Experience Using Innovative Finance for Major Projects

1
Experience Using Innovative Finance for Major
Projects

• Northern Border Finance Conference
• Chicago, Illinois
• May 14th, 2007
• Richard Fyfe, COO Gateway Program, BC

2
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

3
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, were 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 P3s unless Partnerships
  BC says theres 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

4
B.C. ExperienceFoundation 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

5
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)
6
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 OM decisions
• The public/private interest
• Where do they overlap?

7
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

8
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

9
Risk Decisions

• Commercial v. Technical
• Insurable v. Uninsurable
• Quantified v. Unconstrained
• Allocating v. Creating

10
Proponents Procurement Costs
11
Structuring a Procurement Process

• Registration of Interest (ROI)
• Request for Qualifications (RFQ)
• Request for Proposals (RFP)
• Best and Final Offer (BAFO)

12
Procurement Risk Allocation

• Provinces 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

13
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

14
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

15
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

16
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

17
Current PPP Activity in Canada
Quebec 2 highway projects
Ontario 40 projects multiple sectors
Alberta 2 transportation projects
B.C. 4.7 Billion
18
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)

19
Alberta Infrastructure

• Edmonton Ring Road
• Anthony Henday Drive
• Southeast component
• DBFM, 493 million
• North component
• Planning Jan 2007
• Calgary Ring Road
• Northeast component
• DBFO, 500 million

20
Partnerships BC Role and Structure

• Window on British Columbia
• Develop partnership market
• Knowledge bank of Best Practices
• Consistency in business case planning
• Reduce governments planning / procurement costs
• Consolidated experience
• Commercial viability
• Transparency and disclosure

21
Project Delivery

• Business Planning
• Feasibility Analysis
• Options Analysis
• Business Case
• Quantitative analysis (PSC vs alternative)
• Risk analysis
• Multiple Criteria Analysis (MCA)
• Procurement options
• Market Sounding

• Procurement Process
• Standard RFQ RFP
• Consolidated Concession Agreement
• Request for Information and Consultation process
• Evaluation

• Implementation
• Value for Money Report
• Post Financial Close Services

Best Practices

• Strategic communications
• Value for money
• Conflict of interest

22
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

23
B.C. Projects UnderwayMountainous Terrain
Sea-to-Sky Highway Improvement Project
Kicking Horse Canyon (Phase 2)
24
B.C. Projects UnderwayBridges
William R. Bennett Bridge
Golden Ears Bridge
25
B.C. Projects UnderwayOther Transportation
Projects
Sierra Yoyo Desan Resource Road
Canada Line
26
Projects Under Construction or Operating
Project Expected Benefit (millions) Capital Cost (millions) Status
Sierra Yoyo Desan Resource Road 250 royalties 40 Project operational 3 months early
Sea-to-Sky Highway 131 600 Project on time, on budget
William R. Bennett Bridge 25 144 Project on time, on budget
Canada Line 92 1,900 Project on time, on budget
Kicking Horse Canyon (Phase 2) 18 130 Project on time, on budget
Golden Ears Bridge 8 808 Project on time, on budget
Total Transportation 3,622
27
Current Partners in B.C.

• 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

Located in British Columbia
28
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
29
BC Transportation Projects Under Development
30
Pacific Gateway Opportunities
31
Pitt River Bridge
Pitt River Bridge

• Design/Build Project

32
South Fraser Perimeter Road
33
Port Mann Highway 1 Project
34
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 Perimeter Road
35
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

36
Revenue Management
130 of Concessionaire Forecast Revenue
105 of Concessionaire Forecast Revenue
Concessionaire Forecast Revenue
37
Selection Process
38
RFQ Objective

• Select 3 potential long-term partners with
• Complex infrastructure development experience
• Toll concession operations experience
• Customer service focus
• Asset management experience

39
RFP Process

• Technical and Financial Submittal
• Draft concession agreement issued with RFP
• 6 7 months for technical submittal
• Honoraria
• Bidders agreement

40
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

41
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

42
Challenges in the Canadian Market

• Very active construction market
• Resource Demand
• Labour
• Materials
• Reducing transaction and procurement costs

43
Cost Escalation Forecasts for B.C.
Source BTY Group, Market Intelligence, Q4 2006
44
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

45
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