PPP Projects in Finland Success or not Kari Ruohonen General Director, Investments Finnish Transport Agency

PPP Projects in Finland Success or not Kari Ruohonen General Director, Investments Finnish Transport Agency

The Finnish Transport Agency is a multidisciplinary expert organisation specialising in transport. It is responsible for the Finnish transport infrastructure and the overall development of Finland s transport system; enables smooth, efficient and safe travel and transport; promotes an effective transport system, traffic safety and a balanced and sustainable development of the regions; annually purchases maintenance, planning, surveying and other similar services for about 1.6 billion euros, which represents about one-third of Finland s infrastructure field; operates under the jurisdiction of the Ministry of Transport and Communications and employs 700 professionals. The nine regional Centres for Economic Development, Transport and the Environment employ about 600 professionals in the transport and infrastructure field; offers employment opportunities to approximately 12,000 persons a year. 24.4.2012 2 Investointi

PPP-projects in Finland Transport Infrastucture E75 Järvenpää Lahti motorway (1) Opened to traffic 1999 Concession period 1997 2012 E18 Muurla Lohja motorway (2) Opened to traffic 2008/2009 Concession period 2005 2029 E18 Koskenkylä Kotka motorway (3) Opening to traffic 2013/2014 Concession period 2011 2026 Future Projects E18 Hamina Vaalimaa motorway (4) Opening to traffic 2018? Vt 2 Raisio-Masku motorway (5) Opening to traffic 2017? 5 2 1 3 4 Kokkola Ylivieska Dual track From a PPP- to Budget-project 24.4.2012 3 Investointi

Government project selection process Government transport policy report to Parliament Funding, traffic system, taxation New projects starting during 4 years and 10 years planning program Decision on Central Government spending limits Agreement of all payments and reciepts including all investments Parliament decides each large investment separately and gives budget for the project implementation Yearly appropriations are allocated separately for each project Includes only the investment costs in budget-funded projects In PPP projects also maintenance and funding is included throughout the contract period Different models of implementation are not comparable with the budget PPP projects are evaluated separately Separate surveys and calculations are based on risk assessments Ministry of Transport and Communications working group on the life cycle model evaluates suitable projects for PPP model 24.4.2012 4 Investointi

24.4.2012 5 Mainroad 4 Järvenpää - Lahti, Background The first life-cycle road project in Finland The Motorway in figures Length 70 km Number of new bridges 88 Number of trees and plants planted 175 000 Noise barriers built 8,5 km Length of animal fences 130 km Amount of recycled material used 50 000 m 3 Soil and rock excavated 3 500 000 m 3 Investointi

24.4.2012 6 Contract time and principle Signing of the consession agreement 19.3.1997 Contract with The Finnish Transport Agency (FTA) Road Company Tieyhtiö Nelostie Oy Contract includes Road Company Tieyhtiö Nelostie Oy is responsible for the design, building, financing and operation of 70 km of motorway for 15 years between the cities of Järvenpää and Lahti in southern Finland Payment mechanism Based on annual traffic volume Average annual service payment 20-22 M. Paid quaterly. End of contract 30.8.2012 First PPP project to be handed over back to the client Investointi

24.4.2012 BENEFITS AND EXPERIENCES OF THE PPP CONTRACT 7 BENEFITS GOVERNMENT FINANCING POSSIBLE IN COMING YEARS-DELAY FREE FINANCING PUT DOWN WORK COST SHORTER CONSTRUCTION TIME BENEFITS FOR TRANSPORTS ENABLED EARLIER TRAFFIC SAFETY IMPROVED EARLIER IMPROVED QUALITY CONTROL BECAUSE OF THE 15 YEARS RESPONSIBILITY EXPERIENCES CONTRACT MEETINGS FOUR TIMES A YEAR ROAD QUALITY IS VERY GOOD ROAD IS HELD IN A BIT BETTER CONDITION THAN OTHER SIMILAR ROADS CO-OPERATION WITH THE ROAD COMPANY IS VERY GOOD AND FAIR CLIENT IS SATISFIELD WITH THE PPP METHOD Investointi

Daily Traffic Volume 24.4.2012 8 Positive impact on the traffic safety Traffic Accidents And Traffic Volume 25000 20000 38 18000 35 20500 21000 30 23000 40 35 30 15000 25 13000 26 14500 23 21 26 20 25 20 Fatal Accidents Avarage Daily Traffic Volume 10000 15 15 Injury 5000 0 8 9 9 5 4 3 3 3 2 1 1 0 0 0 0 0 1996 Year 2000 2005 2010 10 5 0 Investointi

E18 - motorway level by 201?, EU-PLAN H1 Muurla- Lohja PPP, completed H2 Ring III H3 Koskenkylä - Kotka PPP H4 Hamina Bypass H5 Hamina - Vaalimaa PPP? 24.4.2012 9 9 Investointi 9

Procurement model of E18 Lohja Muurla Finnish application of the PPP model: life-cycle model The client orders the long-term service entity by means of a service contract - Contract period autumn 2005 - autumn 2029 The service provider must establish a special purpose company (SPC) to take responsibility for construction design, construction, maintenance and financing. The service requirements are described as performance specifications (top surface of the road, environmental factors, fittings and equipment etc.) technical product requirements (long-term structures) The payment mechanism combines the quality and quantity of services produced with the service fee availability of service defines the basic amount monitored criteria create variability 24.4.2012 10 Investointi

The goals for the E18 procurement (invitation to tender October 2004) Quick opening of the motorway to traffic ok High quality road maintenance service for road users performance specifications for the maintenance period and availability are the basis for the payment mechanism expected to be ok Good traffic safety motorway standard, payment mechanism ok Reduction of congestion such as traffic safety Optimal implementation of risk distribution ok (the client s view) The most economic overall solution even taking residual value into consideration expected to be ok? Sufficiency of order authorisation for the entire contract period including changes in cost level, additional and change work, client s procurement expenditures expected to be ok? 24.4.2012 11 Investointi

E18 Muurla Lohja ( Public Sector Comparator 2 ) 24.4.2012 12 Investointi

General information about the E18 Motorway Koskenkylä- Kotka project Measures and key indicators Measures and key indicators New motorway Widening current road to motorway motorway Multilevel junctions, new and renovated renovated 36 km 17 km 7 + 3 pcs Construction cost estimate EUR 340 340 million Agreement authorisation for PPP implementation EUR 650 million Noise protection structures 37 km Other road arrangements 52 km Groundwater protection 4 km Bicycle and pedestrian routes 19 km Markkinamäki Tunnel 500 m New bridges 78 pcs Traffic telematics Porvoo-Kotka 87 km 24.4.2012 13 Investointi

E18 Koskenkylä-Kotka, Structure of the project Customer Finnish Transport Agency Lenders EIB, NIB, Pohjola Bank Service provider, SPV Valtatie Vt 7 Oy Investment contractor -YIT & Destia Maintenance contractor -YIT & Destia Shareholders -Meridiam fund -Ilmarinen pension fund -YIT Rakennus Oy -Destia Oy Subcontractors & Suppliers Planning consultants 24.4.2012 14 Investointi

E18 Koskenkylä-Kotka, costs and finance Total contract sum 623 M (including estimated cost index rise) Investment costs 340 M (including est. cost index rise) Maintenance & operating costs Financing costs Koskenkylä-Loviisa 32.3 MEUR Loviisa-Kotka 212.8 MEUR Road construction Geotechnical issues Noise protection Bridges Environmental issues Tunnells Design & Planning 24.4.2012 15 i Investointi

Contents of the PPP project PPP liability for motorway section Koskenkylä-Kotka to be constructed Construction liability for minor road network Variation limits (in case of grade line elevation, etc.) will be specified for each section Opening the road in stages will be possible Contract period 15 years 2011-2026, 12 years after whole motorway opened 2014 24.4.2012 16 Investointi

Procurement model of E18 Koskenkylä-Kotka 4 consortium applied, 2 bids Long-term service entity 2011-2026 (3+12 years) Open for traffic in phases 1-6, 2013-2014 Technical requirements: Right-of-Way plan requirements Performance specifications (top surface of the road, environmental factors, fittings and equipment etc.) Technical product requirements (long-term structures) Payment mechanism Quality & price 24.4.2012 17 Investointi

Kokkola Ylivieska Double Track PROJECT PRESENT SITUATION AND CHALLENGES The track between Kokkola and Ylivieska is a busy section of single-track used by the majority of the long-distance passenger and freight rail traffic between Northern and Southern Finland. The current maximum speed for passenger traffic is 140 km/h. The current maximum axle weight is 225 kn. The rail section Kokkola-Ylivieska is the part of the trans-european transport network (TEN-T). According to forecasts the transport volumes between Kokkola and Ylivieska will grow by the year 2015 to almost 10 million tonnes. 24.4.2012 18 Investointi

PROJECT The construction of a new track between Kokkola and Ylivieska and the rehabilitation of the existing track. The most significant improvements will be increased capacity and improved safety. Safety will improve with the removal of level crossings and the renovation of older structures. The project is divided into sections: build new additional track (about 79 km) remove level crossings renew safety and signaling equipment increase electrical input power rehabilitate the existing track 24.4.2012 19 Investointi

FROM PPP-PROJECT TO BUDGET PROJECT Kokkola - Ylivieska double track project was originally proposed as a PPP project. The state budget for year 2010 included EUR 660 million for the project. The cost of the investment was calculated at EUR 250 million There were only two bidders, one group consisting of Destia and YIT, the other of VR-Track and Lemminkäinen In the early stages of negotiations it appeared that the project could be completed within the allocated budget, but as negotiations advanced it became obvious that, despite shortening the service period and changing some of the project specifications, the budget would not be sufficient The required changes were so significant that the FTA did not have the authority to negotiate a contract. To proceed a new project budget should have been reviewed and approved by the Ministry Government's Decision 23/03/2011 provides budget funds for project. Project investment costs are EUR 310 million.. 24.4.2012 20 Investointi

Reasons for the termination of the PPP procurement process Approved budget was tight One goal was to pay a portion of the service contract payment as a fixed payment. This was not applied Projected grade construction costs increased significantly There were only 2 bidders Major Risks It was determined that due to uncertainty surrounding the strength of the existing 100 year old roadbed there was significant risk in achieving one of the project s goals, namely 250 kn axle loading over both tracks. 24.4.2012 21 Investointi

E18 Hamina Vaalimaa motorway, potential PPP 24.4.2012 RUSSIA Motorway 32 km Intersections 5 pcs Rest areas 2 pcs Pedestarian ways 4 km Secondary and private roads 37 km Bridges 39 pcs Noise protection 8,4 km Ground water protection 2,5 km Telematics International truck queue problems resolved Traffic safety and capacity improved Environmental and social impacts reduced along the existing road 22 Investointi

E18 Hamina Vaalimaa, Border area Old road Coming Truck waiting area Coming Motorway Border station RUSSIA SCHEDULE Right-of-way planning 2012-2014 Procurement 2014=>? Construction 2015-2018? Construction costs 225 M Cost-benefit ratio 1,1-1-3 Enviromental Impact Assessment and General plan completed 2008-2009 Cross-border traffic 2,7 mill. passengers, 1,2 mill. vehicles (2010) 24.4.2012 23 Investointi