ten - t project finance & ppps

13.10.2009 /M.Vehviläinen

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TEN - TProject finance & PPPs

Experiences from a Finnish PPP projectusing

project life-cycle management from the order perspective tomaximise efficiency

Matti VehviläinenFinnish Traffic Agency


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Transport System’sDepartment

Anne Herneoja

Maritime DepartmentRaimo Tapio

• Sea TrafficManagement

• Waterways• Hydrographic Office

Rail DepartmentOssi Niemimuukko

Road DepartmentJukka Hirvelä

Director General Juhani Tervala

CommunicationsAnna Jokela

Internal Audit

Marja-Liisa Peltomaa

AdministrationDepartment

Hannu Mäkikangas

• Transport• Development• Public Transport

• Rail TrafficManagement

• RailwayInvestments

• Rail Network

• Road Operations

• Road Investments

• Road and BridgeEngineering

• Road TrafficCentres

• Economy

• Personnel

• IT/ICT

• Administration

• Information andArchives

Director General’s StaffTimo Hiltunen


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Use of the life-cycle model in Finland

Decision-in-principle of the Finnish Government’s Ministerial Committeefor Economic Policy 12/2003:The life-cycle (PPP) model can be used for traffic infrastructure projectsThe Ministerial Committee’s decision in February 2004 on use of thelife-cycle model for the E18 Muurla - Lohja motorway project

Good experiences with the life-cycle model in Finland and internationally.The EU promotes use of the life-cycle model for traffic infrastructure construction.Quick completion of the project is particularly important, and the life-cycle model makesfaster completion possible.Preliminary calculations indicate that the life-cycle model is the most economic overallsolution.The life-cycle model provides the opportunity to implement other traffic infrastructureprojects in the near future.


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Design-BuildIntegratedDesign &Construction(Public Funding)

TraditionalDesign-Bid-Build

Life-cycle Contract logical step

Life-cycle Consideration Life-cycle Responsibility

Design-BuildPlus Long-TermMaintenance &Upkeep

Plus Financing

???

B

DBDBMO

DBFO


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Finnish application of the PPP model: life-cycle modelThe client orders the long-term service entity by means of a service contract -Contract period autumn 2005 - autumn 2029The service provider must establish a special purpose company (SPC) to takeresponsibility for construction design, construction, maintenance and financing.The service requirements are described as

performance specifications (top surface of the road, environmental factors,fittings and equipment etc.)technical product requirements (long-term structures)

The payment mechanism combines the quality and quantity of servicesproduced with the service fee

availability of service defines the basic amountmonitored criteria create variability

Procurement model of E18


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The client´ s cashflow in traditional (DB) andlife-cycle model

0

10

20

30

40

50

60

70

80

90

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Years

ST -MALLI

ELINKAARIMALLIPHASE 2 OPENED

PHASE 1 OPENED

D

DB MODEL

LIFE-CYCLE MODEL


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PerformanceMaintenance

Surface Condition

Fixed dates

Failures

GROSS SERVICE PAYMENTGROSS SERVICE PAYMENT

AvailabilityUnavailability

Extent and duration

Location

Time Period

DEDUCTIONSDEDUCTIONS

AVAILABILITY PAYMENTAVAILABILITY PAYMENT PERFORMANCE PAYMENTPERFORMANCE PAYMENT

NET SERVICE PAYMENTNET SERVICE PAYMENT

Measurement of the ServiceMeasurement of the ServiceMeasurement of the Service

Maintenance Compensation- Traffic volume higher

than expected

Maintenance Compensation- Traffic volume higher

than expected

Safety Performance-Accidents compared

to reference roads-Safety bonus

Safety Performance-Accidents compared

to reference roads-Safety bonus

(Price of the service when quality at agreed level)

(Price of the service according to quality)


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E18 Muurla-Lohjathe 2nd PPP project of FINNRA


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E18 Muurla - Lohja

Part of the Nordic Triangle, prioritised by the EUCurrently a two-lane highway that is geometrically poor: weak traffic safety andsmoothness of trafficConversion to a motorway on the basis of legally valid road plans (12/2003)The order authorisation 700 million euros (budget of the State in 2004, nominalvalue)


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Lahnajärvi gradeseparated intersection

Suomusjärvi gradeseparated intersection

Muurla gradeSeparatedintersectionKruusila gradeseparated intersection

E18 Muurla - Lohja motorway

Sammatti gradeseparated intersection

Nummi gradeseparated intersection Karnainen grade

separated intersection

Lempola gradeseparated intersection

Muurla-Lahnajärvi sectionopen to traffic in

2008

Lahnajärvi-Lohja sectionopen to traffic in

2008


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Tunnels

Hepomäki 270 mLakiamäki 430 mTervakorpi 560 mPitkämäki 595 mOrosmäki 600 mKarnainen 2200 mLehmihaka 300 m


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Complemented road plan

Extensive, documented soil and bedrock surveysBasic road plan solution with updated startinginformationDegrees of freedom in the plan – for example,motorway altitude 0 - ± 2 mAbsolute boundary conditions - environmental impactGraphic thematic mapsStarting points for risk management(plan solutions)


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Schedule for the bidding process

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 2029

2004 2005 2006


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Shortlisted bidders

- Bouygues Travaux Pub-lics

- Kesälahden MaansiirtoOy

(- NCC Roadsaliurakoitsijana)

Franceand

Finland

- Cintra Concesiones deInfrastructuras deTransporte, S.A

- SRV Teräsbetoni Oy(- Ferrovial Agroman

aliurakoitsijana)

Spainand

Finland

- Tieliikelaitos- YIT Rakennus Oy

Finland

Tieyhtiö Ykköstie Oy:- Skanska BOT AB- Laing Roads Ltd- Lemminkäinen Oyj

Sweden,UK andFinland

- Vinci Concessions France


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Structure of contract (investment period)


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Status of the projectMotorway opened for traffic in two phases : 19th Nov 2008 and28th Jan 2009,due date for both phases 15th Nov 2008short delays because of difficulties related to traffic managementand tunnel safety systemsinvestment period closed Jan 2010, yet some problems remainingin the functionality of the traffic management systemthe interface between the client´s traffic center and the RoadCompany challengingconclusion: more accurate technical requirements for definition oftraffic management and tunnel safety systems instead ofperformance specifications


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Objectives set for the PPP modelE18 Muurla-Lohja, Invitation to tender October 2004

Quickly opening the motorway for trafficGood traffic safety --> motorway standard, paymentmechanismReducing congestion similar to traffic safetyTop-class road maintenance services for road users--> technical requirements for the maintenance period, andavailability/service level as payment mechanism basesOptimal allocation of risks (administrative/technical risks)Economically most advantageous approach5/28/2010 18


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Overall economy of the E18 Muurla – Lohja contractMain benefits of the life-cycle model in comparison to budget-financedimplementation

quick and cost-effective constructiondegrees of freedom made possible by responsibility period of more than 20years

Reasons for quick implementationinitiation of service fees only after the road is taken into use encourages thedesigners, builders and sponsors to focus on quick implementation in acompetitive situationthe private sector has more flexible and free procurement procedures comparedto the public sectorthe private sector also has better capacity to optimise financing duringconstructionefficient project management and capacity to react quickly to the need forchanges direct the entire value chain of the project towards optimalimplementation

Net present value savings in investment, maintenance and financingcosts of about 3.5 %In addition, savings in driving costs of about EUR 34 M


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E18 Muurla-Lohja (”Public Sector Comparator 2”)


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Starting points for procurement preparation of new PPPsUtilising documentation and experience obtained from the E18Muurla-Lohja projectFocus areas in development of agreement documents

More specific preliminary funding solution planningPossibly compressing the service agreement, potential changescaused by the funding solution, assessing allocation of risksSimplifying the payment mechanismDeveloping technical requirements based on a post-analysis,possible changes pertaining to the allocation of risksClarifying the traffic management system and the related technicalrequirements, interface to the Traffic Centre, period of liabilityRoad company's role in controlling and managing technical qualityCo-operation between client and service provider

5/28/2010 21


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Objective for the E18: Achieving motorway level by 2015 incompliance with approved EU-level plans

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= PPP project (actual construction time)= direct budget funding (actual building time)= PPP project (completion time)

Project Road Cost est. 2009 2010 2011 2012 2013 2014 2015 2016

H1 Mw 1 Muurla-Lohja, completion 2009 299

H2 Ring III Vanhakartano-Lentoas.tie 255

H4 Mw 7 Hamina Bypass 175

H3 Mw 7 Koskenkylä-Loviisa-Kotka 285

H5 Mw 7 Hamina-Vaalimaa 196

5/28/2010 22


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TEN- T support of E18 Muurla -Lohja

E18 Road (part of Nordic Triangle priority project, PP12)E18 has been supported via 16 different TEN-decision since 1995 (studies, Interestrebates, direct grants) for various sectionsFinland worked several years to achieve possibility to apply PPP support

Finnish approach for PPP (Life-cycle based availability payment fee) was not typicalPPP application and the EU legislation did not allow to proceed until the TENregulation was updated in 2007.

PPP was applied first time for E18 Muurla – Lohja section at 2007 (Multi-AnnualProgramme)

Not successful / Justification: Not a key bottleneck on PP12.Application was send again in 2008 for Annual Programme

Strong emphasis on PPP pilot actionSuccessful / Justification: The project will be implemented as a long term life cyclebased PPPmodel in an availability payment scheme. As this project is the first in ofthis kind in Finland the preparation phase was taken very seriously andcomprehensive. The project is coherent with the envisaged purpose and has goodtechnical descriptions of the works to be performed.


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Decision

“Community financial 7.790.000 euro is hereby granted to the Beneficiary, in theframework of an availability payment scheme”The Commission shall contribute a maximum amount as indicated in Article 2of this Decision, equivalent to 10 % of the estimated total eligible costs forworks indicated in paragraph 2.The request will cover only the availability payments' part corresponding tothe works carried out and shall be accompanied by a certification by theMember State that the expenses claimed have actually been incurred. TheBeneficiary shall also provide evidence that the corresponding part of theinfrastructure has been delivered, and a copy of the public-private partnershipcontract.The end date shall be the date when the accumulative amount of theavailability payment part corresponding to the works reaches the amountof the Community financial aid. It shall not be later than 31 December 2009.


25Reporting1. Cover sheet2. Final Report and Financial Statement,2.1 Final Report and Financial Statement, part 12.1 .1 Invoices and payment copies2.2 Final Report and Financial Statement, part 23. Certificates and statements3.1 Proof of the project total cost3.2 E18 Muurla–Lohja LCC Service Agreement Certificate of Completion3.3 Confirmation of the cost breakdown4 Contract documents4.1 E18 Muurla - Lohja LCC Service Agreement Tender Invitation

Document 1 Service Agreement4.2 E18 Muurla–Lohja LCC Service Agreement Tender Invitation

Document 2, Project Description, Updated 28 February4.3 E18 Muurla - Lohja Service Agreement Tender Invitation Document 3 Payment

Mechanism4.4 Records of the inspection of the Agreement Area on 18 August 2005 and the

Agreement Documents on 22 August 20054.5 Main schedules of Construction and Maintenance (a preliminary general

schedule as of 30 March 2005 and a schedule for the operation andmaintenance work as of 22 August 2005 / 3 October 2005)

4.6 E18 Muurla–Lohja LCC Service Agreement, Design and ConstructionDocumentation, Updated on 28 February

4.7 E18 Muurla–Lohja LCC Service Agreement Tender InvitationDocument 8, Technical Requirements, Updated on 28 February 2005

4.8 E18 Muurla – Lohja (Right of Way plan as supplemented)4.9 E18 Muurla – Lohja (annex 10, List of Instructions (and other

documents specified in such list))4.10 E18 Muurla–Lohja LCC Service Agreement Tender Invitation Document 4,

Complementary terms and conditions of the Service Agreement5. E18/Highway 1 Muurla - Lohja (–Lohja (Lieviö), Summary of

monitoring of flying squirrels 2001-20095.1 Maps

• Required documentation:• Financial and technical

statements (commissionforms)

• Invoices of payments

• PPP concession contract

• Environmental monitoringreport

• Summary of annexes =>

• Bi-lateral discussion withAgency:

• Site-visit and preliminaryevaluation on existingdocumentation

• Agency comments on thedocumentation

• Collection and submission offinal report material


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Thank you for your attention !