Public Private Partnership Can it work for Rail Transit

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Public Private PartnershipCan it work for Rail
Transit?
Ian McAvoy, Chief Development Officer Cal Act /
CTA Conference, Monterey, CA
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Agenda

• Our Project
• Main Issues
• Next Steps

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Our ProjectCaltrain Electrification / 2015
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Project Scope

• Electrification
• Rolling Stock
• Signal Systems (Positive Train Control)
• System Infrastructure
• Mostly Progressed to 35 Design

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Procurement Alternatives
Public Funds
Direct
DBB Design-Bid-Build
DB Design-Build
DBO Design-Build-Operate
DBOM Design-Build-Operate-Maintain
CM Construction Management
FT Fast Track
OM Service Contract
Public Responsibility
Delivery Method
Private Responsibility
Segmented Delivery Method
Combined Delivery Method
BOO Build-Own-Operate
Client Finance Method
DBFO Design-Build-Finance-Operate
(1) John B. Miller, Principles of Public and
Private Infrastructure Delivery, Kluwer Academic
Publishers
Private Funds
Indirect
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Public and Private Approaches to Risk
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Risk Management

• The ultimate goal of public-private partnerships
  is cost reduction through efficient risk
  management
• Risk management aims at identifying and
  preventing or mitigating risks and follows five
  steps
• Risk identification
• Risk assessment (likelihood and magnitude)
• Responsibility allocation
• Risk mitigation and prevention
• Monitoring and evaluation
• Efficient risk management means that risks and
  responsibilities must be allocated to the parties
  best able to manage them (i.e. at the lowest
  cost)

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The Risk Prism
Public Approach to Risk
Private Approach to Risk

• Research before proposal (RFP)
• Understand private sector
• Develop structure so as to maximize private
  sector interest
• Follow best practices in procurement processes
  and bid evaluation
• Assume program coordination
• Insure
• Monitoring and evaluation
• Plan for contingency

• Understand and control project revenues
• Understand and control project costs
• Accept risk if it can
• Be appropriately priced
• Be efficiently managed, mitigated, or
  transferred/insured
• Risks affecting debt service will command a high
  premium
• Use financial market instruments
• Diversify project portfolio

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Initial Risk Categories
Standard Risk Categories

• Asset ownership risk
• Site risk
• Design, construction, and commissioning risk
• Operating risk
• Market or demand risk
• Network and interface risk
• Stakeholders relations risks
• Legislative/government risk

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Infrastructure Delivery Options
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Each potential infrastructure delivery option
corresponds to different risk allocation
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Infrastructure development under a public
authority model is the norm in the U.S.
Public Authority Modelwith DBB or DB
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DBOM limits the public authority responsibility
to planning, functional design, and financing
Public Authority Modelwith DBOM
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Concession structures allow for output-oriented
performance-based arrangements
User Fee Concession
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The corporate model has been perfected by the
French toll highway concessions
Corporate Modelwhat the French call mixed
economy enterprise
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So What Happens Next?

• We would be the first US Commuter Rail Line to
  Attempt this!
• The First is always the hardest!
• Project finance requires dedicated revenue stream
  such as user fees, availability payments, and
  rights to commercial real estate
• Do we have them?
• Risk evaluation, project management, and
  monitoring and evaluation are critical under
  public delivery methods, as much as PPPs
• Do we have the discipline to let go
• Can we open our books to scrutiny?
• Hire an Expert to help you tackle this complex
  environment!
• Plenty of unsolicited help out there!!

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Final Questions before Locking In Approach

• Base Case (public sector comparator)
• How would the Project be procured and paid for if
  we were to deliver it?
• How much would it cost?
• PPP Alternatives
• Project goals and PPP goals
• Review Evaluation of all possible delivery
  options
• Risk preferences
• Quantitative evaluation of preferred options
• Risk assessment
• Financial feasibility and stress testing
• Comparison to the base case