Livingston by jizhen1947

VIEWS: 4 PAGES: 22

									Alternative Financing and Procurement in Ontario, Canada

                       David Livingston
                      President and CEO
                    Infrastructure Ontario
 Welcome to Ontario

• Half a trillion dollar
  economy
• Population of 12.8 million
  39% of Canada’s nominal
  GDP and population
• Toronto is the 3rd largest
  financial centre and 5th
  largest urban centre in
  North America
• Trade-oriented – over
  $300 billion with
  US in 2006


   2
            www.infrastructureontario.ca
Building A Better Tomorrow framework

                           • Addresses Ontario’s infrastructure deficit

                           • Five key principles:
                              – The public interest is paramount
                              – Value for money must be demonstrable
                              – Appropriate public control/ownership
                                must be preserved
                              – Accountability must be maintained
                              – All processes must be fair, transparent
                                and efficient

                           • Infrastructure Ontario established as
                             execution agency for Alternative Financing
                             and Procurement (AFP) projects


 3
      www.infrastructureontario.ca
What AFP is all about:
Protecting the public interest
AFP is:
• Integrating a project’s Design, Build, Finance and
  Maintenance components
• Risk transfer
• Value for money
• On time, on budget execution
AFP is not:
• Generally new money
• Privatization
So why not call it PPP?
• Avoid privatization label



 4
        www.infrastructureontario.ca
 Infrastructure Ontario’s role

• Execute assigned projects

• Drive scope detail post assignment

• Project costing prior to RFP release

• Manage procurement process

• Manage construction phase

• Hand over at construction
  completion




   5
             www.infrastructureontario.ca
 Alternative Financing and Procurement:
 Delivering projects for Ontario
• Nearly $6 billion in capital
  tendered in the past 26
  months
• Closed a variety of projects
  and worked with diverse
  market participants,
  advisors and stakeholders
• Standardized models and
  templates




  6
          www.infrastructureontario.ca
What makes AFP different

Differences from traditional procurement:
• Appropriate risk transfer away from public sector
• Payment occurs only after construction completed
     – Lender due diligence brought in to achieve on-time, on-
       budget delivery
• Long term building maintenance concession tied
  in with building team (DBFM)
     – “Warranty” to the Province that the facility will be available
       over the long term
     – Integration of design and construction with building
       maintenance and lifecycle costs




 7
            www.infrastructureontario.ca
Managing interest-group opposition:
Counter myths with the truth about AFP
Myth:           AFP projects cost more

Reality:        • AFPs transfer more risks to the private
                  sector, can reduce lifecycle costs and
                  improve service
                • Only if value for money is achievable
                  will AFP be used to deliver an
                  infrastructure project




 8
           www.infrastructureontario.ca
Managing interest-group opposition:
Counter myths with the truth about AFP
Myth:           Private sector profits come at the
                expense of services
Reality:        • Private sector construction firms have
                  always been used to build public
                  projects.
                • What has changed under AFP are the
                  terms of involvement, which articulate
                  penalties and create incentives to
                  protect the public interest.
                • For AFP projects, the private partner
                  assumes the risk of cost overruns and
                  late delivery – not the taxpayer.

 9
           www.infrastructureontario.ca
Managing interest-group opposition:
Counter myths with the truth about AFP
Myth:           AFP projects mean privatized health care

Reality:        • The government’s commitment is firm:
                  hospitals will continue to be publicly
                  owned, publicly controlled and publicly
                  accountable.
                • All AFP projects are strictly governed
                  by the Province’s Building a Better
                  Tomorrow framework, which preserves
                  public ownership of key public assets
                  such as hospitals, schools and water
                  and wastewater infrastructure.

 10
           www.infrastructureontario.ca
Managing interest-group opposition:
Counter myths with the truth about AFP
Myth:           The Province is issuing secret project
                tenders

Reality:        • All Requests for Proposals are posted on
                  Infrastructure Ontario’s website when they are
                  released to short-listed bidders.
                • The project agreements with the project teams are
                  available on Infrastructure Ontario’s website.
                • A third-party Value for Money assessment is
                  completed for each project under construction and a
                  copy of the report made available on Infrastructure
                  Ontario’s website.
                • All AFP projects are open to an independent, third-
                  party review by the Auditor General’s office.



 11
           www.infrastructureontario.ca
   Other benefits of AFP and Infrastructure
   Ontario
• Managing costs
   – Optimal cost combination:
     combines capital, operating,
     maintenance and life cycle
     costs
   – Integration of design,
     construction and facilities
     management
   – Competitive whole life cycle
     cost proposals
• Good project planning
   – Clear roles and responsibilities
   – Strong governance
   – Cost predictability
• Create right incentives
   – Transfer financing
   – Payment mechanism



     12
               www.infrastructureontario.ca
What makes Ontario unique?

                                     • Project assignment approach:
                                       clear commercial authority on
                                       transactions
                                     • Build-Finance model
                                     • Time to market – time to financial
                                       close
                                     • Predictable deal flow
                                     • Opportunities with broader
                                       public-sector partners
                                       (municipalities, universities, etc.)
                                     • Shareholder (government)
                                       commitment to AFP
                                     • Continuity of IO involvement
                                     • Standardization of process and
                                       documents




 13
      www.infrastructureontario.ca
AFP Models and Approaches

                                    Design/Build Finance             Design Build Finance
                                           (D/BF)                      Maintain (DBFM)


                                   Renovations or additions
                                       with significant
  Project Type                                                          New Construction
                                     interconnections to
                                    existing infrastructure


                                                                        • Design
                                         • Design
Role of Private                                                         • Construction
                                         • Construction
    Sector                                                              • Financing
                                         • Financing
                                                                        • Maintenance

                                    • Commercial authority on structuring deals
                                    • Program/project management services through
      Role of IO                      transaction and implementation phases
                                    • Focused on standardization, program predictability



 14
               www.infrastructureontario.ca
    Traditional versus AFP: DBFM project
                Traditional                               AFP: Design-Build-Finance-Maintain (DBFM)

Public Sector Risks   Private Sector Risks           Public Sector Risks            Private Sector Risks
   Functional                                           Functional
                        Construction                                       Design
    Program                                              Program

                                                                                     Construction
                        Construction                     Project
     Design                                                                                          Construction
                         Schedule                        Specific
                                                          Output                                      Schedule
                                                       Specifications                  Financing
   Financing


    Facility
  Maintenance                                                                         Scheduled
                                                                                       Lifecycle
                                                                                                       Facility
    Lifecycle                                                                                        Maintenance
                                                                                       Facility
                                                                                     Availability,
     Facility                                                                       Performance
   Availability,                                                                    & Asset Value
  Performance
  & Asset Value



       15
                      www.infrastructureontario.ca
           DBFM model – transaction phase timeline




                                                                                                                                                                                                       Expiry of Concession Period
                                                                                           Selection of Preferred Proponent




                                                                                                                                                                            Substantial Completion /
                                                          Evaluation of Proposals




                                                                                                                                                      Financial Close and




                                                                                                                                                                            Operational Phase
                                                                                                                                                      Construction Start
                                                                                                                              Commercial Close
                            RFP Released
RFQ Released




                6 months                   6 months                                 4 months                                                     1 month



                                                                            11 months

                Significant volume of work done before RFQ:
                • Scope assessment
                • Budget commitment
                • Value for money determined

               16
                           www.infrastructureontario.ca
What is Value for Money ?
•         Value for money is a process of comparing estimated costs using two delivery models to
          determine which is the better value proposition

                             Model #1 – Tradit ional Procurement                                     Model #2 – Alt ernat ive Financing Procurement (‘AFP’)
                              (Public Sect or Comparat or ‘PSC’)                                                     - Adjust ed Shadow Bid
               The estimated total project costs that would be                                       The estimated total costs expected with the alternative
               realized with the traditional procurement model.                                      Adjusted Shadow Bid model.




                                               Value for Money
    Ancillary Costs
                                               Ancillary Costs
                                                                                           • The cost difference between Model # 1 and Model # 2 is
    Risks Retained                             Risks Retained
                                                                                             the estimated Value for Money

    Financing Costs
                                                 Financing
                                                   Costs
                                                                                           • AFP costs: Financing, Infrastructure Ontario overhead,
                                                                                             Project advisors
                                                                                           • Key AFP benefit: Risk transfer
                                                 Base Costs
      Base Costs                               (includes Risk
                                                  Premium)
                                                                          ‘Shadow Bid’
                                                                               or
                                                                                           • The savings achieved through risk transfer more than
                                                                         ‘Preferred Bid’     offset additional AFP costs

         PSC                                          AFP

Base Costs         Financing Costs   Risks Retained    Ancillary Costs




      17
                                        www.infrastructureontario.ca
Making projects happen:
Progress to date…March, 2008
• 16 social infrastructure projects under
  construction

• Three projects approaching financial close

• 10 projects in procurement phase

• RFP for Ontario Highway Service Centres
  approved for release




 18
        www.infrastructureontario.ca
Ontario: examples of market response




 19
      www.infrastructureontario.ca
  Lessons learned so far

• Benefits of the AFP process
   – Schedule-driven
   – Clear governance structure
   – Managing costs through
     standardization
   – Value for money
• Importance of communication
  with industry, co-sponsors
   – Staging, managing market
     capacity issues with industry
   – Ensuring co-sponsor buy-in on
     IO approach and process
• Interest group opposition
   – Counter with transparency
   – Third-party validation
• Drive standardization



    20
             www.infrastructureontario.ca
Design-Build-Finance-Maintain projects:
Plenty of work and opportunities in the pipeline
• 19 additional DBFM projects to come to market
   – Health, courthouses, corrections facilities
• Transit and transportation
   – Ontario Highway Service Centres
   – MoveOntario 2020 vision
• Water infrastructure
• Energy
• Education institutions
• Continuation of social infrastructure projects
• Other assignments from 10-year, $60-billion capital plan




  21
          www.infrastructureontario.ca
Alternative Financing and Procurement in Ontario, Canada

                       David Livingston
                      President and CEO
                    Infrastructure Ontario

								
To top