1

July 2004

European Commission: Second International Workshop on PPPs

5 July 2004

2

July 2004

Who is Skanska ?

• Multinational Construction Company• Total annual revenues of 18 Billion USD in

2003.• Over 81% of revenue is international.• Over 69 000 employees.• Consistently named to Forbes' A-List of

World's Best companies. • Ranked #1 in Fortune Magazine's

2002 World's Most Admired Companies listing in Engineering, Construction category.

3

July 2004

Skanska BOT Business Sectors

Skanska BOT AB, a development and investment company specializing in private infrastructure projects in following business sectors.

UK PFI:s – the concept being spread to rest of Europe

Roads – number of cars/inhabitants increase

Power – energy capacity increase necessary for development

Ports – Seaborne traffic grows 2*GNP

Airports –similar pattern as ports

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July 2004

What does the private sector expect from

PPPs?

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July 2004

The Industry requires, in order to invest in BOT/PPP projects.

• A viable investment that stands alone

• Generate construction works and service

• Gaining operational knowledge in interesting sectors

• Long term stable revenue flow – interesting for long-term owners

• Stock market appreciation

Expectations

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July 2004

Political/administrative decisions

• general project scope – size and content• tolling or not / cash, electronic or free flow • rate regulation or not• interoperability of tolling systems• other performance criteria• traffic risk sharing mechanism• financial risk sharing mechanism• concession period and transfer mechanism• legal framework• financial award critera• the political commitment to follow through

Expectations

7

July 2004

Skanska’s different roles in BOT/PPP projects

• Developer

• Contractor - normally a 33-100% stake

• Investor - normally a 20-50% stake

• Facilities manager

Expectations

8

July 2004

BOT/PPP is relationship management

• Contractual

• Partner

• Client

• Service providers

• Lenders and lawyers

• Economic and financial

If we do it well we mitigate risks- We create

Value for Money

Expectations

9

July 2004

Expectations that we perceive Governments have on the investor/contractor

Fixed price, time certain. PPP is not a claim business

We are not just a builder any longer

In PPP construction is only one element out of several

We sell a service/solution – not a building or a road

We must understand the clients needs and objective

We take complete responsibility for cost, quantities and time with penalties should we fail to deliver

We must look at our work from a lifecycle perspective

We must develop our industry and design with Life Cycle Thinking

Expectations

10

July 2004

Expectation of procurement Pre Qualification – Reasonable number of bidders

Performance specification of a service – not a quantity specification of an asset.

Transparency in the procurement

Confidentiality and intellectual property

Balanced Bidding costs

Openings for unsolicited proposals

Expectations

11

July 2004

What are the lessons learned in PPPs by Skanska?

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July 2004

The perfect financing option

• There is NO ONE solution

• Project specific features are important

• You will be caught if you make a short-cut

• Optimize rather than maximize

• A robust structure is better than rocket science

• Approximately right rather than exactly wrong

Lessons Learned

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July 2004

Why BOT/PPP/PFI is a success

• Save money when looking at LCC

• Possible to realize earlier

• Easier procurement – international tender

• Faster execution

• Known maximum cost, no cost overruns

• Access to investments earlier will boost economy

• Off Balance sheet

• Alternative to conventional way    

Lessons Learned

14

July 2004

Keys Reasons for Failure

• Project not commercially viable if the state does not make it feasible for the investor

“Value for money”

• Government abandons the Project

• Failure in the Consortium- Disagreement between parties- Changed priorities- Economy

• Public disapproval

• Mismatch in expectations between public and private sector

• Wrong risk allocation – right part to carry the risk. Don´t push all risk down excessively - not financiable

Lessons Learned

15

July 2004

UK’s National Audit Office published a report on PFI on 5 February 2003

Improved

Project

Delivery

Non PPP Procurement (1999 Survey)

PPP Procurement (2002 Survey)

Price

Overruns

73% 22% (mostly client changes)

Time

Overruns

70% 24% (only 8% > 2 months)

Lessons Learned

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July 2004

Where are the obstacles in the public sector?

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July 2004

Opponent opinions on BOT/PPP- and comments thereon 1(2)

• Interest rates and equity returns more expensive than government bonds

- But different risk distribution gives lower overall cost

• Only large contractors are big enough to compete for these projects

- Very often these deals attract international contractors using local companies as subcontractors

• Costly and complex transaction- But with enough size and right structure good value for money

• Gives wrong priority of projects- It is the politicians not the private sector who decide priorities,

irrespective of traditional or BOT/PPP procurement

• Commit our children- But is it wrong to spread the project cost over the economic life time

of the facility being normally 20-40 years ?

Obstacles

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July 2004

Opponent opinions on BOT/PPP – and comments thereon 2(2)

• Our country cannot afford a new project- Casualties go down on motorways - political responsibility?- Pollution in congestions higher than traffic flow- Operational costs lower in modern buildings than old- Transport infrastructure stimulate regional development- Infrastructure development drives economic growth

• Testing new concepts will improve effectiveness of public as well as private sectors- Is it political responsibility to do nothing or not to try

changes?

Obstacles

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July 2004

Value for Money (VfM) Assessment

Value/“price”

Conventional Procurement

PSC

PFIProcurement

Whole life cost of procuring services

Cost of finance

Risks retained by Public Sector

VfM

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July 2004

To conclude.... - BOT/PPP is like a marriage

• You flirt, fall in love and enter into contract

• Hopefully a long duration

• Quality of service depends on maintenance

• Objectivity and rational not always ruling

• There are good and bad times

• Recourse to lawyers in case of dispute

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July 2004

Walsgrave Hospital, UK

Nelostie Motorway Project, Finland North-South Highway, Chile

Kings College Hospital, UK

Skanska BOT investments

Maputo Port, Mozambique

Derby Hospital, UK

Ponte de Pedra Hydro, Brazil

Bridgend Prison, UK

Breitener Energy Plant, Brazil

St Petersburg Waste water,

Russia

Orkdalsvegen, Norway Bexley Schools, UK