Disclaimer: Any views, opinions, or preference expressed in this document are personal to the author and do not represent the views, opinions, or preference of AWDA. PUBLIC PRIVATE PARTNERSHIP (PPP) CASE STUDIES ON PRIVATE FUNDING OF TRANSPORT INFRASTRUCTURE PROJECTS PUBLIC OWNED AND OPERATED Design Build Finance Maintain (DBFM) / In this model, the private sector partner (PSP) designs, builds, and finances the construction of the Delivery Model facility, and upon completion, provides maintenance services under a long-term agreement with the public authority. The public agency retains ownership of the land and facility, takes full responsibility to operate the facility, and pays regular fees to the PSP to enable it to recoup its investment. This model occupies the middle position among all PPP models including design-build, in terms of the level of public sector risk and involvement that is transferred to the private sector. 1. Tram Extension, Antwerp This is Antwerpen’s first PPP tram project. Phase 1 was built at a cost of €48m and opened on April 14, 2012, to provide an additional 4-km new route to Fortveld Wijnegem and 13 new Hermelijn trams supplied by Siemens and Bombardier, to the existing network. The second phase is said to be completed by September 2012 at a cost of €44.6m, and will add another 4 kms of new route to Bouchhout. The project is being delivered by THV Silvius consortium through a DBFM contract, where De Lijn, the public transport company representing the Flemish government, pays fees to THV for it to be able to use the lines over the 35-year concession period and recoup its investment. 2. Cercanías Airport Rail Link, Madrid The Spanish Ministry of Development awarded in 2007 a 20-year contract to infrastructure company Ferrovial Agromán to build and maintain an 8.8-km direct rail link between Barajas Airport’s Terminal 4 and Chamartin Station, using existing infrastructure and new alignments. It was built at a cost of €218.3m and opened in 2011 to provide direct faster rail connections from the airport to any station on the national intercity network, through Charmartin Station in the city centre, which was developed as a terminus of the new Madrid-Valladolid high-speed line. The national rail company RENFE is in charged of operating the trains and collecting fares. The DBFM model was sought to manage the connection of this line with an existing Line 8. Ferrovial receives 45% share of the fare and regular income for correct maintenance. 3. A59 Freeway, The Netherlands This 10-km two dual lane motorway in Noord Brabant opened in 2005 and is the first PPP project to go operational in The Netherlands. Poort van Den Bosch consortium was selected in 2003 to design, build, and finance the transformation of N59 state highway into the A59 Freeway within 3 years at a cost of €218m, and to maintain it for 15 years. The State pays the consortium an annual premium based on availability. The upgrade included new bridges, roads, viaducts and underpasses. The PPP helped accelerate completion by 5 years and reduce costs by 14%, compared to the originally planned design-build procurement. It is the European Construction Industrial Active Project Awardee in 2006. 1 Disclaimer: Any views, opinions, or preference expressed in this document are personal to the author and do not represent the views, opinions, or preference of AWDA. PUBLIC OWNED PRIVATE OPERATED Design Build Operate Maintain (DBOM) In the DBOM model, the public agency assumes full responsibility for financing the construction, Concession Model building customer relationship, and ownership of the land and facility. The private investor designs and constructs the facility in behalf of the public agency, and operates and maintains it for a set duration. Private participation is compensated through technical and performance-related payments. The main advantage of DBOM and other concession models is the optimisation of life cycle costs made possible by private-led innovation and adapted design, which is not utilised in the DBFM model. 4. Lagos Rail Mass Transit (LRMT), Nigeria This is a network of 7 intra-city rail lines envisaged to make Lagos, Africa’s model megacity. The 57- km US$1.4b Red and Blue Lines will be built first. Blue Line was recognised in KPMG’s Infrastructure 100 World Cities Edition, for its innovative financing structure based on a single concession contract. The track and station infrastructure is currently being developed by China Civil Engineering Construction Company under several design-build contracts funded by the state government, and is expected to be completed by the end of 2012. The trains, control systems, and fare collection will be provided by Eko Rail, under a 25-year equip-operate-maintain concession. 5. Fredericton-Moncton Highway (FMH), Canada FMH is a 204km two dual lane C$638.9m public highway, which was completed in 2001, 5 weeks ahead of schedule through DBOM, to encourage the developer to promote efficiency between investment and future maintenance costs. It was financed through lease-based debt and toll-based debt, initially to be repaid by user tolls, but later replaced by shadow tolls (user charges paid by the province). Maritime Road Development Corporation (MRDC) received monthly progress payments out of the guaranteed maximum construction bid price adjusted for quality payments and agreed scope changes. MRDC will receive C$10m from the province for operating and maintaining the highway for the first 20 years, adjusted to consumer price index (CPI) after 20 years and until 2028. A not-for-profit special purpose company (SPC) was created to manage the tax implications of tolling and private sector involvement. Although seen as a model PPP, critics argue that it is costly due to shadow tolling. 6. Hudson-Bergen Light Rail (HBLR), New Jersey This is USA’s first DBOM transit project, which was instrumental in the regeneration of the Hudson River waterfront. New Jersey Transit (NJT) in 1996 awarded 21st Century Rail the contract to design and construct the system, procure the equipment, and operate and maintain the line for 15 years, later extended to 20. The eventual cost was approximately US$2.2b, financed through state and federal government funds. The first 15-km line opened in 2002, followed by a further 10-km line in 2006, one to two years earlier than through a design-build schedule. NJT pays Century a guaranteed price in 1996 dollars for operating and maintaining the line, subject to increases in inflation indices. The lack of performance standards, however, did not provide Century the incentive to deliver quality service. 2 Disclaimer: Any views, opinions, or preference expressed in this document are personal to the author and do not represent the views, opinions, or preference of AWDA. Design Build Finance Operate (DBFO) / This a concession model whereby the private sector partner undertakes to design, build, finance and Concession Model operate the facility for the duration of the concession. The public authority also makes capital and financing contribution, remains the owner of the land and facility, and pays off a regular service, availability fee, or shadow tolls to the concessionaire to help repay its share of capital investment and ongoing service costs in the project. The tenure of concession models usually matches the long asset life of the infrastructure. Other availability models such as DBOM, DBFOM, and PFI, differ from other concession models like Build Operate Transfer (BOT), since private financing in the latter is repaid through user charges. DBFO and BOT can be partly public-funded while PFI fully private-funded. 7. Sea to Sky Highway, British Columbia Completed in 2009 for the 2010 Winter Olympic Games, this 100-km C$600m upgrade project is part of destination Highway 99 and runs from West Vancouver to resort town Whistler in British Columbia. It was developed to ensure that the road allows for a consistent driving speed and meets population growth and travel demands until 2030. A 25-year DBFO performance-based contract was awarded in 2004 by the Province of British Columbia to S2S Transportation Group consortium. S2S infused C$400m of capital raised through equity and debt, while the government funded C$200m into a 30-km section of the project completed earlier in 2005. The payment to S2S consists of 80-85% availability, 10-15% traffic usage, 2.5% bonus, and an end-of-term payment. The province provided the necessary land, environmental approval, and is shielded against key risks such as force majeure and protests. The project is expected to deliver C$130m of Net Present Value (NPV) in additional user benefits. 8. Peninsula Link, Melbourne Previously called Frankston Bypass, this 27-km 2 dual lane A$759m freeway is under construction and is expected to reduce congestion and complete the missing sections of Mornington Peninsula Freeway. The PPP is being managed by Linking Melbourne Authority (LMA) and delivered by Southern Way consortium (SW). Under the performance-based availability contract, LMA will make quarterly service payments to SW once the freeway is certified completed, with no charges to motorists. The government spent money on land acquisition, project management, and environmental compliance, to allow for the construction of the facility. This brings future public sector cost to A$2.3b. Under the contract, the service payments can be adjusted to allow for proportionate reductions from each half-hour of unavailability. Construction commenced in 2010 and is expected to complete in 2013, after which Southern Way will continue to operate and maintain the freeway for 25 years. 3 Disclaimer: Any views, opinions, or preference expressed in this document are personal to the author and do not represent the views, opinions, or preference of AWDA.