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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 Slide 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 Slide 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 Slide 4 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 Slide 5 Typical Transaction Structure DB Contract O & M Contract DBFO Agreement Concessionaire (SPV) Asset Manager + Maintenance Contractor Design Contractor / Construction Contractor (May be DB Contractor) Private Equity or Investment Fund Bond Financing or Bank Financing Owner / Authority / Province of BC Slide 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 O&M decisions The public/private interest Where do they overlap? Slide 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 Slide 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 Slide 9 Risk Decisions Commercial v. Technical Insurable v. Uninsurable Quantified v. Unconstrained Allocating v. Creating Slide 10 Proponents Procurement Costs Evaluation Criteria Contract Provisions Submission Requirements Slide 11 Structuring a Procurement Process Registration of Interest (ROI) Request for Qualifications (RFQ) Request for Proposals (RFP) Best and Final Offer (BAFO) Slide 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 Slide 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 Slide 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 Slide 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 Slide 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 Slide 17 Current PPP Activity in Canada B.C. $4.7 Billion Quebec 2 highway projects Alberta 2 transportation projects Ontario 40+ projects multiple sectors Slide 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) Slide 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 Slide 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 Slide 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 EvaluationImplementation Value for Money Report Post Financial Close Services Best Practices Strategic communications Value for money Conflict of interest Slide 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 $3.5 billion in BC Hydro IPP projects Slide 23 Sea-to-Sky Highway Improvement Project B.C. Projects Underway Mountainous Terrain Kicking Horse Canyon (Phase 2) Slide 24 William R. Bennett Bridge Golden Ears Bridge B.C. Projects Underway Bridges Slide 25 Sierra Yoyo Desan Resource Road Canada Line B.C. Projects Underway Other Transportation Projects Slide 26 Projects Under Construction or Operating Project Expected Benefit ($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 Slide 27 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 Slide 28 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 ** Emerging Market Participants ** Located in British Columbia Slide 29 BC Transportation Projects Under Development Slide 30 Pacific Gateway Opportunities Slide 31 Pitt River Bridge Design/Build Project Slide 32 South Fraser Perimeter Road Slide 33 Port Mann Highway 1 Project Slide 34 Richmond/Airport/Vancouver Rapid Transit Expansion Coquitlam Rapid Transit Expansion North Fraser Perimeter Road New Pitt River Bridge & Mary Hill Interchange Highway 1 (widening) New Golden Ears Bridge Border Infrastructure Project (highway widening) New South Fraser Perimeter Road Twinning of Port Mann Bridge Gateway Program Slide 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 Slide 36 Revenue Management 130% of Concessionaire Forecast Revenue 105% of Concessionaire Forecast Revenue Concessionaire Forecast Revenue Slide 37 Selection Process Slide 38 RFQ Objective Select 3 potential long-term partners with: Complex infrastructure development experience Toll concession operations experience Customer service focus Asset management experience Slide 39 RFP Process Technical and Financial Submittal Draft concession agreement issued with RFP 6 7 months for technical submittal Honoraria Bidders agreement Slide 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 Slide 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 Slide 42 Challenges in the Canadian Market Very active construction market Resource Demand Labour Materials Reducing transaction and procurement costs Slide 43 Cost Escalation Forecasts for B.C. Source: BTY Group, Market Intelligence, Q4 2006 Slide 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 Slide 45 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 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