capturing the benefits of highways ppps

20
Sources of long-term project sustainability and benefit capture in tollways and highways PPPs Dr Mark Brown, Halcrow

Upload: brownmb

Post on 20-Jan-2015

1.098 views

Category:

Documents


0 download

DESCRIPTION

Paper delivered at the TRB Summer Highways meeting, Athens, 2006

TRANSCRIPT

Page 1: Capturing The Benefits Of Highways PPPs

Sources of long-term project sustainability and benefit capture in

tollways and highways PPPs

Dr Mark Brown, Halcrow

Page 2: Capturing The Benefits Of Highways PPPs

Contents

1. PPP in the UK

2. Sources of value in PPPs

3. Sources of long-term value

4. Evidence of risks: revenue forecasts

5. Summary

Terms: In the UK, PPP, PFI and DBFO all refer to variations of similar types of project delivered through public private partnerships. PFI projects usually remain in or revert to public ownership. PPP projects can also involve public sector equity. PFI highways schemes are usually referred to as DBFO.

Page 3: Capturing The Benefits Of Highways PPPs

1) What is a PPP?

Public Private Partnerships

‘A PPP is a risk-sharing relationship between the public and private sectors based upon a shared aspiration to bring about a desired policy outcome’

PPPs deliver long-term

sustainability and

value for moneyPPP is a means of im

proving the

Quality and reducing the volume

Of public services

Evidence is now emerging

Of the success of PPPs in

A variety of sectors, long-term

As well as during construction

Page 4: Capturing The Benefits Of Highways PPPs

PPP/PFI in the UK: long-term evidence

• Over 600 projects since 1992 (all sectors)

• Capital value of signed deals £42bn

• Schools, hospitals, defence, roads, rail, prisons, etc

• Growing focus on service delivery – outcomes

• Growing evidence of operating and maintenance cost efficiencies as well as capital cost savings

• Growing evidence of value for money…but some major lessons

Page 5: Capturing The Benefits Of Highways PPPs

To PPP or not to PPP

• PPP is most successful when government is highly selective about which projects to deliver using this mechanism (eg: in UK only 25% of highways program is delivered by PPP)

• PPP is, perhaps, most credited for bringing financial benefits to (and capital to fund) the construction phase (most evidence to date)

• There is now growing evidence that PPPs bring significant long-term management and maintenance savings also

PPPs are used for

management and

maintenance

Contracts as well as for

new infrastructure

Page 6: Capturing The Benefits Of Highways PPPs

Management & maintenance cost – typical % of contracts value

• Highways - variable: M25 London Orbital Motorway widening (400km) – 70%

• Railways – 30-40%

• Light Rail – 50-60%

• Prisons – 70-75%

• Hospitals – 70-75%

Generally contracts cover 30-year periods

Operating and maintenance cost savings can be

as great if not greater than capital costs

Page 7: Capturing The Benefits Of Highways PPPs

2) Sources of Value of PPPs Include ....

INPUTS OUTPUTS

LONG-

TERM

SHORT-

TERM

Reduced delivery

program time

and capital costs

Whole life costs

minimisation &

sustainability

Improved outcomes

(economic value) through

performance management

Innovation &

risk-sharing through

collaborative working

& modern contracts

Page 8: Capturing The Benefits Of Highways PPPs

3) Sources of value 1: program and procurement

• Streamlining planning and procurement stages

• Shorter construction periods

• Bundling work into larger programs

• Better alignment of users of assets with builders

• Equates to 4% capex saving across all sectors (up to 15% for highway projects)

Page 9: Capturing The Benefits Of Highways PPPs

PPP (PFI) Construction performance

• In the UK PFI (PPP) projects are significantly less likely to over-run on time or budget

• Where costs have over-run, these have been borne by the consortium (ie: risk has been transferred)

• A Government survey revealed that clients believe quality of design of PPP projects is better

Public PFI

procurement

Cost over-run 73% 22%

Delivered late 70% 24%

Source: UK NAO

Page 10: Capturing The Benefits Of Highways PPPs

Sources of value 2: collaborative working

• Integrated teams of specialists

• Non-adversarial forms of contract

• Earlier contractor involvement

• Equates to 6% capex saving

£7.5Bn Channel Tunnel rail Link PPP

delivered on-time, to budget with pain-gain

sharing and target-price contracts

Page 11: Capturing The Benefits Of Highways PPPs

Sources of value 3: performance management

• Payment to PPP consortia (SPV) performance related

• Can relate to outcomes or asset condition

• Payments can supplement or replace other revenue sources…or be shadow tolls

• The better the performance of the PPP, the greater the permitted remuneration

UK Highways DBFO.

Monthly payments

are based on

strict performance

criteria, such as system

availability & safety.

Page 12: Capturing The Benefits Of Highways PPPs

Output-based Payment Mechanisms

= Payment

Performance Measures Adjustment

- Condition Criteria Deduction

- Availability Deduction

Amount Bid

+-

Performance management

drives improved value for

money and enhanced

outcomes

Page 13: Capturing The Benefits Of Highways PPPs

Payment Mechanism: Outcome & Condition Criteria

Payment for:

• Journey time reliability

• Safety

• Response time to incidents

Deductions for:

• Sub-standard carriageway

• Lanes seriously affected by snow or ice

• Loss of technology systems

Failure of DBFO consortium

to respond adequately to

adverse weather will result

in reduced payment

Page 14: Capturing The Benefits Of Highways PPPs

Sources of value 4: whole life sustainability

• Reduced energy costs

• Maintenance cost reductions

• Lower renewal costs

• Lower operating costs

• Greater user productivity

• Better environmental sustainability

• Equates to minimum of 5% p.a. reduced opex (£770m p.a. across UK public sector)

PPPs reduce the

Whole life costs

Of infrastructure

Page 15: Capturing The Benefits Of Highways PPPs

Environmental Sustainability

• Capital resource efficiency (up to 15%)

• Reduced consumption of maintenance materials (whole-life cost minimisation eg: more durable pavements)

• Reduced energy consumption (eg: use of renewable energy for lighting, signing, etc)

• More efficient travel behaviour – reduced veh.km and emissions

• Reduced congestion (with performance management)

• Fewer accidents

PPPs offer greater

design flexibility such

as on the A1/M62

junction where the re-use

of site material brought

major resource, transport

and landscape benefits.

Page 16: Capturing The Benefits Of Highways PPPs

4) Sustainability benefits – caveats & evidence of risks

• PPPs are still relatively new (most less than 10 years’ old)

• Operating /maintenance cost savings may be due to deferral of such activities

• Most are due to run for 25 years, when they will generally require a minimum 25-year residual life at ‘hand-over’

• Selection of appropriate projects for PPPs is critical – not all projects and not all sectors are suitable

• Mixed experience of revenue forecasting reliability

Page 17: Capturing The Benefits Of Highways PPPs

Management of risks is also a source of value!

Revenue & Risk:

‘Empirical evidence suggests that toll road forecasts have, on average, overestimated traffic by 20-30%.’

‘Although considerable care needs to be taken ….. there is little difference between the accuracy of forecasts prepared for toll roads and those prepared for toll-free roads.’

S&P Infrastructure Finance - Traffic Forecasting Risk: Study Update 2004

Page 18: Capturing The Benefits Of Highways PPPs

Traffic and Revenue Risk

• In countries new to tolling, traffic is on average over-estimated by 40% (twice as bad!)

• Risk analysis and benchmarking are often not carried out by forecasters

• Any adjustments for risk and uncertainty are often arbitrary

• Long-term concessions (30 years or more) place critical reliance on accurate forecasts

Economic recessionHigh tariffs

Severity of ramp-upSingle value of time

Ambitious land-use scenarios

Competing mode/route

Page 19: Capturing The Benefits Of Highways PPPs

5) Conclusions

• The performance of highway PPPs seems to mirror those from other sectors

• PPPs can generate significant benefits during the construction phases of projects

• They can also generate significant long-term benefits from operational, maintenance and management efficiencies

• These whole life benefits can, under some circumstances, exceed those of the construction phase

• As we gain more experience of PPPs and as performance management techniques become more sophisticated, we have the ability to generate greater whole life benefits

• …there is also emerging evidence that PPPs bring sustainability benefits…if risks are managed

Page 20: Capturing The Benefits Of Highways PPPs

THANK-YOU FOR YOUR ATTENTION

Dr Mark Brown

Halcrow

[email protected]

00 44 208 970 1804

HALCROW

London, Dubai, Sharjah, Abu Dhabi

USA, Canada, Australia, China