PPPs Canada s experience Water sector Mark Hodgson June 21, 2016 Santiago, Chile 1
Canadian PPP overview A growing market since 1993 2
Canadian PPP overview Project status 3
Canadian PPP overview Results Headlines On time On budget Value for money Economic Impact (2003-2012) 290,680 Direct Jobs $25.1B Contribution to Direct GDP $9.9B Cost Savings $7.5B Tax Revenue 4
Canadian PPP overview Water sector Local government (municipal) responsibility for water / wastewater services Near 100% municipal government ownership / control Some private owned systems but very small PPPs have been slow to catch on in the water sector Emotional response to private sector involvement in water sector Strong labour union defense of status quo Meanwhile, the water sector has many challenges... Under-investment in major maintenance and rehabilitation Slow adoption of new treatment technologies Slow response to new federal standards for wastewater quality Users subsidized from full cost of water / wastewater services 5
Canadian PPP overview Water sector (con t) Very few PPP projects prior to PPP Canada funding program Moncton Water Treatment Plant, Design-Build-Finance-Operate-Maintain (DBFOM)1996 Several O&M plus rehab contracts PPP Canada Federal government funding to encourage PPPs in the water sector (PPP Canada 25% funding for DBFOM) Since PPP Canada established in 2010 Kananaskis Water and Waste Water System DBFOM Sudbury Bio Solids, DBFOM Saint John Safe Clean Drinking Water Program, DBFOM (treatment) + DBF (distribution) Lions Gate (Vancouver), DBf + 1 year O&M Hamilton bio solids, DBFOM Regina Waste Water Treatment Plant, DBFOM 6
City of Regina WWTP Case Study 7
City of Regina, Saskatchewan Existing wastewater treatment plant Population 200,000 Wastewater treatment plant 1950 s 1960 s vintage with various upgrades, lagoon-based treatment Not meeting contemporary nutrient discharge standards, sensitive downstream waters Equipment reaching end off service life Deferred maintenance (the big stink of 2012 ) Does not meet current codes and standards City ordered to upgrade the facility to meet new effluent standards by December 31, 2016 by the Saskatchewan Water Security Agency 8
(C) 9
The procurement decision Prime motivations for PPP Hard date and limited time to meet the new permit requirements Biggest one-time capital project to date for the City, estimated capital cost $200M +/- Recent cost and time overruns on much simpler design-bid-build (DBB) projects City having trouble attracting and retaining WWTP O&M staff Through strategic analysis, administration essentially concluded: no other way to do this project than a turnkey approach (PPP) Council convinced to take on the pain of outsourcing of O&M through additional benefit of PPP Canada grant funding: 25% of construction cost, contingent on a DBFOM delivery model 10
Preliminary VFM estimate (basis for approval) DBB versus DBFOM VFM of $79.6 million (NPV), 15.5% 11
PPP screening criteria Not an ideal PPP Brownfield project Existing plant, with all its strengths and weaknesses Must be kept in operation during upgrade Incumbent workforce Considerably more complicated than a greenfield project 12
Deal structure Business opportunity for private sector Project Co takes over O&M responsibility and City staff upon financial close Wide scope for design variance / innovation: no lagoon treatment, but otherwise fairly wide open; no requirement to use any of the existing plant One $30M milestone payment approximately halfway through construction Substantial completion payment to top up the milestone to a total of approximately 50% of construction cost (design, construction, construction financing) combination of PPP Canada funding and City funds Total 30-year contract period 2.5 years of design/construction + O&M of existing plant 27.5 years of O&M of upgraded plant (and repayment of financing) Provincial legislation does not permit municipalities to enter into any contract over 30 years long This is not a concession. The City retains ownership of the assets and rate setting / collection. Private sector receives payments for performance over 27.5 yrs 13
Deal structure Risk allocation in post-construction period Areas of Responsibility/Risk/Cost Project Co City Areas of Responsibility/Risk/Cost Project Co City Sufficiency of the technical requirements Operating and maintenance Design sufficiency, design error Operating permit compliance Maintain permits to operate Latent defects in ALL infrastructure Influent flow Influent quality Condition of / failure of Existing Lagoons Biosolids quality Defective materials, equipment Fines imposed by regulators Quality assurance / quality control Noise Weather Environmental damage unknown or caused by other than ProjectCo Operation and maintenance Odour Change in Law Damage Human resources (after Dec 31, 2014) Pension plan deficit costs for service prior to Jan 1, 2015 Operating energy and water price Operating energy and water use efficiency Claims by third parties Security Inflation on Operating, Maintenance, and Renewal Costs Renewal costs Treatment chemical cost Force Majeure
Request for qualifications Overwhelming response City pre-marketed the opportunity at the Design-Build Institute of America conference Held an industry information meeting (>100 attendees) and site tour 10 RFQ responses Teams comprised Canadian, American, European members Shortlisted to three teams EPCOR / Stantec / Graham / Lockerbie Stanley CH2M HILL / Maple Reinders / Westridge / Macquarie Brookfield / Fiera Axium / Alberici / Black and McDonnell / United Water (SENA) 15
Request for proposals Excellent result for the City Preferred proponent selected on lowest net present cost over 30 years from among the technically-compliant proposals (all 3 were compliant): Capital Operations Maintenance Renewal Commodity consumption All 3 bids were under the City s budget limit 16
Final VFM estimate DBB versus DBFOM VFM of $138.1 million (NPV), 29.3% 17
Key benefits In the words of the City Reduce risk for taxpayers (on-time/on-budget) Take a long-term perspective (lifecycle approach) Partner for private sector innovation & efficiency (P3) Increase the financial certainty (due diligence/affordability) 18
Thank you 19