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Public-Private-Partnerships (PPP) – “An International Perspective"

Public-Private-Partnerships (PPP) – “An International Perspective". Collection & Distribution of Funds. Other Directed Funds to Roads. General Budget. Source: Juha Tervonen. PRESENTATION OVERVIEW. PPP & DBFO BACKGROUND FINLAND E-18 PPP PROJECT PAYMENT MECHANISM

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Public-Private-Partnerships (PPP) – “An International Perspective"

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  1. Public-Private-Partnerships (PPP) – “An International Perspective" IRF PPP Presentation - Oct 19 2005

  2. Collection & Distribution of Funds Other Directed Funds to Roads General Budget IRF PPP Presentation - Oct 19 2005 Source: Juha Tervonen

  3. PRESENTATION OVERVIEW • PPP & DBFO BACKGROUND • FINLAND E-18 PPP PROJECT • PAYMENT MECHANISM • E-75 PPP - LAHTITIE RESULTS • INTERNATIONAL EXPERIENCES • CONTRACTOR ISSUES & DEVELOPMENT • ADVANTAGES & DIS-ADVANTAGES, PITFALLS, KEY ISSUES, & CHOICES IRF PPP Presentation - Oct 19 2005

  4. PPP & DBFO BACKGROUND IRF PPP Presentation - Oct 19 2005

  5. Delivery Systems Choices Direct Funding • Design-Build-Operate • Design-Bid-Build • Design-Build-Operate-Maintain • Construction Management • Design-Build • Pure O & M Segmented Integrated • B-O-T • B-O-O • B-O-O-T • Design-Build-Finance-Operate (DBFO) Indirect Funding Indirect Funding IRF PPP Presentation - Oct 19 2005 Source: Prof. John Miller (MIT)

  6. LCC logical Step DBFO ??? DBOM DB Plus Financing Design-Build Plus Long-Term Maintenance & Upkeep B Design-Build Integrated Design & Construction (Public Funding) Traditional Design-Bid-Build Life Cycle Consideration Life Cycle Responsibility IRF PPP Presentation - Oct 19 2005 Source: Pekka Jokela & Pakkala - Finnra

  7. PPP Definition • The basic definition or interpretation of Public Private Partnerships (PPP) is an arrangement that brings together the ”Public Sector” and ”Private Sector” in a long-term relationship or partnership, for the mutual benefit of both parties. IRF PPP Presentation - Oct 19 2005

  8. Definition Clarification PPP = DBFO = Design-Build Finance Operate = Our Järvenpää-Lahtitie (E-75) Project One Contract for 20-30 Years with 100% Private Financing (Ownership Remains With Government) Maintenance Design-Build Operations & & & Financing IRF PPP Presentation - Oct 19 2005

  9. FINLAND E-18 PPP PROJECT IRF PPP Presentation - Oct 19 2005

  10. Background - Methodology • INTERNATIONAL BACKGROUND STUDY - 2001 • FEASIBILITY STUDY FOR PPP - 2002 • GOVERNMENTAL INTER-AGENCY WORKING GROUP • INTERNATIONAL REVIEW OF PPP ROAD PROEJCTS • RISK ANALYSIS STUDY - 2003 • IMPLEMENTATION IN REAL PROJECTS: • FINLAND'S NEW E-18 PPP Project • Develop a Public Sector Comparator (PSC) • Develop the Payment Mechanism • Develop Contract – with Tendered Financial & Legal Advisors IRF PPP Presentation - Oct 19 2005

  11. E-18 IN THE NORTH IRF PPP Presentation - Oct 19 2005

  12. Finland E-18 Muurla-Lohja IRF PPP Presentation - Oct 19 2005

  13. Finland E-18 Muurla - Lohja Muurla-Lahnajärvi section open to traffic in 2008 50 km Motorway 49 Bridges 7 Tunnels (5.1 km) 2 Service Stations 28 km - Noise Barriers Lahnajärvi-Lohja section open to traffic in 2009 Muurla grade Separated intersection Kruusila grade separated intersection Suomusjärvi grade separated intersection Lahnajärvi grade separated intersection Sammatti grade separated intersection Nummi grade separated intersection Karnainen grade separated intersection Lempola grade separated intersection IRF PPP Presentation - Oct 19 2005

  14. Procurement Phase - Time Line for E-18 IRF PPP Presentation - Oct 19 2005

  15. 5 Participants Interested in Project IRF PPP Presentation - Oct 19 2005

  16. 100 90 80 70 60 50 Construction Main. & Upkeep Payment Schedule 40 j l i M 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 10 Difference in Payment Schedule a o r u e a a n o o IRF PPP Presentation - Oct 19 2005 Source: Pekka Jokela - Finnra

  17. PAYMENT MECHANISM IRF PPP Presentation - Oct 19 2005

  18. Types of Payment Mechanisms IRF PPP Presentation - Oct 19 2005 Source: Transport for London

  19. Availability Payments IRF PPP Presentation - Oct 19 2005 Source: Transport for London

  20. E-18 Finnra Availability Payments • 90% For Road Available for Normal Traffic • 10% Performance Payment • Defining the Appropriate Unavailability Factors • Deductions for Poor Performance (also Salt Sanction - excessive) • Indexes for Cost Escalations (Fuel, Electricity) • Compensation for Increased Traffic • One time Safety Bonus • One Time Innovation Bonus (after Construction - €2M max.) IRF PPP Presentation - Oct 19 2005

  21. ADVANTAGES & DIS-ADVANTAGES, PITFALLS, KEY ISSUES, & CHOICES IRF PPP Presentation - Oct 19 2005

  22. Advantages of PPP • Increasing the pace of infrastructure delivery • Value for money • No Disruption of Other Projects in Portfolio Package • Complete important projects faster than traditional methods • Optimization of risk transfer (Risks to best influence & manage) • Seeking whole life solutions or Life Cycle Cost (LCC) • Seeking innovation and better quality (more durable) • Off-balance sheet (not considered as a public debt) • More recently - the lack of public funding available • Future Road Users are paying the costs - not just the present generation IRF PPP Presentation - Oct 19 2005 Source: Pekka Pakkala - Finnra

  23. Disadvantages/Concerns of PPP • Contract Concession Winners Are Usually Large Companies • Long Tendering Period • Large Transaction Costs • Legal & Financial Expenses Are Great • Difficult to Predict into Future & Political Consequences • Making Contracts Flexible During Contract Duration • Making Too Many Fast Decisions & Errors • Lack of Understanding of the DBFO Delivery Method • Not Taking Advantage Of Real Concept of Design-Build - (It Was Intended As a Teaming & Partnering Type Concept) IRF PPP Presentation - Oct 19 2005 Source: Pekka Pakkala - Finnra

  24. Main Pitfalls • Lack of Understanding of the DBFO Delivery Method • Market Risks – Causes Project To Fail Financially • Proposed Design & Construction Solutions Fail • Proposed Technology That Doesn’t Work – Germany • Not Understanding Risks • Not Having Good & Reliable Partners • Banks/Financiers Take No Risk • Underestimating The Influence of Banks/Financiers/Investors • Underestimating Completion Risk • Other Threats To The Project (Env, Protest, & Political) • Any Stipends To Non-Winners (Large Tendering Costs) • Enticing International Competition - Language & Partners • Influence of Project Size IRF PPP Presentation - Oct 19 2005 Source: Pekka Pakkala - Finnra

  25. Key Issues • Demonstrating Value for Money • Project Size – should be over €80M for Value For Money • Need a Good Public Sector Comparator (PSC) • Risk Analysis - Having the Appropriate Risk (Reasonable) • Ability to Get the Best Financial Package (Low Risks) • Utilizing Performance Specification & Outcome-Based Criteria • Measurable, Objective & Fair Payment Mechanism (Transparent) • Monitoring & Measuring Acceptance During the Delivery Phase • Allowing Potential for Innovation • Contract Flexibility • Appropriate Hand-Back Clause IRF PPP Presentation - Oct 19 2005 Source: Pekka Pakkala - Finnra

  26. Choices • Toll Road or Not • Payment Mechanism (Risks): • Based Upon Real Toll Collected • Tolls Plus Any Shared Savings • Availability • Shadow Toll (Järvenpää-Lahti Motorway) • Performance Based (England - Darington-Dishforth Project) • Series of Projects • Benchmarking  Public Sector Comparator • Stipends to Contract Losers • Open Book • Contractor Selection Criteria • Performance Based Specification IRF PPP Presentation - Oct 19 2005 Source: Pekka Pakkala - Finnra

  27. FINAL CLOSING REMARK What decisions does one make when there is a need for new infrastructure development (present infrastructure is not meeting society's need), and there is a lack funding in the budget or there is no funding available from government? IRF PPP Presentation - Oct 19 2005 Source: Pekka Pakkala - Finnra

  28. Thank You! Final Report Is Available: “Innovative Project Delivery Methods For Infrastructure - An International Perspective". & "Procurement Strategy Of Finnra" & E-18 (Muurla - Lohja PPP Project - Instructions for Pre-Qualification) http://alk.tiehallinto.fi/e18/english/index.html www.finnra.fi IRF PPP Presentation - Oct 19 2005

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