Review of 2010 – USD version - Skanska

Business streams
Breakthrough for PPP in Sweden
Illustration
New Karolinska Solna is Skanska’s largest-ever assignment and Sweden’s first public-private partnership
(PPP) hospital. In 2010 Skanska started a new highway project in Chile as well as a school project and
modernization of a street lighting network in the U.K. An agreement for the sale of Skanska’s stake in
the Autopista Central was signed in the final days of the year.
Last year marked a breakthrough for public-private
partnerships in Sweden. For the first time, a private
consortium was awarded an assignment to design,
finance, build and provide facilities management for a
hospital, New Karolinska Solna − a university hospital
that will provide world-class medical care, research and
education.
During the second quarter of 2010, Skanska signed
the New Karolinska Solna agreement. It means a construction
contract totaling about USD 2.0 billion,
making it Skanska’s largest-ever single order.
Skanska is also investing about USD 88 M, equivalent
to a 50 percent stake in the project company.
To win the project, Skanska had brought together its
hospital construction expertise from Sweden, the U.K.
and the U.S. The design/build assignment is being carried
out jointly by Skanska’s Swedish and British
construction units, with 70 and 30 percent of the
assignment, respectively. The construction task began
last summer after H.R.H. Crown Princess Victoria of
Sweden set off the first explosive charge. The first parts
of the hospital complex will go into service during 2016
and the entire project will be completed in autumn 2017.
During 2010 Skanska was also given responsibility
for designing and constructing a new 200 km (125 mi.)
long highway in Antofagasta, northern Chile.
Construction work has begun.
Phases in the development process
Terminology Meaning Financial implications for Skanska Market appraisal
Bidder Tries actively to be awarded the project. Costs are recognized continuously in the income statement. No
Preferred bidder
A consortium is selected and pursues final negotiations The project is highly likely to be implemented. Bidding costs
No
to sign a contract with exclusive rights.
are capitalized from this date onward.
Financial close
Completion of construction
phase
Ramp-up
Steady state
All contracts are signed. Debt funding is raised, often in
the form of a syndicated bank loan or bonds. The first
disbursement is made to the project company.
Construction is completed, entirely or partly (in stages),
and the asset is in operation.
The initial operating phase. The duration varies,
depending on the type of project and payment.
The project is in full operation and has achieved longterm
revenue and cost levels.
Construction and service contracts are reported among order
bookings. Upon appraisal, an initial risk premium is added to
Skanska’s discount rate.
The initial operating phase has begun. The initial risk premium
has gradually been reduced, but a certain risk premium
is retained through the ramp-up phase.
The risk premium is gradually reduced.
The long-term discount rate is applied.
Yes
Yes
Yes
Yes
Appraisal methodology
Category
U.K. hospitals, availability
Other U.K. projects,
availability
Other European projects,
availability
Highways, market risk
Swedish hospital
Steady state methodology
Secondary market yields where a
deep market exists.
Steady-state
discount rate, % Additional risk premium during development phase ID projects
8.5 Add 1–2 percent premium upon contracting and financial
close and reduce this on a linear basis including first year of
steady state. Barts hospital includes a 2 percentage premium
due to the unusually long remaining ramp-up until the hospitals
are in full operation.
Barts, Coventry,
Derby, Mansfield
and Walsall
As above. 8.5 As above. Bristol, Midlothian,
Essex, M25 and
Surrey Street
Lighting
As above. 8.5 As above. The A1 project has one percent higher base rate
due to some traffic risk plus 2 percentage points in premium
due to a degree of traffic volume risk.
Based on cost of long-term
government bonds plus risk
premium. Test against listed companies
with expressway holdings
and previous divestments.
Based on cost of long-term government
bonds plus risk premium.
11.7 Add 3 percent premium upon contracting and financial close
and reduce this on a linear basis until steady state has been
reached.
9.5 Add 2 percentage premium due to the unusually long remaining
ramp-up until the hospital is in full operation.
A1, E18, and
Nelostie
Antofagasta
New Karolinska
Solna
52 Infrastructure Development Skanska Review of 2010 – USD version