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PROJECT MANAGEMENT CONFERENCEPublic Private PartnershipsNovember 2009Presented by:Winnie Shi, DirectorKPMG LLPTel: 604-646-6385Email: wshi@kpmg.ca


Agenda• Introduction• P3 Delivery Model Overview• Summary of Canadian P3 Projects• Key Contractual Terms• Financing P3s• Major Trends and Looking Ahead© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.1


Introduction• We are in difficult financial times:Credit Markets still unsettledEconomy is in a recession with only early signs of recoveryGovernment is experiencing increasing budgetary pressuresMassive infrastructure deficit that is impeding growth• Government needs to look to innovative ways to deliverinfrastructure:Canadian Government has already embraced public-privatepartnerships(P3) as an effective delivery model• Many P3 flagship projects across different sectors are currently being successfullydelivered• Committed to invest in infrastructure to alleviate recessionary pressures• All Federal capital projects in excess of $50 million to undergo a P3 delivery feasibilityreview© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.2


P3 Delivery Model Overview© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.


What is a P3?• A partnership between a public and private sector parties to delivera project that:Aligns the interest of the public and private sector partiesShare in the risks and rewards of the projectAllocates risk to the party who is best able to manage© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.4


Traditional Procurement• A traditional procurement employs a design-bid-build approachwith at least two contracts:Contract One – Design• Public sector accepts designContract Two – Construction• Contractors bid based on design• Generally lowest price winsOther Contracts• Public sector may outsource maintenance• Separate contracts for major rehabilitation© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.5


Traditional Procurement – Budget$This is what issupposed to happenCapexOperating & Maintenance Costs0 3 20t© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.6


Traditional Procurement – Budget…Not Met$Cost & timeoverrunsThis is whatactually happensCapexOperating & Maintenance Costs0 3 20t© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.7


Overview of P3 ModelsPublic SectorRisk AllocationPrivate SectorDesign-Build(DB)Design-Build –Operate (DBO)Design-Build- Finance-Operate (DBFO)Concession• Contract for privatesector to design-buildpublic facility• Private sector may beresponsible forconstruction financing• Contract for privatesector to design-buildand operate/maintainpublic facility• Private sector may beresponsible forconstructionfinancing• Contract for privatesector to design-buildfinance and operatepublic facility• Private sectorresponsible forfinancing throughoutagreement term• Contract for privatesector to designbuildfinance andoperate publicfacility• Private sectorresponsible forfinancingthroughoutagreement termRisk transferred:Risk transferred:Risk transferred:Risk transferred:• Design risk• Design• Construction• Operations• DBO• Long-term financing• Completion Risk• DBFO + usage risk© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.8


P3 Project Screening Criteria• While P3s result in the most risk transfer to the private sector party, not allprojects are good candidates to be delivered as a P3• The following screening criteria should be applied:FinancialWill the partnership beable to carry out theproject under financialterms that areacceptable to both?NoTechnicalCan a technical solutionto the project be foundusing a P3 approach?NoYesOperationalAre there operationalhurdles that prevent a P3approach from beingused?Good P3CandidateYesNoYesNoNoAre there implementationbarriers that prevent theuse of a P3 ApproachAcceptabilityImplementationWill the public accept theinvolvement of theprivate sector inimplementing theproject?TimingAre there timeconstraints that wouldpreempt consideration ofP3 approach?YesYesYesNoPoor P3 Candidate© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.9


Summary of CanadianP3 Projects© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.


Canadian P3 Market Overview• Canada is fast becoming one of leading countries implementing Public-Private-Partnerships (P3s)• In the last 10 years over 80 projects have been implemented or are in the process ofbeing implemented as a P3© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.11


Canadian P3 Market Overview (cont’d)• More sectors are using P3s to deliver public services• P3 Delivery Models varies along entire spectrum from DB to FullConcession• More projects incorporate financing as part of P3 Delivery Model• Project Values vary from less than $100 million to over $1 billion• Some Provinces have set up P3 centres (e.g., Infrastructure Ontario,Partenariats Public-Privé, Partnerships B.C.)• Federal Government has set up a P3 Agency (PPP Canada)© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.12


Canadian P3 Market Overview (cont’d)• Many of these projects have been recognized nationally by CCPPP asaward winners such as:*20082007• Autoroute 30 (Quebec)• Northwest Anthony Henday Drive DBFOProject (Alberta)• William R. Bennett Bridge Project (B.C.)• Abbotsford Regional Hospital and CancerCentre• The Trans-Canada Highway Project (NewBrunswick)• 407 ETR – Growth of a P3 (Ontario)• Alberta Schools Alternative Procurement(ASAP) project (Alberta)* Not a complete list• Autoroute 25 (Quebec)• Kicking Horse Canyon (B.C.)• Durham Consolidated Courthouse (Ontario)• Northeast Stoney Trail Ring Road (Alberta)• Vancouver Island Health Authority ResidentialCare (B.C.)20062005• Golden Ears Bridge (B.C.)• Britannia Mine Water Treatment Plan (B.C.)• Archives Ontario (B.C.)• Trans-Canada Highway Project(New Brunswick)• Sea-to-Sky Highway Improvement Project(B.C.)• Cookchill Food Services (Ontario)• Anthony Henday Ring Road SE (Alberta)• Abbotsford Regional Hospital and CancerCentre (B.C.)20042003• Sierra Yo-Yo Desan Resource Road (B.C)• Driver Examination Centre (Ontario)• Fredericton-Moncton Highway(New Brunswick)© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.13


Autoroute A30 (Chateauguay & Vaudreil-Dorion)LocationCapital CostP3 ModelStatusProjectInformationCanadiac and Vaudreuil-Dorion, Q.C.Total project cost: $1+ billionDBFO – 35 year termFinancial Close by Nouvelle Autoroute 30 (Acciona and Iridium)• Construction of a 35 kilometer section of Autoroute between the junction of the existingAutoroute 30 and Highway 138 in Chateauguay and the junction of Autoroutes 20 and 540in Vaudreuil-Dorion. Payment mechanism consists of:1) Capitala) 50% construction payments during constructionb) 50% capital payments over period of concession (indexed to inflation)2) Operatinga) OMR Payments for Western Portion (indexed to inflation)b) OMR Payments for supplementary (indexed to inflation)3) Excess Revenue SharingFinancial Close October 2008Construction completion 2012© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.14


Alberta Schools (ASAP)LocationCapital CostP3 ModelStageProjectInformationCalgary and EdmontonConfidentialTerm: Construction + 30 yearsDBFM - capital + maintenance payments stream (includes life cycle) indexed to inflationContract Awarded and Financial Close achieved by Babcock & Brown Consortium and GrahamConstruction.18 new primary schools (9 in Edmonton, 9 in Calgary) involving 8 school boards in total of whichhalf are public and half are catholicGreenfield development where Government will provide the landAll 18 schools under one contractPreferred proponent selection July 2008Financial Close Sept 2008School to be open by Sept 2010© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.15


Niagara Health SystemLocationCapital CostP3 ModelStageProjectInformationSt. CatharinesConfidentialTerm: Construction + 30 yearsDBFMContract Awarded to Plenary Health (Plenary, PCL Contractors, Bergman + Hamann Architects,Silver Thomas International Architects, Johnson Controls, Deutsche Bank)375-bed acute care community hospital that will provide a full-range of acute/critical care,surgical, emergency, longer-term mental health and ambulatory services. It is considered one ofthe largest infrastructure projects in Ontario.Project Timeline RFP Closed May 13, 2008Preferred Proponents Selected Aug 8, 2008Financial Close Fall 2008© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.16


Port Mann / Highway 1 ProjectLocationCapital CostP3 ModelStageProjectInformationEstimated ProjectTimelineVancouver and Langley, BCTotal project cost: >$2 billionDesign-Build – 5 yearsContract awarded to Kiewit/Flatiron General Partnership, comprised on Peter Kiewit Sons Co.and Flatiron Constructors Canada Ltd.The project includes widening of Highway 1, building a new bridge at the Port Mann crossing,upgrading interchanges and improving access and safety on Highway 1 from the McGill Streetinterchange in Vancouver to 216th Street in Langley, a distance of approximately 37 kilometers.The PMH1 project will reduce congestion and travel time; improve safety and accessibility;facilitate reliable transit service; expand networks for HOV, cyclists and pedestrians; andaccommodate potential future rapid transit.Preferred Proponent Selected August 19, 2008Contract Award March 2009Construction completion December 2013© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.17


Fort St. John HospitalLocationCapital CostP3 ModelStageFort St. John, BCTotal project cost: $298 millionDBFO – 30 yearsContract awarded and financial close achieved with ISL Health (Acciona and Innisfree)ProjectInformationConstruction and maintenance of a new 55-bed hospital, new services building, and a new 123-bed residential care facility. Financing of the project undertaken through a “wide-equity” approachwhere the Province provides the debt and the DBFO Contractor provides the equity.Estimated ProjectTimelinePreferred Proponent Selected March 2009Contract Award July 2009Construction completion 2012© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.18


Key Contractual Terms© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.


Overview of Key Contractual Terms• Project Agreement is the document that governs the P3• Must detail risk and reward sharing, regulation, monitoring andreporting, termination and compensation• Project Agreement must be made available during procurement process– comments incorporated• Ultimate signed agreement is substantially in the same form as thatinvolved in procurement.• P3 Market Demand and Supply results in changes in risk transferposition© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.20


Overview of Key Terms• Site Conditions and Hazardous Materials• Revenue/Profit Sharing• Financing Risk• Force Majeure• Termination• Delay/Relief Events• Expansion Triggers• Security© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.21


Site Conditions and Hazardous Materials• Site conditions is of concern to both public and private sectors• Generally site condition risk is passed onto private sectorPrivate sector due diligence during procurement stagePublic sector may take back some risk, only if deemed unmanageable• Hazardous materials is a contentious areaPublic sector takes responsibility for pre-existing hazardous materials riskPrivate sector takes responsibility for all other hazardous materials riskAppropriate investigation undertaken during procurement and final report issuedprior to start of construction© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.22


Revenue / Profit Sharing• For those projects where revenue / traffic risks are transferred, publicsector is concerned with excessive profits• Contracts increasingly include an element of profit/revenue sharingabove a certain market level• This sharing allows both parties to share in upside risk.• Mechanisms include:Revenue sharing above pre-defined levelRevenue sharing above a pre-defined ROI levelProfit sharing above a pre-defined ROI• Mechanisms may also include banding at different levels• Downside revenue/profit risk is retained by the private sector© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.23


Financing Risk• For P3 projects that incorporate financing, risk is borne by PrivateSector• Increasingly, public sector is interested in re-financing gains –particularly for long term contractsRefinancing may include:• Refinancing of existing debt• Refinancing equity investment with debtApproaches to sharing in refinancing gains include• Incorporating in revenue/profit sharing• Sharing in percentage of gain• Refinancing losses continue to be borne by private sector© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.24


Force Majeure Risk• Force Majeure (“Acts of God”) clauses address the responsibilities ofeach party during a Force Majeure event• Long term contracts will require private sector to mitigate and restoreproject to original state• While insurance policies may cover some damage to project, a potentialexposed liability existsPublic sector will require appropriate insurance• Public sector may provide compensation or extension of agreementterm• In case of termination, partial compensation may to offered to privatesector© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.25


Handback• Projects are generally handed back to the public sector at end of termfor nominal value• If project not properly maintained, public sector may be exposed tosignificant rehabilitation costs• Contracts usually include handback provisions to protect against riskHandback standards specifiedIncreased inspection and monitoring near end of termWarranty provisions post hand backUse of maintenance/ handback reserve accounts• Goal is not to hand back a “new” project© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.26


Termination• Agreement may be terminated under a number of different circumstances• Private sector may be entitled to compensation, depending on circumstancesExpiration of TermTermination EventNoneCompensationFailure to achieve substantial completionConcessionaire DefaultPublic Sector DefaultForce MajeureNone to reimbursement of debtNone to reimbursement of debtFair Market ValueSome form of project value© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.27


Delay / Relief / Compensation Events• Certain events may arise that are outside the control of theConcessionaire• Generally applied during construction period• Public sector may provide extensions to project agreement deadlines orcompensation• Examples of delay / relief events: force majeure event, fire, explosion,national strike, change in law, etc.© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.28


Expansion Requirements• Some long term contracts may contain provisions to expand project asdemand requires• Expansions requirements must be pre-defined in terms of:CriteriaScopePenalties for failures• Criteria may include specified dates or usage• Compensation for expansion must be taken into consideration© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.29


Security• Traditional construction contracts requiring bondingProtect public sector against project failure mid-way through constructionBonds up to 50% of project value are typical and remain in force until substantialcompletion• P3 Projects do not require public funding up-frontHowever, public is accustomed to this requirementPrivate sector has expressed concerns over cost of requirementAlternate forms of security are being accepted (e.g. line of credit)© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.30


P3 Financing andCurrent Credit Markets© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.


P3 Financing Introduction• P3s use “Project Finance” form of financingThe cash flows of the specific project are used to secure the amount of financingThe debt is non-recourse to “equity sponsors”• The projected returns on project must meet benchmark equity rate ofreturn© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.32


Typical Finance Contractual StructureSponsorProjectAgreement(Payments)EquityProviderEquityAgreement(s)Sub-Contracts(Payments)Project CoDebtAgreement(s)SecurityDebt LendersBuilderOperator© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.33


Debt Financing Vehicles• Bank DebtMore flexible forms of financingMore expensive forms of financingCan take the forms of term loansOften used during:• construction period – multiple draws• times of tight credit markets and expensive bond debtGenerally short to medium termOften used for construction financing© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.34


Debt Financing Vehicles (cont’d)• Long Term Bond DebtGenerally two forms:• Traditional fixed P&I• Current interest bonds (CIB)• Capital accretion bonds (CAB)Less flexible form of financing – repayments generally fixedGenerally long-term financingFinancing costs are usually lower than bank debtIdeal form of financing during mature state of operations© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.35


Debt Financing Vehicles (cont’d)• Liquidity and Ramp-Up FacilitiesSimilar to a line of creditMost flexible but most expensive form of financingLimited in the amount that may be availableUsed for projects with ramp-up risk or periodic unevenness in cash flowsAlternative strategy: setting aside from long-term financing reserves to meet needsCould range from short to long-termCost associated with amount of funds undrawn© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.36


State of Credit Markets• Credit markets have still not recoveredCredit ratings are still lowBanks continue to be reluctant to lend – impact on market liquidity• Bank Debt is tight• Long-term bond market still available but expensive – terms are shorterCredit spreads have increased to 200-500 bps in Canada• Leverage will decreaseLenders will require more equityRefinancing strategies being employed to weather tough times (refinancing risk)• Project now require multiple underwriters (club deals are common)© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.37


Credit Markets Outlook• Once credit markets settle downSpreads will narrowLenders will look more critically at projects• Look at project risks instead of relying on credit rating• Leverage requirements will be adjusted accordingly• Strength of sovereignty backing will become a stronger considerationCredit should be available to infrastructure finance projects:• Assets tend to be less risky and should recover faster than in other markets• Local lenders will likely take this time to understand infrastructure finance (marketcurrently dominated by foreign lenders)• Demand for credit should be strong through tough economic times© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.38


Major Trends andLooking Ahead© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.


Major Trends - Canada• P3 delivery is expanding into healthcare, particularly in CanadaLimited to facility delivery, rather than operationsAddresses significant healthcare infrastructure deficit• Will likely see more activity in other infrastructureParticularly in areas lower in government priority (e.g. corrections, justice)More activity in transportation – may see more toll roadsWill see more Canadian contractors enter the P3 ArenaPorts will become major focal point as Asia expands trade• Other Provinces and Territories (Sask, Man, NWT, Yukon, Nunavut) willstart looking at P3s as a delivery model© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.40


Major Trends - Internationally• U.S. is “big elephant”Huge potential market due to U.S. deficitActivity in transportation sector will continue to be significant in the next few yearsMore states will enact legislation that will enable P3 ImplementationPorts will also be a significant focal point in both the primary and secondary markets• Europe, Australia will continue to provide infrastructure through P3sNo significant changes in the market are anticipated.© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.41


Conclusions© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.


Conclusions• North America is embracing the P3 Delivery Model• P3 Delivery Model is being applied to different sectors including health care andeducation• Taxpayers are starting to accept the delivery model• Government is being “smarter” at implementing P3’s• Government at all levels are using P3s as a delivery model• More and more private sector firms are participating in the P3 market• Once credit markets settle down, credit will be available to fund P3 projects as it is alogical investment vehicle• P3s are not a passing “fad” but a legitimate delivery model and markets will respondaccordingly• Contract terms of current projects will be likely favour private sector in light ofdifficult financial times© 2009 KPMG LLP, KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMGCanada provides services to KPMG LLP. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International.43

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