Public Private Partnerships

Transcription

1 Public Private Partnerships A Presentation to the Association of Financial Professionals of Canada Edmonton Chapter March 20, 2013 Alternative Capital Financing Office Alberta Treasury Board and Finance

2 Presentation Topics P3 Basics Alberta s P3s Financing and Risk Best Practices Criticisms and Benefits Questions 2

3 P3 Basics - Traditional Project Delivery Most common method of delivery is design-bid-build (DBB) with operations and maintenance (O&M) procured and managed separately Manage Project Traditional Procurement Program Plan Design Build Maintain Finance Project Program Delivery Facility Management Services Own Building Own Land Public sector Private partner 3

4 P3 Basics - The Value Proposition What if design and build is combined, i.e. a DB? Synergy Risk transfer Innovation and efficiency What if O&M is added, i.e. a DBO or DBM? Life-cycle view Risk transfer Innovation and efficiency What if financing is added, i.e. a DBFO or DBFM? Provides alternative financing for project Brings added discipline from lender if funds at risk Enforces risk transfer 4

5 P3 Basics Alternative Project Delivery A P3 is a different, non-traditional way for government to create capital assets Manage Project P3 Procurement Program Plan Design Build Maintain Program Delivery Facility Management Services Finance Project Own Building Own Land Public sector Private partner 5

6 Alberta s P3 Definition Government of Alberta defines a P3 as an infrastructure project in which h a private contractor: Provides some or all of the financing; Designs and builds; Operates or maintains (an extended warranty ); and Receives payments from the government over an extended period of time, subject to deductions for failing to meet contractually defined performance standards A DBFO or DBFM 6

7 Alberta s P3 Projects Constructed and operational: Anthony Henday Southeast Northeast Stoney Trail Alberta Schools Alternative Procurement (ASAP) project, Phase 1 eighteen schools (K-4, K-6, K-9) Anthony Henday Northwest t ASAP, Phase 2 ten schools (K-6, 5-9, K-9) Under construction: Southeast Stoney Trail Anthony Henday Northeast ASAP, Phase 3 13 schools (K-5, K-6, K-9, K-12, 6-8, 9-12) Evan Thomas Water/Wastewater t t Treatment t Facilities 7

8 Typical P3 Arrangement Government Agency Direct Lender Agreement Lenders (Debt) Capital Contribution Availability Payments Concession Agreement Private Contractor (SPV) Investment Operating Private Finance Subcontractors Design Build Operate Maintain Sponsors (Equity) 8

9 Examples of Companies Involved in Canadian P3 Projects Equity Providers/Project Leads Contractors Acciona AMEC Inc. Bilfinger Berger BOT AXOR Carillion Canada Inc. Bilfinger Berger BOT* John Laing Bouygues Building Canada Plenary Group Brookfield LePage Johnson Controls Macquarie Carillion Canada Inc.* Hochtief Ellis Don* Fengate Ferrovial Innisfree Graham* SNC-Lavalin Grupo ACS Peter Kiewit Sons Inc. Lenders PCL Group Non-CDN Banks Serco North America CDN Insurance Companies CDN Pension Funds * Often participates as equity investor 9

10 P3 Basics - The Value Proposition Consider the strengths ascribed to each of the public and private partners Comparative Advantage of Government Standard-setting Make, change, and enforce law Prerogative to raise capital and spend it Comparative Advantage of Private Sector Efficient Specialized Nimble, responsive, sense of urgency Leadership over extensive group Eminent domain (can expropriate) Vast communication lines with public Timeline accountable Borderless Innovative 10

11 P3 Basics - The Value Proposition Government and private sector have different objectives Parties interests are aligned in P3s Merger of the comparative advantages provides P3 advantages The guiding principle that risk is to be allocated to the party best able to manage it on a cost effective basis is applied Forcing a partner to take on responsibilities in the other s domain can lead to: excessive project costs relational or contractual problems even project failure Understanding one s ability to manage risk lies at least in part with the comparative advantages of each party 11

12 P3 Benefits Fixed price Earlier opening Fixed opening date Better value for money Long term warranty Future cost certainty P3 benefits are the result of appropriate risk allocation 12

13 Earlier Completion Traditional Delivery P3 Delivery Project Time Project Time Deerfoot Trail Extension 5 yrs, 11 months SE ( ) Anthony Henday 4 yrs,1 month ( ) SW AHD 6 yrs, 5 months ( ) NE Stoney Trail 3 yrs, 8 months ( ) NW Stoney Trail 6 yrs, 7 months ( ) NW Anthony Henday 4 yrs, 3 months ( ) Average for 1 school 5 yrs ASAP I (18 schools) 2 yrs, 10 months ( ) (tracked by Alberta Infrastructure) ASAP II (10 schools) 3 yrs, 1 month ( ) 13

14 Value for Money (VfM) PROJECT PSC NPV BID NPV VFM SE AHD (2004 $) $ M $493 M $4 M NEST (2006 $) $ B $650 M $350 M NW AHD (2008 $) $1.6 B $1.4 B $200 M SEST (2010 $) $1.8 B $ 769 M $1 B NE AHD (2012$) $2.2 B $1.8 B $371 M ASAP I (2008 $) $752 M $634 M $97 M ASAP II (2010 $) $358 M $253 M $105 M ASAP III (2012 $) $332 M $289 M $43 M EVAN THOMAS (2012$) $62 M $60 M $2 M PSC Public Sector Comparator (traditional procurement approach) NPV Net present value 14

15 VfM and Effect on Risk Transfer Value for Money nt Value of Cost to Gov't Prese Retained Risk Transferred Risk Financing Rehabilitation O&M Construction Engineering or Procurement 0 Raw PSC Risk Adjusted PSC P3 15

16 Mechanisms Used to Manage Risk Contractual project agreement sets out responsibilities of contractor according to optimal project risk allocation Security liquid security (letters of credit, bonds) required at various stages of the procurement process (bid stage, construction stage) Performance monitoring and inspections Payment mechanism monthly payments to the contractor include deductions (penalties) for non-performance Private debt financing adds an additional layer of due diligence within the Contractor s team and layer of security for government Insurance 16

17 Estimating Risk Costs Project risk register Risk identification/definition Allocation (government, partner, shared) for traditional and P3 In planning, design, procurement, construction, and O&M Risk cost estimation Expert workshops Likelihood of occurrence Impact, if it occurs: Best case, Worst case, Expected case Monte Carlo simulation Probability distribution of risk cost retained by government Probability distribution of risk cost transferred to partner 17

18 P3 Financing Financing is project finance, supported solely by project cash flows and therefore is ring-fenced or bankruptcy-remote Financing is paid back one of two ways via revenue generating asset (e.g. toll road) or payments from public agency based on availability Availability approach is almost exclusively used in Canada 18

19 PPP Spread Index (Source: Casgrain) The spread over long term GoCs matches term of P3 contracts 19

20 PPP Spread Index (Source: Casgrain) Bonds included in Index 20

21 P3 Project Selection Project size - sufficient capital cost and operations/rehabilitation Project scope can be clearly delineated Risks allocated to party best able to manage Private sector has capacity and sufficient interest for competitive process Term sufficient to generate value and fit with asset Output specifications can be developed Greenfield vs. brownfield Generate value for money (VfM) 21

22 Best Practices Evaluate potential project (business case) Project scope Business and operational impacts Market sounding Procurement alternatives Risk analysis and allocation Engineering, financial, legal analysis Value for money Qualitative factors Project team Schedule Obtain approvals Develop communications strategy Stick to schedule 22

23 Best Practices Develop standardized Agreement Competitive bidding process RFQ Shortlist to 3 bidders RFP Technical Submissions reviewed up front Open dialogue between the Department and Proponents Agreement Meetings Engineering Meetings Q&A Process Clarification Process Final submission low price wins; or with subjective evaluation? No negotiation after price submitted Debriefing bidders Fairness Auditor 23

24 Criticisms of P3s Cost of financing (GoA vs Private) Can be offset by innovation, economy of scale, earlier delivery Enforces risk transfer in agreement Off-book financing Accounting standards don t allow this It s not free money Private sector is making a profit They do on traditionally delivered projects as well Competitive procurement is conducted Small local contractors can t participate They get involved through subcontracts 24

25 Criticisms of P3s Lack of transparency More oversight and transparency on P3s than traditional Province posts P3 procurement documents, agreements, and VfM reports Public service levels suffer Service levels are defined and measured More accountability and an extended warranty with long term performance based contract t Government is privatizing public services Government owns infrastructure Government remains accountable for delivery of public services 25

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