Gunnar Lundberg

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Gunnar Lundberg Senior Vice President SKANSKA
BOT AB
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Skanskas Organization
Senior Executive Team
Skanska Financial Services
Corporate staff
Skanska OY
Skanska Services
Skanska Project Development Europe
Skanska BOT
Skanska Project Development Sweden
Skanska Norway
Skanska Denmark
Skanska Sweden
Skanska UK
Skanska International
Skanska Latin America
Skanska Czech Republic
Skanska USA Civil
Skanska USA Building
Skanska Poland
Services
Construction-related services
Project Development BOT
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BOT / PPP / OPP / etc ? Build Operate Transfer
? Public Private Partnership Different from
ordinary construction projects
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PPP
BOT / PFI Design Build Financing Risk
capital Several investors Operation Defined
transfer
Outsourcing Services
Leasing Renting
Design Build Financing
Operation
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International perspective

• Started in UK early 1990
• UK largest market
• Spreading over the world

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Skanska BOT active in

• Finland
• Norway
• Poland
• Russia
• UK
• Chile
• Brazil
• Mozambique

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BOT what is it all about?

• Providing a public service by the private
  sector
• Development design build finance
• operate maintain transfer
• The public sector regulator rather than
  executor
• Project revenue stream sole security for lenders

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Key principles

• Payment based on availability and quality of a
  
• service
• The risk of actual use can be, more or less,
  transferred to the private sector
• The public sector gets the asset back at the
  point
• of transfer free of charge

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BOT risk - sharing
The entire business
Price, time and quality
Maintenance needs price and quality
SPC Special Purpose Company
Contractor
Operator
Client
Project risks
Possession of land Force majeure Inflation
maintenance Changes of laws
The project cash flow, interest, exchange rate
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Why use BOT ?

• Save money (value for money)
• Possible to realize earlier
• Faster execution
• Future costs known
• Guaranteed future quality

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How is this possible ?

• Real cooperation between all parties
• Optimum risk allocation
• Lifecycle thinking
• Large projects
• International competition

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Core requirements for BOT

• Understanding of BOT concept
• Client needs to know what he wants
• Partners able to make decisions
• Real co-operation private - public sector
• Legal, tax and accounting rules in place
• Realistic expectations

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Project requirements

• Risk can be defined
• Reasonable risk transfer
• Stability long term
• Politically acceptable
• Payment incentives

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Phases

• Definition of project
• Tendering
• Negotiation
• Construction
• Operation and maintenance
• Transfer / hand over

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Organization structure
Shareholders
SPC
Loans
Majormaintenance
Routine maintenance
Construction
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Good example 1Motorway Helsinki -
Lahtishadow-tolls
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Project description

• Motorway in Finland - Helsinki - Lahti 69 km
• Stage 1 Järvenpää - Mäntsälä 30 km
• Stage 2 Mäntsälä - Lahti 39 km
• Bridges 88 nos

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Project description, cont.
Customer Finnra
Concession company Nelostie Oy
Concession 15 years (1997-2012) Transfer
to Finnra free of charge in 2012
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Original Time schedule
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Opening dates

• Original Real Stage 1 1
  Oct. 1999 12 Nov. 1998 Stage 2 1 Sept. 2000 17
  Sept. 1999

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Socio-economic savings5 years earlier opening
70 MEURO saving (11-20 MEURO /
year)(according to Finnra report)
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Nelostie - cash savings
Saving by using BOT 35 MEURO
(according to Finnra report)
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Procurement

• Invitation to tender (ICB) May 96
• Tender documents July 96
• Five consortiums submit a tender Nov 96
• Negotiations with two consortiums Dec 96
• Negotiations with one (our) consortium Dec
  96
• Contract signed with Nelostie Oy Mars 97
• Start of construction May 97

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Organization structure
Concession agreement
Shareholders
Nelostie Oy
Loans
Majormaintenance
Routine maintenance
Construction
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Good example 2E 39 Klett-Bårdshaugtolls but
not part of BOT contract
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E 39 Klett - Bårdshaug

• 22 km two-lane main road including
• 9 bridges and 10 km tunnels
• 2 ½ years construction time
• 25 years maintenance contract for
• 27 km of road
• Around one year bidding time

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Owned by
and
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Location close to Trondheim
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Bridgend Custodial ServicesParc Prison, Bridgend

• Gunnar Lundberg
• Chairman of the Board

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Bridgend Custodial Services

• BCS is the SPV (project company) which bid for
  the first tranche of DCMF prisons under the PFI
  Initiative
• BCS Shareholders are
• Securicor 49.32
• Innisfree 32.14
• Skanska 9.27
• Costain 9.27

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Bridgend Custodial Services

• Project Background
• original bid for HMP Parc submitted 1994 (First
  Private Prison in UK)
• preferred contractor status awarded in June 1995
• achieved financial close on 4 January 1996

• construction commenced in January 1996
• prison opened on 17 November 1997
• one month early
• on budget

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Bridgend Custodial Services

• Major Project Documents
• Custodial Services Agreement (CSA)
• Construction Contract
• Operation Maintenance Agreement
• Credit Agreement
• Subordinated Debt Agreement
• Shareholders Agreement

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BRIDGEND CUSTODIAL SERVICES
Design Specialist Security Subcontracts
Home Office
Concession Contract Schedules
Contractor
Construction Contract
Senior Loan Agreement
B C S
Subcontract
Banks
Subordinated Debt Agreement
Operation and Maintenance Contract
Operator
Shareholders Agreement
Owners
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Bridgend Custodial Services

• Risk Transfer
• Cornerstone of PFI
• Acceptance of risk is Contractor choice
• - No (no deal)
• - Yes (prices for risk)
• E.g. availability risk was acceptable, occupation
  risk was not.

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Bridgend Custodial Services

• Risks Accepted by BCS
• Design and construction
• Completion
• Fixed price

• Detailed planning
• Ground evaluations
• Insurance (except for Government to act as
  insurer of last resort for malicious damage)

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Bridgend Custodial Services

• Risks Accepted by BCS (Cont..)
• Operational risk (except discipline)
• Indexation (subject to a 5 year review)
• Maintenance

• Corrupt payments (limited to BCS and main sub
  contractors)
• Interest rate
• Finance

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Bridgend Custodial Services

• Role of SPV (Cont.)
• collector of revenue
• distributor of dividend
• bidding vehicle for more projects

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Bridgend Custodial Services

• Monitoring by Third Parties
• The Independent Engineer
• compliance monitoring
• Engineers Certificate
• The Banks Advisors
• Technical Advisor
• Insurance Advisor
• Legal Advisor

• Prison Service Controller (permanent member of
  staff at prison)

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Bridgend Custodial Services

• HMP Parc
• Was completed early and on budget
• Why?
• Consortium worked as a team
• common interest
• building contractor a shareholder
• quality of staff
• good personal relationships

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Bridgend Custodial Services

• HMP Parc
• Category B Local Prison
• Opened on 17 November 1997
• Maximum capacity of 1200 prisoners
• Current population running at 1028 prisoners
• Population consists of male adults, male young
  offenders and male juveniles
• Operated by Securicor Justice Services

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Bridgend Custodial Services

• BCS - Revenue Stream
• BCS is paid for the availability of prisoner
  places not places used
• The Home Office via the Office of Contracted
  Prisons pays BCS on a monthly basis
• BCS utilises this revenue to pay
• Operating sub contractor - Securicor
• Banks - Senior loan
• Shareholders - Subordinated debt
• Dividends
• Other BCS specific costs e.g. Insurance, refit
  maintenance and office costs

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The A1 Motorway
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The Project

• TEN priority network from Baltic Sea to Vienna
• Links ports of Gydnia and Gdansk to Central
  Poland
• Promotes development of Pommerian region

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Facts and figures

• 89.5 km dual carriageway (Phase 1) construction
  some 500 MEUR and total funding some 750 MEUR.
• 62.5 km dual carriageway (Phase 2 under
  negotiation)
• 42 years concession (ending 2039)
• Public Private Partnership Financing with
  sovereign guarantees

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The History 1997-2001

• Aug 1997 Concession Award to GTC
• Apr 1998 1st Concession Agreement Nearly Signed
• Feb 2000 MoU Signed
• Sep 2000 Term Sheet Signed
• Jul 2001 2nd Concession Agreement Nearly Signed
• Sep 2001 New Government Proposes Vignette System

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The History 2002-2003

• Mar 2002 Revised GTC Offer Submitted Excluding
  Tolling
• Aug 2002 3rd Concession Agreement Excluding
  Tolling Initialled
• Feb 2003 Sejm Rejects Amendments to Toll Motorway
  Act for Vignettes
• Nov 2003 Sejm Approves Amendments to Toll
  Motorway Act for Tolling
• Dec 2003 Revised GTC Offer Including Tolling

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The History 2004

• Feb 2004 GTC Submits Reduced Construction
  Price Offer
• Aug 2004 Construction Price Agreed and
  4th Concession Agreement Signed
• Dec 2004 Phase 1 Commercial Terms Agreed

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The Consortium

• GTC Shareholders
• At Signature of Agreement
• on 31st Aug 2004
• Bechtel 26
• Skanska 26
• NDI 25
• Intertoll 22

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The Consortium

• Intended GTC shareholding at Financial Close
• Skanska 30
• Laing Roads 30
• NDI 25
• Intertoll 15

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The PPP Contract
Why?

• Uses Private Finance to Secure Infrastructure
  Development
• State Budget Released for Social Expenditures
• Places Risk with Party Best Able to Manage It
• Transfers Knowledge From Private Sector to State
  Sector
• More Effective Cost Structure and Shorter Design
  and Construction Period

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Contract Structure

State Treasury
Direct Agreements
Minister of Infrastructure (MoI)
Concession Agreement
Shareholders Skanska Laing Roads NDI Intertoll
Equity and Sub debt
Senior Debt
Lenders


EPC Contractor
Equipment Contractor
OM Contractor
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Payment mechanism
95 Availability payment 5 Traffic driven
payment
User Charges
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The Construction Price

• PPP Price Compared to Standard Procurement
• PPP Price is all Inclusive
• Concession Company Takes Full Construction Risk
• Life Cycle Costing Techniques Used
• Concession Company Takes the Risk Over the
• Long Term

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The Project Costs
Net Cash Flows to State Treasury of Poland
Net Flows to Polish State (EUR m - annual)
2008
2039
120.0
100.0
80.0
End of concession
60.0
Start of operations
40.0
20.0
0.0
-20.0
-40.0
-60.0
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Thank you for your attention!