Structure of Project Structure of Project in PPP- in PPP- (2)(2)

John Plumb

AgendaAgenda

Following on from the Strategy and business case to develop the ideas

Structure of PPP arrangements focusing on project finance

Finance benefit of PPPFinance benefit of PPP

• Accelerate investment

• Link to output performance

• Smoothing of expenditure

• Integration of Capital and Revenue expenditure

Project Finance StructureProject Finance Structure

• Capital Expenditure– One off, replacement,

refurbishment

• Revenue Expenditure – Operating and maintenance costs

• Grant for investment • Borrowing/Loan

– Repayment– Interest rates

Project Finance PaymentsProject Finance Payments

• Users – Fares• Infrastructure User/ Operators – for Paths

– Availability– Volume– Quality, Priority

• Penalties– Delays– Disruption

Structure of ArrangementsStructure of Arrangements

• Conventional/Traditional

• Public Private Partnership

Benefit of PPP if Value for Money can be demonstrated

• Effective Risk Transfer

Structure of PackagesStructure of Packages

• Vehicles• Infrastructure – Performance based• Operations – Franchise• Partnerships,

– competition, – value for money, and– fixed prices

• Risk management/transfer

Project StructureProject StructureTraditional• front end funding by Government of public

works• public funding through Grant and Credit

Finance• detailed specification requirement• separate publicly controlled operations

management• Minimise the operating cost subsidy allowed

PPPPPP• a long term service contract between a public sector body and a

private sector operator• no upfront public funding of capital investment• transfer of construction risk and other risks to the private sector• availability and performance payments to cover debt burden,

operations and maintenance costs, by affordable annual payments• farebox or demand risk taken by the concessionaire, more recently

variants have included guaranteed levels and formula based compensation according to the fare price control regime

• an off balance sheet treatment so that investment does not count against borrowing consents

Design, Build, Operate and Design, Build, Operate and

Maintain Maintain (DBOM)(DBOM)• procurement of the infrastructure• payments are made for availability of the network and

facilities with perhaps little or no performance related payments

• additional amounts may be payable to reflect increased volume usage and the burden on maintenance costs

Design Build Finance & Design Build Finance & OperateOperateDBFO • procurement of the infrastructure by Design Build

Finance and Operate• receive payments for availability with performance

related element

FranchisingFranchising

• output specified operating services are becoming time-limited under changing EU regulations

• offers scope for agreeing ridership and usage incentive levels in early period of the franchise and allow real investment returns for the operator within the timeframe of the contract

• typical franchise period is likely to be 5-10 years

LeasingLeasing

• particularly applicable to the vehicles where sources such as Railway Rolling Stock companies exist.

• historically the capital cost of equipment provided under lease arrangements counted against PSBR, under operational leases off balance sheet deals have been created.

PLANNING/ BUSINESS CASE

Powers

DESIGN/SPECIFY/ PROCURE

CONSTRUCT/ BUILD

OPERATE & MAINTAIN

FRANCHISE /OPERATE

BUILDDESIGN/SPECIFY

PLAN TRANSFER/ MAINTAIN

Scheme development & Scheme development & OperationOperation

Procure Advisers, Partners and Operators to

What do we need to know?What do we need to know?

Our Business Case– Benefits and Risks, – Constraints and interfaces

What we need– Finance, skills and resources

What they manage better– Risks, in construction, operations, maintenance?

What do you think the private sector want from What do you think the private sector want from this opportunity?this opportunity?