Brisbane airport link & Canada Line

Queensland, Brisbane Airport Link Tunnel-
Case study
2/26/2016 1
Presented by:
Audrey Mwala
Director Project Finance & Risk Analysis
The Public Private Partnership Commission, Malawi.
Brisbane Airport Link Tunnel Case Study,
Presented by Audrey Mwala, Malawi

Brisbane Airport Link Tunnel
2/26/2016 2
•One of Australia's largest ever road project
•Connects Brisbane’s northern suburbs with
CBD, airport, the Clem7 and Inner City Bypass
•Cuts out 18 traffic lights
•Cuts out 20 minutes of driving time.
•Eased congestion on north side of Brisbane
•A world class piece of infrastructure that will
support Brisbane’s growth in decades ahead.

The Project
• A multi-billion investment in toll road and tunnel
• A 6.7km multi-lane road
• Electronic free-flow toll road
• Has a 5.7km tunnel from the city to the Airport.
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The PPP Project Capital Structure
• Total capital; AUD4,889 m
construction cost AUD3,400 m.
• Capitalized with an initial (IPO) of
AUD1,226m
• sponsor equity AUD200 million,
• a dividend reinvestment plan
$AUD361m
• State contributions of AUD47 million
• Bank debt of AUD3,055 million.
2/26/2016 4

PPP arrangement
• A 45 year PPP contract
• Financial structure assumption:
– The loan facility will be refinanced
– Asset revaluations were forecast
– Reinvestment of profits
• SPV: BrisConnection consortium
• The contractors: Thiess and John Holland Group.
• Operator: BrisConnections
2/26/2016 5

Construction challenges
• complex design
• multi levels for various transport requirements
• dual tunnels located at a depth of between 40 to
50 metres underground
• complex tunnelling in urban areas
• constantly changing dynamics due to:
– ground conditions and
– customer requirements.
• Encountered significant cost and time overruns,
• The cost was borne by the contractors.
2/26/2016 6

Operations-Brisbane
Airport link
• Was opened in July 2012
• An average of 47,802 vehicles using
the Link each day,
• About half of the original forecasts
daily traffic of 90,000 vehicles.
• Traffic figures falling even when the
ride was free.
•
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7

Marketing Incentives
• Extensive marketing
• Phased-in toll regime
• An initial toll free period which ended
in October 2012
• Discounted tolls of $2 and $2.50.
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Challenges
• Higher cost of funds GFC 2008
• Building costs blew out - Leighton Holdings
posted a yearly loss of more than $200 m
• Overblown traffic forecasts -47,802 vehicles vs
original forecasts of 90,000 vehicles.
• Dropping traffic
• Debt higher than project value, more than $3 b
• Debt compared to toll revenue was
unsustainable.
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Why low traffic
• Drivers in Brisbane simply don’t like tolls
• Not enough drivers saw the benefit in saving time
• Seen as a privilege not a need to use the Tunnel.
• People drive less, there is a decline in vehicle km
travelled by Australians per person recently
• Young people get their licences later than before
• Telecommuting
• E-shopping
2/26/2016 10

Efforts made to save the company
• BrisConnections board entered
negotiations in November to restructure
the debt
• Lenders were not prepared to support any
of the restructure proposals.
• Government ruled out any taxpayer
funded bail-out.
2/26/2016 11

Result
• A trading halt in November when BrisConnections’
board entered into negotiations restructure the debt
• BrisConnections went into voluntary administration
• Its lenders decided to put the Airport Link Tunnel's
operator into receivership.
• Investors took quite a haircut.
• The tunnel continued to operate as normal
2/26/2016 12

Possible solutions
• Refinance their debt
• Government waiver of penalties
(liquidated damages)
• Contract renegotiation
• Waivers
• A taxpayer funded bail-out.
2/26/2016 13

Lessons learnt
• The project vehicle failed but Queensland got a brand new
asset that will continue to support Brisbane’s growth into
decades ahead.
• Need for a reassessment as to how such projects get built
in the future.
– Demand risk sharing
– Independent recheck of the traffic forecast report
– Force majeure events to include genuinely unforeseen
challenges by any reasonable experts
• Be comfortable with the current worse case scenario
– Avoid assuming success based on possible future
restructuring of the finance
• Prior markets demands tests
• Continued communication on project progress with the
public especially the residents where the tunnel passed
• Government responsibility, PPP is simply an alternative not
a way out for Govt to negate their responsibility
2/26/2016 14

2/26/2016
15
Canada Line
The ﬁrst Transit PPP project in North America

The Project
• A $2 billion fully automated 19.5
kilometre-long regional rapid transit line
in the Metro Vancouver region of British
Columbia, Canada.
• Connects downtown Vancouver,
Vancouver International Airport, Central
Richmond in British Columbia.
• Provides efficient, fast, reliable
transportation, addresses congestion and
boosts the cities’ sustainability and
economic competitiveness.
• Provides additional transportation
capacity equal to 10 major road lanes
• Construction began in October 2005
• Was completed and opened in August
2009
2/26/2016
Presented by Audrey Mwala, Malawi 16

The infrastructure
• The Canada Line project consists of:
• An underground tunnel from
Waterfront Station
• An elevated guideway climbing from
south of 64th Avenue to Sea Island
and Vancouver International Airport
and south to central Richmond
• A park-and-ride facility at the
Bridgeport Station
• Bus exchanges at Bridgeport, Marine
Drive and Richmond-Brighouse
Stations; and
• A total of 16 stations along the 19.5-
kilometre route:
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17

Project Financing
• The project was expected to cost $2.054 billion
• Funding was provided by government and a
private partner
• Public contributions come from:
• Government of Canada: $450 million
• Government of British Columbia: $435 million
• Vancouver Airport Authority: $300 million
• TransLink: $334 million
• City of Vancouver: $29 million
• The private sector InTransitBC has invested
$750 million
2/26/2016
18

Project Preparation and selection
• The VfM analysis found that the PPP option
offered signiﬁcantly higher value for money than
public sector procurement.
• The key value factors in the winning PPP
proposal were:
– signiﬁcantly lower construction costs (The PPP
construction cost savings were $85 million in net
present value. i.e. PSC $2.054b vs PPP bid $1.76b)
– similar operating and maintenance costs,
– enhanced service and
– higher projected ridership and revenue.
• The net present value of the transaction in
2003—when the deal closed—was $1.47 billion.
2/26/2016
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Value for Money (VFM) Drivers
• This project demonstrates value for
money because of:
• Fair and competitive procurement
process
• Efficient and effective risk allocation
• The project is being delivered through a
performance-based contract
• The public benefit from
– private sector capital,
– innovation and
– efficiency as well as from
– private sector’s interest in a successful
system over the long term.
2/26/2016
20

Risk allocation
• The private consortium assumed the
bulk of construction and operating
risks
• The regional transportation
authority bore:
– property acquisition risk
– ridership revenue risk because:
– it controls the transportation system
and
– related marketing and
– is responsible for setting fare levels
and
– integrating train and bus schedules.
2/26/2016
21

The PPP
structure
• InTransitBC was a preferred party to design, construct, and partially finance
the system,
• It owns the train vehicles,
• It operates and maintains the Line under an operating license from the
Greater Vancouver Transportation Authority through to the end of the
agreement.
• The Greater Vancouver Transportation Authority:
– owns the line,
– collects all fare revenues
– Sets system-wide transportation policies and fare levels.
• InTransitBC was awarded a 35-year contract
• A combination of public and private monies funded construction.
• Completed several months ahead of schedule in August 2009
2/26/2016
22

InTransitBC Remuneration
• During the construction period,
InTransitBC was paid after
achieving identified milestones.
• During the operating period,
payments are made for the
achievement of performance
targets such as:
– train frequency,
– safety, cleanliness and
– ridership.
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23

Implementation challenges
• The PPP approach was new in the community, it generated
considerable debate at the regional government level;
• Unions made PPPs an issue, opposed private involvement in
what they believe is govt’s role
• Unions argued that the process did not allow plans to be
developed with public consultation, it limited discussion to
abstract parameters, leaving design details to private partner.
• Opponents believe it was politically motivated and that it
would cost more money because of the private involvement
• Opponents have claimed that the approval process was
undemocratic and dishonest
• Cambie Street experienced significant loss of business due to
disruptions during the construction phase i.e. One side of the
street was cut off from traffic and parking was affected
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24

Performance of the Line
• Performance traffic target was
anticipated at 100,000 per day in
2013 and 142,000 boarding's per day
by 2021,
• But ridership has grown with average
of 83,000 per day in September
2009,105,000 per day in March
2010,and over 136,000 passengers
per weekday in June 2011
• During the 17 days of the 2010
Winter Olympics, the line carried an
average of 228,190 passengers per
day.
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25

Benefits
• Provided protection for the public
from cost overruns and
• Provides quality rapid transit service
• Since the completion of the Canada
Line, the line has been linked to rising
property values along Cambie Street
and in Richmond.
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Critical success factors
• A robust competitive process and an
extensive evaluation process
• Procured a partner with the necessary
experience to manage the assigned risks
• Private sector innovation-
– innovative tunnel design and
– a service plan that would generate more
revenue from higher midday ridership
• Communication- the need to continue to
communicate and educate on both the
government side and the public about
PPPs
• The project cost was on budget and
ahead of schedule
2/26/2016
27

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