value for money report
TRANSCRIPT
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VALUE FOR MONEY
REPORTFOR THE DESIGN,
CONSTRUCTION,
FINANCING,
OPERATION AND
MAINTENANCE OF THE
COMPLETION OF
AUTOROUTE 25
IN THE METROPOLITAN
MONTRÉAL AREA
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TABLE OF CONTENTS
1. EXECUTIVE SUMMARY 3
2. REPORT OBJECTIVES 6
3. PROJECT DESCRIPTION 7
3.1BackgroundofAutoroute25andtheexistingproblem 7
3.2Trafficproblemscausedbythecurrentsituation 7
3.3Projectobjectives 7
3.4Mainphysicalcharacteristics 8
3.5Mainstudiescarriedoutduringtheproject 8
4. SELECTION PROCESS 9
4.1RequestforQualification 9
4.2RequestforProposals �0
4.3Finalizationofthepartnershipagreement �0
5. HIGHLIGHTS OF THE PARTNERSHIP AGREEMENT ��
6. PUBLIC SECTOR COMPARATOR ��
7. PRIVATE PARTNERSHIP PROJECT �5
7.1Highlightsoftheprivatepartner’stechnicalproposal �5
7.2Commercialstructure �6
7.3Projectcalendar �7
7.4Costoftheprivatepartner’sproposal �8
8. ANALYSIS OF THE ADDED VALUE FOR THE PUBLIC FUNDS INVESTED �9
9. CONCLUSION ��
APPENDICES
1.TableIndicatingtheMainRisksandResponsibilities
2.SelectionCommitteeStructure
COVER PAGE PHOTO COURTESY OF CONCESSION A25 L.P.
THE ENGLISH VERSION OF THIS DOCUMENT IS PROVIDED FOR INFORMATION ONLY. THE ORIGINAL FRENCH VERSION SHALL BE CONSIDERED AS OFFICIAL.
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TheplanningandconstructionoftheexistingsectionsofAutoroute25(A-25)datesbacktotheearly1970’s.ThepurposeoftheconstructionofAutoroute25wasandremainscreatingafastandefficientconnectionbetweentheeastendofthecity(MontréalandLaval)andtheLanaudièreregion.Itscompletionisanessentialdevel-opmentoftheroadnetworkgiventhestrongeconomicanddemographicgrowthex-periencedoverthepast30yearsinLaval,theLaurentianandtheLanaudièreregionsaswellastheAnjou/Merciereconomichub.Inadditiontoalleviatingrecurringtrafficproblems,thecompletionofAutoroute25willfostereconomicdevelopmentoftheeastendoftheMontréalregion.
TheprojectpresentedinthisdocumentconsistsofcompletingtheconstructionofAutoroute25betweenHenri-BourassaBoulevardinMontréal,andtheA-440/A-25interchangeinLaval,covering7.2kilometres,includinga1.2kilometrebridge.
TheAutoroutewillcomprisefour(4)expresslanesdistributedovertwoseparateroadwaysandwillincludeinterchangesandoverpasses.ThebridgespanningtheRivièredesPrairieswillcomprisesix(6)expresslanesandonemultipurposelanetoenablepedestriansandcycliststocrossfreely.Furthermore,theprojectincludespreferentialmeasuresforpublictransitwiththeconstructionofreservedbuslanesinLavalandMontréal(seeFigure1).
Afullyelectronictollingsystemlocatedonthenorthsideofthebridgeisplannedandtollswillbechargedtothebridgeusers.
1. EXECUTIVE SUMMARY
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ThecompletionofAutoroute25hasbeenthetopicofseveralstudiesinrecentyears.TheresultsofthesestudiesenabledtheMinistèredesTransportsduQuébec(Ministère)toconcludethatitsconstruction,usingaPublic-PrivatePartnership(PPP)approach,hasrealbenefits.WithOrders-in-Council1245-2005and659-2006,thegovernmentauthorizedtheMinisterofTransporttolaunchandcarryouttheselectionprocessfortheexecutionoftheprojectasaPPP.TheselectionprocessfollowedbytheMinistèredemonstratesthegovernment’swillingnesstochoosetheleastexpen-siveproposalthatsatisfiesalleligibilityandcompliancecriteria.
UnderthePPPapproach,theprivatepartner,namelyConcessionA25L.P.,isrespon-sible,foraperiodof35years,forthedesign,construction,operation,maintenance,rehabilitation,andfinancingofthehighwaysectiontobecompleted,includingtheexpresslanes,bridge,andtollsystem.
Inordertosupportthedecision-makingprocess,theMinistère,incooperationwithPartenariatspublic-privéQuébec,preparedabusinesscase.Supportedbytheinfor-mationcontainedinthisbusinesscase,itusedacomparativeapproachbetweenthepublicsectorcomparatorandtheprivatepartner’sproposal.Thesecomparisonswerecarriedoutonaquantitativeandqualitativebasis.
Tosummarize,thepublicsectorcomparatordeterminesthecostoftheprojectasifitwerecompletedbythepublicsector.Toensureafaircomparisonofthedifferentmeansofprocurement,thepublicsectorcomparatorreflectstheprocurementap-proachcommonlyusedbytheMinistèreandthefinancingmethodsthegovernmentusestofinancesuchprojects.
ThecostoftheprojectcarriedoutunderaPPPapproachincludesthepaymentsthegovernmentwillmaketoConcessionA25L.P.andtheamountrequiredtoensuremanagementofthepartnershipagreement.
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COMPARISONThisquantitativecomparisonbetweenthepublicsectorcomparatorandtheproposalsubmittedbyConcessionA25L.P.takesintoconsiderationalloftherelevantfinancialelements,namelythehigherfinancingcostsfortheprivatepartneraswellastheprofititanticipates.Despitetakingtheseelementsintoconsideration,theproposalsubmittedbyConcessionA25L.P.remainsmoreeconomical.Infact,thegovernmentwillbenefitinmorethan$226.1millioninsavingsbyoptingforthePPPapproach.Thesesignificantsavingsaretheresult,inparticular,ofashorterconstructionperiod,moreefficientworkmethods,andbetterriskmanagement.
Qualitativefactorswerealsotakenintoconsiderationinthecomparativeanalysisoftheprocurementapproaches.ThePPPapproachoffersundeniablequalitativebenefits,mostnotablythecommissioningoftheinfrastructuretwoyearssooner,andfavourstheeconomicdevelopmentoftheMontréalregionandQuébecingeneral.
Finally,itisimportanttokeepinmindthattheconstructionandmaintenancecostoverrunaswellasdelayrisks,arethefullresponsibilityoftheprivatepartner.
CONCLUSIONThecompletionofAutoroute25asaPPPrepresentsanexcellentopportunityforthegovernment.ThesavingsgeneratedbycarryingoutthisprojectasaPPPtotal$226.1millioninpresentvalueasatJuly1,2007.
Inadditiontothesavings,procurementasaPPPwillmakeitpossibletoofferusersaqualityinfrastructurewithinatimelinereducedbytwoyears.Furthermore,thecompletionofAutoroute25willgeneratemajorsocio-economicbenefitssincetheseareclearlyhigherthantheprojectcosts,thecost-benefitratiobeing3.4.Thus,theeconomicbenefitsarethreetimeshigherthantheeconomiccostsoftheproject.
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2. REPORT OBJECTIVES
Thepurposeofthisreportistoinformthereaderofthethoroughnessoftheap-proachfollowedbytheresultsobtained.Itcontributestothedesiredtransparencyoftheselectionprocess.ItdescribesthefinancialandtechnicalinformationthatsupportedtheprocessthatresultedintheselectionofaprivatepartnertocarryouttheAutoroute25project.Finally,itexplainshowthevalueformoneyforthepublicfundsinvestedhasbeenestablishedandquantified.
ThevalueformoneyanalysisforthepublicfundsinvestedisakeystepinensuringthatthePPPapproachoffersthebestvalueforthecommunitycomparedtoconven-tionalprocurement.ThisanalysisreliesonfivemainguidelinesclearlyexpressedintheOverallPolicyforPublic-PrivatePartnershipsadoptedbythegovernmentinJune2004.Theseprinciplesarethefollowing:justifiedandconfirmedneeds;emphasisonspecificresultsratherthenonthemethodsofattainingthem;financiallyfeasibleprojects;bestvalueforthepublicfundsinvested;optimalriskallocation.
ItisimportanttorememberthatthisprojectidentifiedbytheMinistèreasbeingapriorityunderitsGreaterMontréalAreaTrafficManagementPlan,holdsthebasiccharacteristicsofaPublic-PrivatePartnership(PPP)(1),specifically:
> Theimprovementofpublicservices;
> Majorfinancialcommitmentbythegovernment;
> Technicalcomplexityandahighlevelofrisk;
> Apotentialforcreativityandinnovationsusceptibletobenefitfromprivate sectorknow-how;and
> Anexistingcompetitivemarket.
(1) Source:OverallPolicyon Public-PrivatePartnerships,June2004,p.2
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3. PROJECT DESCRIPTION
3.1 BACKGROUND OF AUTOROUTE 25 AND EXISTING PROBLEMTheplanningofAutoroute25datesbacktothe1970’sfallingwithinaplanninganddevelopmentexerciseforthemajorroadsinfrastructuresservingthecity,andtoim-provelinkswithitsperipheralregions.TheobjectiveoftheconstructionofAutoroute25istoenablefastandefficientaccessbetweentheeastendofMontreal(MontréalandLaval)andtheLanaudièreregion.
ThecompletionofAutoroute25constitutesanessentialcomponentoftheroadnetworktakingintoconsiderationthestrongeconomicanddemographicgrowthinLaval,theLaurentian,andLanaudièreregions,aswellastheAnjou/Merciereconomichub.
3.2 TRAFFIC PROBLEMS CAUSED BY THE CURRENT SITUATIONTheabsenceofacontinuouslinkintheA-25corridorbetweenMontréalandLaval,requiresuserstotakeasevenkilometredetourviathePie-IXbridge,oran11kilome-tresdetourviatheCharlesdeGaullebridge(A-40).Theresultisamajoroverflowoftransitingtrafficontothemetropolitanhighway(A-40)andonthelocalroadnetwork,aswellasdeteriorationinthequalityoflifeofresidentsinMontréal-North,AnjouandRivière-des-Prairies.
TwomajorinterdependenttrendswillsignificantlyimpacttrafficbetweenMontréalandLaval.Thesearethedemographicgrowthofthemetropolitanregionandtheincreasednumberofvehiclesperhousehold.Thesetrendswillincreasetrafficinbothdirectionsalongthenorth-southaxis.AccordingtotheInstitutdelastatistiqueduQuébec,thepopulationinthemetropolitanregionisexpectedtogrowby9%between2001and2026.
Inacontextwhereroadcapacityremainsunchanged,significantaddedpressureontheroadnetworkwouldbefelt,inevitablytranslatingintoincreasedtrafficconges-tionproblems,longertrafficcongestionperiods,increasedcostsforheavygoodstransportation(supplyanddelivery),increasedtraveltimesandincreasedairpollu-tion.
3.3 PROJECT OBJECTIVES
By carrying out this project, the Ministère seeks to attain the following objectives:
WITH REGARD TO USERS OF THE AUTOROUTEReducedailytraveltimeaswellasvehiclemaintenanceandoperatingcoststhankstoshorterroutesintermsofdistanceandtime.
ON A COMMUNITY LEVELReducepollutioncausedbyvehicles,fostertheeconomicdevelopmentofeastendMontréalandLavalandmaximizetheeconomicrepercussionsforQuébecgeneratedbyconstructionandoperatingexpendituresrelatedtothisnewroadinfrastructure.
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3.4 MAIN PHYSICAL CHARACTERISTICSTheprojectentailscompletingtheconstructionofAutoroute25betweenHenri-BourassaBoulevard,inMontréal,andtheA-440/A-25interchangeinLaval,overadistanceof7.2kilometresincludinga1.2kilometrebridge.
TheAutoroutewillconsistoffour(4)expresslanesdistributedovertwoseparateroadwaysincludinginterchangesandoverpasses.ThebridgespanningtheRivièredesPrairieswillincludesix(6)expresslanesandonemultipurposelanetoenablepedestriansandcycliststocrossfreely.Furthermore,theprojectincludespreferentialmeasuresforpublictransitwiththeconstructionofreservedbuslanesinLavalandMontréal.
Finally,afullyelectronictollsystemisplanned,withthecollectionpointlocatedonthenorthsideofthebridge.Bridgeuserswillberequiredtopayatoll.
Thislinkwillenablecommuter,transit,andheavygoodstraffictouseAutoroute25fortravelthroughthenortheastpartofthemetropolitanregion.UserswhowanttoavoidthemetropolitansectionofHighway40willtherebybeabletobypassthecityviathenortheast.
3.5 MAIN STUDIES CARRIED OUT DURING THE PROJECT
Various studies have contributed to the development of the project.A summary of the two main studies is presented below.
TRAFFIC AND REVENUESAstudywascarriedoutfortheMinistèretoestimatetrafficandtollrevenuesthatcouldbegeneratedbytheuseofthebridge.ThestudydemonstratedthatthedemandforthenewAutoroute25isparticularlyhighduringpeaktrafficperiodsonweekdays.Trafficandrevenueevaluationsshowthatfollowingtheramp-uppe-riod,averagedailytrafficflowintheprojectcorridorwillbeapproximately40,000vehicles.
SOCIO-ECONOMIC ANALYSISTheMinistèrecarriedoutacost-benefitanalysisbyapplyingthemethodologyitusesforallofitsprojects.TheresultsofthisstudydemonstratethatthecompletionofAu-toroute25willgeneratemajorsocio-economicbenefitssincetheseareclearlyhigherthanthecostoftheproject.Inlightofthisanalysis,thecost-benefitratiois3.4.
C O S T- B E N E F I T R AT I O
The cost-benefit ratio is obtained by dividing economic benefits by costs. These benefits consist, among others, in lower travel time, in reduction in vehicle use costs, and in reduced pollution. Costs include those related to the right-of-way, the construction of the infrastructures as well as their operation and maintenance.
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4. SELECTION PROCESS
Inlightofthestudiesitcarriedout,theMinistèreconcludedthatcompletingAuto-route25asaPPPwouldoffermorebenefitsthanbyaconventionalapproach.ThegovernmentauthorizedthelaunchoftheprocesstoselectaprivatepartnerandcarryouttheprojectasaPPP.
Thestrategyleadingtotheselectionoftheproposalandtheprivatepartnerinvolvedseveralstepsdesignedtoensurerobustcompetitionbetweenrespondents,withaviewofcompletingtheprojectatthelowestpossiblecostallwhilerespectingtheMinistère’srequirements.Theselectionofthebestproposaltookplaceinthreemainstepsunderthesupervisionofanindependentfairnessauditor,inthreemainsteps:requestforqualification,requestforproposals,andfinalizationofthepartnershipagreement.
SUMMARY SCHEDULE FOR THE SELECTION PROCESS
LAuNCH OF THe reQueST FOr QuALiFiCATiON December 2005
Submittalofsubmissions MARCH2006 Announcementofqualifiedrespondents MARCH2006
LAuNCH OF THe reQueST FOr PrOPOSALS July 2006
Submittalofproposals MARCH2007 Announcementofselectedrespondent JUNE2007
FiNALiZATiON OF THe PArTNerSHiP AgreeMeNT
AND FiNANCiAL CLOSe September 2007
Anticipatedcommissioningdate 2011
4.1 REQUEST FOR QUALIFICATIONThepurposeoftherequestforqualificationwastoidentifyandselectthepotentialcandidateswhoweremostqualifiedtoassumetheforeseenresponsibilities.Thefoursubmissionsreceivedwereevaluatedbyaselectioncommittee(2)basedontheircompetenciesandtheirabilityfromatechnicalandfinancialperspective.Followingtheevaluationofthesubmissions,threecandidateswereaskedtoproceedtothenextstepoftheselectionprocess,therequestforproposals.Theserespondentswere:ConsortiumNouvelleRoute,ConcessionA25L.P.(Infras-QuébecA25)andSNC-Lavalin.
Thefairnessauditor’sreportwasmadepubliconMarch22,2006.Broadly,thisreport(3)testifiestothefairandtransparentmanagementoftherequestforqualification.
(2) SeeAppendix2fortheSelection CommitteeStructure.(3) ReportNo.1fromtheFairnessAuditor, March22,2006,p.19www.mtq.gouv.qc.ca andwww.ppp.gouv.qc.ca.
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4.2 REQUEST FOR PROPOSALSTherequestforproposalsconstitutesthesecondstepintheselectionoftheprivatepartner.Thethreerespondentsqualifiedduringthepreviousstepwereinvitedtosubmitaproposal.Followingtheirevaluation,thethreeproposalsweredeemedtobeeligibleandcompliantfromacommercial,technicalandfinancialstandpoint.TheseevaluationswerecarriedoutunderthesupervisionoftheselectioncommitteeinaccordancewiththecriteriaoutlinedinOrder-in-Council659-2006.Amongtheeligibleproposalsthatweredeemedcompliant,theselectioncommitteechosetheproposalpresentingthelowestcostexpressedinthepresentvalueoftheavailabilitypayments.ThisproposalwassubmittedbyConcessionA25L.P.(Infras-QuébecA25).
Theselectionprocessfolloweddemonstratesthegovernment’swillingnesstochoosetheleastexpensiveproposalthatsatisfiedtheeligibilityandcompliancecriteria,whilefosteringcompetitionintheselectionprocess.
Itwasalsonecessarytoconfirmtogovernmentofficials,thepublic,andthepropo-nentsthattheselectionprocessfollowedtheprinciplesoffairnessandtransparency.Inthisrespect,thefairnessauditorprovidedareportindicatingthattheprocessunfoldedinafairandtransparentmannerwithregardtotheguidelinesfortheevaluationofsubmissionsandproposals.ThefairnessauditorreportconcerningtheevaluationofproposalswaspublishedonJune13,2007(4).
4.3 FINALIZATION OF THE PARTNERSHIP AGREEMENTFinalstepintheprocessinvolvingtheselectionoftheprivatepartner,thefinalizationofthepartnershipagreementconsistsessentiallyofadaptingthegenericpartnershipagreementtothespecificcharacteristicsoftheprivatepartner’sfinancialproposal.
Priortothesubmissionoftheirproposalsthequalifiedrespondentswereinvitedtosubmittheircommentsandsuggestionsforchangeswithregardtothepartnershipagreement.Inlightofthesuggestionsandcommentsreceived,afinalversionofthepartnershipagreementwasdistributedtoqualifiedrespondentstoreflectthechangesacceptedbytheMinistère.
Furthermore,withthesubmissionoftheirproposal,eachcandidatewasrequiredtosubmitaletterfromitslendersconfirmingtheircommitmenttoparticipateintheproj-ectfinancing.Thelendersalsohadtheopportunitytoexaminethefinalversionofthepartnershipagreement.
Theseopportunitiestoexamine,commentonandamendthepartnershipagreementeliminatedtheneedfornegotiationsfollowingthegovernment’sapprovaloftheselectedproponent,andsignificantlyreducedthetimerequiredtoachievefinancialclose.Thisapproachmadeitpossibleforthefinancialclosingtobereachedinlessthan90days.Thisfinalstepalsotookplaceunderthesupervisionofafairnessauditor;thelatter’sfinalreport(5)confirmsthatthefinalizationstepofthepartnershipagreementwascarriedoutinrespectoftheestablishedrules,andthattheentireselectionprocesswasequitable,impartial,andtransparent.
(4) ProgressReportNo.2from theFairnessAuditor,Evaluation ofproposals,May11,2007,P.19 www.mtq.gouv.qc.caand www.ppp.gouv.qc.ca.(5) Finalreportfrom theFairnessAuditor, September18,2007,P.15 www.mtq.gouv.qc.caand www.ppp.gouv.qc.ca.
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5. HIGHLIGHTS OF THE PARTNERSHIP AGREEMENT
ThepartnershipagreementistheembodimentoftheprojectasaPublic-PrivatePart-nership.Thepartnershipagreementgovernsthecontractualrelationshipbetweentheparties,setsouttheobligationsofeachparty,anddefinestherisksharing.
ThehighlightsofthepartnershipagreementforthecompletionofAutoroute25includethefollowing:
> Thetermofthepartnershipagreementis35years,including4yearsfordesignandconstructionactivitiesand31yearsforoperation,maintenance,andrehabilitationactivities.Accordingly,managementofthepartnershipagreementcomprisestwoseparateperiodsthatareverydifferentintermsofactivities,specificallythedesignandconstructionperiod,andtheoperation,maintenanceandrehabilitationperiod(OMR);
>Theprivatepartnerisresponsibleforthedesignandconstructionofstruc-tures,therelatedrisks,andcommissioningtheinfrastructure;
>Theprivatepartner,duringtheoperation,maintenanceandrehabilitationperiod,mustoperatetheinfrastructureinaccordancewiththepartnershipagreement.Failuretorespecttheoperation,maintenance,andrehabilita-tionrequirementsmaygiverisetodeductionsfornon-availabilityandnon-performance;
>Theprivatepartnerisresponsibleforfinancingtheactivities;
>Inexchangeforcarryingouttheseactivities,theMinistèrewillpaytheprivatepartneratotalamount,accordingtothetermsofthepartnershipagreement,thatrepresentsthesumof:
i) theconstructionpaymentof$80millionincurrentdollarspaidatcertainstagesduringthedesign-constructionperiod;
ii) theavailabilitypaymentduefromthecommissioningdate,calculatedinaccordancewiththetermsofthepartnershipagreement.Thispaymenttotals$13.4millionincurrentdollars,paidannuallyforthe31yearsofoperation;
iii) theremittanceslinkedtotollrevenues;anamountequivalenttothetollrevenuecollectedbytheprivatepart-neronbehalfofthegovernment.Thisamountissubjecttoarevenueguaranteeor,ifapplicable,tosharingoftollrevenueaccordingtoestablishedthresholds;
iv) thenon-availabilitydeductionsrelatedtotheavailabilityoftheinfrastructure;
v) deductionsfornon-performance,whicharerelatedtothefailuretorespectthemaintenance–operation–rehabilitationrequirementsfortheinfrastructure;
vi) theholdbackforendoftermrequirements,ifapplicable,thatwilltakeplaceattheendofthepartnershipagreement.
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6. PUBLIC SECTOR COMPARATOR
Thepublicsectorcomparatorrepresentstheexecutionoftheprojectbythegovern-mentusingaconventionalapproach.Itseekstoattainthesameresultsandperfor-mancerequirementsasthoserequiredoftheprivatepartner.Inordertoachieveafaircomparisonofbothmethods,thepublicsectorcomparatormustreflecttheapproachgenerallyusedbytheMinistèreandthefinancingmethodswhichthegovernmentcommonlyusesforfinancingsimilarprojects.
Thepublicsectorcomparatorwasinitiallydevelopedinthefallof2005duringthepreparationoftheinitialbusinesscase,andwasupdatedinMarch2007.ThelatestupdateofthepublicsectorcomparatorwascompletedbeforetheproposalsweresubmittedonMarch30,2007.
ThepartnershipagreementincludesthetransferofrisksfromtheMinistèretotheprivatesector.Accordingly,theproposalbyConcessionA25L.P.reflectsthecostsassociatedwiththeriskstobetransferredtotheprivatesector.Similarly,thepublicsectorcomparatormusttakeintoaccountthecostsassociatedwiththerisksthattheMinistèrewouldkeepifitweretocarryouttheprojectitself.
Appendix1outlinestheresponsibilitiesandriskstransferredbytheMinistèretoCon-cessionA25L.P.Theseriskswouldberetainedbythegovernmentshouldtheprojectbecarriedoutusingaconventionalapproach.
Forthepurposesofriskquantification,onlytheriskswithsignificantfinancialconse-quencesandhighprobabilityofoccurrencewereconsidered.Therisks,forwhichthegovernmentremainsresponsible,regardlessoftheexecutionmethod,arenotquan-tifiedsincethesehavenoeffectonthedecision-makingprocess.Underthetermsofthisproject,themostcostlyrisksarethoserelatingtocostoverrunsandthoserelatedtotollrevenues.
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The cost of the public sector comparator takes the following elements into consideration:
1. GOVERNMENT PAYMENTS: a. Thecostsfortheprojectcomponents(costforthedesign-constructionand
OMRcosts,includingtheoperationofthetollsystem).
2. OTHER RELEVANT COST ELEMENTS: a. Thetollrevenuescollectedbythegovernmentinaccordancewiththefore-
castspreparedbythetrafficandrevenueadvisor;
b. Thequantificationofrisksthatareexpectedtobetransferredtotheprivatepart-ner(underthetermsofaPPP),butthatareassumedbytheMinistèreunderaconventionalapproach;
c. Theresidualvalueoftheassets.
Thetemporalvalueofmoneyistakenintoconsiderationbydiscountingflowusinga6.5%discountratefortheitemsindicatedabove,soastoexpressthemasasingleamountasatJuly1,2007.
Asindicatedonthetable(Page14),thepresentvalueofnetcostfortheprojectcarriedoutunderaconventionalapproachisestimatedat$369.2millionasatJuly1,2007.ThisresultwillbeusedinthevalueformoneyanalysispresentedinSection8.
D I S C O U N T R AT E
The discount rate refers to the historical average of the Government of Québec’s yeald lending rates over the past 40 years, to which the Bank of Canada’s target inflation rate has been added. For the purposes of financial evaluation, it is used as a return rate required by the Ministère des transports du Québec for the completion of Autoroute 25.
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The quantification of risks was carried out by a task force comprising
experts from the public sector and external advisors. After defining
the risks, the work group determined their probability of material-
izing and their potential financial consequences. The quantification
of each risk is the result of the multiplication of the probability of
materialization by the financial consequence.
R E S I D U A L VA L U E
At the end of the partnership agreement period, the Autoroute 25 infrastruc-tures will not have reached the end of their useful life. Accordingly, a value
(referred to as the residual value) will be assigned. This value relates among other things to the value of the land, the depreciation of infrastructures, and
the condition of these depending on the maintenance carried out.
PUBLIC SECTOR COMPARATOR PRESENT VALUE AS AT JULY 1, 2007 (IN MILLIONS OF DOLLARS)
Project cost over 35 years 483.6
Toll revenues (198.2)
risk quantification
Riskofcostoverruns 68.7 Risksrelatedtotollrevenues 85.7 Otherrisks 11.1
165.5
Net execution costs 450.9
residual value (81.7)
Net project completion cost 369.2
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Thissectionaddressestheprivatepartner’sproposal,andhighlightsthecosttothegovernmentofcompletingtheprojectAutoroute25byConcessionA25L.P.
7.1 HIGHLIGHTS OF THE PRIVATE PARTNER’S TECHNICAL PROPOSALThedesignofthebridgeconsistsofcable-stayedspansforthethreemainsectionsofthebridge.Asystemcomprisingtwopylonswillbeusedwithtwoseriesofstayedwires.
Thisprojectwillbeequippedwithafullyelectronictollingsystem.Userswillnothavetostoporreducetheirspeedwhenpassingthecollectionpoint.Theselectedtechnologyfortheelectronictransponderthatcanbeinstalledinvehiclesdoesnotrequireanyelectricalpowersource.
7. PRIVATE PARTNERSHIP PROJECT
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7.2 COMMERCIAL STRUCTURE
For the partnership, Concession A25 L.P. developed the following commercial structure:
SimilartorecentPPPprojectscarriedoutinCanada,theprivatepartnerisstructuredasalimitedpartnership.Theselectionofsuchastructureisgenerallymotivatedbythewishforfiscaloptimizationsinceinalimitedpartnershiponlythelimitedpartnersaresubjecttoincometaxresultingfromtheproject.
ConcessionA25L.P.hassignedthreemaincontracts:theinfrastructuredesign-con-structioncontract,theinfrastructureOMRcontract,andthecontractfortheelectronictollsystem.
SOURCE: CONCESSION A25 L.P.
Ministère
ConcessionA25 S.E.C.
MacquarieFINANCES
Kiewit-ParsonsDESIGN-CONSTRUCTION
PARTNERSHIP
MillerOPERATING MAINTENANCE AND REHABILITATION CONTRACTOR
GENIVARDESIGN
Ciment Saint-LaurentCONSTRUCTION
TransCoreELECTRONIC TOLL SYSTEM
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7.3 PROJECT CALENDAR
The proposal submitted by Concession A25 L.P. includes the following schedule:
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4 7 8 9 10 11 12
2007 2008 2009 2010 2011 2012-2036 2037 2038-2041 2042
PHASES
Signing of the partnership agreement
Design-Build
Commissioning of the infrastructure
Operation, maintenance and rehabilitation
inspection and end of term work
end of the partnership agreement
Handover of the infrastructure
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7.4 COST OF PROPOSAL SUBMITTED BY CONCESSION A25 L.P.
The following elements have been taken into consideration to determine the cost of the proposal submitted by Concession A25 L.P.:
1. Paymentsbythegovernment;
2.ThecostofmonitoringthepartnershipagreementincurredbytheMinistère;
3.Theresidualvalueofassets.
Aswiththepublicsectorcomparator,thetimevalueofmoneyistakenintoconsider-ationbyadjustingcashflowfortheelementsidentifiedusinga6.5%discountrateinorderforthemtobeexpressedasasingleamountasatJuly1,2007.
Consideringthepreviouslydescribedapproachandassumptions,thenetcostofcar-ryingouttheprojectasaPPPis$143.1million(inpresentvalueasatJuly1,2007).
TOTAL COST OF THE PRIVATE PARTNER’S PROPOSAL TO THE GOVERNMENT PRESENT VALUE AS AT JULY 1, 2007 (IN MILLIONS OF DOLLARS)
Payments to the private partner
Constructionpayments 64.7 Availabilitypayments 141.9
Agreement monitoring costs 19.4
execution costs 226.0
residual value (82.9)
Net project execution cost under the terms of a PPP 143.1
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Thepurposeofanalyzingthevalueformoneyforthepublicfundsinvestedistocom-paretheproposalsubmittedbyConcessionA25L.P.withthepublicsectorcompara-torinordertoquantifythebenefitsofthePPPapproachcomparedwiththeconven-tionalapproach.Althoughthecomparisonbetweenthetwoprocurementmethodsispresentedinaquantitativemanner,thequalitativeaspectsmustalsobetakenintoconsideration.
QUANTITATIVE COMPARISONTheselectionprocesswasdevelopedtotakeintoconsiderationthemagnitudeoftheprojectcostsforthegovernment.Itreflectsthedesiretochoosetheleastexpensiveproposalthatrespectsallofthetechnicalandcommercialrequirements.
Thefigurebelowpresentsthecostsforthegovernment,relatedtocarryingoutoftheproject,basedonthetwopotentialapproaches:PPPorconventional.
ThisfigureillustratesthatcompletingtheprojectasaPPPwillmakeitpossibletoreducethetotalprojectcostby$226.1million.
PRES
ENT
VALU
E AS
AT
JULY
1, 2
007
(IN M
ILLI
ON
S O
F D
OLL
ARS)
8. ANALYSIS OF THE ADDED VALUE FOR THE FUNDS INVESTED
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
143.1
369.2
Value for money of 226.1
PROCUREMENT APPROACHES
PUBLIC SECTOR COMPARATOR PRIVATE PARTNER’S PROPOSAL
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QUALITATIVE COMPARISON
Enlisting Concession A25 L.P. for the completion of the project as a PPP has the following qualitative benefits:
> ItwillenabletheMinistèretofocusonitssupervisoryrole,therebyentrustingConcessionA25L.P.withtheprovisionofservices.Thisfacilitatestheinterven-tionoftheMinistèreshouldtherebefailuretorespectperformancerequire-ments;
> FinancingoftheprojectbyConcessionA25L.P.involvestheparticipationofworldclasslenders.Theselenderswillcloselymonitortheexecutionofthedesignandconstructionworksaswellastheoperationandmaintenanceactivitiesinordertoprotecttheirinvestment;
> CompletingtheprojectasaPPPwilladvancethecommissioningoftheinfra-structurebytwoyearscomparedwiththeconventionalapproach.Thecommis-sioningoftheinfrastructuretwoyearsearlierrepresentsmajorsocio-economicbenefitsforthecommunity;
> Intheanalysisofthepublicsectorcomparator,theconstructioncalendarselectedbythegovernment’stechnicaladvisorsindicatesthatAutoroute25wouldbecompletedinsixyears.Experiencehasdemonstratedthatitispossiblethatitwouldtakelonger.Accordingtoexperienceinrecentyears,theconstructionprojectcouldtakemoretimethananticipateddependingontheannualbudgetsthatareallocated;
> UnderthetermsofaPPP,themaintenanceandrehabilitationoftheAutoroutearesetoutunderthetermsofthepartnershipagreement.Withaconventionalapproach,maintenanceandrehabilitationarecarriedoutaccordingtotheavail-abilityoftheMinistère’sbudget.
> ThetermsforremittanceofthetollrevenuesdescribedinthepartnershipagreementindicateequalsharingbetweenConcessionA25L.P.andthegovernmentofallrev-enuesexceedingthesharingthreshold,specificallythetollrevenuesexceeding120%oftheforecastspreparedbythegovernment’strafficandrevenueadvisor;
> Thegovernment’scostoftheproposalsubmittedbyConcessionA25L.P.hasnotbeenreducedbytheincomeandothertaxesthatwillbepaidtothegovern-mentbythepartnersinthelimitedpartnership.Allofthetaxescollectedbythegovernmentwillreducetheprojectcost.
CarryingoutthecompletionofAutoroute25asaPPPwillenablethegovernmentanditscitizenstoobtainbettervalueformoneyforthepublicfundsinvested.Infact,itscompletionbyConcessionA25L.P.translatesintosavingsestimatedat$226.1mil-lioninpresentvalueasatJuly1,2007.
Beyondthesavings,thecompletionoftheprojectasaPPPwillmakeitpossibletoplaceatthedisposalofusersaqualityinfrastructurewithinareducedtimeframeoftwoyears.Furthermore,thecompletionofAutoroute25willgeneratesignificantso-cio-economicbenefitsfortheGreaterMetropolitanRegionandforQuébecingeneral.Thesebenefitsforroadusersincludetoreducetraveltimeandadecreaseinvehiclemaintenanceandoperatingcosts.Fromtheperspectiveofthecommunity,theywillincludeamongotherthingstheeconomicdevelopmentoftheeastendofMontréalandLavalandinareductioninvehiclepollution.
Furthermore,thecompletionoftheprojectasaPPPwillenablethesignificanttrans-ferofriskstoConcessionA25L.P.Theseriskswouldotherwisebetheresponsibilityofthegovernment.Theserisksaremainlythoserelatedtoconstructionandmainte-nancecostoverrunsandconstructiondelays,andthoseassociatedwithtollrevenues.
Accordingly,followingathoroughanalysis,thePublic-PrivatePartnershipapproachrepresentsthesolutionthatoffersthemostbenefitsforthegovernmentandthecom-munity,aswellasforfutureusersofAutoroute25.
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9. CONCLUSION
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MAIN RISKS AND RESPONSIBILITIES RISKS AND RESPONSIBILITIES ASSIGNED TO THE PRIVATE PARTNER MINISTER
OBTAININGENVIRONMENTALPERMITSANDAUTHORIZATIONS
Certificateofauthorizationfortherealizationoftheproject(CAR) • Certificateofauthorization(CAC) • • Requiredfederalpermitsandauthorizations • • AuthorizationspursuanttoAn Act respecting Land Use Planning and Development(L.R.Q.,c.A-19.1) • Otherlicences,authorizationsandroadspermits • •
DESIGNANDCONSTRUCTIONOFSTRUCTURESFORWHICHTHEPRIVATEPARTNERISRESPONSIBLE
Costoverruns • Delays • Movingpublicutilities • • Selectingthetolltechnology • Principalcontractor,asdefinedintheAct respecting occupational health and safety(L.R.Q.,c.S-2.1) • Contaminatedsoil–undocumentedandinexistencepriortoexecutionofthepartnershipagreement • Contaminatedsoil–documentedorresultingfromconstructionand OMRofthestructuresforwhichtheprivatepartnerisresponsible • Geotechnicalrisks • Acquisitionandownershipoftheright-of-way •
FINANCINGANDFINANCIALCONDITIONS
Inflationriskduringtheconstructionandoperationphases • BenchmarkInterestRatefluctuationriskeffectiveonthedayoftheFinancialClosing • Sharingprofitsfromrefinancing • •
OMROFTHESTRUCTURESFORWHICHTHEPRIVATEPARTNERISRESPONSIBLE
OMRofthestructuresforwhichtheprivatepartnerisresponsibleandtheelectronictollsystem • ConditionoftheassetsattheendofthePartnership •
TOLL
Settingthetoll • Collectionoftollsandaccessoryfees • • Tollrevenuerisk • •
APPeNDiX � — MAIN RISKS AND RESPONSIBILITIES
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APPeNDiX � — SELECTION COMMITTEE STRUCTURE
M I N I S T è R E D E S T R A N S P O R T S D U Q U É B E C • P A R T E N A R I A T S P U B L I C - P R I V É Q U É B E C
Sub-CommitteeDESIGN AND CONSTRUCTION OF MAJOR STRUCTURES
Sub-CommitteeDESIGN AND CONSTRUCTION OF AUTOROUTES
Sub-CommitteeOPERATION, MAINTENANCE, AND REHABILITATION OF ROADS AND BRIDGES; DESIGN, CONSTRUCTION, IMPLEMENTATION OPERATION AND MAINTENANCE
OF THE ELECTRONIC TOLL SYSTEMS
Sub-CommitteePROJECT MANAGEMENT AND QUALITY MANAGEMENT
Sub-CommitteeENVIRONMENTAL MANAGEMENT
Sub-CommitteeFINANCIAL CAPACITY AND PROJECT FINANCING
Due Diligence Committee
Evaluation Committee
Secretariat
Eligibility and Clarification Committee
Conflict of Interest Arbitrator
Evaluation Manager
Business Relations and Conflict of Interest
Committee
Fairness Auditor
Executive Committee