Experience using innovative finance for major projects
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Experience Using Innovative Finance for Major Projects. Northern Border Finance Conference Chicago, Illinois May 14 th , 2007 Richard Fyfe, COO Gateway Program, BC. Public Private Partnerships: Top-Down Support.

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Experience Using Innovative Finance for Major Projects

Northern Border Finance Conference

Chicago, Illinois

May 14th, 2007

Richard Fyfe, COO Gateway Program, BC


Public Private Partnerships: Top-Down Support

“Having modern, reliable infrastructure in place allows businesses to invest with greater certainty, thus furthering the adjustment process. This may mean the use of private funds to develop public infrastructure projects...and now is the time to encourage this type of investment, given our climate of low nominal interest rates, and the presence of large pension funds that are searching for these kinds of investment opportunities.”

David Dodge, Governor of the Bank of Canada

June 21, 2006


Public Private Partnerships: Commitment

“Since we launched the public/private initiative in 2002, we have actually either started or completed $4.7 billion in new P3 projects...that is the future of Development in the Province of British Columbia: Better value, on time, on budget. So, in the future, we’re going to work with you, but we will insist that Partnerships BC look at major Projects and the base case in British Columbia will be P3’s unless Partnerships BC says there’s a compelling reason to do otherwise. P3 will be the Standard in British Columbia for three reasons: They work for you, they work for us, and most importantly, they work for the taxpayers that we work for.”

British Columbia Premier Gordon Campbell - Speech to UBCM,

October 27, 2006


B.C. Experience:Foundation for Success

  • Legislative Framework

    • Transportation Investment Act

    • Significant Projects Streamlining Act

  • Policy Framework

    • Capital Asset Management Framework

    • Tolling Guidelines

  • Supporting Organization

    • Partnerships BC

    • Suitable Projects


Typical Transaction Structure

Owner / Authority / Province of BC

Private Equity or Investment Fund

DBFO Agreement

Concessionaire (SPV)

O & M Contract

Asset Manager + Maintenance Contractor

Bond Financing or Bank Financing

DB Contract

Design Contractor / Construction Contractor (May be DB Contractor)


The P3 Start:Elements of a successful project

  • Risks and benefits

    • appropriate allocation

  • Cost management

    • during and after construction

  • Innovation

    • removing the obstacles

  • Operating efficiency

    • integrate capital and O&M decisions

  • The public/private interest

    • Where do they overlap?


The P3 Start:Getting Started

  • Define the Project

    • Scope/Schedule/Budget

  • Delivery Model

    • Conventional Tender

    • Design/Build

    • DBFO (availability payments/independent revenue)

  • Decision Making/Input

    • Public Consultation

      • Project Definition

      • Design

    • Private Consultation

      • Risk Allocation

      • Project Financeability


Who Should Bear the Risk?

  • Which party can best bear the risk

    • Competencies

      • Contingency

      • Value for money

    • Capacity to assume risk

      • Unconstrained risk

      • Self-Insurance – Quantify

    • Public Interest


Risk Decisions

  • Commercial v. Technical

  • Insurable v. Uninsurable

  • Quantified v. Unconstrained

  • Allocating v. Creating


Proponent’s Procurement Costs


Structuring a Procurement Process

  • Registration of Interest (ROI)

  • Request for Qualifications (RFQ)

  • Request for Proposals (RFP)

  • Best and Final Offer (BAFO)


Procurement Risk Allocation

  • Province’s rights

    • amend or cancel the procurement process

    • negotiate if no conforming proposal

    • reject any and all proposals

    • not responsible for procurement costs or damages

    • request proposal clarification and additional information


Concession Contract:Overview

Province

  • Pay After Construction Complete (Availability payments or tolls)

  • Property, EAC, Approvals

    Concessionaire Risks / Responsibility

  • Traffic management

  • Construction risk

  • Comply:

    • Environmental Assessment Certificate

    • laws, regulations and permits

  • Obtain:

    • subsidiary permits, licenses and approvals

  • Indemnify BC and BCTFA for losses and claims

  • Site safety and security

  • Protestors and trespassers


Concession Contract: Overview

  • Concessionaire Risks / Responsibility

    • Design, construction, completion, commissioning and testing of the Works

    • Delay events, compensation events, Province changes and force majeure traffic management plan

    • Archeological surveys, inspections and impact assessments

    • Insurance with Province and BCTFA named insureds

    • Quality management system and quality documentation compliance

    • Reporting

    • Project records


Design/Build Agreement

  • Pass-Through Obligations of Concessionaire :

    • design/ construction/ completion/ commission and testing of Works

  • Cap on maximum DB contractor liability for liquidated damages

    • 10% of the aggregate DB Contract Price


Lessons Learned

  • Importance of linkage between project objectives, evaluation and payment

  • Importance of interaction between Owner and Proponents

  • Focus on User Benefits

  • Open Communication

  • Contract Documents to be finished early


Current PPP Activity in Canada

Ontario 40+ projects multiple sectors

Quebec 2 highway projects

Alberta 2 transportation projects

B.C. $4.7 Billion


PPP Quebec

  • Transportation Projects underway:

    • Autoroute 25 (DBFM, $400 million)

    • Autoroute 30 (DBFM, $1.2 billion)

  • Transportation Projects under development:

    • Highway rest areas (7 sites)


Edmonton Ring Road:

Anthony Henday Drive

Southeast component

DBFM, $493 million

North component:

Planning Jan 2007

Calgary Ring Road

Northeast component:

DBFO, $500 million

Alberta Infrastructure


Partnerships BC: Role and Structure

  • Window on British Columbia

  • Develop partnership market

  • Knowledge bank of Best Practices

    • Consistency in business case planning

    • Reduce government’s planning / procurement costs

    • Consolidated experience

  • Commercial viability

  • Transparency and disclosure


Project Delivery

Procurement Process

  • Standard RFQ & RFP

  • Consolidated Concession Agreement

  • Request for Information and Consultation process

  • Evaluation

Implementation

  • Value for Money Report

  • Post Financial Close Services

Business Planning

  • Feasibility Analysis

  • Options Analysis

  • Business Case

    • Quantitative analysis (PSC vs alternative)

    • Risk analysis

    • Multiple Criteria Analysis (MCA)

    • Procurement options

    • Market Sounding

Best Practices

  • Strategic communications

  • Value for money

  • Conflict of interest


B.C. – Projects in Delivery

  • $4.7 billion in 23 PPP projects

  • Highways

  • Bridges

  • Rapid Transit

  • Acute Care

  • Ambulatory Care

  • Long Term Care Facilities

  • Primary Access Centres

  • Sports Centre

  • Water Treatment

  • Telecommunications

  • $3.5 billion in BC Hydro IPP projects


B.C. Projects UnderwayMountainous Terrain

Sea-to-Sky Highway Improvement Project

Kicking Horse Canyon (Phase 2)


B.C. Projects UnderwayBridges

William R. Bennett Bridge

Golden Ears Bridge


B.C. Projects UnderwayOther Transportation Projects

Sierra Yoyo Desan Resource Road

Canada Line


Projects Under Construction or Operating


Developers / Constructors

Bilfinger-Berger BOT Inc. **

Bilfinger-Berger Constructors **

CH2M Hill **

EPCOR **

Flatiron Constructors **

Giffels Design Build

Ledcor **

Macquarie North America **

Parsons Overseas Company

PCL **

Peter Kiewit & Sons Co. **

SNC-Lavalin **

EGIS Projects **

Sources of Capital

ABN AMRO/Capital Markets **

Bank of Ireland

BC Investment Management Corp **

CIT

DEPFA

Deutsche Bank

Dexia

Manulife **

Nordebank

Ontario Teachers Pension Plan

Royal Bank of Scotland

Societe Generale

SNC-Lavalin Capital **

Sun Life **

Current Partners in B.C.

** Located in British Columbia


Emerging Market Participants

  • Developers / Constructors

  • Balfour Beatty

  • Honeywell**

  • Transfield Services

  • WesGroup **

  • Skanska Infrastructure

  • Health Care Projects Ltd

  • Bouygues Batiment Int.

  • John Laing Infrastructure

  • Laing Roads

  • Transurban

  • Stuart Olsen **

  • Acciona

  • Cintra

  • Bechtel

  • Fluor

  • Sources of Capital

  • Babcock & Brown Infrastructure **

  • CKI Infrastructure Holdings

  • HSBC Infrastructure Fund

  • Plenary Group **

  • Innisfree

  • Larco **

** Located in British Columbia


BC Transportation Projects Under Development


Pacific Gateway Opportunities


Pitt River Bridge

Pitt River Bridge

  • Design/Build Project


South Fraser Perimeter Road


Port Mann Highway 1 Project


Gateway Program

Highway 1

(widening)

Twinning of Port Mann Bridge

Coquitlam Rapid Transit Expansion

Richmond/Airport/Vancouver

Rapid Transit Expansion

North Fraser

Perimeter Road

New Pitt River Bridge

& Mary Hill Interchange

New Golden Ears

Bridge

Border Infrastructure

Project (highway widening)

New South Fraser

PerimeterRoad


Opportunity

  • Real Toll Concession – 40 years

  • Revenue from proven corridor

  • 37 km urban highway

  • Significant river crossing

  • $1.7 billion capital budget

  • Operations & Maintenance – 450 lane km


Revenue Management

130% of Concessionaire Forecast Revenue

105% of Concessionaire Forecast Revenue

Concessionaire Forecast Revenue


Selection Process


RFQ Objective

  • Select 3 potential long-term partners with:

  • Complex infrastructure development experience

  • Toll concession operations experience

  • Customer service focus

  • Asset management experience


RFP Process

  • Technical and Financial Submittal

  • Draft concession agreement issued with RFP

  • 6 – 7 months for technical submittal

  • Honoraria

  • Bidders agreement


Interactive Process

  • Exchange information, clarify issue

    • Fair Process

    • Balance Confidentiality and Information Sharing

  • All party meetings

    • Information provided by Province

  • One-on-one meetings

    • Mandatory workshops

    • Topic meetings as required


Two-Part Submittal

  • Technical Submittal

    • Traffic forecast sign-off by lenders

    • Complete technical submission

    • End of interactive process

    • Acceptance by Province triggers final stage

  • Financial Submittal

    • Committed equity and debt funding

    • Commitment to enter C.A. by concessionaire and lenders

    • Annual Payment Commitment


Very active construction market

Resource Demand

Labour

Materials

Reducing transaction and procurement costs

Challenges in the Canadian Market


Cost Escalation Forecasts for B.C.

Source: BTY Group, Market Intelligence, Q4 2006


Lessons Learned

  • Central PPP Advocate

    • Effective for government and market

    • Approximately 30 PPP agencies worldwide

  • Consistency

    • Policy

    • Processes (lower costs)

    • Information (to and from market)

  • Need to build Pan-Canadian, consistent market


“British Columbia, in particular, has been receiving international accolades for its early accomplishments in the area of P3 development.”

TD Bank Financial Group

June 2006

“Partnerships BC is at the vanguard of public-private partnership agencies worldwide.”

Chair, U.K. Public Private Partnerships Export Advisory Group

As quoted by Don Cayo

Vancouver Sun, October 2006


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