European Commission: Second International Workshop on PPPs 5 July 2004

1. European Commission: Second International Workshop on PPPs 5 July 2004

2. Who is Skanska ? • Multinational Construction Company • Total annual revenues of 18 Billion USD in 2003. • Over 81% of revenue is international. • Over 69 000 employees. • Consistently named to Forbes' A-List of World's Best companies. • Ranked #1 in Fortune Magazine's 2002 World's Most Admired Companies listing in Engineering, Construction category.

3. Skanska BOT Business Sectors Skanska BOT AB, a development and investment company specializing in private infrastructure projects in following business sectors. • UK PFI:s – the concept being spread to rest of Europe • Roads – number of cars/inhabitants increase • Power – energy capacity increase necessary for development • Ports – Seaborne traffic grows 2*GNP • Airports –similar pattern as ports

4. What does the private sector expect from PPPs?

5. Expectations The Industry requires, in order to invest in BOT/PPP projects. • A viable investment that stands alone • Generate construction works and service • Gaining operational knowledge in interesting sectors • Long term stable revenue flow – interesting for long-term owners • Stock market appreciation

6. Expectations Political/administrative decisions • general project scope – size and content • tolling or not / cash, electronic or free flow • rate regulation or not • interoperability of tolling systems • other performance criteria • traffic risk sharing mechanism • financial risk sharing mechanism • concession period and transfer mechanism • legal framework • financial award critera • the political commitment to follow through

7. Expectations Skanska’s different roles in BOT/PPP projects • Developer • Contractor - normally a 33-100% stake • Investor - normally a 20-50% stake • Facilities manager

8. Expectations BOT/PPP is relationship management • Contractual • Partner • Client • Service providers • Lenders and lawyers • Economic and financial If we do it well we mitigate risks- We create Value for Money

9. Expectations Expectations that we perceive Governments have on the investor/contractor • Fixed price, time certain. PPP is not a claim business • We are not just a builder any longer • In PPP construction is only one element out of several • We sell a service/solution – not a building or a road • We must understand the clients needs and objective • We take complete responsibility for cost, quantities and time with penalties should we fail to deliver • We must look at our work from a lifecycle perspective • We must develop our industry and design with Life Cycle Thinking

10. Expectations Expectation of procurement • Pre Qualification – Reasonable number of bidders • Performance specification of a service – not a quantity specification of an asset. • Transparency in the procurement • Confidentiality and intellectual property • Balanced Bidding costs • Openings for unsolicited proposals

11. What are the lessons learned in PPPs by Skanska?

12. There is NO ONE solution Project specific features are important You will be caught if you make a short-cut Optimize rather than maximize A robust structure is better than rocket science Approximately right rather than exactly wrong Lessons Learned The perfect financing option

13. Lessons Learned Why BOT/PPP/PFI is a success • Save money when looking at LCC • Possible to realize earlier • Easier procurement – international tender • Faster execution • Known maximum cost, no cost overruns • Access to investments earlier will boost economy • Off Balance sheet • Alternative to conventional way    

14. Lessons Learned Keys Reasons for Failure • Project not commercially viable if the state does not make it feasible for the investor “Value for money” • Government abandons the Project • Failure in the Consortium • Disagreement between parties • Changed priorities • Economy • Public disapproval • Mismatch in expectations between public and private sector • Wrong risk allocation – right part to carry the risk. Don´t push all risk down excessively - not financiable

15. Lessons Learned UK’s National Audit Office published a report on PFI on 5 February 2003

16. Where are the obstacles in the public sector?

17. Obstacles Opponent opinions on BOT/PPP- and comments thereon 1(2) • Interest rates and equity returns more expensive than government bonds - But different risk distribution gives lower overall cost • Only large contractors are big enough to compete for these projects - Very often these deals attract international contractors using local companies as subcontractors • Costly and complex transaction - But with enough size and right structure good value for money • Gives wrong priority of projects • It is the politicians not the private sector who decide priorities, irrespective of traditional or BOT/PPP procurement • Commit our children - But is it wrong to spread the project cost over the economic life time of the facility being normally 20-40 years ?

18. Obstacles Opponent opinions on BOT/PPP – and comments thereon 2(2) • Our country cannot afford a new project - Casualties go down on motorways - political responsibility? - Pollution in congestions higher than traffic flow - Operational costs lower in modern buildings than old - Transport infrastructure stimulate regional development • Infrastructure development drives economic growth • Testing new concepts will improve effectiveness of public as well as private sectors - Is it political responsibility to do nothing or not to try changes?

19. Value for Money (VfM) Assessment Conventional Procurement PSC PFI Procurement Value/ “price” VfM Risks retained by Public Sector Cost of finance Whole life cost of procuring services

20. To conclude.... - BOT/PPP is like a marriage • You flirt, fall in love and enter into contract • Hopefully a long duration • Quality of service depends on maintenance • Objectivity and rational not always ruling • There are good and bad times • Recourse to lawyers in case of dispute

21. Skanska BOT investments Nelostie Motorway Project, Finland North-South Highway, Chile Maputo Port, Mozambique Bridgend Prison, UK Ponte de Pedra Hydro, Brazil Breitener Energy Plant, Brazil Kings College Hospital, UK Walsgrave Hospital, UK DerbyHospital, UK St Petersburg Waste water, Russia Bexley Schools, UK Orkdalsvegen, Norway