Developing

Domestic

Contractors

Rhys Thomson

August 2015

Overview

Introduction to Cardno

Developing Contracting Industry Post Conflict

> Case Study – Bougainville

Conventional PPPs

Case Study

> Choosing an appropriate PPP model

3

01

June 2015

Presentation

Overview of Cardno

> Cardno (ASX:CDD) is a global professional

infrastructure and environmental services company

> Teams of leading professionals who plan, design,

manage and deliver sustainable projects and

community programs

> Two regions: Americas and Asia Pacific

> Employs around 8,200 staff in over 300 offices

working on projects

in more than 85 countries

> Commenced operations in 1945 in Brisbane, Australia

> ASX200 company with a market capitalisation around

A$500 million

4

01

June 2015

Presentation

Global Footprint and Outlook Summary

Economic growth is expected to continue

to improve in the Americas. Recent project

wins in the US and Latin America have

bolstered backlog.

EMEA continues to be a high focus

area for Cardno as we leverage our

long history of development assistance

work in the support of the oil and gas,

mining and infrastructure clients.

Asia Pacific continues to present

challenges to the engineering sector

as the transition from resources led

activity to public infrastructure

remains slow and uncertain.

5,000 500 2,700

Bougainville – Case Study

Bougainville

Brief Background

> Population ~ 300,000

> Semi-autonomous from PNG

> Pre-conflict

– Largest gold mine in PNG

– Extensive training of personnel for mine

– Large producer of copra & cocoa

> Conflict

– 1988 through to 1998

– Loss of contracting industry

– Loss of trained personnel

> Post Conflict

– No maintenance for > 10 years

– Across ports, roads and airports

– 10 years “loss” of education

Bougainville

Other key constraints:

> Remote location

– High cost of materials

> Low vehicle numbers

– Access to health, education and trade key

focus

> Without the mine, limited income sources

outside of national PNG inputs

> Land a significant issue, as all of PNG

Bougainville - Recovery

Immediate post-conflict

> Use of external contractors (e.g. PNG,

Australia) for emergency reconstruction

Following 15 years

> Maintenance based contracts

– Managing consultant

– Use of local contractors

– Need to have continuous work to have

“security” to develop industry

– Community based contracts

– Funded by Ausaid

> Various Design Build for larger projects

– Funded by various aid

Bougainville – Looking Forward

Local contractors

> Need to maintain workload on maintenance

to ensure security of work

> Need greater Bougainville government

involvement in management of maintenance

contracts

> For larger projects, ensure appropriate level

of local contractor involvement

Financing

> Traditional PPPs not appropriate for scale

> Options for financing or in-kind:

– Re-opening of gold mine

– Joint infrastructure

– Tax credit options

– Major cocoa production

– Palm oil production

Conventional PPPs

According to the World Bank:

Public-Private Partnership (PPP) describes a private sector business

venture which provides a public service, traditionally provided by

government, which is funded and operated through a partnership of

government and one or more private sector companies.

Source: PPIAF website, Toolkit for PPP in Highways, 2009 revision

There are four main benefits of PPPs

Life cycle approachLevel of Service

orientation

Risk sharingNew finance

arrangements

PPP

Specifically:

• Life Cycle approach ensures maintenance is carried out

and also initial design is optimised to maximise overall life

benefits

• Level of Service Approach means that key driver is the

benefit to the user and output driven rather than input.

• Risk sharing between provider of service also shares

risk with the client

• New financing arrangements mean that additional

funds can be mobilised in addition to government budget

or fees paid for the service rather than infrastructure

Case Study – Dar es Salaam to Durban Model

What is feasible?

Cardno developed a model on the Dar es Salaam – Durban road

corridor in southern Africa that identifies the most appropriate

method whilst also considering how to develop domestic

contractors.

This model is now being applied in other countries as well.

This is described as follows:

Dar es Salaam –

Durban Model

Various road segments were analysed to assess work required

02/09/2009 08:20Regional aid for trade

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Options Considered by consultant

Extent of Private Sector involvement

Tradi onal Framework

IntegratedSupplyChain

FeeforService

Toll

Traditional (Contracts)

• Normally one-off

• For smaller routine works the road agency tends to specify and supervise the works direct and

• For the larger periodic works, a consultant is often used for the supervision and design.

Framework Contracts

• pre-approved set of contractors• fixed rates • supply, works, and professional service • enable purchasers to place orders without

secondary competition• substantially speed procurement• last for one to five years• frequent tendering is removed and hence

administration costs are reduced

Integrated Supply Chain Management (ISC)

ISC Suitable because

Foreign contractors are dominating the industry and construction prices are becoming very high

Provides opportunity for specialist smaller scale domestic suppliers

Separate contracts can be procured for plant (haulage, grading, crushing..); materials (asphalt, concrete aggregates, gravel, culverts, structures) and labour (unskilled, artisans)

Fee for Service Contracts (PPP)

Provider of service pre-finances capital works, manages maintenance and then charges road agency for facility provided

Long term performance contractsMany different payment systems:

> Shadow tolls> Availability payments> Active Management Payment Mechanisms (AMPM)

Examples in S. America and India

Toll Road Concessions

• Private operator or “Special Purpose Vehicle”takes over section of road or network

• Charges tolls for use of road• Minimum 15,000 vpd• Could be partially subsidised for lower traffic

levels• Tolling technology continuously improving• Examples in S. Africa, Asia, America and Europe

Multi Criteria Analysis

Degree to which the project will improve regional integration (10%)

Degree to which the project will lower the costs of cross-border transactions (10%)

Commitment of the national government to PPP solutions, including the legislative environment (15%)

Level of commitment of government to the financing of road maintenance from the Road Fund (15%)

NPV/cost of section improvement as per economic study (50%)

Depending on the PPP index (score) an option is chosen as in example below for Botswana.

Thank You