Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Public-Private-Partnerships (PPP) – “An International Perspective"

Pekka PakkalaIRF PPP Presentation - Oct 19 2005

Public-Private-Partnerships (PPP) – “An International Perspective"


Collection & Distribution of Funds

General Budget

Source: Juha Tervonen

Other Directed Funds to Roads


PRESENTATION OVERVIEW

PPP & DBFO BACKGROUND FINLAND E-18 PPP PROJECT PAYMENT MECHANISM E-75 PPP - LAHTITIE RESULTS INTERNATIONAL EXPERIENCES CONTRACTOR ISSUES & DEVELOPMENT ADVANTAGES & DIS-ADVANTAGES,

PITFALLS, KEY ISSUES, & CHOICES


PPP & DBFO BACKGROUND


Delivery Systems Choices

Indirect Funding

Direct Funding

IntegratedSegmented

• Design-Bid-Build

• Design-Build

• Construction Management

• B-O-T

• B-O-O

• B-O-O-T

• Design-Build-Finance-Operate (DBFO)

Indirect Funding

Source: Prof. John Miller (MIT)

• Design-Build-Operate

• Design-Build-Operate-Maintain

• Pure O & M


Design-BuildIntegratedDesign &Construction(Public Funding)

Traditional Design-Bid-Build

LCC logical Step

Life Cycle Consideration Life Cycle Responsibility

Design-BuildPlus Long-Term Maintenance &Upkeep

Plus Financing

???

B

DB

DBOM

DBFO

Source: Pekka Jokela & Pakkala - Finnra


PPP Definition

The basic definition or interpretation of Public Private Partnerships (PPP) is an arrangement that brings together the ”Public Sector” and ”Private Sector” in a long-term relationship or partnership, for the mutual benefit of both parties.


PPP = DBFO = Design-Build Finance Operate = Our Järvenpää-Lahtitie (E-75) Project

Design-Build

Definition Clarification

One Contract for 20-30 Years with 100% Private Financing

(Ownership Remains With Government)

Operations Maintenance

Financing

& &

&


FINLAND E-18 PPP PROJECT


Background - Methodology

INTERNATIONAL BACKGROUND STUDY - 2001 FEASIBILITY STUDY FOR PPP - 2002 GOVERNMENTAL INTER-AGENCY WORKING GROUP INTERNATIONAL REVIEW OF PPP ROAD PROEJCTS RISK ANALYSIS STUDY - 2003 IMPLEMENTATION IN REAL PROJECTS:

FINLAND'S NEW E-18 PPP Project Develop a Public Sector Comparator (PSC) Develop the Payment Mechanism Develop Contract – with Tendered Financial & Legal Advisors


E-18 IN THE NORTH


Finland E-18 Muurla-Lohja


Lahnajärvi grade separated intersection

Suomusjärvi grade separated intersection

Muurla grade Separatedintersection

Kruusila grade separated intersection

Finland E-18 Muurla - Lohja

Sammatti grade separated intersection

Nummi grade separated intersection Karnainen grade

separated intersection

Lempola grade separated intersection

Muurla-Lahnajärvi section open to traffic in

2008

Lahnajärvi-Lohja section open to traffic in

2009

50 km Motorway 49 Bridges

7 Tunnels (5.1 km) 2 Service Stations

28 km - Noise Barriers


Procurement Phase - Time Line for E-18

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

13.2.2004: decision on applying life-cycle model

6.3.2004 procurement announcement

30.7.2004 12.00 deadline for pre-qualification registration

preparation of the bidding documentation

calculation period

opening the bids

negotiations

service contract

contract period until 2030

2004 2005 2006


5 Participants Interested in Project


Main. & UpkeepConstruction Payment Schedule

0

10

20

30

40

50

60

70

80

90

100

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

Milj

oo

na

ae

uro

a

10

Source: Pekka Jokela - Finnra

Difference in Payment Schedule


PAYMENT MECHANISM


Types of Payment Mechanisms

Source: Transport for London


Availability Payments

Source: Transport for London


E-18 Finnra Availability Payments

90% For Road Available for Normal Traffic 10% Performance Payment Defining the Appropriate Unavailability Factors Deductions for Poor Performance (also Salt Sanction - excessive) Indexes for Cost Escalations (Fuel, Electricity) Compensation for Increased Traffic One time Safety Bonus One Time Innovation Bonus (after Construction - €2M max.)


ADVANTAGES & DIS-ADVANTAGES,PITFALLS, KEY ISSUES, & CHOICES


Advantages of PPP

Increasing the pace of infrastructure delivery Value for money No Disruption of Other Projects in Portfolio Package Complete important projects faster than traditional methods Optimization of risk transfer (Risks to best influence & manage) Seeking whole life solutions or Life Cycle Cost (LCC) Seeking innovation and better quality (more durable) Off-balance sheet (not considered as a public debt) More recently - the lack of public funding available Future Road Users are paying the costs - not just the present

generation

Source: Pekka Pakkala - Finnra


Disadvantages/Concerns of PPP

Contract Concession Winners Are Usually Large Companies Long Tendering Period Large Transaction Costs Legal & Financial Expenses Are Great Difficult to Predict into Future & Political Consequences Making Contracts Flexible During Contract Duration Making Too Many Fast Decisions & Errors Lack of Understanding of the DBFO Delivery Method Not Taking Advantage Of Real Concept of Design-Build - (It

Was Intended As a Teaming & Partnering Type Concept)



Main Pitfalls

Lack of Understanding of the DBFO Delivery Method Market Risks – Causes Project To Fail Financially Proposed Design & Construction Solutions Fail Proposed Technology That Doesn’t Work – Germany Not Understanding Risks Not Having Good & Reliable Partners Banks/Financiers Take No Risk Underestimating The Influence of Banks/Financiers/Investors Underestimating Completion Risk Other Threats To The Project (Env, Protest, & Political) Any Stipends To Non-Winners (Large Tendering Costs) Enticing International Competition - Language & Partners Influence of Project Size



Key Issues

Demonstrating Value for Money Project Size – should be over €80M for Value For Money Need a Good Public Sector Comparator (PSC) Risk Analysis - Having the Appropriate Risk (Reasonable) Ability to Get the Best Financial Package (Low Risks) Utilizing Performance Specification & Outcome-Based Criteria Measurable, Objective & Fair Payment Mechanism (Transparent) Monitoring & Measuring Acceptance During the Delivery Phase Allowing Potential for Innovation Contract Flexibility Appropriate Hand-Back Clause



Choices

Toll Road or Not Payment Mechanism (Risks):

Based Upon Real Toll Collected Tolls Plus Any Shared Savings Availability Shadow Toll (Järvenpää-Lahti Motorway) Performance Based (England - Darington-Dishforth Project)

Series of Projects Benchmarking Public Sector Comparator Stipends to Contract Losers Open Book Contractor Selection Criteria Performance Based Specification



FINAL CLOSING REMARK


What decisions does one make when there is a need for new infrastructure development (present infrastructure is

not meeting society's need), and there is a lack funding in the budget or there is no funding available from government?

Pekka PakkalaIRF PPP Presentation - Oct 19 2005 www.finnra.fi

Thank You!

Final Report Is Available:“Innovative Project Delivery Methods For Infrastructure - An

International Perspective".

&

"Procurement Strategy Of Finnra"

&

E-18 (Muurla - Lohja PPP Project - Instructions for Pre-Qualification)

http://alk.tiehallinto.fi/e18/english/index.html

Documents

Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Public-Private-Partnerships (PPP) – “An International Perspective"