Structure of Project in PPP- (2)

1. Structure of Project in PPP- (2) John Plumb

2. Agenda Following on from the Strategy and business case to develop the ideas Structure of PPP arrangements focusing on project finance

3. Finance benefit of PPP • Accelerate investment • Link to output performance • Smoothing of expenditure • Integration of Capital and Revenue expenditure

4. Capital Expenditure One off, replacement, refurbishment Revenue Expenditure – Operating and maintenance costs Grant for investment Borrowing/Loan Repayment Interest rates Project Finance Structure

5. Project Finance Payments • Users – Fares • Infrastructure User/ Operators – for Paths • Availability • Volume • Quality, Priority • Penalties • Delays • Disruption

6. Structure of Arrangements • Conventional/Traditional • Public Private Partnership Benefit of PPP if Value for Money can be demonstrated • Effective Risk Transfer

7. Structure of Packages • Vehicles • Infrastructure – Performance based • Operations – Franchise • Partnerships, • competition, • value for money, and • fixed prices • Risk management/transfer

8. Project Structure Traditional • 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

9. PPP • 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

10. Design, Build, Operate and Maintain (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

11. Design Build Finance & Operate DBFO • procurement of the infrastructure by Design Build Finance and Operate • receive payments for availability with performance related element

12. Franchising • 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

13. Leasing • 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.

14. Scheme development & Operation PLANNING/ BUSINESS CASE Powers DESIGN/SPECIFY/ PROCURE CONSTRUCT/ BUILD OPERATE & MAINTAIN Procure Advisers, Partners and Operators to PLAN DESIGN/ SPECIFY BUILD FRANCHISE / OPERATE TRANSFER/ MAINTAIN

15. 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 this opportunity?