Michael Parker16 July 2008

Port of Miami Tunnel & I-595 Corridor Improvements

© 2008

Agenda

• Intro to the Projects

• Key Decisions - Public vs. Private Finance, Deal Structure, Length

• Drivers of success – Hard Bid, Credible Project and Program

• Questions

© 2008

Port of Miami Tunnel –Cost Capped for 35 Years and Price Significantly below estimateLocal Funding-related delay; Now aiming for fall close

MacArthur Cswy

Widening

MacArthur Cswy

Widening

Bored TunnelBored Tunnel

Watson Island

Watson Island

Port of MiamiPort of Miami

Bored TunnelUnder

Main Channel

Bored TunnelUnder

Main Channel

BridgeWideningBridge

Widening

RoadwayImprovements

RoadwayImprovements

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Tunnel Details

• Two, 42-foot diameter tunnels, approximately 3,900 feet long – Will require largest Tunnel

Boring Machine in ever used in United States

• Bottom of tunnels approximately 100 feet below the surface at deepest point – Difficult geometry– Buoyancy issues

• Soft ground, mixed face conditions with vuggy limestone and sands

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Key Challenges

• Project complexity– Under study since 1979

– Environmental and Port operating concerns dictated bored tunnel rather than sunken tube

• Tunnel construction and operation atypical for FDOT

• Facing funding constraints and local funding partners– Need long-term guaranteed cost structure

– Big Dig news raises concerns

– US contractors were suggesting cost-plus arrangements

• Considered DB, DBOM and DBFOM project delivery

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I-595 Combines/Accelerates High-Priority ProjectsBids due Mid-August

Initial Plan:  

Public‐Private Patnership:  

CONSTRUCTION YEARS

UNFUNDED  ‐ Projects 7, 9, 10 & 10A

2016 2017 2018 2019 2020 20212010 2011 2012 2013 2014 2015 2022 2023 2024

Project 1 thru 6 & 8

All Projects

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I-595 Comprises New, Tolled Express Lanes + Improvements to General Purpose Lanes

• Existing AADT >180,000, and by 2034 expecting AADT >300,000

• Preliminary Cost Estimates:– Construction Costs – $1,250M

– Operation & Maintenance Costs – $8.7M annually

– Renewal & Replacement Costs – $43M every 15 years

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Team Efforts Critical to Both Projects

• Actively involved owner – District-level

– Policy-level

• Advisors acting as parts of an integrated project team– Technical

– Financial

– Legal (P3 + Local)

– Community Involvement

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Threshold Decision

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Why Consider Using a P3?

• P3s can offer efficiency, flexibility, risk transfer, financing– Accelerate needed projects

– Optimize risk allocation

– Predictable / guaranteed lifecycle cost

– Align interests on performance• Construction schedule adherence• High operating service levels

– Achieve greater, non-recourse leverage• Option to offload or share revenue risk – not a consideration on 595 or POMT

…but no matter how a project is financed, at some point, someone has to pay for it

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Terminology

Government Public Debt

Operator or Government

Builder

Des

ign-

Bid

-B

uild

Designer

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Terminology

Lenders

OperatorDB Contract

Government

Equity Investors

PPP

(“D

BFO

M”)

Government Public Debt

Operator or GovernmentDesign-Build

Des

ign-

Bui

ld

(“

DB

”)

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Understanding Equity

• Cannot borrow with 100% of the revenue stream

• DSCR (Debt Service Coverage Ratio): is the amount of cash flow available to meet annual interest and principal payments on debt

• The coverage is the equity return – or risk

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Value for Money (“VfM”) Analysis

• Evaluates costs and benefits of alternative project financing and delivery mechanisms

• Determines if it is more cost effective for public sector to build the facility itself (under traditional route) or to undertake a concession

• Examines wide range of costs and benefits (not just cost of funds): – Risk transfer

– Quality, availability, and/or safety

– Added oversight by lenders and equity investors

– Project / agency specific factors

• Provides framework for thinking about tradeoffs and risk allocation

• Now embedded in Florida P3 law

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Value for Money: Public Finance vs. PPPPS

CPP

P

• Discount cash flows back to Net Present Value

• PSC should include the costs of risks retained by the public

35

35

(real dollars) Year of Expenditure

(Note: PSC is a very general approximation and assumes major maintenance expenditures are smoothed as contributions to reserves)

For illu

strati

on

purpo

ses

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“Structuring” a P3

• Seek efficiencies• Optimize risk allocation – project specific• Align Interests… private partner should

maximize profit by meeting public goals

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Concession Business Model

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Why Availability Payments?

• Transfers project delivery and lifecycle cost risks

• Caps both government obligation AND private upside

• Generally appropriate for projects if:– Project does not generate direct revenue;

– Government wishes to retain direct rate setting authority;

– Revenue or traffic volume is difficult to predict or manage; or

– Service quality is more important or applicable goal than private sector revenue maximization

• Public retention of traffic risk reduces risk premium in private cost of capital but increases public exposure to shortfalls and volatility– On 595, preliminary analysis finds that savings can offset the risk

– FDOT is a strong credit

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POMT and I-595 are 35-year deals(inclusive of construction)

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Bang for the Buck Finding the most efficient term length

Percent Change in Payment Levels as a Function of Term Length

Payment Levels as a Function of Concession Term Length

…Also consider asset lifecycle

-

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

35 40 45 50

Concession Term in Years

Increase in PV of Availability Paym ents

Decrease in Average Annual Availability Paym ent (in PV)

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

30 35 40 45 50

Concession Term in Years

PV o

f Ava

ilabi

lity

Paym

ents

('0

00 o

f 200

6 D

olla

rs)

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Ave

rage

Ann

ual A

vaila

bilit

y Pa

ymen

t ('0

00 in

PV)

Present Value of Availability Paym ents ('000)

Average Annual Availability Paym ent ('000 in PV)

For illu

strati

on

purpo

ses

© 2008

Both I-595 and Port Tunnel useHard Bid, 2-Step Procurements

© 2008

Drivers of Success

Project Credibility:• Traditionally viable – defined and buildable with realistic schedule

• Feasible – Self-financing or with sufficient public support– Acceptable risk allocation

Program credibility:• Publicly defensible rationale - more efficient as a PPP

– Meets value-for-money test– Delivers on time and on budget, etc.

• Effective competition design– Attracts bidders– Reduces cost and ensures the public actually captures efficiency gains– May enhance political stability

• Strong Project and Policy Teams

Michael Parker, Managing Director

1308 Spruce Street

Philadelphia, PA 19107

mp@japarker.com

215.501.7761