Cliff Inskip with CIBC World Markets presents why the Government of Alberta should consider alternative ways to fund major infrastructure projects.

1. Confidential
Alberta Economic Summit
Alternative Financing for Public Infrastructure
October 5, 2013
Cliff Inskip
cliff.inskip@cibc.com

2. Evolution of Service Delivery
| 1
“We are seeing in society and the economy an enormous change with
respect to how infrastructure is owned and operated. Infrastructure has
moved away from being owned and operated by national, state and local
governments to new arrangements that involve private investors, global
operators and innovative financing strategies crafted by investment banks”
Ryan J Orr, Executive Director
Collaboratory for Research on Global
Projects Stanford University

3. Government
Department or
Crown Corporation
Supervised
Authority
Independent
Authority
Public-Private
Partnership (“PPP”)
or Concession
Private Sector
Ownership
 Water / Wastewater
 Airports
 Air Navigation
 Court Houses
 Ferries
 Power Generation /
Transmission
 Canada Post
 Airlines
 Railways
 Roads / Bridges
 Port Authorities
 Many Others
 School Boards
 Hospitals
 Universities
(no borrowing)
 Regulated Utilities
| 2
Strategic Options Spectrum for Essential Services
 20 years ago, most infrastructure was developed and financed by government directly or through Crown
Corporations
Increasing Commercialization
Government
Delivery
Hybrid Delivery
Private Sector
Delivery

4. | 3
Strategic Options Spectrum for Essential Services
 The role of the private sector in infrastructure has grown exponentially in Canada over the last decade
Government
Department or
Crown Corporation
Supervised
Authority
Independent
Authority
PPP or Concession
Private Sector
Ownership
 Water / Wastewater
 Court Houses
 Power Generation /
Transmission
 Canada Post
 Others
 School Boards
 Hospitals
 Port Authorities
 Universities
 Airports
 Ferries
 Air Navigation
 Hospitals
 Roads / Bridges
 Water /
Wastewater
 Court Houses
 Schools
 Light Rail
 Detention
Centres
 Data Centres
 Regulated Utilities
 Power Generation
 Airlines
 Railways
 Land Registries
Increasing Commercialization
Government
Delivery
Hybrid Delivery
Private Sector
Delivery

5. | 4
Examples of Alternative Financing
 Vancouver Fraser Port
Authority
Supervised Authority
 Edmonton Regional
Airports Authority
Independent Authority
 Toronto Air Rail Link
Design, Build, Finance
PPP
 Alberta Schools
Alternative Procurement
Design, Build, Finance, M
aintain PPP
 407 International
Private Sector
Concession
 North West Redwater
Partnership (Sturgeon
Refinery)
Private Sector
Ownership
Alternative
Financing

6. | 5
What are the Drawbacks of Traditional Government Procurement?
X
X
X
X
X
X
Procurement priorities can be politically motivated
Incomplete planning
Frequent cost overruns and/or completion delays
Poor maintenance due to budget pressures
Limited integration between design, construction and operations
Lack of focus on long-term life cycle rehabilitation costs

7. | 6
What are the Benefits of Alternative Financing?






Competitive procurement process
Design innovation
Full-term warranty
Whole-of-life costing approach
Prevention of scope creep
Fixed-price, date-certain contracts
 Economic incentive to provide superior performance

8. | 7
Does it Make Sense to Use Higher Cost Private Capital?
 The key benefit to using private capital to fund a portion of public infrastructure projects is risk transfer
 Determining the optimal ratio of government and private funding is more of an art than a science
 The typical proportion of government funding varies depending on the jurisdiction
The risk of completion delays, cost overruns, life cycle performance and
other risks can be transferred to the private sector
The private sector is held accountable for bearing risk via the public
sector’s ability to withhold capital payments (i.e. for debt and equity)
Government contributions have often accounted for roughly half of total
capital costs
For some transportation projects, government contributions have
accounted for up to 85% of total capital costs

9. | 8
Key Provisions of a PPP Project Agreement
Outcome
Specifications
(availability & service
performance)
Risk Allocation
(parties’ roles and
responsibilities)
Payment
Mechanism
(capital and operating
payments)
Performance
Measurement
System
(availability and
performance
deductions)
Events of Default
& Remedies for
Failure
Handback
Conditions

10. | 9
What Types of Projects are the Best Candidates for Delivery as a PPP?






Tangible asset utilizing proven technology
Greenfield (i.e. new) project
Potential for innovation
Capital intensive
Predictable cash flows (availability or user based)
Unchanging performance standards

11. | 10
Questions?

12. Appendix: Overview of Public-Private Partnership Structure

13. | 12
Typical DBFM PPP Structure
Facility & FM
Services
Project Company
Construction
Contractor
Public Sector
Project Sponsor
Facilities
Management
Provider
Construction
Milestone
Construction
Payments
Construction
Agreement
Facilities Mgmt
Agreement
FM Services
Payment mechanism
based on availability
and performance
Periodic payments
based on availability
and performance
Construction and FM
Agreements are “drop-
down” contracts
Project Agreement
governs relationship
between public and
private sectors

14. | 13
Typical DBFM PPP Structure
Facility & FM
Services
Project Company
Construction
Contractor
Public Sector
Project Sponsor
Facilities
Management
Provider
Construction
Milestone
Construction
Payments
Dividends &
Capital
Repayment
Equity
Financing
Equity Providers
Shareholders’
Agreement
Construction
Agreement
Facilities Mgmt
Agreement
FM Services
Payment mechanism
based on availability
and performance
Periodic payments
based on availability
and performance
Debt
Financing
Lenders
Loan Agreement/
Trust Indenture
Debt
Service
Direct
Agreement
Project Company
arranges debt and
equity financing