pekka pakkala irf ppp presentation - oct 19 2005 public-private-partnerships (ppp) – “an...
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Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Public-Private-Partnerships (PPP) – “An International Perspective"
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Collection & Distribution of Funds
General Budget
Source: Juha Tervonen
Other Directed Funds to Roads
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
PRESENTATION OVERVIEW
PPP & DBFO BACKGROUND FINLAND E-18 PPP PROJECT PAYMENT MECHANISM E-75 PPP - LAHTITIE RESULTS INTERNATIONAL EXPERIENCES CONTRACTOR ISSUES & DEVELOPMENT ADVANTAGES & DIS-ADVANTAGES,
PITFALLS, KEY ISSUES, & CHOICES
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
PPP & DBFO BACKGROUND
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Delivery Systems Choices
Indirect Funding
Direct Funding
IntegratedSegmented
• Design-Bid-Build
• Design-Build
• Construction Management
• B-O-T
• B-O-O
• B-O-O-T
• Design-Build-Finance-Operate (DBFO)
Indirect Funding
Source: Prof. John Miller (MIT)
• Design-Build-Operate
• Design-Build-Operate-Maintain
• Pure O & M
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Design-BuildIntegratedDesign &Construction(Public Funding)
Traditional Design-Bid-Build
LCC logical Step
Life Cycle Consideration Life Cycle Responsibility
Design-BuildPlus Long-Term Maintenance &Upkeep
Plus Financing
???
B
DB
DBOM
DBFO
Source: Pekka Jokela & Pakkala - Finnra
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
PPP Definition
The basic definition or interpretation of Public Private Partnerships (PPP) is an arrangement that brings together the ”Public Sector” and ”Private Sector” in a long-term relationship or partnership, for the mutual benefit of both parties.
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
PPP = DBFO = Design-Build Finance Operate = Our Järvenpää-Lahtitie (E-75) Project
Design-Build
Definition Clarification
One Contract for 20-30 Years with 100% Private Financing
(Ownership Remains With Government)
Operations Maintenance
Financing
& &
&
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
FINLAND E-18 PPP PROJECT
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Background - Methodology
INTERNATIONAL BACKGROUND STUDY - 2001 FEASIBILITY STUDY FOR PPP - 2002 GOVERNMENTAL INTER-AGENCY WORKING GROUP INTERNATIONAL REVIEW OF PPP ROAD PROEJCTS RISK ANALYSIS STUDY - 2003 IMPLEMENTATION IN REAL PROJECTS:
FINLAND'S NEW E-18 PPP Project Develop a Public Sector Comparator (PSC) Develop the Payment Mechanism Develop Contract – with Tendered Financial & Legal Advisors
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
E-18 IN THE NORTH
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Finland E-18 Muurla-Lohja
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Lahnajärvi grade separated intersection
Suomusjärvi grade separated intersection
Muurla grade Separatedintersection
Kruusila grade separated intersection
Finland E-18 Muurla - Lohja
Sammatti grade separated intersection
Nummi grade separated intersection Karnainen grade
separated intersection
Lempola grade separated intersection
Muurla-Lahnajärvi section open to traffic in
2008
Lahnajärvi-Lohja section open to traffic in
2009
50 km Motorway 49 Bridges
7 Tunnels (5.1 km) 2 Service Stations
28 km - Noise Barriers
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Procurement Phase - Time Line for E-18
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
13.2.2004: decision on applying life-cycle model
6.3.2004 procurement announcement
30.7.2004 12.00 deadline for pre-qualification registration
preparation of the bidding documentation
calculation period
opening the bids
negotiations
service contract
contract period until 2030
2004 2005 2006
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
5 Participants Interested in Project
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Main. & UpkeepConstruction Payment Schedule
0
10
20
30
40
50
60
70
80
90
100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Milj
oo
na
ae
uro
a
10
Source: Pekka Jokela - Finnra
Difference in Payment Schedule
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
PAYMENT MECHANISM
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Types of Payment Mechanisms
Source: Transport for London
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Availability Payments
Source: Transport for London
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
E-18 Finnra Availability Payments
90% For Road Available for Normal Traffic 10% Performance Payment Defining the Appropriate Unavailability Factors Deductions for Poor Performance (also Salt Sanction - excessive) Indexes for Cost Escalations (Fuel, Electricity) Compensation for Increased Traffic One time Safety Bonus One Time Innovation Bonus (after Construction - €2M max.)
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
ADVANTAGES & DIS-ADVANTAGES,PITFALLS, KEY ISSUES, & CHOICES
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Advantages of PPP
Increasing the pace of infrastructure delivery Value for money No Disruption of Other Projects in Portfolio Package Complete important projects faster than traditional methods Optimization of risk transfer (Risks to best influence & manage) Seeking whole life solutions or Life Cycle Cost (LCC) Seeking innovation and better quality (more durable) Off-balance sheet (not considered as a public debt) More recently - the lack of public funding available Future Road Users are paying the costs - not just the present
generation
Source: Pekka Pakkala - Finnra
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Disadvantages/Concerns of PPP
Contract Concession Winners Are Usually Large Companies Long Tendering Period Large Transaction Costs Legal & Financial Expenses Are Great Difficult to Predict into Future & Political Consequences Making Contracts Flexible During Contract Duration Making Too Many Fast Decisions & Errors Lack of Understanding of the DBFO Delivery Method Not Taking Advantage Of Real Concept of Design-Build - (It
Was Intended As a Teaming & Partnering Type Concept)
Source: Pekka Pakkala - Finnra
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Main Pitfalls
Lack of Understanding of the DBFO Delivery Method Market Risks – Causes Project To Fail Financially Proposed Design & Construction Solutions Fail Proposed Technology That Doesn’t Work – Germany Not Understanding Risks Not Having Good & Reliable Partners Banks/Financiers Take No Risk Underestimating The Influence of Banks/Financiers/Investors Underestimating Completion Risk Other Threats To The Project (Env, Protest, & Political) Any Stipends To Non-Winners (Large Tendering Costs) Enticing International Competition - Language & Partners Influence of Project Size
Source: Pekka Pakkala - Finnra
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Key Issues
Demonstrating Value for Money Project Size – should be over €80M for Value For Money Need a Good Public Sector Comparator (PSC) Risk Analysis - Having the Appropriate Risk (Reasonable) Ability to Get the Best Financial Package (Low Risks) Utilizing Performance Specification & Outcome-Based Criteria Measurable, Objective & Fair Payment Mechanism (Transparent) Monitoring & Measuring Acceptance During the Delivery Phase Allowing Potential for Innovation Contract Flexibility Appropriate Hand-Back Clause
Source: Pekka Pakkala - Finnra
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
Choices
Toll Road or Not Payment Mechanism (Risks):
Based Upon Real Toll Collected Tolls Plus Any Shared Savings Availability Shadow Toll (Järvenpää-Lahti Motorway) Performance Based (England - Darington-Dishforth Project)
Series of Projects Benchmarking Public Sector Comparator Stipends to Contract Losers Open Book Contractor Selection Criteria Performance Based Specification
Source: Pekka Pakkala - Finnra
Pekka PakkalaIRF PPP Presentation - Oct 19 2005
FINAL CLOSING REMARK
Source: Pekka Pakkala - Finnra
What decisions does one make when there is a need for new infrastructure development (present infrastructure is
not meeting society's need), and there is a lack funding in the budget or there is no funding available from government?
Pekka PakkalaIRF PPP Presentation - Oct 19 2005 www.finnra.fi
Thank You!
Final Report Is Available:“Innovative Project Delivery Methods For Infrastructure - An
International Perspective".
&
"Procurement Strategy Of Finnra"
&
E-18 (Muurla - Lohja PPP Project - Instructions for Pre-Qualification)
http://alk.tiehallinto.fi/e18/english/index.html