This presentation by Federico Antellini Russo was made during a session on Competition in Public-Private Partnerships held at the 57th meeting of the Working Party 2 of the Competition Committee on 16 June 2014. Find out more at http://www.oecd.org/daf/competition/competition-public-private-partnerships.htm

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Public private partnerships in Italy:
A snapshot of the main issues
Federico Antellini Russo
Cassa Depositi e Prestiti S.p.A.
CASMEF, Luiss Guido Carli
Paris | June 16, 2014

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 Overview
 Two sizes, two tales
• The threshold matters
• The “Machiavellian PPPs”
 Big projects, big problems
 Main issues
 Conclusion
 Backup: Case Studies
 Case study A: Rome Metro – Line D
 Case study B: TEEM
Agenda

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PPPs in Italy in 2013: an overview
Closing and operating share: 30% ca.
Evolution of PPPs (2002 – 2013)
Source: CRESME, 2014
5,154
2,901
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Number
€/million
Contract starting prices Numeber of tenders
19,5% of the total number of
tenders
44,2% of the total contract
starting amounts
• insufficient preliminary analysis
• late involvement of banks
• credit crunch
• lack of technical capacity of contracting authorities
• excessive post-award changes
Why?
In 2013, the building
contracts accounted for…

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Two sizes, two tales

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The threshold matters
Considering the tenders with a known reserve price (52,8% of the total)…
Value of PPPs, 2013
Below 15 € mln
97%
Above 15 € mln
3%
Source: CRESME, 2014
Municipalities were the contracting authorities for more than 80% of the tenders below € 15 millions
Subject to the Internal Stability Pact
Mainly non-complex projects (i.e. cemeteries, parking areas)

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The “Machiavellian” PPPs
• higher frequency of PPPs published by Municipalities with higher population and lower infrastructural
endowment;
• preference for a PPP scheme seems to be associated with a lower level of income (of the inhabitants;
• “PPP decision” is:
 rarely taken after an accurate “feasibility study” (= no estimation of the value for money of the project),
and
 often not accompanied by any monitoring mechanism;
• majority of the contracts:
 needs a limited know how and innovation capacities to be performed at a satisfactory level,
 faced a limited demand risk;
• “evergreen” clauses (i.e. requiring the private contractor to keep the technical standard of a project at the
state of the art) and automatic renewal clauses are absent;
• choice to use PPPs seems to be mainly determined by critical balance sheet conditions (i. e. the
number of PPP tenders increases as public deficit worsen) and the opportunity to write the assets off-
balance;
• PPPs in which the project revenue stream is totally guaranteed by the users (and not by the public
involvement) are “rare birds”.
Main results of empirical analysis on the tenders:
• contract is often awarded to the promoter;
• market is dominated by small operators, often unable to assure a real added value to the project;
• full transparency on on-going activities and “customer satisfaction” supervision mechanisms are
totally absent;
• strong correlation with political cycles.
Main results of empirical analysis on the awards:

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Big projects, big problems

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Main issues
The award is often made on the preliminary blueprint…
The contract is often awarded on the basis of a
preliminary blueprint, which requires additional (and
not obvious) bureaucratic steps before becoming
definitive (i.e. “conference of service”)
If:
• all permissions have been obtained before the
procurement process, and
• concession perimeter, features and timing have
been set as clearly as possible before the tender’s
beginning
(= award on the definitive blueprint),
then, there could be:
- a reduction of uncertainty ( more defined
evaluation of the timing and the costs of the
project);
- A reduced post-award re-contracting;
- a speeding up of process,
- a clearer incentive scheme.
the engineering of all planned work in
earlier stages of design in every detail 
the most technically defined phase of the
entire design
prepared on the basis of the preliminary
blueprint, includes the indications of the
“conference of services”
sets out the profiles and the most
significant characteristics of the projects
… the risk-sharing is not efficient, or…
Preliminary
blueprint
Definitive
blueprint
Executive
blueprint
The grantor bears an improper share of the construction risk and of the demand risk, in order to address the
participation constraint.
… the cost for the awarding authority/users is higher than it could be
• The reserve price for the availability fee and/or for the public contribution are too high;
• The tariff cap takes into consideration the probability for blueprint changes.

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Conclusion
• new provision to regulate PPPs, separated from public contract legislation, comprising concise, clear and
stable rules;
• legal-economic models compliant with Eurostat rules to avoid financial operations with a complex structure;
• ad hoc resources to finance feasibility studies to be undertaken by Public Administrations, which
otherwise would not have the necessary human and financial resources;
• single management unit with specific skills to be set up by the central Government;
• moving from short-medium term public financing to project financing (i.e. until 2003 CDP played an
indirect role in financing of investments – by lending money to contracting authority -, currently CDP is directly
involved in infrastructures funding through debt and equity).
• moving from short-term debt financing to long term financing, through the involvement of
institutional investors.
• develop a standard benchmark for calls for bids, tendering procedures and contract adjudication.
• increase the value of single procurement contracts, by grouping together similar projects from
Municipalities.
… and in particular, for small-medium projects
What could be done in general…
Some implications:
• bids should ideally be done on the definitive project;
• higher skills and competitive dialogue (with an increasing remuneration through stages) could increase the
incentive to reveal private information;
• scale matters: small projects should be carried out by local authorities through a more traditional approach (=
traditional procurement procedures must be considered);
• if a project is sustainable (= profitability is coherent with risk and market’s expectations), the funding is not a
real issue.

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Backup: Case studies

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Case study A: Rome Metro – line D (1/2)
Main features of the tender notice (August 2009)…
Roma Metropolitane S.r.l. (public vehicle)
Negotiated procedure (promoter and the two top ranking competitors) for
awarding a Design, Build, Finance and Operate contract for a new subway
line
Awarding authority
Procedure & contract
2,13 €/mln for the “Priority Track” + 1,05 €/mln for the “Optional Track”
(mainly construction costs). Public partner financial contribution: 14% of the
total estimated amount.
Estimated amount
Awarding criteria
Quality
Maximum
points
Technical solutions for reducing the
upfront investment
32
Variations of the blueprint 20
Integrated transport system optimization 12
Aesthetic and functional improvements 13
Outflow capacity from stations 3
Architectural features of the interior of the
stations
10
Asset service and asset management
features
5
Price
Maximum
points
Rebates on the construction cost of the
“Priority Track”
15
Total amount of the contribution
payable by the grantor for the
construction of the “Priority Track”
20
Total amount of the availability fees for
the “Priority Track”
15

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Case study A: Rome Metro – line D (2/2)
… just two issues!
Construction risk
• any delay in the time schedule or any increase in costs due to
changes required in the transition from preliminary design to
final design and during the construction period (variants,
increase in the labor cost, updates on programming, increased costs
resulting from interference with other services, etc.) are mainly
borne by the contracting authority.
Availability risk & Demand risk
• the quarterly availability fee is:
 mainly fixed, proposed by the bidders and paid by the
contracting authority (which collects its revenue from the users
of the integrated transport system);
 partially variable, subject to criteria such as the number of
kilometers traveled by coaches (regardless of the number of
passengers).
Risk-sharing
Competition • the bidders have to submit a sustainable business plan with respect to
the “Priority Track” (⅔ of the contract value) and the “Optional Track”
(⅓ of the contract value), but…
• … the contracting authority had the right to assign the “Optional Track”
in its sole discretion …
• … there is no ​​assessments about the bid on the “Optional Track”: the
award is made in favor of an offer only limited to the “Priority
Track”
Blocked by the Authority for the
Supervision of Public Contracts

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Case study B: TEEM (1/2)
TEEM (public vehicle)
Negotiated procedure for
awarding a Design, Build,
Finance and Operate contract
for a toll road project linking the
A4 Turin-Trieste motorway with
the A1 Milan-Bologna
motorway.
Awarding authority
Procedure & contract
1,9 €/bn (including interest during construction). The project company
accounts for 220 €/ml paid up share capital.
Estimated amount
Main features of the concession agreement (March 2009)…
50 years of concession term
post completion.
Timing
TEEM and the EPC Contractor signed on 6 November 2012 a lump sum
construction contract.
Construction timetable provides for the opening of the “Arco TEEM” by the
first half of 2014. The entire infrastructure is scheduled to be operational by
May 2015.

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Case study B: TEEM (2/2)
… just three main features
Construction risk
• The contracting authority awarded the definitive blueprint: the main
share of the construction risk is borne by the bidders .
Availability risk & Demand risk
• Traffic analysis from independent consultant provides a central case of
51,100 AADT (Annual Average Daily Traffic) in 2015.
• Toll adjustment mechanism is fully regulated and provides, especially
in the case of greenfield projects, traffic risk is mainly transferred to
the concessionaire.
Risk-sharing
Financial plan
On August 2013 the
working progress was
about 40% on the
“Arco TEEM” and
about 20% on the
entire project.
Source & Uses (construction period December 2013 – June 2016):
Uses €/mln % Sources €/mln %
Capex 1.654,7 86,7% Share Capital 464,9 24,4%
Interests during Construction 192,1 10,1% Shareholder Loan 114,8 6,0%
Other costs 8,2 0,4% Contributo 330,0 17,3%
DSRA 35,0 1,8% Senior Term Loans 936,2 49,1%
Other Reserves 18,3 1,0% Operating Cash Flow 62,4 3,3%
Cash - -
Total Uses (excl. VAT) 1.908,4 100,0% Total Sources (excl. VAT) 1.908,4 100,0%
Relevant role of development banks