Public Private Partnership An Opportunity for Louisiana

Transcription

1 Public Private Partnership An Opportunity for Louisiana Presented by Bob Prieto Senior Vice President Fluor 2007 Louisiana Transportation Engineering Conference Baton Rouge, La February 11-14, :00 a.m. - 11:45 a.m. Concurrent Sessions Session 82: Public-Private Partnerships

2 Overview Fluor PPP s Traditional Funding Sources PPP Financial Options Two examples PPP Efficiencies New Skills & Knowledge Required 10 Things We Want in a PPP A Louisiana Opportunity

3 Fluor One of world s largest, publicly owned engineering, procurement, construction, and maintenance services companies International workforce of 30,000+ employees Network of offices in more than 25 countries across six continents Engineering News-Record (ENR) magazine consistently ranks Fluor Corporation among the top three on its The Top Design-Build Firms and The Top 400 Contractors lists Ranked No. 1 in Fortune magazine s 2004 rating of World s Most Admired Companies in engineering and construction category Highest credit rating of any major international engineering and construction company Fluor s safety performance record consistently makes it one of the world s safest contractors

4 Fluor PPP Experience Pocahontas Parkway (Route 895) Connector First project to be developed and completed under VA PPP laws E-470 Public Highway and Toll Road Provided subordinated debt financing JFK International Arrivals Terminal First major privately developed and financed airport terminal in United States Netherlands High Speed Rail Line Large-scale high speed rail financed and executed as a PPP A 59 Freeway (Public-Private Partnership) First highway project to be financed and executed as a PPP

5 Fluor PPP Experience Connect London Underground Telecommunications Major telecom project financed and executed as a PPP SR 125 South Gap/Connector and Toll Road Innovative combination of private equity and federal TIFIA funding I-495 Capital Beltway HOTLanes Innovative PPP using HOTLanes to reduce congestion I-95 I-395 Reversible HOTLanes Innovative PPP using HOTLanes to reduce congestion National Roads Telecom Services Innovative program to upgrade highway telecommunications as a PPP

6 Available Transportation Financing Mechanisms Traditional government ownership General state or local revenue (annual appropriation) Trust fund (defined/dedicated revenue sources) Traditional examples Gas taxes, motor vehicle fees Non-traditional opportunity Share of oil revenues Tax increment financing district Includes PILOT Federal funds User fees Tolling, parking fees, vehicle usage fees Public Private Partnership (PPP)

7 PPP Financial Options - Simplified Two Basic Models Not for profit For profit Tools provide for variations on the themes No one size fits all model We run all models until just before submission unless client has expressed a preference

8 Value Drivers Revenue Cost Time to deliver Risk reduction Financing flexibility

9 Sources of Revenue User fees (tolls) Other project revenue sources ROW related (telecom, pipeline, water etc) Related services (gas, food etc) Availability or other performance payments Shadow tolls Economic development (tax increment or other) Government subsidy

10 Sources of Cost First Cost (CAPEX) Constructability Packaging/supply chain Productivity Interface cost (risk) Escalation (time) Life Cycle Cost Materials selection Maintainability Technology leverage Ease of expansion

11 Time to Deliver Advance project relative to traditional funding availability Design-build shortens execution cycle Project phasing financially driven

12 Risk Reduction Both models (For profit/not for profit) Capex risks Fully wrapped Interface risk transferred Escalation risk transferred O&M risks Fully considered and priced Fully transferred if desired Map directly to financial plan Traffic & Revenue Risks Fully transferred but valuation varies by model Includes ramp-up risk Uncertainty valued

13 Risk Reduction Not for profit Uncertainty risk partially valued More financial leverage than traditional bond financing Variable period of operation mitigates risk Upside fully to state For profit Uncertainty risk fully valued even more financial leverage Upside fully to for profit entity

14 Financing Flexibility Not For Profit Typical structures: (c) (3) Term Variable; 30 year nominal Sources of financing Developer (development phase) Bank debt (construction period) Tax exempt bonds (senior debt) Private Activity Bonds (may be more flexible) TIFIA State Infrastructure Bank (SIB) Sub-debt (by developer or other) Standby credit facility (by developer or other) Initial or periodic payments by Federal, State or Local governments More flexible debt structures increase leverage on same traffic and revenue projections

15 Financing Flexibility For Profit Typical structures: Concession/taxable historical model Concession/blend or taxable and tax exempt emerging Term typically 50 to 99 years Sources of financing: Developer (development phase) Bank debt (construction period) Bonds (senior and junior debt; interest only with bullet; multiple tranches; multiple refinancings anticipated and programmed) Private Activity Bonds (blended model) TIFIA State Infrastructure Bank (SIB) Sub-debt (by developer or other) Standby credit facility (by developer or other) Initial or periodic payments by Federal, State or Local governments Accelerated depreciation (except with PAB) EQUITY (patient)

16 How Models Differ A 50 Year Look Not for Profit Shorter period (target years) Worse than expected revenue profile Not for profit continues to operate until debt repaid Better than expected revenue profile Debt retired earlier Facility flips to state on debt retirement Early clawback by state more easily achieved Debt repaid Tolls reflect facility financial needs to retire debt in target time frame Developer earns development fee plus fees from contracts

17 How Models Differ A 50 Year Look For Profit Longer period (50+) Worse than expected revenue profile Concession period unaffected; return on equity reduced Better than expected revenue profile Equity returns significantly enhanced Facility reverts to state at end of concession period or on default Early clawback by state not easily achieved Tolls reflect strategy to maximize revenue No consideration to do other than that Constrained only by contract but over time period constraints worth little Tolls reflect equivalent purchasing power (economic growth) Traffic growth beyond plan to developer Value of congestion growth to developer Developer earns development fee plus fees from contracts plus equity returns

18 Two Examples Not for profit - Virginia Route 895 Pocahontas Parkway Conversion of mature asset to for profit facility in progress For profit (likely) - I-495 Capital Beltway Toll HOTLanes

19 Virginia Public-Private Transportation Act Originally adopted 1995 Revised 2005 Goal Encourage investment by private entities by creating more stable investment climate and increasing transparency and public involvement in the procurement process

20 Virginia Route 895 Pocahontas Parkway Greater Richmond, Virginia High-level bridge and highway New 8.8-mile, 4-lane toll facility Uses Smart Tag/EZ Pass plus highway speed open road tolling Connects I-95 to I-295 James River Bridge 4,765 feet long, cast in place 200-meter clear span 145-foot vertical clearance for shipping Cost $324 million Traffic (ultimate) 50,000 VPD First Virginia PPTA project Second financed project Project completed 15 years earlier than funding would otherwise have allowed Design/build reduced project execution period from seven years to four years Majority of work performed by local designers and contractors

21 Pocahontas Parkway Map

22 Pocahontas Parkway Timeline Virginia PPTA legislation adopted Comprehensive Development Agreement; start of construction Facility opened

23 Pocahontas Parkway PPP Term Sheet Type of Agreement Development, financing, DBOM Proposal Unsolicited Developer Fluor-led LLC D/B Contractor Fluor-led LLC Project Owner Pocahontas Parkway Association (non-profit, corporation) O&M Contractor VDOT

24 Pocahontas Parkway PPP Term Sheet (continued) Initial Financing $354 million tax exempt bonds Secured by first lien on project revenue $18 million SIB loan $5 million standby sub-debt by Fluor-led LLC $9 million in federal funds for design costs Development Fee Yes Original Underwriter Bear Stearns & Lehman Fitch Rating BBB-

25 Value Creation Pocahontas Parkway Next Steps 2003 First full year of operation 2005 Concession offer received from Depfa Bank/Transurban 2006 Sold as concession Resale value $500 million-plus Provides refinancing capacity in spite of significant traffic shortfall Transfers all O&M and traffic risk to private sector Frees VDOT from funding $225 million in O&M Brings state-of-the-art technology Provides vast pool or resources and experience to draw on for any problems Removes debt from state balance sheet Original cost $380 million Plus deferred reimbursement on O&M costs Value created by de-risking project Development risk removed Legislative risk (first PPTA) removed D/B risk removed Traffic ramp-up known

26 I-495 Capital Beltway Background 1964 opened 1977 widened to eight lanes Primary use shifted to local facility Currently 180,000 to 240,000 VPD

27 I-495 Capital Beltway Toll HOTLanes Add four HOTLanes on existing eight-lane freeway 14 miles long Access by concurrent adjacent lane access; direct access from 5 or 6 of 11 existing interchanges Stays in existing ROW with minimal displacement Property takes significantly reduced from 300-plus in EIS proposals to six or fewer Estimated cost $1 billion

28 HOTLanes in Operation 12-Lane Configuration 8 GP and 4 HOTLanes General Purpose Lanes HOT Lanes HOT Lanes General Purpose Lanes

29 I-495 Capital Beltway Timeline 1995 Virginia PPTA legislation adopted 2002 NEPA public hearing 2003 Fluor submits unsolicited proposal 2004 CDA negotiation begins 2005 CDA completed with Fluor/Transurban 2006 ROD 2007 Financial close; Construction start 2012 HOTLanes open

30 I-495 Capital Beltway PPP Term Sheet Tax Exempt Type of Agreement Development, Financing, DBOM Proposal Unsolicited Developer Fluor/Transurban Design/Build Contractor Fluor Project Owner Non-profit corporation O&M Contractor Transurban Initial Financing Tax exempt bonds Sub debt by Fluor/Transurban Development Fee Yes

31 I-495 Capital Beltway PPP Term Sheet Concession Type of Agreement Development, Concession Proposal Unsolicited Developer Fluor/Transurban Design/Build Contractor Fluor Project Owner Transurban/Fluor O&M Contractor Transurban Initial Financing Concession financing Equity by Fluor/Transurban (15 percent minimum) Development Fee Yes

32 I-95/395 HOTLanes PPTA $913 million HOT and HOV lanes Improves 56 miles of I-95 Adds third HOV lane to I-95 in Northern Virginia Fluor/Transurban proposal selected as competing alternative to previously submitted unsolicited proposal Comprehensive agreement under negotiation

33 PPP Performance Evidence on Construction Projects from the United Kingdom s National Audit Office Conventional Procurement PPP Procurement Cost overruns for the public sector 73% 22% Delay in project delivery 70% 24%

34 What are the efficiencies? Risk transfer Design, construction, operation, maintenance, and finance Output-based specifications You pay for the service you receive (performance payment regime) Availability payment Congestion priced level of service Long-term nature of contracts Whole life costing and asset management Budget constraints PPPs off budget/public debt Terminal 4 JFK

35 What are the efficiencies? (continued) Infrastructure requirements met earlier Pocahontas Parkway Search for efficiency and creativity Public sector flexibility facilitated Partnership Both the public and the private sector are involved during the whole lifecycle of the project Private finance involved New sources of infrastructure capital More flexible financial structures More project value captured upfront

36 How do the users of these projects benefit? Needed infrastructure is provided earlier Life cycle financial requirements addressed upfront and provided for Other benefits are available without PPP if political will and process discipline exist Design/build efficiencies (time, cost, risk transfer) Performance spec versus design spec Value pricing for congestion management and effective capacity improvement Market rates required

37 Skills Project finance and innovative delivery requires new skill sets to deliver: Design managers (contractor) Value engineers (contractor) Constructability (designer) Environmental/permitting manager (PPP) O&M (PPP/contractor) Tolling systems/customer service call centers (PPP) Life-cycle risk analysis (PPP) Taxable and tax exempt financing specialists (PPP) Derivative and hedging specialists (PPP/financial Institutions) Financial insurance specialists (PPP/insurers) Economists (PPP) Concession traffic and revenue forecasting (PPP) Monte Carlo analysts (D/B/PPP) Insurance specialists (changed E and C interface) (all) Tax (D/B/PPP) Project developers (PPP) Are we ready?

38 Skills Traditional owner skill sets need to change Shift from buyer of good design and low bid construction to buyer of performance-based outcome Shift from ongoing decision framework to upfront decision framework Shift from asset owner to procurer of capability New skills Asset valuation Concession selection, structuring, and sale Economic modeling O&M standards and contracting Performance acceptance versus design review Are owners ready.not to be owners?

39 Knowledge New vocabulary: Accreting swaps Subordinated debt Equity Concession Private activity bonds HOT lanes TOT lanes Congestion pricing Bankruptcy analysis Accelerated depreciation Real options Monoline insurance Shadow tolls Availability payments Toll road regulation TIFIA Financial Structure and Cost of Capital Weighted Average Cost of Capital Re Min WACC % Debt Projects goal is to minimize weighted average cost of capital: Why? 10/1/2002 Financial Design and Project Appraisal Robert B.H. Hauswald

40 Top 10 Things We Want When Entering Into A PPP 10. The PPP exhibits the three key attributes of successful PPPs the maximum infrastructure for the lowest cost appropriate risk weighted returns protects minority interests 9. A public sector partner who clearly understands all obligations 8. The project addresses a real need 7. The public sector partner clearly understands risks 6. Stakeholders will support the project and it FLIPS 5. A clear path forward is identifiable 4. Implementing agencies embrace change 3. A transparent procurement process exists 2. Good legislation exists 1. Political will is strongly present

41 It s As Easy As ABC

42 Basic Conditions Traffic congestion in primary corridors of ABC area worsening Baton Rouge traffic bound for I-10 W and I-49 N chooses I-10, not I-49 S Further aggravated by traffic using I-10 and I-12 to transverse state in peak periods These vehicles contribute little to regional economy, and add further maintenance costs Rebuilding of New Orleans ramping up Port of New Orleans capturing growing Asia/East Coast container traffic I-12 and on I-10 improvements not completed due to lack of funding Hurricane evacuation capacity and efficient access of first responders to New Orleans are adversely impacted Absence of a second, geographically separated, limited access facility Ability to sustain capacity and performance further threatened by shortfalls in O&M funding including provision for periodic renewals Additional expansion will only exacerbate this shortfall of adequate funding

43 The Proposal Fluor s proposal Atchafalaya Basin Corridor Project Institute an integrated basin-wide traffic management system Leverage and optimize capacity of basin corridor network Manage and relieve traffic congestion in the entire area Construct a series of border-to-border road improvements Relieve congestion at key choke points Provide an alternative hurricane evacuation route Support Katrina rebuilding effort and continuing economic development Support the expansion of the Port of New Orleans Develop new sources of revenue to support future capital improvements, operations, and maintenance Including capture of revenue from out-of-state users

44 Proposed Project Summary Total first cost $4 billion Includes capital costs, interest during construction, reserve funds, financing, and other costs 50-year O&M and renewal cost $9 billion 100% toll financed using a not-for-profit PPP structure

45 Benefits Optimized life-cycle cost by leveraged use of basin network of corridors Improved safety and efficiency in the road corridors Improved road maintenance Improved freight productivity Improved accessibility to New Orleans during reconstruction Improved air quality Emergency evacuations Economic development

46 Financial Benefits Previously uncaptured revenue from out-of-state users of Louisiana s highway system is captured from tolls A new revenue stream is established which can be used to finance the construction of needed facilities The completion of I-49 South is financed and constructed on an accelerated basis Traffic congestion in the Atchafalaya Basin is mitigated by providing a means to balance traffic flows among the major roads in the region Specific, measurable benefits will accrue in the capital region where congestion is the highest

47 Financial Benefits (continued) The entire capital cost of the construction of new facilities, estimated at $4.0 billion including escalation, interest during construction, and other related costs, may be financed without any additional state funds or new taxes Alternatively, state or federal contributions to project funding may facilitate either additional projects to be built out, maintenance funds and scope to be adjusted or select tolls to be reduced or eliminated