Experience Using Innovative Finance for Major Projects

1. Experience Using Innovative Finance for Major Projects Northern Border Finance Conference Chicago, Illinois May 14th, 2007 Richard Fyfe, COO Gateway Program, BC

2. 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 Canada June 21, 2006

3. 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

4. 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

5. Typical Transaction Structure Owner / Authority / Province of BC Private Equity or Investment Fund DBFO Agreement Concessionaire (SPV) O & M Contract Asset Manager + Maintenance Contractor Bond Financing or Bank Financing DB Contract Design Contractor / Construction Contractor (May be DB Contractor)

6. 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?

7. 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

8. 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

9. Risk Decisions • Commercial v. Technical • Insurable v. Uninsurable • Quantified v. Unconstrained • Allocating v. Creating

10. Proponent’s Procurement Costs

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

12. 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

13. 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

14. 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

15. 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

16. 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

17. Current PPP Activity in Canada Ontario 40+ projects multiple sectors Quebec 2 highway projects Alberta 2 transportation projects B.C. $4.7 Billion

18. 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)

19. Edmonton Ring Road: Anthony Henday Drive Southeast component DBFM, $493 million North component: Planning Jan 2007 Calgary Ring Road Northeast component: DBFO, $500 million Alberta Infrastructure

20. 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

21. Project Delivery Procurement Process • Standard RFQ & RFP • Consolidated Concession Agreement • Request for Information and Consultation process • Evaluation Implementation • Value for Money Report • Post Financial Close Services Business Planning • Feasibility Analysis • Options Analysis • Business Case • Quantitative analysis (PSC vs alternative) • Risk analysis • Multiple Criteria Analysis (MCA) • Procurement options • Market Sounding Best Practices • Strategic communications • Value for money • Conflict of interest

22. 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

23. B.C. Projects UnderwayMountainous Terrain Sea-to-Sky Highway Improvement Project Kicking Horse Canyon (Phase 2)

24. B.C. Projects UnderwayBridges William R. Bennett Bridge Golden Ears Bridge

25. B.C. Projects UnderwayOther Transportation Projects Sierra Yoyo Desan Resource Road Canada Line

26. Projects Under Construction or Operating

27. 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

28. Emerging Market Participants • 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 ** ** Located in British Columbia

29. BC Transportation Projects Under Development

30. Pacific Gateway Opportunities

31. Pitt River Bridge Pitt River Bridge • Design/Build Project

32. South Fraser Perimeter Road

33. Port Mann Highway 1 Project

34. Gateway Program Highway 1 (widening) Twinning of Port Mann Bridge Coquitlam Rapid Transit Expansion Richmond/Airport/Vancouver Rapid Transit Expansion North Fraser Perimeter Road New Pitt River Bridge & Mary Hill Interchange New Golden Ears Bridge Border Infrastructure Project (highway widening) New South Fraser PerimeterRoad

35. 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

36. Revenue Management 130% of Concessionaire Forecast Revenue 105% of Concessionaire Forecast Revenue Concessionaire Forecast Revenue

37. Selection Process

38. RFQ Objective • Select 3 potential long-term partners with: • Complex infrastructure development experience • Toll concession operations experience • Customer service focus • Asset management experience

39. RFP Process • Technical and Financial Submittal • Draft concession agreement issued with RFP • 6 – 7 months for technical submittal • Honoraria • Bidders agreement

40. 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

41. 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

42. Very active construction market Resource Demand Labour Materials Reducing transaction and procurement costs Challenges in the Canadian Market

43. Cost Escalation Forecasts for B.C. Source: BTY Group, Market Intelligence, Q4 2006

44. 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

45. “British Columbia, in particular, has been receiving international accolades for its early accomplishments in the area of P3 development.” TD Bank Financial Group June 2006 “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 Cayo Vancouver Sun, October 2006