Public Private Partnership Opportunities … Private Partnership... · best meets clearly defined...

Public Private

Partnership Opportunities

Hilton Barbados Resort

Presented by: Gianni Ciufo

9th October, 2015

International Business

Week Conference

Barbados International

Business Association

Agenda

Public Private Partnership Opportunities

Introduction

Key P3 Concepts

Government Monetization

Impact Investing

2


Introduction

3

Introduction

Defining P3s


“A cooperative venture between the public and private sectors, built on the expertise of each partner, that

best meets clearly defined public needs through the appropriate allocation of resources, risks and

rewards.” - Source: Canadian Council for Public Private Partnerships

The “partnership” is a contractual relationship that spells out the roles, responsibilities and accountabilities

of both the public and private sector parties to the contract

4

Introduction

Carribean P3 Projects

There have been a number of P3 projects* in

various areas of the Carribean that reached financial

close within the last 5 years including:

• Trans-Jamaican Highway (Highway 2000

Project) Refinancing and Expansion (Jamaica) –

April 2011

• King Edward VII Memorial Hospital (Bermuda) –

December 2010

• Green Corridor Highway PPP (Aruba) – July

2015

There are also other Carribean PPP projects

currently in the transaction phase including:

• Watty Voss Boulevard (WVB) PPP (Roads PPP

in Aruba) – in the preferred proponent stage

• Norman Manley International Airport in Kingston,

Jamaica – in the preferred proponent stage

Public Private Partnership Opportunities 5

Source: http://Bermuda-online.org/kemh.htm

Source: http://www.infra-deals.com


Key P3 Concepts

6

Key P3 Concepts

Comparing P3s vs. Traditional delivery


Public-private partnerships Traditional delivery

• Public sector procures assets

• Public sector specifies its requirements in input

terms

• Components of delivery are separated (design,

bid, build, operate)

• Asset paid for at completion

• Risks typically remain with the public sector

• Public sector procures assets and services

core to the vitality of the assets

• Public sector requirements are defined in

output terms

• Components of delivery are bundled (design,

build, finance, operation and maintenance)

• Payments made over life of asset and

linked with operational performance

• Significant levels of risk transfer

7


What is a lifecycle approach to infrastructure?

A comprehensive asset management methodology that commits the optimal level and mix of human, financial and

technical resources to the planning, execution and management of public infrastructure projects to facilitate the

delivery of high quality public services.

Why is a lifecycle approach required for infrastructure projects?

Public infrastructure projects are complex with 25 to 100 year lifecycles (Assets with a 30 to 50 year useful life will

go through 7 to 12 political cycles)

Focus of decision-makers, planners and managers tends to be on planning and constructing a facility –

consideration of long-term management of assets is usually deferred

Condition of assets critical to delivery of quality public services and a lifecycle approach to planning and

management helps to mitigate lifecycle risks across generations of asset managers and users

8

Key P3 Concepts

The Infrastructure Lifecycle


CONCESSION PHASE TRANSACTION PHASE PLANNING PHASE

1. Condition of infrastructure fiscal situation

2. Legislation / regulation

3. Leadership: political, public service and

project management

4. Planning: environmental assessments and

project opportunities

5. Governance/financial model selection

6. Business Case Development

7. Communications: internal and external

8. Implementation Plan

Se

qu

en

tia

l A

cti

vit

ies f

or

Infr

astr

uc

ture

De

live

ry

1. Transaction process

2. Market sounding

3. Risk Transfer and Value for Money

Benchmarking

4. Payment mechanisms & establish

Performance Standards

5. Finalize Request for Proposal and legal

contract

6. Bidder selection and negotiations

7. Financial close

P3s are focused on a lifecycle solution for infrastructure

1. Transition to constructor

2. Construction

3. Facility operation and maintenance

(performance, contract and relationship

management)

4. Concession agreement monitoring and

management

5. Periodic audits and market testing

6. Asset hand back

9

Key P3 Concepts

The Infrastructure Lifecycle

Key P3 Concepts

Infrastructure delivery model spectrum


There is a spectrum of infrastructure delivery models ranging from Traditional delivery to full privatization.

Moving left to right on the spectrum illustrated in the figure below, the role of the private sector increases

as risk is transferred from the public-sector sponsor of an infrastructure project.

Infrastructure Delivery Spectrum

Public Ownership/Control Public-Private Partnership Private Control/Ownership

Governance / Ownership Models

Project Delivery Mechanisms

Traditional

(Design-Bid-

Build)

Finance-

Design-Build-

Operate &

Maintain

Design-Build-

Operate &

Maintain

Design-Build-

Finance Design-Build

Build-Own-

Operate &

Transfer

10

Benefits of P3 Infrastructure Projects


• P3s enable the public sector to spread cost of infrastructure investment over

the lifetime of the asset - affordable

• Payments are aligned to the delivery of project objectives - thus P3s have a

solid track record of on-time or early construction completion and on-budget

delivery

• Well-designed P3s help maintain infrastructure by transferring maintenance

requirements for a facility to the private partner

Bring construction

forward

Track Record

Ensuring that assets are

properly maintained

• The concept of “pay for performance” is at the heart of the P3 delivery

methodology Accountability

• P3s result in contracts that set out fixed payments over the life of the

contract that make it easier for governments to budget in their fiscal plans Fiscal planning certainty

11

Criticisms of P3s


• Relationship between the public and private sector cost of capital for a

project should be appropriate

• P3s lower costs and ensure value for money

• Private sector efficiency can generate economies that outweigh higher

costs of borrowing

Higher cost of capital

Value for Money

• P3 market matures and becomes more competitive, risk of windfall

profits decreases

• Gain share agreements can also be negotiated to mitigate this risk

Windfall profits to the

private sector

Issue Response

12

Public Private Partnership

Opportunities -

13 Public Private Partnership Opportunities


• Given their dual objectives of managing the public purse and investing in priority

sectors such as infrastructure and enhanced levels of government service,

governments across Canada are exploring initiatives to maximize the value of

existing assets through:

− Asset Monetization (Sale, Lease)

− Enterprise Divestitures (Sale, Concession/License)

− Alternative Service Delivery

• These strategic partnerships with the private sector support government efforts

to generate value, reduce costs and create efficiencies in the delivery of public

services.


Public Sector Monetization Initiatives



Large Scale Public Sector divestitures –

Canadian History

PetroFina to Petro Canada

• Petro Canada acquired PetroFina Canada

Limited in 1981

• Allowed Petro Canada to broaden itself from a

purely Western Canadian based company, as it

took on the ownership of PetroFina’s Eastern

refinery and 940 stations in Eastern Canada.

• Increased their Canadian presence in Quebec

• Cost to acquire PetroFina approximately $1.2

Billion

Others


Province of Ontario Savings Office (POSO)

• The POSO was established in 1921 with 23

branches plus 5 smaller agencies across

Ontario, providing banking services

• 2001 budget announcement

Reasons for this divestiture:

− Private Sector expertise; and

− Not a core business of the government

• Desjardin Credit Union acquired the business of

POSO for $50 Million

Ontario is moving ahead with its plan to unlock the value of certain public assets supporting investments in transit,

transportation and other priority infrastructure projects through Moving Ontario Forward. Province's plan is to

invest more than $130 billion over 10 years in public infrastructure, the largest infrastructure investment in

Ontario's history.

The following is a list of current sales:

Province of Ontario

• Seaton Lands is a proposed new urban development on 3,100 acres of land in the City of Pickering

• Liquor Control Board of Ontario 11 acre site located at Toronto waterfront if sold is expected to generated

around $200 million

• 700 university Avenue over 1 million square feet of corporate office space

• $1.1-billion gain from the recent sale of GM shares, including the $200 million above target revenue, was

flowed into the Trillium Trust which provides dedicated funds for priority infrastructure projects across the

Province

Federal Government

• Disposition of Foreign Affairs and International Trade Canada Government Embassies

• Public Works and Government Services Canada sale of a British Columbia Port Facility


Large Scale Asset Sales


The report titled “Retain and Gain: Making Ontario’s Assets work Better for

Taxpayers and Consumers” was the result of a mandate to review the LCBO,

Hydro One and OPG and determine approaches to maximize their value to the

people of Ontario


Large Scale Enterprise Divestiture – Recent

Considerations for Ontario


POSO

Public Private Partnership

Opportunities -


Impact Investing

Impact Investing

What is impact investing?


An investment approach that intentionally seeks to create both

financial return and positive social impact that is actively measured

Impact

Investing

Opportunity

Many Examples of impact investing vehicles result

Enabling

Trends

Advancement of

Related Concepts

• Pay-for-Performance Contracting

• Public-Private Partnerships (PPP)

• Corporate Social Responsibility (CSR)

• Double / Triple Bottom Line

• Social Return on Investment (SROI)

• Social Innovation

• Social Enterprise

Environmental Context and

Enabling Trends

The developing impact investing market is opening a range of new opportunities


20

A range of impact investing “vehicles” are emerging

Equity Crowdfunding - The collective effort of individuals who network

and pool their money to support efforts initiated by other people or

organizations who are aiming to achieve similar objectives

Microfinancing - When an institution or group provides loans to people

or organizations at a below market rate of interest

Community Bonds - A type of loan that is structured for a non-profit

organization or social enterprise and made available for investment by

community members, often used for infrastructure projects

Direct Investment - Offers an investment avenue for investors, including

philanthropists, foundations, and high-net worth individuals, to support

initiatives that drive social and environmental change

Green Bonds - A type of loan structure that uses the traditional bond

model to encourage investment into projects with environmental benefits


Social Impact Bonds (SIBs) - A pay-for-performance mechanism where

the commissioner or government agrees to pay a financial return for

improved social outcomes that also result in cashable financial savings

21

How Social Impact Bonds (SIBs) are commonly structured


4. Independent evaluator determines if

outcomes are achieved and what

payment to be made to investor

$$$

Independent

Evaluator

2. Investors fund the service

Investors

$$$

Service Delivery

Organization(s)

3. The social service delivery

organization(s) receive(s) the

funds to address the social

issue

$$$

1. A contract is negotiated where the

government agrees to pay a rate of return on

invested capital for improved social outcomes

Government

Department or

Agency

Intermediary

There are a variety of benefits for the participants in a SIB model


• New source of external

funding

• Contracts are

performance-based

• Clearly demonstrate

results to citizens

• Access innovative

solutions

• Enable a reliable funding

stream

• Achieve longer planning

horizon

• Develop flexibility to

deliver innovative

approaches to complex

problems

• Scale-up effective

programs

• Demonstrate enhanced

social impact

• Establish socially-

minded capital

deployment

• Gain blended

financial and social

returns

• Demonstrate

innovative

philanthropy

Social Impact Bonds allow each participating organization to

bring their best expertise to the table to deliver social services with

more innovation and flexibility

Governments Service Delivery

Organization(s) Investors

Canada Pilot Case Study: Sweet Dreams, Saskatchewan


• “Sweet Dreams” SIB for a supported living home for at-risk

single mothers

• House between 8 to11 adults and 8 to 15 children, for a

period of 2 month to 2 years

• $1 million investment between one private investor and

one credit union

• Basic pay-for-performance contract

• Independent assessor measures success at 2nd, 4th and

5th years

“… expected to result in

savings to the Government of

Saskatchewan of between

$540,000 and $1.5 million over

five years.” – Government of SK

“… expected to result in

savings to the Government of

Saskatchewan of between

$540,000 and $1.5 million over

five years.” – Government of SK

“…[there is] value of

looking at old

problems in a new

and innovative way.” - The Star Phoenix

“…[there is] value of

looking at old

problems in a new

and innovative way.” - The Star Phoenix

“This program gives at-

risk mothers and

children a chance at a

better life…” - Government of SK

“This program gives at-

risk mothers and

children a chance at a

better life…” - Government of SK

Up to 5%

return

$1M

EGADZ’s

Saskatoon

Downtown Youth

Centre 5 year term

Saskatchewan

Ministry of

Social Services

Conexus Credit

Union; Wally &

Colleen Mah

TBD

Independent

evaluation Reporting /

project

management

SIB Overview Saskatchewan SIB Model

Deloitte eminence in the Impact Investing space

The Solution Revolution | Author: William D. Eggers and Paul Macmillan |

http://www.solutionrevolutionbook.com/

Measuring Impact: Subject Paper of the Impact Measurement Working Group Author: Social Impact Investment Taskforce, with support from Deloitte |

http://www.socialimpactinvestment.org/reports/Measuring%20Impact%20WG%20paper%20FINAL.pdf

Paying for Outcomes: Solving Complex Societal Issues Through Social Impact

Bonds | Author: Deloitte | http://www2.deloitte.com/content/dam/Deloitte/ca/Documents/insights-and-

issues/ca-en-insights-issues-paying-for-outcomes.pdf

Social Impact Bonds in Canada: Investor Insights | Author: Deloitte and the MaRS

Centre for Impact | http://impactinvesting.marsdd.com/wp-content/uploads/2014/04/SIBs-in-Canada-

Investor-Insights.pdf

From the Margins to the Mainstream: Assessment of the Impact Investment

Sector and Opportunities to Engage Mainstream Investors Author: World Economic Forum , in collaboration with Deloitte |

http://www3.weforum.org/docs/WEF_II_FromMarginsMainstream_Report_2013.pdf

Charting the Course: How Mainstream Investors can Design Visionary and

Pragmatic Impact Investing Strategies | Author: World Economic Forum, with support from

Deloitte | http://www3.weforum.org/docs/WEF_ImpactInvesting_Report_ChartingTheCourse.pdf




http://www.socialimpactinvestment.org/reports/Measuring Impact WG paper FINAL.pdf

http://www.socialimpactinvestment.org/reports/Measuring Impact WG paper FINAL.pdf

http://www2.deloitte.com/content/dam/Deloitte/ca/Documents/insights-and-issues/ca-en-insights-issues-paying-for-outcomes.pdf


















http://impactinvesting.marsdd.com/wp-content/uploads/2014/04/SIBs-in-Canada-Investor-Insights.pdf














http://www3.weforum.org/docs/WEF_ImpactInvesting_Report_ChartingTheCourse.pdf

http://www3.weforum.org/docs/WEF_ImpactInvesting_Report_ChartingTheCourse.pdf

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