TRANSPORTATION RESEARCH BOARD 44th ANNUAL WORKSHOP ON TRANSPORTATION LAW CONCESSIONS: A NEW FRONTIER? July 18, 2005 Portland, Oregon GEOFFREY S. YAREMA NOSSAMAN GUTHNER KNOX & ELLIOTT LLP The information contained herein does not constitute a legal opinion and should not be relied upon by the reader as legal advice or be regarded as a substitute for legal advice. Copyright, 2005 Nossaman Guthner Knox & Elliott, LLP. All Rights Reserved. 1
Nossaman Law and consulting firm with unique specialty in procuring, contracting and financing large infrastructure projects Work exclusively for owners, not civil contractors Honored to work for more than 30 State DOTs and regional transportation authorities around the country Named by Public Works Financing as the #1 owner advisor each year since rankings began Projects named #1 of the year by AASHTO, Institutional Investor, Bond Buyer, ASCE, DBIA, ARTBA and many others Proud of our clients record of success 2
Concession Market A New Frontier? Nomenclature Types of Concessions Key Contractual Elements Examples Where Used Examples of Market Players U.S. Market Trends Role of Traditional U.S. Design-Builders 3
Nomenclature Concession Franchise Public-Private Partnership (P3) Build-Operate-Transfer (BOT) Build-Transfer-Operate (BTO) Design-Build-Finance-Operate (DBFO) Private Finance Initiative (PFI) 4
Types of Concessions Long-term lease and operation of existing assets Construction and operation of new facilities Reconstruction, expansion and operation of existing facilities 5
Examples Where Used United States Caltrans - SR 125 Caltrans - SR 91 VDOT Dulles Greenway City of Chicago Skyway VDOT - Pocahontas Parkway (under negotiation) TCAs San Joaquin Hills (proposal under review) DelDOT SR1 (procurement under consideration) Canada Province of Ontario - Highway 407 Province British Columbia - Sea to Sky Highway [nontolled highway] United Kingdom M6 Tollway N4-N6 Kinnegad-Kilcock Tollway (Ireland) Shadow Toll Projects 6
Examples Where Used Australia M2/M4/M5 Motorways M7 Western Sydney Orbital Europe A86 (Paris ring road) A28 (France) Radial-4 (Spain) Vasco de Gama Bridge (Portugal) South America Maipo (Chile) Talca-Chillan (Chile) Asia/Middle East Cross-Israel Highway (Highway 6) Manila North Tollway 7
Examples of Market Players Australia Macquarie Transurban Spain Cintra/Ferrovial Dragados Abengoa France Vinci Egis 8
Examples of Market Players United Kingdom AMEC Balfour Beatty Germany Hochtief Bilfinger Berger Hong Kong Cheung Kong Sweden Skanska 9
U.S. Market Trends Current U.S. tax laws generally preclude mixing of tax exempt financing with private equity/debt or revenue sharing Over the last 5-8 years, most US highway agencies/advisors have favored the tax-exempt markets as the most efficient tool for financing infrastructure Result = Less U.S. concessions 10
U.S. Market Trends Recent developments suggest a larger role for the private finance/concession model SR 125 (CA) and Detroit-Windsor Tunnel purchases by Macquarie Chicago Skyway Lease by between City of Chicago and Cintra Private Activity Bonds (PABs) included within current reauthorization bill would allow for up to $15 billion in tax exempt-financing to be mixed with private equity Trans-Texas Corridor 35 Agreement between TxDOT and Cintra Zachry 11
Role of Traditional U.S. Design-Builders TRADITIONAL DESIGN-BUILD DOT CONCESSIONS DOT Design-Builder Concessionaire Design Subs Construction Subs Design-Builder Design Subs Construction Subs 12
Role of Traditional U.S. Design-Builders Typical DB business model = design, build, get paid and leave Bringing significant $, retaining responsibility/risk during long-term O&M period poses challenges to them In concession, still have critical role, but less likely to lead teams unless they restructure their business model Concessionaire/Developer will award a DB contract to DB contractor team 13
Key Contractual Elements Developer takes over project [Completes development,] operates and maintains Meets DOT standards Specified maximum term/duration Developer to provide project financing with limited/no DOT financial commitment Developer entitled to collect project revenues subject to one or more limitations Direct: Toll rate caps Indirect: ROI/ROE caps 14
Key Contractual Elements If revenue positive project, revenue sharing and/or upfront payment to DOT Developer obligation to add capacity as LOS degrades or based on other measure/time DOT right to terminate for convenience with payment to Developer based upon pre-determined formula Extent (if any) to which DOT should compensate Developer for unanticipated economic effects on project revenues 15
Contact: Geoffrey S. Yarema Nossaman Guthner Knox & Elliott LLP 445 S. Figueroa Street Thirty-First Floor Los Angeles, CA 90071 (213) 612-7842 gyarema@nossaman.com www.nossaman.com 16