System &
Payment Mechanism
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5. Project Finance
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5. Project Finance

1. Objectives
2. Philosophy among stakeholders
Partnerships
Who is a lawyer for the Project?
3. Contract and Culture
Civil Law and Common Law
How about ours
4. Regulator
Excess Profit
5. Sponsors
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PPP Project Company
Special Purpose Company
(SPC)
Direct Agreement
Design
Residents
Equity Investors
(SPC Consortium)
Lender
Construction Management Operation
Public Sector
West Java Province
(Contracting Agency)
Public
Services
Contract
Investment
Loan
Agreement
Payment for
Public
Services
PFI Project
Contract
Loan
Repayment
Dividends
Residents