Experience Using Innovative Finance for Major Projects

Northern Border Finance ConferenceChicago, IllinoisMay 14th, 2007

Richard Fyfe, COO Gateway Program, BC

Public Private Partnerships: Top-Down Support

“Having modern, reliable infrastructure in place allows businesses to invest with greater certainty, thus furthering the adjustment process. This may mean the use of private funds to develop public infrastructure projects...and now is the time to encourage this type of investment, given our climate of low nominal interest rates, and the presence of large pension funds that are searching for these kinds of investment opportunities.”

David Dodge, Governor of the Bank of CanadaJune 21, 2006

Public Private Partnerships: Commitment

“Since we launched the public/private initiative in 2002, we have actually either started or completed $4.7 billion in new P3 projects...that is the future of Development in the Province of British Columbia: Better value, on time, on budget. So, in the future, we’re going to work with you, but we will insist that Partnerships BC look at major Projects and the base case in British Columbia will be P3’s unless Partnerships BC says there’s a compelling reason to do otherwise. P3 will be the Standard in British Columbia for three reasons: They work for you, they work for us, and most importantly, they work for the taxpayers that we work for.”

British Columbia Premier Gordon Campbell - Speech to UBCM, October 27, 2006

B.C. Experience:Foundation for Success

Legislative Framework Transportation Investment Act Significant Projects Streamlining Act

Policy Framework Capital Asset Management Framework Tolling Guidelines

Supporting Organization Partnerships BC Suitable Projects

Typical Transaction Structure

DB Contract

O & M Contract

DBFO Agreement

Concessiona

ire (SPV)Asset Manager + Maintenance Contractor

Design Contractor / Construction Contractor (May be DB Contractor)

Private Equity or Investment Fund

Bond Financing or Bank Financing

Owner / Authority / Province of BC

The P3 Start: Elements of a successful project

Risks and benefits appropriate allocation

Cost management during and after construction

Innovation removing the obstacles

Operating efficiency integrate capital and O&M decisions

The public/private interest Where do they overlap?

The P3 Start: Getting Started

Define the Project Scope/Schedule/Budget

Delivery Model Conventional Tender Design/Build DBFO (availability payments/independent revenue)

Decision Making/Input Public Consultation

Project Definition Design

Private Consultation Risk Allocation Project Financeability

Who Should Bear the Risk?

Which party can best bear the risk Competencies

Contingency Value for money

Capacity to assume risk Unconstrained risk Self-Insurance – Quantify

Public Interest

Risk Decisions

Commercial v. Technical Insurable v. Uninsurable Quantified v. Unconstrained Allocating v. Creating

Proponent’s Procurement Costs

Evaluation Criteria

Contract Provisions

Submission Requirements

Structuring a Procurement Process Registration of Interest (ROI) Request for Qualifications (RFQ) Request for Proposals (RFP) Best and Final Offer (BAFO)

Procurement Risk Allocation

Province’s rights amend or cancel the procurement process negotiate if no conforming proposal reject any and all proposals not responsible for procurement costs or

damages request proposal clarification and additional

information

Concession Contract: Overview

Province Pay After Construction Complete (Availability payments or tolls) Property, EAC, Approvals

Concessionaire Risks / Responsibility Traffic management Construction risk Comply:

Environmental Assessment Certificate laws, regulations and permits

Obtain: subsidiary permits, licenses and approvals

Indemnify BC and BCTFA for losses and claims Site safety and security Protestors and trespassers

Concession Contract: Overview

Concessionaire Risks / Responsibility Design, construction, completion, commissioning and testing of the Works Delay events, compensation events, Province changes and force majeure

traffic management plan Archeological surveys, inspections and impact assessments Insurance with Province and BCTFA named insureds Quality management system and quality documentation compliance Reporting Project records

Design/Build Agreement

Pass-Through Obligations of Concessionaire : design/ construction/ completion/ commission and testing of

Works

Cap on maximum DB contractor liability for liquidated damages 10% of the aggregate DB Contract Price

Lessons Learned

Importance of linkage between project objectives, evaluation and payment

Importance of interaction between Owner and Proponents

Focus on User Benefits Open Communication Contract Documents to be finished early

Current PPP Activity in Canada

B.C. $4.7 Billion

Quebec 2 highway projects

Alberta 2 transportation projects

Ontario 40+ projects multiple sectors

PPP Quebec

Transportation Projects underway:

Autoroute 25 (DBFM, $400 million) Autoroute 30 (DBFM, $1.2 billion)

Transportation Projects under development:

Highway rest areas (7 sites)

Alberta Infrastructure

Edmonton Ring Road: Anthony Henday Drive

Southeast component DBFM, $493 million North component: Planning Jan 2007

Calgary Ring Road Northeast component: DBFO, $500 million

Partnerships BC: Role and Structure

Window on British Columbia Develop partnership market Knowledge bank of Best Practices

Consistency in business case planning Reduce government’s planning / procurement costs Consolidated experience

Commercial viability Transparency and disclosure

Project Delivery Business Business PlanningPlanning

Feasibility Analysis Options Analysis Business Case

Quantitative analysis (PSC vs alternative)

Risk analysis Multiple Criteria

Analysis (MCA) Procurement options Market Sounding

Procurement Procurement ProcessProcess

Standard RFQ & RFP Consolidated Concession

Agreement Request for Information

and Consultation process Evaluation

ImplementationImplementation Value for Money Report Post Financial Close

Services

Best PracticesBest Practices Strategic

communications Value for money Conflict of interest

B.C. – Projects in Delivery $4.7 billion in 23 PPP projects

Highways

Bridges

Rapid Transit

Acute Care

Ambulatory Care

Long Term Care Facilities

Primary Access Centres

Sports Centre

Water Treatment

Telecommunications

$3.5 billion in BC Hydro IPP projects

Sea-to-Sky Highway Improvement Project

B.C. Projects UnderwayMountainous Terrain

Kicking Horse Canyon (Phase 2)

William R. Bennett Bridge

Golden Ears Bridge

B.C. Projects UnderwayBridges

Sierra Yoyo Desan Resource Road

Canada Line

B.C. Projects UnderwayOther Transportation Projects

Projects Under Construction or Operating

ProjectExpected Benefit

($millions)

Capital Cost

($millions)Status

Sierra Yoyo Desan Resource Road

$250 royalties $40Project operational 3 months early

Sea-to-Sky Highway $131 $600Project on time, on budget

William R. Bennett Bridge $25 $144Project on time, on budget

Canada Line $92 $1,900Project on time, on budget

Kicking Horse Canyon (Phase 2)

$18 $130 Project on time, on budget

Golden Ears Bridge $8 $808 Project on time, on budget

Total Transportation $3,622

Developers / Constructors

Bilfinger-Berger BOT Inc. ** Bilfinger-Berger Constructors ** CH2M Hill ** EPCOR ** Flatiron Constructors ** Giffels Design Build Ledcor ** Macquarie North America ** Parsons Overseas Company PCL ** Peter Kiewit & Sons Co. ** SNC-Lavalin ** EGIS Projects **

Sources of Capital ABN AMRO/Capital Markets ** Bank of Ireland BC Investment Management Corp ** CIT DEPFA Deutsche Bank Dexia Manulife ** Nordebank Ontario Teachers Pension Plan Royal Bank of Scotland Societe Generale SNC-Lavalin Capital ** Sun Life **

Current Partners in B.C.

** Located in British Columbia

Developers / Constructors Balfour Beatty Honeywell** Transfield Services WesGroup ** Skanska Infrastructure Health Care Projects Ltd Bouygues Batiment Int. John Laing Infrastructure Laing Roads Transurban Stuart Olsen ** Acciona Cintra Bechtel Fluor

Sources of Capital Babcock & Brown Infrastructure ** CKI Infrastructure Holdings HSBC Infrastructure Fund Plenary Group ** Innisfree Larco **

Emerging Market Participants

** Located in British Columbia

BC Transportation Projects Under Development

Pacific Gateway Opportunities

Pitt River Bridge

Pitt River Bridge

Design/Build Project

South Fraser Perimeter Road

Port Mann Highway 1 Project

Richmond/Airport/VancouverRapid Transit Expansion

Coquitlam Rapid Transit Expansion

North FraserPerimeter Road

New Pitt River Bridge& Mary Hill Interchange

Highway 1(widening)

New Golden EarsBridge

Border InfrastructureProject (highway

widening)

New South FraserPerimeter Road

Twinning of Port Mann

Bridge

Gateway ProgramGateway Program

Opportunity

Real Toll Concession – 40 years

Revenue from proven corridor

37 km urban highway

Significant river crossing

$1.7 billion capital budget

Operations & Maintenance – 450 lane km

Revenue Management

50% to Concessionaire: 50% to Public Sector

100 % to Concessionaire

25% to Concessionaire: 75% to Public Sector

100% to Concessionaire

Years of Concession

Co

nce

ssio

na

ire

Fo

reca

st

Re

ven

ue

$

50% to Concessionaire: 50% to Public Sector

100 % to Concessionaire

25% to Concessionaire: 75% to Public Sector

100% to Concessionaire

Years of Concession

Co

nce

ssio

na

ire

Fo

reca

st

Re

ven

ue

$

130% of Concessionaire Forecast Revenue

105% of Concessionaire Forecast Revenue

Concessionaire Forecast Revenue

Selection Process

RFQShortlist

ThreeRFP

Interaction Phase

Technical Submittal

Final Submittal

RFQ Objective

Select 3 potential long-term partners with:

Complex infrastructure development experience

Toll concession operations experience

Customer service focus

Asset management experience

RFP Process

Technical and Financial Submittal

Draft concession agreement issued with RFP

6 – 7 months for technical submittal

Honoraria

Bidders agreement

Interactive Process

Exchange information, clarify issue Fair Process Balance Confidentiality and Information Sharing

All party meetings Information provided by Province

One-on-one meetings Mandatory workshops Topic meetings as required

Two-Part Submittal Technical Submittal

Traffic forecast sign-off by lenders Complete technical submission End of interactive process Acceptance by Province triggers final stage

Financial Submittal Committed equity and debt funding Commitment to enter C.A. by concessionaire and lenders Annual Payment Commitment

Challenges in the Canadian Market Very active

construction market Resource Demand

Labour Materials

Reducing transaction and procurement costs

Cost Escalation Forecasts for B.C.

Source: BTY Group, Market Intelligence, Q4 2006

Lessons Learned

Central PPP Advocate Effective for government and market Approximately 30 PPP agencies worldwide

Consistency Policy Processes (lower costs) Information (to and from market)

Need to build Pan-Canadian, consistent market

“Partnerships BC is at the vanguard of public-private partnership agencies worldwide.”

Chair, U.K. Public Private Partnerships Export Advisory Group

As quoted by Don CayoVancouver Sun, October 2006

“British Columbia, in particular, has been receiving international accolades for its early accomplishments in the area of P3 development.”

TD Bank Financial GroupJune 2006