The Waratah Train Project – Case Study

19 November 2015

Covering

• What is Reliance Rail?

• The Journey so far

• Current position

• Lessons from the project

• Conclusion

2

What is Reliance Rail?

Reliance Rail is the special purpose company set up for the

Waratah Train Project, a PPP for:

• Design, manufacture, testing and commissioning of 78 x 8

car stainless steel double deck train sets,

• 2 driver and 2 guard crew training simulators

• A new maintenance facility for up to 1000 rail cars

• Maintenance of trains, facilities and simulators for 30 years

• Total delivery value of $3.6b (NPV over full term of

contract)

3

What is Reliance Rail? Key Players

*Under a restructure agreement the NSW government has an arrangement to inject equity in

2018 under certain conditions.

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SYDNEY TRAINS

RELIANCE RAIL

EQUITY PROVIDERS

State $175M*

Original Investors $137M Downer EDI

AMP Capital

RBS

IPP

DEBT PROVIDERS

Bank Debt Westpac

NAB

Sumitomo

Mizuho

Bonds

Sub-Debt

Hitachi Aust-DEDIR Joint Venture

Rolling Stock

Manufacture

Contract

Financial Guarantee

TRAIN BUILD

EDI Rail PPP Maintenance Pty Ltd

(100% owned by DEDIR)

THROUGH LIFE SUPPORT

Maintenance Facility

Construction

Contract

FINANCIAL GUARANTORS

FGIC Syncora

50% 50%

EDI Rail Pty Ltd (100% owned by DEDIR)

FACILITY BUILD

Project Contract

Through Life

Support

Contract

What is Reliance Rail? Structure

.

5

Scrapping of old non air conditioned trains

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The Journey 1

• Contract signed in December 2006

• Design was late, subcontractors changed

• International supply chain issues

• Time required to establish quality benchmarks

• The first train was delivered 30 June 2011 - 14 months late, subsequent trains later still

• The GFC had a significant effect on funding confidence

• AAA rated monoline insurers downgrade affected Reliance Rail credit ratings

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The Journey 2

• New more experienced management at contractor

• Design locked down

• Focus on high volume manufacturing

• Focus by all parties on outcomes

• Increased collaboration between parties

• Train delivery rates improved

8

The Journey 3

• Financial delay costs funded by Downer

• Way forward agreed – Government to inject $175m in equity in 2018

subject to specific conditions being met

• Bank drawdown achieved, project fully funded

• Train delivery rebounded - Trains entered service at twice scheduled

rate

• Final train set entered service May 2014

• Trains proving to be highly reliable and popular with public

• Project receives ARA Corporate Award, 2015 and Engineers Australia

Engineering Excellence Award for Project Management, 2014.

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Train delivery

10

Day

s b

ehin

d s

ched

ule

Current situation

• Trains have travelled over 35 million kilometres in

service

• Reliability and availability of trains excellent

• Reliance look forward to another 28 years of providing

trains to the Sydney network

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Rolling stock Availability

12

99.89%

*6 month average

Reliability Improvement going as planned

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Where to for Reliance Rail

• Delivery risk passed

• Trains proving reliable

• Stable cash flows from AAA rated government

• Interest rate and CPI exposure hedged

• Confidence in project finances increasing

• Good relationships with key stake holders

• Contract runs for another 28 years with potential for extension

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What Waratah Trains bring to Sydney Commuters

• Nearly half of Sydney Trains fleet now modern air-

conditioned comfortable trains

• Passenger numbers are predicted to grow 89% over

next 30 years (NSW Government Bureau of

Transport Statistics) - Waratahs help accommodate

the growth

• Rail is essential for a modern city to survive and

thrive

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Future rail patronage to grow rapidly

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100

110

120

130

140

150

160

170

180

190

200

20

11

20

16

20

21

20

26

20

31

20

36

20

41

20

46

Car Driver

Car Passenger

Rail / Light Rail / Ferry

Bus

Bicycle

Walk

Taxi

Year

Demand Statistics by Journey (Linked Trip)

(24-hr Average Workday)

Gro

wth

in p

atr

onage d

em

and

20

11 =

10

0

Lessons from the Waratah Train project - Delivery

• Relationships essential to delivery, has to be a partnership

• Contract has to be flexible – numerous changes will happen

• Approval processes need to be clear, quick and have a materiality threshold

• Mass produced products need to have design finalised and quality controlled before production ramps up.

• Supply chain management essential

• Look at long term need and order for long term

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Lessons from the Waratah Train project - Maintenance

• Change will continue – all parties and documents

must allow for it

• Incentivize all desired outcomes, need to relate

money to total performance

• Technology will change

• Demands and usage will change

• Good working relationships must continue for

duration.

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Lessons from the Waratah Train project - Finance

• Establish simple consent structures with financiers –

only for material items

• Need flexibility in finance deal long term – set and

forget is not an option

• In a 40 year contract conditions will move – GFCs,

booms, busts, exchange rate changes, inflation. It

will all happen.

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Conclusion

• All parties must work together to get best outcomes for all (includes client, contractor(s), SPV and financiers)

• Expect and allow for change

• Keep financing flexible and simple

“Going by train? Catch a Waratah if you can”

Sydney Morning Herald

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