Your SlideShare is downloading. ×
Workshop on Public-Private Partnerships (PPPs)
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Introducing the official SlideShare app

Stunning, full-screen experience for iPhone and Android

Text the download link to your phone

Standard text messaging rates apply

Workshop on Public-Private Partnerships (PPPs)

1,242
views

Published on


0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,242
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
124
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide
  • We are continuing to look for opportunities improve our STEWARDSHIP of public funds as we as increase the RESOURCES used for Transportation. When used properly, Public-Private Partnerships offer us the DISCIPLINE of private sector competition through the use of their RESOURCES while assuring STEWARDSHIP. For it to work, it must be a Win-Win for all partners.
  • Transcript

    • 1. Workshop on Public-Private Partnerships (PPPs) Jim Ely Executive Director Florida’s Turnpike Enterprise Lowell Clary Assistant Secretary Finance and Administration
    • 2. Overview Of PPP’s and Their Current Implementation in Transportation
    • 3. PPPs Defined
      • A contractual agreement between public and private sector partners which allows more private sector participation than is traditional:
        • Private sector may design, construct, finance, operate, maintain, renovate and / or manage a facility or system
        • Public sector usually retains ownership of the facility or system
        • Sharing of roles, responsibilities, risks and rewards
        • Possibility of Private Sector equity
      A new movie!!!
    • 4. Purpose of Public Private Partnerships (“PPPs”) PUBLIC PRIVATE PARTNERSHIPS … have many forms and seek to provide the public sector with a variety of benefits PROMOTE Entrepreneurial Development CAPITALIZE Additional Sources of Private Equity and Flexible Corporate Debt Structures ACCELERATE High Priority Projects TRANSFER New Technologies and Engineering Techniques BENEFIT From Private Expertise and Specialized Management
    • 5. Long History of Public Private Partnerships
      • Outsourcing Partnerships
        • 100% of roadway/bridge construction
        • Over 80% of engineering work
        • Over 80% of maintenance
      • Periodic private sector “equity”
        • ROW donations
        • Cash investment such as for Interchanges
      • “Advanced” on Innovative contracting
    • 6. Why the Sudden Interest in PPP’s?
    • 7.
      • PPPs expedite infrastructure development
        • $887 billion in projects planned or built
        • About 2,100 projects
      • PPP road projects are the largest category
        • $325 billion - 36%
        • 656 projects
        • Mostly toll highways – 66% of PPP road projects
      • Most PPP road projects in Europe and Asia
        • Europe – 43%
        • Asia - 26%
      • Most PPP road projects by concession or BOT/BTO
        • Concession – 39%
        • BOT/BTO – 26%
      Global Use of PPPs – Since 1985 R M B F D P PPP
    • 8.
      • PPPs increasingly used to expedite infrastructure development:
        • $104 billion in projects planned or built
        • 364 projects
      • PPP road projects are the largest category
        • $42 billion - 40%
        • 73 projects
        • Mostly toll highways – 62% of PPP road projects
      • Most PPP road projects done by DBOM or DB
        • DBOM – 37%
        • DB – 24%
      Use of PPPs in the U.S. – Since 1985 R M B F D P PPP
    • 9. Factors Driving Privatization
      • Established PPP Market and Industry Internationally
      • $1.6 trillion transportation infrastructure needs nationally in the next 5 years
      • Successive federal highway and state innovations authorizing and encouraging PPPs:
        • Federal: SEP-14, ISTEA, NHS Act, TEA-21, SEP-15, SAFETEA-LU
        • State: Turnpike and Expressway Authorities, Innovative Contracting law, Economic Stimulus, PPP law update
    • 10. Factors Driving Privatization
      • Non-U.S. Market Becoming Saturated
      • “ Money” ready to invest in U.S.:
        • Significant supply of equity capital
        • Historically low overall interest rate environment and low returns on comparable equity investments
        • Concessions typically provide long-term inflation-protected returns
        • Toll roads typically have favorable pricing power compared to other private sectors
    • 11. Types of PPP Contracts
      • Design-Build (DB)
      • Asset Management Contract
      • Design-Build-Operate-Maintain (DBOM)
      • Design-Build-Finance-Operate (DBFO)
      • Build-Operate-Transfer (BOT)
      • Build-Transfer-Operate (BTO)
      • Joint Development Agreement (JDA)
      • Concession
      • Asset Sale
      Increasing Private Sector Role M B F D P B D R M M B F D R M B F D P
    • 12. States with Existing and Potential Concession Projects States with potential concession-type projects States with existing concession-type projects
    • 13.
      • Long term erosion of gas tax
      • Aging transportation network
      • Pent-up transportation demand
      • Increasing cost of roadway construction
      • Flexible financing tools
      • Improved federal laws on tolling
      New “Fashion” or Long-Term Trend?
    • 14. Environment for Success
      • Entrepreneurial Vision
      • Political Support
      • Executive Leadership and Organizational commitment to innovation
      • Risk management philosophy
      • Ability to respond to diverse proposals
    • 15. Primer on Toll PPPs
    • 16. Toll Environment
      • Demand for capacity improvements, especially new corridors and alternatives
      • Willingness to accept/use toll facilities in most major urban areas
      • Successful model for toll facility development
        • Turnpike and Authorities
        • Financial capacity constraints
    • 17. Public vs. Private Toll Road Structures
      • Maximize present value cash flow
      • Provide customers a quality product
      • Improve transportation
      • Respond to political environment
      Goals
      • Set tolls at lesser of (1) market level and (2)
      • concession agreement limitation
      • Typically no toll rate covenant
      • Political Pressure to Public Entity
      • Toll increase typically limited to operate and
      • maintain facility and repay debt
      • Political pressure
      • Toll rate covenant
      Tolling/Revenue Restrictions
      • Taxable Debt
      • Possible Tax-Exempt Debt (under
      • SAFETEA-LU)
      • TIFIA
      • Equity (15-30% of financing)
      • Tax-Exempt Debt
      • TIFIA
      Financing
      • Finance initial development and subsequent
      • improvements
      • Maximize leverage to minimize cost of
      • capital/maximize bid price
      • Finance initial development and subsequent
      • improvements
      Purpose of Debt
      • Focus on business approach and upside for
      • equity
      • Focus on cost recovery/downside
      Traffic/Revenue Modeling
      • Fund capital improvements for facility
      • Recurring equity dividend payments
      • Fund capital improvements for facility and
      • other eligible projects
      Surplus Revenues Private Public
    • 18. Market Situation
      • “Sale” of Existing Toll Facility Assets the talk on national circuit
        • Chicago Skyway - $1.8B
        • Indiana Turnpike - $3.8B
      • Florida has many toll facility “assets”:
        • Turnpike System
        • Expressway/Bridge Authorities
        • FDOT owned – Sunshine Skyway, Alligator Alley, Pinellas Bayway
    • 19. Florida Model
      • Toll Systems leverage overall system to improve existing facilities and build new toll facilities:
        • Turnpike System
        • Authorities like OOCEA/MDX
      • Start Up Toll Facilities generally subsidized to jump start:
        • TFRTF loans, O&M covenants/subsidies
        • DOT operates/maintains
        • Tampa South Crosstown, Mid-Bay Bridge
    • 20. Privatization of Existing Toll Facilities Maximum Public Control Maximum Private Control
      • Sale of ownership asset
      • Private Entity has ownership,
      • operating flexibility and
      • responsibility pursuant to
      • applicable laws
      • No limitation on tolling
      • Sale of long term lease
      • (50 to 99 years)
      • Public maintains title ownership
      • Public can reclaim revenue and
      • operations of asset in event of
      • non-performance or default under
      • concession agreement
      • Private Entity has operating
      • risk/management responsibility
      • Various types of limits on
      • possible revenue
      • Management contract up to 15
      • years with evergreen provision
      • subject to Tax Code
      • Management contract subject to
      • termination similar to other
      • vendor contracts
      • Private Entity manage road
      • Private Entity receives fixed
      • compensation with limited
      • incentives tied to revenues
      • Public Entity retains overall
      • operating risk/management
      • responsibility
      Title Acquisition Sale of Long Term Concession Agreement Qualified Management Agreement
    • 21. Toll Issues
      • Must analyze impact of price elasticity on
      • revenues
      • Market will always limit tolling, so excessive
      • regime will see diminishing increase on valuation
      • return
      • Tolling partially depends on need for net sale
      • proceeds
      • Develop several toll structures and analyze
      • impact on valuation
      Elasticity Targeted Valuation
      • Develop feasible toll structures for the public
      • Properly contextualize future costs relative to
      • benefits
      • Evaluate fixed, inflation indexed and demand
      • based options
      • Determine length of concession (35-99 years)
      Private Tolling
    • 22. Toll Issues
      • The Public Entity (the “Owner”) typically maintains title to the asset and enters into a long-term Concession and Lease Agreement with the Concessionaire (the “Operator”)
      • The Concession Agreement must fully anticipate any issue that could possibly arise during the term of the lease
      • Maintain flexibility regarding method of
      • performing repairs and replacements
      • Maximize flexibility regarding employment
      • Maintain public responsibility for law
      • enforcement and some environmental issues
      • Maximize ability to benefit cost efficiencies
      • including modern tolling strategies and
      • technologies
      • Minimize risk of future competing toll roads
      • and freeways
      • Ability to assign Concession Agreement
      • and/or grant leasehold mortgage
      • Transfer operating risk to Private Entity
      • Ongoing protection of public interest from the
      • concession granted to the winning bidder
      • Ensure long-term viability of toll road asset
      • (operating and maintenance standards)
      • Certain employment restrictions (non-
      • discrimination/affirmative action, fair wages,
      • conflict of interest)
      • Ensure that Private Entity expands system
      • in a manner consistent with economic
      • development and demographic needs
      Private Goals for Agreement Public Goals for Agreement
    • 23. Limiting Tolls / Revenues
      • While a concession agreement would typically limit toll rates , it may or may not also place a limitation on toll revenues
      • Chicago Skyway only limited tolls, however, limits on revenues/returns are often associated with negotiated PPPs
      • The “limit” could allow for sharing of revenues with the Authority after reaching certain thresholds and/or increasing the amount reinvested in the tollway and related projects
      • An experienced team can facilitate the negotiation of an appropriate rate of return during the procurement process
        • Greenfield toll projects would typically warrant a higher rate of return to compensate bidders for the increased risk
        • Appropriate levels will vary over time based on current market (interest rates, available capital supply of projects, etc.)
      • If set too low, makes equity more like “fixed
      • income” requiring higher anticipated return
      • since less upside benefit
      • Revenue limitations could decrease valuation
      • today and only provide benefit if traffic
      • exceeds expectations
      • Protects against excessive returns
      • Arguably greater importance for negotiated
      • transactions, particularly if public entity’s
      • revenue study does not otherwise capture
      • upside potential
      Considerations Benefits
    • 24. Recent overseas toll road privatizations
      • 1999 IPOs of Autostrade ($6.7B) and BRISA ($2B)
      • 1999 trade sale of Toronto 407 ($2B)
      • 2003 sale of ENA ($1.8B), Spain
      • 2005 sale of French toll companies
    • 25. Toronto ETR 407
      • World's first all-electronic, open access toll highway.
      • Runs east and west just north of Toronto for a total of 108K.
      • First day of tolling was October 14, 1997.
      • Over 710,000 transponders have been distributed as of February 2006.
      • Over 12.9B total vehicle kilometers traveled in 694M total trips since opening 407 ETR in October 1997, as of January 30, 2006.
      • The first 36K stretch, opened June 7, 1997 — decades sooner than would have otherwise been possible and at much less cost.
    • 26. California SR 125
      • SR 125 is one of four PPPs authorized in 1991 by California legislature.
      • Toll road connecting the only roadway commercial port of entry in San Diego to the regional freeway network.
      • 9.25-mile section of SR 125 is being constructed as a PPP.
      • San Diego Expressway LP holds a franchise with California, will finance and build the highway, transfer ownership to the State, then lease back from state for 35 years, reverts to state at end.
    • 27. California SR 125
      • Agreement lets developer set market rate tolls, with maximum 18.5 percent return on total investment.
      • Other connections to the toll road funded with public funds.
      • Developers expect the project to be completed October 2006, years ahead of traditional funding.
      • Property owners donated $48M for right-of-way, and investors provided over $150 million in private equity.
      • Private equity and financing accounted for 78 percent of the project’s costs.
    • 28. Chicago Skyway
      • First existing toll road privatized in the US
      • 99-year concession “sold” for $1.83B to international partnership in early 2005
      • 7.8 miles in length, 3 lanes in both directions, 50,000 AADT
      • Current tolls $2.50 per car, Feb 2005 first toll increase since 1993
      • Moved from cash-only to ETC in June 2005
    • 29. Chicago Skyway Lease as a New Approach
      • $1.8 billion proceeds caught the attention of public officials
      • Brought (some) awareness of global private-sector role in tolling
      • Stimulated half a dozen other possible U.S. sale/lease deals
      • Focused global companies and capital on US toll marketplace
    • 30. Current U.S. Market
      • Completed deals:
        • Chicago Skyway—99-year lease, $1.83B
        • Dulles Greenway—sale for $615M
        • Indiana Toll Road—bid awarded, $3.8B
      • Bidding under way:
        • Dulles Toll Road—5 unsolicited proposals
        • Various Segments of Trans-Texas Corridor
    • 31. Current U.S. Market
      • Being considered:
        • Illinois Turnpike
        • New Jersey Turnpike (withdrawn)
        • New York Thruway
        • Delaware Turnpike (withdrawn)
        • Chesapeake Bay Bridge and Tunnel
        • Ohio Turnpike
    • 32. Sale of Asset or New Facility
      • Many international groups focused on acquiring existing toll facilities – ready made market
      • Also interested in development of new toll facilities
        • Trans Texas Corridor
        • Oregon DOT
      • Much interest expressed on both in Florida
    • 33.
      • Can make the pie bigger
      • Access to global capital and expertise
      • Policy issues must be outlined and discussed
        • Identify pros and cons
        • Develop solid process
      Bottom Line Toll Road PPPs Can Make Both Fiscal and Transportation Sense
    • 34. Primer on Other Types of PPPs
    • 35. Non Tolled PPPs
      • Traditional Private Sector Participation
        • Contribute funds to help finance project
        • Donate ROW Land
      • New “Advance” Delivery Model
        • Design-Build-Finance - I-75 in D1
      • Asset Management - Expansion
        • Current - Routine Maintenance
        • Routine Maintenance/Preservation
        • Long Term Full Life Cycle including Capacity
    • 36. “Advance” Delivery Model
      • Contractor advances project in the 5-year Work Program
      • Similar to Local Government Advance Reimbursement Program
      • Private Sector Role
        • Finance advance of project
        • Normally includes project delivery – DB on I-75
      • DOT Role
        • Evaluate proposal to ensure “good deal” for State
        • Reimburse private sector when scheduled in 5-Year Work Program
    • 37. Asset Management Model
      • Current Asset Management program
        • Covers Routine Maintenance
        • Uses both by roadway system (I-75) and geographical area (D3)
        • Generally 5 to 7 year contracts, bid via RFP
        • Uses Performance Standards – Maintenance Rating Program
        • Contractor bids lump sum price - paid in installments over the life of contract
          • Assumes price risk
          • Assumes system impact risk within limits
    • 38. Other Asset Management Models
      • Routine Maintenance and Roadway Surface
        • Generally 12 to 20 years
      • Above plus Roadway Performance (capacity)
        • Generally 30 to 50 years
      • Characteristics of both
        • Generally significant roadway segments or system
        • Performance Standards - preservation and capacity
        • Lump sum contract, paid in installments based on “availability” of the system (meeting standards)
        • Contractor assumes price and system impact risk within limits
        • May be combined with major rehab/new capacity
    • 39. Scale of Asset Management Life Cycle Capacity Preservation Routine Maintenance 30-50 Years 12-20 Years 5-7 Years
    • 40. Examples
      • Europe
        • UK has contracted out roadway systems in both models of routine maintenance/ preservation and also with capacity
        • Austria considering the entire system for a long-term PPP
        • Reported results show a 15 to 20 percent decrease in life cycle cost
        • Industry evolved to these methods
    • 41. POMT Example
      • Port of Miami Tunnel procurement in process – D6:
        • RFQ issued
        • DBOM with Concession
        • Term 35 – 50 years
        • Risk sharing approach - risk approach for construction and long term O&M in development
        • Working with County on finance plan
        • Anticipate proposals/award by end of 2006
    • 42. Key Policy Issues of PPPs
    • 43. PPP Model
      • PPP is a tool
      • PPP has both strengths and weaknesses
      • PPP likely to be exception, not rule
      • Let’s discuss in more detail
    • 44. PPP Strengths
      • Innovative ideas and/or projects
      • Possible private equity
      • Access to global capital markets
      • Deliver “market approaches” and expertise
      • Transfer of Risk
      • Long Term Relationships
      • Ability to Terminate
      • Can provide “stability” in pricing
      • Contract outlines the “deal”
    • 45. PPP Weaknesses
      • Loss of Control
        • Day to Day Management
        • Set by the “Deal” such as setting toll rates, performance standards, etc.
      • Perceived Loss of Control
      • “ Cherry picking”
      • Lack of State expertise in negotiating PPPs
      • Greater than expected equity returns
      • “ Real” Transfer of risk
      • Long Term Relationships
      • Ability to Terminate
    • 46. Other Considerations
      • Possible political and public backlash
        • Concerns over “sweetheart” deals
      • Internal DOT acceptance
      • Industry acceptance or readiness
      • Takes a great deal of energy and effort to develop process and deliver
    • 47. PPP Models Policy Implications
      • Consideration of Existing Assets
        • Sale of Toll Facility to generate funds
        • Long-Term Asset Management
      • Greenfield Projects
        • Developer Approach (early phases, then DBOM/finance)
        • Non-Tolled Concessions (DBOM/finance)
        • Toll Concessions (DBOM/finance)
    • 48. “Do we have legal authority?”
      • Modernized the Public-Private Transportation Act in Section 334.30, Florida Statutes
        • Private sector may advance projects in Adopted Work Program
        • DOT may partner with private sector and use state funds where appropriate
        • Accept unsolicited or request proposals
      • Need to amend Surety Bond requirement
    • 49. Policy Implications
      • “ Should we use PPPs on Existing Assets?”
      • In addition to Non-Toll:
      • Rate Control (set tolls)
      • Generate Funds – one time
      • and/or over time as “equity
      • partner”
      • Use of Funds
      • Existing “system pledge”
      • model compares well to PPP
      • toll model
      • Change in existing
      • relationships
      • Performance Specs Oriented
      • Long-Term Agreement
      • Price stability and possible
      • cost savings
      • “ Profit” to Concessionaire
      • Changes financial models if
      • used extensively
      Tolls Non-Tolls
    • 50. Existing Assets - Tolls
      • Suggest Toll “Systems” be left intact:
        • Turnpike analyzed PPP approach – resulted in Turnpike Enterprise model
        • Should continue periodic analysis, every 5 years to validate what is the “best approach” long-term for Toll Systems
      • Examine DOT stand alone toll facilities to validate “best approach”
        • Consider PPP or public sector approach – need to consider tolling options
    • 51. Existing Assets
      • Analyze international examples for long-term Asset Management to validate approach and possible use in Florida
      • Consider “pilots” for non-tolled long-term Asset Management
        • Begin with adding preservation to routine maintenance
        • Work on performance specs for preservation and also capacity
    • 52. Policy Implications
      • “ Should we use PPPs on Greenfield projects?”
      • Generally developers want public sector to:
        • Do some or all environmental work
        • Assistance if needed on ROW acquisition
      • Generally interested in toll roads
        • Traffic must be significant, upside growth a plus
        • Toll rates set by developer, limits set in agreement
        • Quality service with ETC
        • Ensure upkeep of facility, may expand as well
        • Concession period of 50 plus or minus years
        • State want part of excess revenues - may impact “price”?
    • 53. Facilitating PPP’s
      • Some Greenfield Toll Options:
        • Jacksonville River Crossing (outer beltway)
        • Tampa East-West Road
        • US 331 Widening (bridge)
        • New Corridors
          • Heartland Expressway
          • Newly identify corridors
        • Interstate/Turnpike Express Lanes
      • Suggest Turnpike Take Lead on Toll PPPs
        • Work closely with local district and CO
    • 54. Board Q/A, Discussion & Next Steps on PPPs
    • 55. Recommended Next Steps
      • Keep policymakers informed
      • Keep partners informed
      • Amend surety statute
      • Develop Process for PPPs
        • Create Cross-Functional Teams
      • Turnpike lead on Tolling Projects
    • 56. Central Office PPP Management Team
      • Lead - Lowell Clary and Ananth Prasad
        • Office of Financial Development
        • Office of Work Program
        • Procurement Office
        • Contracts Administration Office
        • Office of Comptroller
        • EMO
        • Office of Design
        • Office of Construction
        • Office of General Counsel
    • 57. Central Office Role
      • Develop “guidelines” for all PPPs
        • Address common issues and set a baseline for all PPPs
        • Develop a common understanding of PPPs
        • Be “flexible” for wide range of PPP options
        • Identify experts for guidance and “waivers” where needed in established processes
        • Provide materials to Executive Board for approval
    • 58. Turnpike Role
      • Develop guidelines more specific to Toll PPPs
        • Include representation from CO and interested districts in process
        • Working with Executive Board develop list of candidate toll PPPs – immediate opportunities and also longer-term options
        • Provide guidelines and candidate list to Executive Board for approval
        • Manage PPP process for toll PPPs
    • 59. Summary Remarks
      • PPPs are here to stay
      • Develop “understanding” and knowledge on PPPs
      • Define common sense rules, benchmark on the best approaches for successful PPPs
      • Build a sustainable success story
      • Choose the right projects
      • Procurement is critical, choosing a long-term partner in most projects
      • Remain focused on what is “best” for public
    • 60. Environment for Success
      • Entrepreneurial Vision
      • Political Support
      • Executive Leadership and Organizational commitment to innovation
      • Risk management philosophy
      • Ability to respond to diverse proposals
    • 61.