time for public-private partnerships for u.s. navigation projects dominic izzo pe – kbr director,...

Time for Public-Private Partnerships for U.S. Navigation Projects

Dominic Izzo PE – KBR Director , PIANC Commissioner

Karim El Kheiashy PhD, MBA, PE – KBR Americas – Coastal / Maritime Sector Lead

Benefits of PPP

• Government control (participation and ownership) with private efficiency and capital

• Access to a broader range of financing

• Access to additional capital

• Fewer constraints on accessing capital (e.g. annual appropriation)

• Risk sharing (specificity, complexity, uncertainty)

• Lower costs of service through specialization

2011 PIANC - Smart Rivers Conference

Should a PPP be considered at all?

• Economic Factors

• Project Size and Scope

• Timing or Schedule

• Market

• Risk Analysis

• Business Case

• Comparison with Conventional Procurement


Division of Roles

Public Role– Establishing infrastructure– Establish a regulatory framework– Establish a business environment– Encourage economic opportunity– Encourage private investment– Protect labor interest

Private Role– Generate a rate of return – Handle operational aspects– Manage commercial risks– Propose and implement investment policy– Incentives for high performance and competitive tariffs– Play a crucial role in fostering efficient logistics development


Spectrum of PPPs (P3)

Fully Public

Fully Private

DesignBuild

FinanceOperate

BuildOperateTransfer

Federal Agency

PublicAuthority

ServiceContract


Role for the Public Agency

• Enforce Statutory Standards– Safety– Environmental– Design Specifications– Construction Standards

• Approve Plans and Designs

• Contract Management


Risk Allocation

• Allocate risk to the party that is best able to manage it at the lowest cost

• Categories– Political, Legal and Regulatory Public Agency

– Planning Public & Private

– Design Private

– Construction Private

– Operation & Maintenance Private

– Financial Private

– Usage (Revenue Assumption) Public & Private


Time to Delivery

• Greater private incentive to generate revenue as soon as possible leads to– Better Project Management– Better Risk Management

• Service provider is not paid until the facility becomes operational – incentives to get it done

• Economies of Scale; one contracting vehicle; less overhead


Project Financing

• No Revenue Stream, No PPP

• Weighted Average Cost of Capital (WACC) must be less than the Return on Investment (ROI)

• Cost of Money in the Market vs the Cost of Government Debt?

• Market check on the federal government benefits / costs ratio


Life Cycle Costing

• Offers incentives to the contractor to– Reduce maintenance costs– Reduce operations costs– Reduce down time for the facility

• Integrates to capital investment with service delivery

• Requires long-term contracts to allow the contractor (service provider) time to recover his investment


Types of PPP

Typical infrastructure projects– Highways– Mass transit– Hospitals– Wastewater treatment plants– Port facilities


Global Economy – US Ports

Panama Canal Expansion

Anticipated increased ship traffic and bigger ships sailing through a widened Panama Canal, which is scheduled to open in 2014.

Water Trade from Asia

If you build it, they will come…


The inland navigation system is funded through appropriations from two sources: The General Fund, and the Inland Waterways Trust Fund

The IWTF is derived from revenues from a fuel tax on commercial barges, and currently has a shortfall; eligible projects far exceed available funding under current revenue and budgetary baselines

The Corps has a harbor maintenance backlog $2.2 billion of coastal navigation O&M work that could be budgeted if funds were available

Under current budgeting guidance, low-use coastal projects generally are budgeted only for critical minimum dredging and other critical minimum O&M activities.


Current Status for Navigation Projects



Source: Budget Constraints and the Corps Consideration of Public-Private Partnerships: Where Is the Money Going to Come From?, US Army, IWR, 2008


President's Fiscal Year 2012 Budget for U.S. Army Corps of Engineers’ Civil Works


$Millions vs. $Billions needed


State RECONNAISSANCE FEASIBILITY PRECONSTRUCTION ENGINEERING & DESIGN CONSTRUCTION O&M

ALABAMA

$ - $ - $ - $ - $ 94,229,000

LOUISIANA

$ - $ 1,000,000 $ 2,000,000 $ - $ 135,618,000

MISSISSIPPI

$ - $ - $ - $ - $ 7,736,000

TEXAS

$ - $ 926,000 $ - $ - $ 92,990,000

FLORIDA

$ - $ 343,000 $ - $ 11,750,000 $ 55,357,000

President's Fiscal Year 2012 Budget for U.S. Army Corps of Engineers’ Civil Works


$Millions vs. $Billions needed



•The average tow barge can carry the equivalent of 870 tractor trailer loads. Of the 257 locks still in use on the nation’s inland waterways, 30 were built in the 1800s and another 92 are more than 60 years old.

•The average age of all federally owned or operated locks is nearly 60 years, well past their planned design life of 50 years. The cost to replace the present system of locks is estimated at more than $125 billion.

Report Recommendations•Create a predictable and reliable source of maintenance funding with

a dedicated source of revenue

ASCE Report Card for America’s Infrastructure

How Will it Work ?


•Private organization would collect user fees at locks and channels that cover the inland waterway system costs in return for investing, maintaining, and operating the system.

•Government oversight would ensure safety, water levels, environmental compliance, etc.

•Guaranteed revenue stream.

•The income stream (fees, tolls, shadow tolls, tax increment financing, or a wide range of additional options)

Where can the Private Sector help


Construction and Operation of :Container Terminals

Bulk, Break-Bulk, Multipurpose and specialized cargo berths

Warehousing, Container Freight Stations, Storage Facilities and Tank Farms, Dry Docking Facilities

Ship Repair Facilities

Leasing of equipment for port handling and floating crafts from private sector

Auxiliary Port Services (Pilotage, Tugging and Mooring)

Captive facilities for port based industries

PPP Policies


Section 217 of the Water Resources Development Act (WRDA) of 1996 provided guidance for public-private partnerships in the design, construction, management, or operation of dredged material disposal facilities in connection with construction or maintenance of Federal navigation projects

Current Examples: Montezuma Wetland Project


The Montezuma Wetlands Project addresses two regional problems in the San Francisco Estuary: the loss of wetlands and the need for environmentally sound dredged sediment disposal options.

This "beneficial reuse" project will restore over 1,800 acres of wetlands using approximately 20 million cubic yards of sediment dredged from the region's ports and waterways.

Montezuma is the first privately sponsored wetland restoration in the nation. It is not compensatory mitigation for any mitigation; instead it derives its funding solely from dredge disposal.

Source: Levine-Fricke Restoration Corp


Private developer is funding development of the property as a disposal site.

Tipping fees charged for disposal of sediments will cover operating costs, payoff the 10-year debt, and provide a return on their investment to the project sponsors.

Financing used for site acquisition and development, disposal, site maintenance, and site monitoring.

Machinery used in the privately funded Montezuma Wetlands restoration project in

California (Photo by Levine‑Fricke).

Current Examples: Montezuma Wetland Project

Current Examples: JAXPort and Mitsui Operating and Lease Agreement


Deal between Jaxport and a Japanese shipping line (Mitsui OSK Lines) to create a new container terminal

Mitsui could create 1800 high paying port jobs and another 3800 spin-off jobs.

More distribution centers at the port

JAXPort will own the facility during and after construction. Both parties have representatives on a "construction committee“ to oversee the planning and construction of the project.

Mitsui will lease the premises (30 year lease) from JAXPort and operate the container terminal.

Source: Jacksonville Port Authority


Mitsui will have exclusive right to use the facilities during the lease.

Beginning on date of beneficial occupancy of the facilities, Mitsui will pay JAXPort a fee per container.

Additional Rent under the lease will equal amounts payable to JAXPort for the Bonds used to finance a portion of the project.

During the lease term, Mitsui is responsible for keeping the facilities in good working order at its own expense, including insurance, repairs, security, etc.

Source: Jacksonville Port Authority

Current Examples: JAXPort and Mitsui Operating and Lease Agreement

Questions ?


time for public-private partnerships for u.s. navigation projects dominic izzo pe – kbr director,...

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