This note provides an overview of the concession process for infrastructure assets. The concession process is an integral part of the public procurement process for the Public Private Partnership (PPP) projects . The use of PPPs as a delivery mechanism for large infrastructure projects is an increasingly popular trend observed in several countries. While there is always the desire to have the procurement completed as quickly as possible, we believe that Governments should not rush to concession the project and instead the necessary time to develop the details of the project that help make the financial case to the investment community. For this to happen, we suggest the following guidelines for the schedule, the process and the concession documents.
In the rest of the discussion, we assume a typical procurement (the concession) process where a government entity (the Government) is the grantor of the right to design, build, finance, and operate an infrastructure asset (the project) to a private entity (the Concessionaire). Obviously, there are many variations to the process, but for the purposes of this note, we consider the typical concession.
Note that all the time estimates provided in the note are for guidance only. Each project is unique in its combination of location, size, scope, footprint, and other features, and therefore, the exact time for each of the process elements will depend on the project’s characteristics.
Process
The concession process typically involves the following steps:
- Development of technical, economic and financial analyses documents for the Data Room
- Pre-qualification of bidders
- Request for Proposal invitations to pre-qualified bidders
- Bid preparation period
- Bid evaluation and preferred bidder selection
- Contract negotiations with the preferred bidder
- Financial closure by preferred bidder
- Project execution
Depending on the scale and complexity of the project under consideration, the process can take anywhere from 1 – 3 years to complete. It is critical to provide enough time for each step in the process so that the Government provides the most up to date information to the bidders, the bidding requirements are clear and precise and the bidders are able to submit bids that are responsive and have the necessary financial backing.
Schedule
The overall schedule should be set such that when the concession RFP process is launched, the Government has undertaken several studies and analyses that help present the project as a financial viable endeavor. Such studies / analyses are discussed in below.
We believe that the development of these studies will take approx. 6 – 9 months. Once these documents are reviewed and finalized by the Government, the concession RFP could be issued. The Government could undertake the pre-qualification process for potential concessionaires in parallel with the development of the supporting studies. The RFP process should take approx. 9 – 12 months with the bidders provided approx. 3-6 months to submit their bids, 1-3 months for evaluation and approval of the selected bidder and 1-3 months for contract negotiations.
Concession Documents
As part of a comprehensive background of the project, the Government should develop a set of documents that layout the scope of services, the expected performance and design specifications, the potential for demand for services, the cost projections, the financial case for the project including the provision/need for any subsidy, the preliminary engineering design, the data from topographic and geo-technical surveys, etc. Such documents are typically stored in a “Data Room” that could be physically located at an appropriate location or that could be virtual with all data available on-line. The information provided via the Data Room seeks to assure potential investors/developers that the Project is well thought out, studied and the requirements of performance and service are appropriate to the demand that is expected and the financial viability of the project.
A list of typical documents to be made available in the Data Room should include (but not be limited to):
- Investment grade demand analysis: It is critical to have a detailed demand and market analysis that can be presented to the investment community. This analysis should be based on latest available market data, user surveys, and consider the sensitivity of demand on key variables such as tariff rates, socio-economic growth rates, etc.
- Field data: These documents should include the topographic maps, geo-technical boring, soil samples, etc.
- Right of Way plans and expropriation status: The Government needs to clearly lay out the right of way that the project will be using and the current ownership status. If any part of the required right of way land does not belong to the Government, it should be noted and an expropriation plan presented. Any lawsuits relating to the land acquisition should be revealed to potential concessionaires.
- Preliminary engineering design: The Government needs to provide a preliminary engineering design of the different aspects of the project (construction and operations, as appropriate). This typically will have several elements to it and should address design specifications, design and construction codes, cost projections, long and short term impacts on the community and risk matrix. Note that the Preliminary level engineering design typically focuses on specifications, criteria and standards. It is not intended to be prescriptive in terms of imposing a particular design or particular solution on the concessionaire — instead it lays out what is expected of the infrastructure asset and leaves the concessionaire with the freedom to choose the most appropriate system consistent with the required specifications/criteria and standards.
- Environmental studies: The Government needs to undertake a detailed environmental impact statement or environmental assessment study to assure the investment community that all potential impacts have been accounted for in the planning of the project. The multilateral investment banking community (World Bank, IFC, Inter-American Development Bank, etc.) have very strict environmental guidelines and they will not approve of a loan to a project unless their environmental guidelines are met. Similarly a large number of commercial banks subscribe to the Equator Principles whereby they have agreed to adopt the World Bank guidelines on environmental issues.
- Draft concession contract: It is advisable that the Government provide a draft of the Concession Contract document as part of the Data Room so that the potential concessionaires can have their legal teams review and comment on this.
- Financial analysis: The Government needs to show that the infrastructure asset is a viable business via the financial analysis. If it turns out that a subsidy or government contribution needs to be made to improve the financial viability of the project, then the format of the government contribution needs to be clearly described.
The above mentioned documents provide an initial list of potential Data Room documents. It is not meant to be exhaustive but rather an illustrative list. It is also important to note that the Government should clearly indicate to the potential concessionaires that the information provided to the Concessionaires via the Data Room is for “Informational Purposes Only” – each concessionaire needs to undertake its own analysis and studies to develop their bids.