PUBLIC-PRIVATE PARTNERSHIPS IN BRAZIL AND LATIN AMERICA CHALLENGES AND PROSPECTS

GREEN PPPS

Art Smith

PPP Americas 2010

May 11-13, 2010asmith@mainet.com

Case Studies in Green PPPs

Vancouver, British Columbia Cogeneration Plant

Vancouver Cogeneration Case Study The City of Vancouver, British Columbia owns and operates

one of the largest landfill sites in Canada. The site serves approximately 900,000 residents and receives approximately 400,000 tons of solid waste annually.

The site produces landfill gases as a byproduct of waste decomposition, including methane, a greenhouse gas that contributes to global climate change.

Beginning in 1991, the City collected and burned (flared) the landfill gases to control odors and reduce the gases’ environmental impact. This burning created significant heat energy. In 2000, the City began to consider ways to make beneficial use of the landfill gases and heat energy, and to further reduce greenhouse gas emissions, in keeping with Canada’s commitment under the Kyoto Protocol.

Vancouver Cogeneration Case Study The City initially considered building a public power

plant to use the gas. The City decided instead to implement a Public-Private

Partnership-based solution, in order to evaluate a broader array of project concepts and maximize the economic, environmental, and social benefits to the City.

A competitive request for tender was released in January 2001, for a private partner to finance, design, build, own, and operate a beneficial use facility. Potential partners could propose their own solutions for the beneficial use of the landfill gas.

Five varied proposals were received.

Vancouver Cogeneration Case Study Following a detailed and structured proposal

evaluation and negotiation process, a 20-year Public-Private Partnership contract, based on the most highly-evaluated proposal, was approved by the City Council in February 2002.

Under the approved PPP structure, the City continues to operate the landfill, and a 2.9 kilometer pipeline was constructed by the private partner to take the gas from the landfill to a nearby agricultural complex, where they built a cogeneration power plant.

The private partner selected by the City designed, financed and constructed the cogeneration plant, which uses the landfill gas as fuel to generate enough electricity (7.4 MW per year) to supply 4,000 to 5,000 local homes. The power is sold by the private partner to a provincial utility, BC Hydro.

Vancouver Cogeneration Case Study

Waste heat from the power generation process is recovered as hot water, which is sold by the private partner to a large (32 acre) tomato greenhouse complex adjacent to the plant, where the water is used for heating purposes.

The City of Vancouver makes no payments to the private partner, but guarantees provision of landfill gases for the twenty-year duration of the PPP contract.

Vancouver Cogeneration Case Study

Proceeds from the sales of power and thermal energy go to the private partner, minus a 10 percent royalty paid to the City.

The private partner’s investment was approximately $10 million.

Construction of the power plant was completed in September 2003, and it was operating at full capacity by November of that year.

Vancouver Cogeneration Case Study – Outcomes

Instead of paying to flare the gas, the City now receives net revenues of $150,000 per year.

Using the landfill gases in this manner, rather than burning them, results in further reduction of greenhouse gases, equating to the removal of 6,000 vehicles from Canada’s roads.

New jobs and more available power were created for the greater Vancouver area.

Vancouver Cogeneration Case Study

Case Studies in Green PPPs

Chesapeake Forest

Chesapeake ForestCase StudyIn 1999, a lumber company offered for sale a tract of 58,172 acres in the Chesapeake Bay watershed, including shoreline property. This land, all in the State of Maryland, included large segments of unbroken forest and more than 4,000 acres of wetlands, as well as established populations of several threatened and endangered species. Much of this land bordered on existing State–owned parkland and forest, creating a unique opportunity to buffer a large area from deforestation and development. However, the State faced several obstacles to this environmentally desirable goal:

The State lacked funding to acquire the landThe State lacked resources to manage the land after purchaseCessation of timber harvesting would cause unacceptable

disruption of the local economy in this largely rural part of the State

Chesapeake ForestCase Study

Chesapeake ForestCase Study The acquisition of the land was achieved through fairly traditional means.

The State purchased one-half of the acreage using State funds, while the remaining 29,000 acres were purchased by an environmental non-profit which transferred ownership to the State. By December 2000, the State owned all of the Chesapeake Forest lands.

The State, working with the non-profit environmental group, then sought to craft a Public-Private Partnership (PPP) with the following explicit objectives:Providing a steady flow of economic activity and employment to support local

businesses and communities;Preventing the conversion of forested lands to non-forest uses;Contributing to improvements in water quality, as part of the larger

Chesapeake Bay restoration effort;Protecting and enhancing habitat for threatened and endangered species;Maintaining soil and forest productivity and health; and,Protecting visual quality and sites of special ecological, cultural, or historical

interest.

Chesapeake ForestCase Study To achieve these objectives, the State advertised, negotiated, and

awarded a multiyear contract with a lumber company. This innovative agreement allows the company to harvest up to 1,000 acres of timber annually, an environmentally sustainable level. In return, the lumber firm is required to manage the Chesapeake Forest to the State’s silvicultural standards. Harvesting of timber is allowed only where consonant with the environmental objectives of water quality and wildlife habitat.

The partners, State and timber company, share the profits generated from the sale of timber, with a 15 percent share of sales revenues also directed to the local county governments. To minimize risk to its private partner, the State agreed to compensate the lumber company for any losses in the first two years. However, this guarantee was never triggered, since the partnership has generated a profit every year since its inception. The lumber company is required to keep a fully accessible and transparent accounting system, open to the State’s review, and audited by an independent accounting firm.

Chesapeake ForestCase Study – Outcomes

The forest is sustainably managed, to the State’s standards.

Instead of paying for the forest management services, the state receives payment each year.

Job training and education programs have minimized the impact of reduced lumber employment in the region.