MASTER DELIVERY PARTNER 1 Phase 1 Implementation Plan Presentation to KOTDA Board. February 21, 2013

Transcription

1 MASTER DELIVERY PARTNER 1 Phase 1 Implementation Plan Presentation to KOTDA Board February 21, 2013

2 MDP1 is a multi-disciplinary team engaged in August 2012 Project Lead Real Estate Strategy Business and Governance Planning Master Planning Architecture Sustainability and Design Guidelines ITES Outreach ITES Strategy Infrastructure Planning LPDP and Local Planning Expertise 2

3 MDP1 will complete its assignment at the end of February. Complete In progress Business and Governance Plan Vision + Mission Sector Strategy Real Estate Strategy Financial Strategy Master Plan + Design Action Plan GoK and KOTDA Implementation LPDP MDP2 3

4 Konza Technology City vision statement Konza Konza Technology City will be a sustainable, world-class technology hub and a major economic driver for the nation, with a vibrant mix of businesses, workers, residents, and urban amenities. 4

5 Konza is 60km from Nairobi, providing opportunity and challenge. 5

6 At 5,000 acres, Konza is comparable to other world-class cities. 6

7 Konza will be positioned as a mid-density urban environment. SHoP triangle density diagram workshop 1 7

8 A citybuilding strategy will help Konza accommodate anticipated growth in Kenya. Market trend Development indicators confirm growth potential for Kenya Implication for Konza Opportunity to accommodate growth if competitively positioned Suburban areas offer plentiful land supply have drawn development activity Offer a value proposition as a standalone city rather than competing with suburban areas Areas with good connectivity have attracted growth A109 and rail improves development prospects High population growth, high urbanization rates, and GDP growth highlight that the fundamentals are in place for strong growth in real estate demand in upcoming years. Given the wide availability of well-connected land within Nairobi metropolitan area, for growth to occur Konza should be different. It should position itself as a self-sustaining city, providing all the elements required to attract people and workers. 8

9 11 case studies narrowed from a list of 26 showcase the ingredients for successful technology hub development. Selected case studies reflect a variety of sizes, business models, locations, economic environment and time of inception 9

10 Case studies vary in size, age, and economic context. Developed Case Size (acres) Year of Establishment Distance from CBD (km) Current Employment RTP 7, ,000 Cambridge ,000 Shannon ,500 Singapore ,000 MMC 183, ,000 Emerging Dubai ,000 HITEC City N/A Zhongguancun 128, ,000 African Emerging Curitiba ,000 Smart Village ,000 Innovation Hub N/A 10

11 Case studies reveal base criteria for technology hub development. Anchors that build a brand and attract a mix of firms. University that interfaces with large and small companies, creates a brand for the hub, and generates on-site economic activity. High quality and reliable infrastructure including telecom and utilities as well as transport links. Attractive financial incentives including tax incentives and other policies to reduce the cost of business. Low regulatory burden with ease of doing business and one-stop-shop point of service. Mixed-use character creating a desirable, active, and walkable district. Special-purpose governance entity to carry out project mission and ensure long-term success. 11

12 Outreach to over 300 companies identified sector opportunities and requirements for tenants to locate in Konza. Sector Scope Assessment Synthesis and Recommendations ITO / BPO Telecom Global Strategic Fit Interview Insights Education Financial Services Local Anchor / Follower Life Sciences SMEs Public Sector SME Cross-Sector Job Impact (incl. students) Sector Summaries Data Collection Long Interviews Public Forums 12

13 In parallel, economic analysis identified sectors that should be fostered at Konza to achieve its goals. Prioritizing sectors for Konza Large and fast growing in Kenya Level of expenditure on ICT as % of contribution to GDP Demonstrated gap in ICT spend between Kenya and developed ICT markets Sector trends to consider Sector drivers Current competitiveness Regulatory trends Labour availability 13

14 Four knowledge-focused themes emerge, two of which are significantly government funded. Sector Highlights Key funder Education Life Science ITO / BPO Telecom Could be anchored by JKUAT, UoN, MMU Post-graduate education, focus on innovation and employable skills Sector will benefit from internships and partnership-projects with commercial institutes operating in KTC Could be anchored by Nairobi Hospital, KARI, KEMRI Primary, secondary and tertiary care facilities; can attract hospitality industry Life sciences R&D (Human / Agri.), driven by national research agenda High-level of collaboration with KTC universities, and in time with drug companies and medical device production firms / spin-offs Could be anchored by Dhanush, Craft Silicon Leveraging infrastructure, young / educated workforce for global market Strong university partnerships for recruitment Financial incentives and regulatory reform will be critical Could be anchored by Safaricom, Wananchi, RIM Leveraging KTC for regional market access Strong university partnerships for recruitment Financial incentives and regulatory reform will be critical Gov Gov / Comm. Comm. Comm. 14

15 Phase 1 should target 7,500 knowledge (office/life science) workers. 7,500 MDP1 identified 2,550 jobs with near-term potential to locate in Konza, 1,750 of which are professional office/life science jobs. 5,750 Physicians Staff , Hospital Life Science Lab ITO / BPO Telecom Anchors Followers Total Nairobi Hospital KARI KEMRI Dhansush Craft Silicon RIM Safaricom Wanainchi Group MPD1 outreach to over 300 organizations indicates near-term interest from these companies in coming to Phase 1 of Konza. 15

16 Konza s value proposition is to become a self-sustaining city anchored by a cluster of knowledge industries. Vision Implementation Retail Services City elements Residential Vibrant public realm Catalyst program Office: ITO/BPO/Telecom Life sciences: Lab/Hospital University Activating elements Creative Industries Cluster Public services Ancillary program Hotel Retail Residential 16

17 Phase 1 establishes a framework for the future growth of Konza. 17

18 Konza Phase 1 vision Total development: 1.5M m2 Total workers: ~17,000 Total residents: 30,000 18

19 An enabling environment must be in place to attract 17,000 jobs in Phase 1. KOTDA policy Effective marketing Incentives Regulatory environment Urban environment High quality infrastructure High quality services Regional accessibility Economic environment Anchor tenants Access to talent 19

20 Phase 1 of Konza, with catalysts in place, could entail 1.5 m 2 of total vertical development. Catalyst program Office: 81,000m 2 Ancillary program Upper income housing: 240,000m 2 Studio 1 bedroom: 420 units 2 4 bedrooms: 1,050 units Civic and Flex: 14,000 m 2 Lab: 35,000m 2 Hospital: 50,000m 2 Middle income housing: 660,000m 2 Studio 1 bedroom: 1,720 units 2 4 bedrooms: 4,400 units University: 194,000m 2 Lower income housing: 100,000m 2 Retail: 65,000m 2 School: 44,000m 2 Studio 1 bed: 510 units 2 4 bedrooms 1,300 units Hotel: 6,000 m 2 20

21 Program will be distributed throughout the Stitch on specialized bands connected by a mixed-use bar. BAND Life Science BAND Office BAND University BAND Residential BAR Mixed Use 21

22 Phase 1 will be built out over 400 acres of land. Phase 1 Land Area Mixed Use University Residential Life Science Office Retail Cultural/Community Vertical Development Subtotal Parks Transportation and Other Public Space Total 89 acres 39 acres 26 acres 26 acres 11 acres 8 acres 1 acre 201 acres 79 acres 130 acres 410 acres 22

23 Over 5 years, development agreements will ensure great neighborhoods and employment clusters will be established. Phase 1 vertical development footprints Vertical development transactions by year

24 What do we need to make Konza a reality? Governance KOTDA Statute with Incentives Infrastructure 24

25 Establishing KOTDA, a special governance authority, helps to ensure successful project implementation. KOTDA Unique benefits Single-purpose mission Efficiency Flexible use of funds One-stop shop Single voice/messaging Highest quality human resources 25

26 KOTDA will be single-purpose entity empowered to carry out its mission. KOTDA mission To ensure that Konza Technology City grows into a sustainable, world-class technology hub and a major economic driver for the nation, with a vibrant mix of businesses, workers, residents, and urban amenities Characteristics High-quality Single-purpose Results-oriented Responsibilities and powers Market and promote Control Regulate Finance Develop Manage 26

27 KOTDA Board structure Advisory Committee Cabinet Secretaries Konza developer rep. Konza residential tenant rep. Konza business tenant rep. TBD MoIC Government of Kenya Ministry of Finance Other Ministry (e.g., Trade, Education) County representative KOTDA Board CHAIR John Ngumi Haron Nyakundi Private Sector Reuben Mutiso Emma Miloyo Rosemary Maundu KOTDA CEO KOTDA sits within MoIC 27

28 Organizational structure: full capacity Legend Officer Department MDP External Resource External Govt Board of Directors CEO Chief Executive Officer Internal Audit General Counsel CDO Chief Development Officer CFO Chief Financial Officer CBDO Chief Business Development Officer Services Manager Real Estate Accounting, and Administration Business Development Construction Infrastructure Development Public Revenue, Grants, Budgeting, and Financing Marketing, Branding, Communications Municipal Services Planning and Permitting provides oversight MDPX Service Fee Collection provides funding Community and Government Relations Business Services External Resources GOK 28

29 Year 0: minimal staffing, outsourcing for critical expertise Legend Officer New Department MDP External Resource External Govt Board of Directors CEO Chief Executive Officer Internal Audit General Counsel Expert Private Service Provider (Legal services) CDO Chief Development Officer CFO Chief Financial Officer CBDO Chief Business Development Officer Real Estate Accounting, and Administration Business Development Infrastructure Development Expert Private Service Provider (Deal structuring, Governance, MDP2 coordination) provides oversight MDP2 Public Revenue, Grants, Budgeting, and Financing Expert Private Service Provider (Level 1 processes) provides funding Marketing, Branding, Communications Expert Private Service Provider (Communications and marketing) GOK 29

30 Years 1-5: internal capacity building Legend Officer New Department Established Department MDP External Resource External Govt Board of Directors CEO Chief Executive Officer Internal Audit General Counsel Expert Private Service Provider (Legal services) CDO Chief Development Officer CFO Chief Financial Officer CBDO Chief Business Development Officer Services Manager Real Estate Accounting, and Administration Business Development Construction Infrastructure Development Public Revenue, Grants, Budgeting, and Financing Marketing, Branding, Communications Municipal Services Planning Expert Private Service Provider (Deal structuring, Governance, MDP2 coordination) provides oversight MDP2 Expert Private Service Provider (Level 1 processes) provides funding Community and Government Relations Expert Private Service Provider (Communications and marketing) Business Services GOK 30

31 Years 6+: full capacity Legend Officer New Department Established Department MDP External Resource External Govt Board of Directors CEO Chief Executive Officer Internal Audit General Counsel CDO Chief Development Officer CFO Chief Financial Officer CBDO Chief Business Development Officer Services Manager Real Estate Accounting, and Administration Business Development Construction Infrastructure Development Public Revenue, Grants, Budgeting, and Financing Marketing, Branding, Communications Municipal Services Planning and Permitting provides oversight MDPX Service Fee Collection provides funding Community and Government Relations Business Services External Resources GOK 31

32 Year 10+: transition to management role Legend Officer Department External Resource External Govt Board of Directors CEO Chief Executive Officer Internal Audit General Counsel CFO Chief Financial Officer CBDO Chief Business Development Officer Services Manager Accounting, and Administration Public Revenue, Grants, Budgeting, and Financing Service Fee Collection Business Development Marketing, Branding, Communications Community and Government Relations Municipal Services Social Services Business Services Director of Development Real Estate External Resources GOK Infrastructure Development Planning and Permitting 32

33 KOTDA will evolve over time. Konza Technology City Development timeline Phase 1 (years 0-5) Future phases (years 6-10) Full completion (years 10+) KOTDA Organizational timeline Minimal staffing and outsourcing for critical expertise Internal capacity building Full capacity Transition to management role Option: Phase out to local government 33

34 Konza must offer both financial and regulatory incentives. Potential financial policies Corporate income tax exemption Stamp duty exemption Employment-based grants Tax policy to encourage headquarters establishment VAT and duty-free import of materials for business purposes Revisions to existing depreciation policies Potential regulatory policies Expedited company incorporation One-stop shop Single window clearance Easing of restrictions on foreign ownership and employment 34

35 Infrastructure will be financed by different entities, requiring key partnerships. Project Finance Infrastructure $1,060M On-site $750M KOTDA Government of Kenya Off-site $310M Focus of this section Financing Entities 35

36 Financing the on-site infrastructure requires PPP and non- PPP project types. On-site KOTDA infrastructure Type of projects Funding source Financing Entity PPP User fees Project Finance $750M $350M Non-PPP $400M Government revenues KOTDA Land leases Service fees Federal taxes Government revenues Government Government 36

37 Each PPP project will need a business plan, rate study and assessment of available funding. PPPs and Utilities Water and Sewer User Fees Analysis Solid Waste Government Funds Available Communications: Fiber Rate Study Power Business Plan Local Transit: Buses Regional Transit Primary Infrastructure Public Transit 37

38 Non-PPP projects will be managed by MDP2 with funding from GoK. Budget Requests Government Funding KOTDA MDP2 Contract O&M Contract Facilities Management Operator (O&M) MDP2 EPC Contract Construction Contractor (EPC) 38

39 Non-PPP funds will be sourced from land leases of income-generating catalyst and ancillary programs. Life Science: 21,000 m 2 Life Science: 14,000 m 2 Catalyst program Office: 81,000 m 2 Hospital: 50,000 m 2 Ancillary program Upper income housing: 240,000 m 2 Studio 1 bedroom: 420 units 2 4 bedrooms: 1,050 units Middle income housing: 660,000 m 2 Studio 1 bedroom: 1,720 units 2 4 bedrooms: 4,400 units Flex: 7,000 m 2 Civic Flex: 7,000 m 2 Income-generating development Non income-generating development University: 194,000 m 2 Lower income housing: 100,000 m 2 Retail: 65,000 m 2 School: 47,000 m 2 Studio 1 bed: 510 units 2 4 bedrooms 1,300 units Hotel: 6,000 m 2 39

40 KOTDA will sign land leases with vertical developers. Finance KOTDA 99 Year Land Lease Debt Banks GoK Counties Taxes Land Lease Payment & Service Fees Vertical Developer Debt Equity Institutional Investors Developer s equity Taxes Tenants Tenant Attraction Equity 3rd party equity Investor Construction Contractor EPC Contract Target Uses Property Management Management Contract Commercial Retail Life Science Residential 40

41 Land lease agreements should follow a process that creates market interest and ensures alignment with Konza s mission. Location: parcels/zones Determine parameters Design guidelines Marketing and business development Konza promotion Identify target businesses/ sectors Identify developers/ investors Coordination of actors Business case Determine evaluation criteria Economic offer Economic impact and mission alignment Financial feasibility Creditworthiness and comparable project experience Tenant commitments Alignment with design, program guidelines Procurement process (RFEI/RFP or sole source) Developer, investor, and business outreach Program and design guidelines Evaluation criteria Deal parameters Evaluate responses Credit testing Financial analysis of proposal Reference checks Interviews Negotiate deal terms Term sheet negotiation Land lease payments Capital subsidy Development milestones LOI/MOU/ development agreements Ground lease agreements 41

42 Attracting and securing a high-quality university will entail many special considerations. Determine parameters Determine evaluation criteria Procurement process Operating model Vision Academic focus Size Brand Investment and buildout plan Level of commercialization and R&D focus Level of local partnership Relationships to local business/stakeholders Relationships within Africa Marketing and business development Local and international marketing to senior decision makers Konza s value proposition to universities Land Capital and/or operating grants Urban environment Infrastructure Negotiate deal terms Minimal land lease payments Capital subsidy Operating subsidy Phasing plan Development milestones 42

43 KOTDA / MDP2 will rely on the flow of funds to pay for on-site infrastructure, using project finance where needed. Funding Funding MDP2 Design and construction overview of some infrastructure GoK Project finance Debt KOTDA Funding PPPs Equity Mezzanine Facilitator Funding Municipal services Lease and service fees Taxes Private developers Individual parcel development 43

44 Residential land development will be the primary source of land revenue to pay for non-ppp infrastructure. Phase 1 Land Lease Revenues $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $ Office Lab High-end res Mid-end res Flex Retail Hotel 25 year lease payment schedule. 44

45 Infrastructure costs will be frontloaded in cash $ ($20,000,000) ($40,000,000) ($60,000,000) ($80,000,000) ($100,000,000) ($120,000,000) ($140,000,000) ($160,000,000) Non-PPP infrastructure expenditures 45

46 but can be smoothed using a central government bond. $ ($20,000,000) ($40,000,000) ($60,000,000) ($80,000,000) ($100,000,000) ($120,000,000) ($140,000,000) ($160,000,000) Non-PPP infrastructure expenditures Total bond payments Assumes total infrastructure costs of $400 million, a 12.5% interest rate, and a 25 year central government bond. 46

47 For example a standard GO bond can help finance the development; GoK will need to cover the funding gap. $80,000,000 $70,000,000 $60,000, funding gap $50M Bond structure Bond term: 25 years Yield to Maturity: 12.5% Denomination: KSh $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 Standard Bond Payments Land Lease Revenues $ Annual funding gap (millions) $0 ($23) ($43) ($49) ($45) ($44) ($42) ($38) ($32) ($26) ($22) ($16) ($10) $1 $32 $38 47

48 Current market conditions provide the opportunity to reduce financing costs using Eurobonds. $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000, funding gap $28M Bond structure Bond term: 25 years Yield to Maturity: 5.5% Principal payment: USD Eurobond Payments Land Lease Revenues $ Annual funding gap (millions) $0 ($13) ($24) ($26) ($22) ($21) ($20) ($16) ($10) ($4) ($1) $1 $3 $6 $9 $12 48

49 A loan from a multilateral institution would help to minimize the funding gap. $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 Bond structure Bond term: 25 years Yield to Maturity: 5.5% Principal payment: USD 2019 funding gap $11M 2033 funding gap $11M Loan structure Loan term: 30 years Interest rate: 2% Moratorium: 10 years Loan Disbursements Land Lease Revenues Loan Payments Eurobond Payments Annual funding gap (millions) $0 ($5) ($10) ($11) ($10) ($9) ($9) ($8) ($7) ($5) ($11) ($9) ($6) $0 $13 $7 49

50 Several sources of financing are available to the GoK for non-ppp investments. Government Funding Financing sources Donor agencies Multilateral institutions loans Multilateral institution guarantee Bilateral agreements China Development Bank MNCs and developers General Electric Landmark International financial markets Eurobond Sovereign Bond Interest costs Low High 50

51 Combing the Eurobond with a loan from a multilateral institution is the preferred financial structure. Eurobond Bond size: $400 million Interest rate: 5.5% Term: 25 years Multilateral Institution Loan Loan amount: $225 million Interest rate: 2% Term: 30 years Moratorium: 10 years Minimum gap to be financed by other government revenues 51

52 Public investment in Phase 1 of Konza will have substantial economic benefits. $400M Non-PPP infrastructure: public investment $180M GoK PPP infrastructure: public share of investment 16,675 Direct jobs $940 M Private investment $1.3 billion Gross Regional Product $400M Annual wages at full Phase 1 build-out, assumed to be 2020 * Non-PPP and PPP infrastructure investment costs do not include off-site infrastructure. * Public share assumed to be 50% of PPP costs. * All figures are in 2012 dollars. 52

53 Konza will contribute to Kenya s economic output. $1.3 B Konza gross regional product (GRP) 2% of Kenya GDP in % of Kenya GDP growth % of Kenya wage growth at full Phase 1 build-out, assumed to be 2020 * All figures are in 2012 dollars. 53

54 Public investment in infrastructure has a return on investment when considering GoK tax revenue. $580M Non-PPP and PPP infrastructure investments by GOK -13% Real IRR: land lease revenue +19% Real IRR: land lease revenue + taxes * 50% of PPP investments assumed to be paid for by GoK. * GoK tax revenues estimated to be equal to 20% of Konza GRP contribution. * 50% of taxes assumed to be abated for first 10 years ( ). * All figures are in 2012 dollars. 54

55 Public investment creates significant economic impacts. $580M Non-PPP and PPP infrastructure investments $940M Private investment 16,675 Direct jobs by GOK 16,675 Multiplier jobs Public investment per direct job: $35,000 Public investment per total job: $17,500 55

56 Phase 1 will catalyze the buildout of Konza, leading to broader economic impacts. Konza Phase 1 Konza Phase 1 must create the enabling environment and establish the critical mass of jobs and services required to stimulate future phases of Konza. Beyond recouping of public investment, the success of Konza will be measured by its ability to meet broader economic development goals. Key performance indicators for Konza Job creation Total jobs Total firms Total SME firms Indirect/induced jobs created outside Konza Global ICT leader ICT jobs ICT spend Patent applications R&D spending Middle-income country Total wages Average wage GDP growth rate Per capita GDP 56

57 Short-term risk factors (0-3 months) LPDP must be approved. Must be consistent with planning principles of the Phase 1 plan. KOTDA Statute must be passed by Parliament. Existing KOTDA Order must be amended in the interim. Customized financial incentives must be approved. High-quality KOTDA staff must be hired. Salary ranges must be globally competitive. Detailed job descriptions and qualifications must be developed. Funding for site pavilion and other preliminary infrastructure must be secured. Procurement of site pavilion contractor A qualified MDP2 team must be contracted. Increased water allocation from Thwake Dam must be secured. Water sources to meet ~14.1 ML/day Phase 1 demand must be met through dam allocation combined with reuse and conservation. 57

58 Medium-term risk factors (0-18 months) Off-site infrastructure must be provided. Funding must be secured. Construction must begin. Includes A109 upgrade, Thwake Dam construction and delivery network, etc. The procurement process for PPPs providing on-site infrastructure must be inititated. Business plans, rate studies, and procurement documents must be prepared. Includes water, wastewater, power, fiber, and solid waste. Non-PPP on-site infrastructure must be provided. Funding must be secured. Construction must begin. Includes grading, drainage, roads, and landscaping. Anchor tenants must be secured using defined evaluation criteria and recruitment strategies. University KARI and KEMRI Nairobi Hospital Other anchor tenants and private development. 58