Project OverviewBusiness and Procurement Model Presentation

13th Informal PPP Exchange

Lisbon, 6th July 2007Brussels, 1st June 2010

Portuguese High Speed Rail ProjectPortuguese High Speed Rail Project

High Speed Projects and Public Private PartnershipsHigh Speed Projects and Public Private Partnerships

Institutional Framework

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Institutional Framework

Portuguese State

CPPublic Operator

REFERInfrastructure Manager

Private Operators•Fertagus•Freight Operators

IMTTNational Railway Authority

RAVE

Spanish Kingdom

ADIFInfrastructure

Manager

AVEP

Created for the development and co-ordination of the necessary work and studies to implement a high speed rail network in Portugal.

Created for the development of the necessary studies for the international axis concerning Portugal and Spain.

Historical Milestones

2000

2003

2001

Creation of RAVE

Creation of AVEP

Portuguese/Spanish Summit

2002 Start of Feasibility Studies

Cross border HSR axesJourney Time Objectives

2006 Start of the Environmental ImpactAssessment

Jun/2008 Beginning of the Procurement Process (1st PPP Tender)

Porto-Vigo

Aveiro-Salamanca

Lisboa-Madrid

Faro-Huelva

Lisboa-Madrid

Aprox. 2h45m

Porto-Madrid

Aprox. 2h45m

May/2010 Signature of the 1st PPP concession agreement

Jun/2007 Presentation of the Business Model

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Why did Portugalconsider high speedrail?

Structuring the European Atlantic south-west front – bonding the region and contributing to its competitiveness

Integration of the national rail network in the Trans-European Rail Network – assuring the interoperability both in the passenger and freight transport

Release of capacity in the conventional rail network –improving suburban, regional and freight rail services

Sustainable Mobility – improve the competiveness of the rail transport while reducing sinistrality, emissions and the country’s dependence of oil based energy

Increase the competitiveness of the port, airport and logistics systems – improving their articulation and making their area of influence broader

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Main Objectives

Norte Line - % of utilisation(peak hour)

High Speed Line Norte LineOeste Line

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PORTO

LISBON

PORTO

LISBON

1667 mm

Special Features of the Project: Rail Gauge

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Development of ahigh speed rail

project

Technical & Planning Questions

1. What should be the network shape and which cities should be served?

2. What should be the travel time and therefore the design speed?

3. How should the articulation with the conventional rail network be made?

4. How should the articulation with other transport modes be made? (airports, ports and roads)

1. How should the Public Sector develop and coordinate the project? (Public Sector’s Role)

2. Type of involvement from the private sector & level of Risk transfer?

3. What type of procurement?

4. How should the project be financed?

5. How to break down the value chain of the project?

Financial & Management Questions

BUSINESS MODEL

Development of a High Speed Project

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THE PROJECT

The Project

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Technical & Planning Questions

Main Results:

PORTO-VIGO AXIS

Lenght: 125 km (100 km in Portugal)

Travel time: 1h00m → (250 km/h)

Investment: € 1,8 billion

LISBOA-MADRID AXIS

Lenght: 640 km (206 km in

Portugal)

Travel time: 2h45m (350 km/h)

Passenger and Freight Traffic

Investment: € 1 8 billion

LISBOA-PORTO AXIS

Lenght: 290 km

Travel time: 1h15m (300 km/h)

Passenger Traffic

Investment: € 4,5 billion

Cost Benefit Analysis

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PORTO-VIGO AXIS

Economic IRR 2,4%Source: Sener, Ferconsult

Economic IRR 2,4%Source: Sener, Ferconsult

Economic IRR 10,8%Source: VTM, Steer Davies Gleave

Economic IRR 10,8%Source: VTM, Steer Davies Gleave

LISBOA-PORTO AXIS

Economic IRR (HS) 5,90%Source: Epypsa, Exacto e Booz Allen Hamilton

Economic IRR (HS) 5,90%Source: Epypsa, Exacto e Booz Allen Hamilton

LISBOA-MADRID AXIS

Business Model

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What is the Business Model that better allows

to reach these goals?

Business Model Strategic Goals

AFFORDABILITY FOR THEPORTUGUESE STATE

Minimization of Risks

High Level of Service / Quality

Delivery of the Project on

Time

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What should be the role of both Public and Private Entities?

How should the breakdown of the value chain be made?

Main issues to develop the BUSINESS MODEL

Trad

ition

alTr

aditi

onal

(Lar

ge co

ntra

cts)

Mix

ed p

rocu

rem

ent

Trad

ition

al+DBF

MDBFM

+ O

DBFOM

Private Sector involvement- +Traditional Procurementvs

Public Private Partnership

Horizontal segmentationand

Vertical segmentation

how should the project be divided into parcels?

what specialities should each parcel contain?

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Traditional Procurement

State

State

State

Production risksconstruction,

maintenance, etc.

Financing

Market risksdemand, charging, etc.

Term Short or Medium

PPP(Wide range, major flexibility)

Private

State, private or mixed

State, private or mixed

Medium or Long

Privatization

Private

Private

Private

Lifetime

What should be the role of both Public and Private Entities?

Defining Business Model

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Defining Business ModelBenchmark Analysis

Private(PPP)

Public

Public

Public

Holland2005

Public

United KingdomDecade 90

Public

Private(PPP)

Bordeaux-Tours(France)2007

Public

Perpignan-Figueras

(France-Spain) 2005

Public

Trend (Reduction of Public Sector risk exposure)

Strategic RoleRegulationPlanningEstablishment of RequirementsArticulation of the System

Financial Role

Operational RoleDesignBuildMaintainOperate

France1980/90Spain

1980-actual

Brazil2009

Public

Private(PPP)

Public and Private

Private(PPP)

Private(PPP)

Private(PPP)

Private(PPP)

Public and Private

Public and Private

Public and Private

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Key Aspects1. Output focus (design, build and maintenance risks with private partner)

2. Results/quality award (performance based payments)

3. Life cycle approach (long term contracts)

4. Public finance as much as possible (but keeping private partner with money at risk)

5. Transfer risks that private partner can control

Defining Business ModelPPP Concept

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Large investments

Major Challenge

Suitable Applications Technical stability environmentGreen field projects

Cultural change both in public and private sector

Breakdown of a High Speed Project

Defining Business Model

Size determinant to model efficiency and project attractiveness

Specificity beware suppliers dependence of some components

Risk major risk in one component may affect all project

Lifecycle contract term should be linked to assets lifecycle

Interfaces difficult to deal by public partner

Market condition projects should be made attractive for the market

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Capacity Allocation and Traffic Management

Superstructure

Signalling and Communication

Passengers Operator

ServiceRolling Stock

Substructure

Stations

Freight Operator

Infrastructure

Station

Operator(Passengers,

Option: Freight)Rolling Stock

Infrastructure

Signalling / Communication(in connexion with the Control Centre)

Breakdown of a High Speed Project

Defining Business Model

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Capacity Allocation and Railway Traffic Management (State/REFER)

Signalling / Telecommunications (PPP6)

Substructure /Superstructure

(PPP1)

Substructure /Superstructure

(PPP2)

Substructure /Superstructure

(PPP3)

Substructure /Superstructure

(PPP4)

Substructure /Superstructure

(PPP5)

• National & International experience• Lifecycle / Useful Life• Level of national involvement• Keep the strategic role within the Public Sector

• Dimension of the investment• Technological risk• Assure high level of competition• Horizontal and vertical interface risks

€500 Million

€1.4 – 2.0 Billion each

The Portuguese Business ModelInfrastructure – breakdown of the value chain

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PPP4 Coimbra-Porto

PPP3 Lisbon-Coimbra

PPP1 Poceirão-CaiaSigned

PPP6Signaling / Telecommunication

PPP2 Lisbon-PoceirãoTender Launched

PPP5 Braga-Valença

The Portuguese Business ModelPPP Signaling / Telecommunication

Scope: Design, Supply, Installation and MaintainConcession Period: 20 yearsPayment Mechanism: Availability

PPP Substructure / Superstructure

Scope: Design, Built, Finance and MaintainConcession Period: 40 yearsPayment Mechanism: AvailabilityMaintenance Demand

OperationRolling StockState acquires and leases it back to the

Operator(s)Operation ServiceProcurement Process to be defined in

2010, articulated with the EU directive on

OperationRolling StockState acquires and leases it back to the

Operator(s)Operation ServiceProcurement Process to be defined in

2010, articulated with the EU directive on

Operation

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Principles for risk allocation:

1st Minimization

2nd Efficient Allocation

Risk Allocation

PPP Substructure / Superstructure

Scope: Design, Built, Finance and MaintainConcession Period: 40 yearsPayment Mechanism: AvailabilityMaintenance Demand

Public Private

Political

Planning

Financing

Design / Project

Expropriation

Construction

Environmental

Archaeological

Maintenance

Availability

Safety

Demand

Force Majeur

Lisboa

To be developed directly by the State (REFER/RAVE)

Évora, Oeste, Leiria, Coimbra, Aveiro, Porto, Braga and Valença

Integrated in the 5 PPP’s for infrastructure

New Lisbon Airport Station

To be developed by the NLA Concessionaire

Elvas/Badajoz

To be developed directly by Portuguese and Spanish Governments

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Business Model Selected: HS Stations

LISBOATo be developed directly by the State (REFER/RAVE)

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Business Model Selected: HS Stations

CoimbraTo be developed directly by the Concessionaire of PPP3 (Lisbon-Coimbra)

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Business Model Selected: HS Stations

Implementing PPP

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Technical Studies

The early release of the technical studies revealed major advantages and is one of the most successful factor of the Portuguese Model

Technical Studies aim Strategic decision support Optimization Environment approval Financial analysis support:

o Construction costso Maintenance costso Revenues

Solid base for bidders

Early studies release More time for bids Correct asymmetric information Keep studies outside tender scope

Contribute to transparency Tender attractiveness

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Public announcement

Submission of proposals

Negotiating with two bidders

Short listing two bidders

BAFO by two bidders

Evaluating two BAFOs Final Jury report Awarding the concession

Contract Signing

Day 0

3 mon

ths

2 mon

th

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Month 18th

4 mon

ths

3 months

Procurement process for the infrastructure PPPAdopted Model

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Grantor

Banks

Maintenance company

Contractor

Works Contract

MaintenanceAgreement

Direct Agreements

Security Agreements

Financing Agreements

Joint Venture Agreement

Direct Agreements

Direct Agreement

Concession Agreement

ConcessionaireShareholders

By-laws

Subscription Agreement

Shareholders Agreement

Contractual structure

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Bidders are free to optimize and innovate in areas that do not compromise the strategic goals of the project

Technical Requirements

• FOCUS ON OUTPUTS

• High-level requirements:

• Applicable norms

• Safety and security requirements

• External interfaces requirements

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The Performance regime should be effective, simple and proportional

OutputsOutputsInputsInputs

Design and build

Maintenance

PerformanceExclusive

responsibility of the

Concessionaire

Performance model

Payment to the Concessionaire

Minimum standards

Performance RegimeConcept

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ppt CDD

Deductions by assets conditions

Deductions by non-availability

Performance RegimePayment Deductions

Reward a Concessionaire who makes the

railway assets available with full line

capability, for the whole operational

day; and

Reward a Concessionaire who

maintains in good condition

other assets that do not

directly affect the availability.

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The story so far:

Lisbon-Madrid AxisPoceirão-Caia

signed

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Estimated Cost: 1,93 billion €Tender launch: 30th March 2009Operation start: 2013(1) Includes conventional rail component and road

component of the TTC and HS and conventional rail connection to the New Lisbon Airport

(2) Includes conventional rail component between Évora and Caia

Estimated Cost: 1,34 billion €Tender launch: 2nd June 2008Operation start: 2013

Estimated Cost exclusively for High Speed: 1,97 billion €Estimated Cost of the Project (4): 3,64 billion €

LISBON - CAIA LINE

(4) Includes all the integrated projects part of PPP1 and PPP2

Traditional Procurment Portugal-Spain shared launch

HIGH SPEED STATION OF LISBON

INTERNATIONAL HS STATION OF CAIA

Estimated Cost: 500 million € (3)

Tender launch: 2010

(3) 228 million € for the Lisbon-Caia line

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Lisbon-Madrid Axis

7%3%

29%

12%

13%

36%

49%

PPP1 – Poceirao – Caia Finanncial Structure

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EU Grants 41%

RTE-T

Cohesion Fund

REFER Portuguese State

Investors and Commercial Banks

EIB

Private Finance (49%)

State Support (10%)

The HSL Poceirão-Caia (165 km), with a construction cost of € 7,5 million per km and a maintenance cost of € 116 000 per km.year, is one of cheapest ever built

(M€, prices of 2008)

Dec 2005

2 260

Jun 2007

1 756-504

Jun 2008

1 473-2831 359

Jun 2009

-114 -40%

-901

Public Session

Business Model presentation

Tender Launch BAFO

PPP1 (Poceirão-Caia)

Evolution of the Construction Investment (M€)

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The Portuguese Business ModelThe story so far

Life Cycle Costs

+169%

-33%

-58%

-39%

2975

2243

1814

PSC was based on benchmarking data from high speed lines in service

PPP1 (Poceirão-Caia)

The Portuguese Business ModelThe story so far

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Project OverviewBusiness and Procurement Model Presentation

13th Informal PPP Exchange

Lisbon, 6th July 2007Carlos FernandesCarlos Fernandeswww.rave.ptwww.rave.pt

Thanks for your attentionThanks for your attention