Project Overview

1
Project Overview Business and Procurement Model
Presentation 13th Informal PPP Exchange
The Portuguese High Speed Rail Project Financing
high speed development
CER-EIM High Level Infrastructure
Meeting Warsaw June 5, 2009
Lisbon, 6th July 2007
2
Agenda

• Developing a suitably realistic and long term
  strategy for financing each project
• From the plan to reality RAVEs structured and
  staggered PPP concessions
• Reasons why this is the way forward vs.
  alternative means of finance

3
The Project
4
Historical Milestones
2000
Creation of RAVE
Oporto-Vigo
Oporto-Madrid Aprox. 2h45m
2001
Creation of AVEP
2002
Start of Feasibility Studies
Aveiro-Salamanca
2003
Portuguese/Spanish Summit

• Cross border HSR axes

• Journey Time Objectives

Lisbon-Madrid Aprox. 2h45m
Lisbon-Madrid
Start of the Environmental Impact Assessment
Procedure
2006
Jun/2008
Beginning of the Procurement Process (1st PPP
Tender)
Faro-Huelva
5
Portuguese HSR Network

• Five main axes
• Lisbon Madrid (2013)
• Oporto Vigo (2013)
• Lisbon Oporto (2015)
• Aveiro Salamanca
• Évora Faro Huelva
• Part of the TEN-T
• European Parliament and European Council Project
  of Community Interest
• Lisbon Madrid Axis
• Already being built (Spanish territory)

6
Portuguese HSR Network Main Objectives (1/2)

• Enable a modern, sustainable and efficient
  transport system
• Reduce the countrys peripheral position, by
  connecting Portugal to Europe
• Contribute to the Atlantic south-west front
  competitiveness
• Accelerate the countrys economical and
  technological development, also at the regional
  level
• Contribute to a better modal distribution, both
  for passenger and freight, changing the actual
  hegemony of road solutions

7
Portuguese HSR Network Main Objectives (2/2)

• Increase mobility and competitiveness of the
  port, airport and logistics systems

• Conventional Railway Network

• Main Ports

• Main Airports

• National Logistics Platforms Network

HSR as the Backbone of the Future Portuguese
Transport Network
8
HSR in the Iberian Peninsula
9
Demand Forecast LisbonOporto LisbonMadrid
axes
7,7
Intermediate traffic
Millions of Passengers/year (2030)
Long distance traffic
10
Market Share (Long Distance Traffic) LisbonOpor
to LisbonMadrid axes

11
Priority Links
12
Priority Links LISBON - MADRID
HSR Conventional Rail between Évora and Caia
13
Priority Links LISBON - MADRID - THIRD TAGUS
CROSSING (TTC)
HSR Conventional Railway Roadway
14
Articulation with the New Lisbon Airport (in
Alcochete/CTA)
15
Priority Links LISBON - OPORTO
15
16
Priority Links OPORTO - VIGO
17
Socio-Economic Impacts
18
Economic and Budgetary Impact

• Several studies are unanimous regarding the
  positive economic result of the project
• Investment foreseen in the HSR, for the
  Lisbon-Oporto and Lisbon-Madrid axes, generates
  globally positive effects in all the
  macroeconomics variables
• Creation, in the long term, of 56 thousand new
  permanent jobs
• Increase of the Private Investment in 126 Billion
  
• Increase of the GDP in 121 Billion
• Cumulative increase of 64 Billion of tax
  revenues
• Positive effect in all Country regions

19
Social Impact Time Savings

• Promotes greater social, economic and territorial
  cohesion, reducing the differences in the
  mobility of people
• Integration in Trans-European Transport Network
  Europe will be closer!

Base Map (60km/h)
Map considering travel time by rail (1993)
Map considering travel time by rail (2020)
Source Acessibility and Economic Development in
Europe Vickerman Spiekermann Wegener, 1997
20
Social Impact Access to HSR Services

• More than 50 of the population will be connected
  with the main urban areas with a total time
  travel of less than 2 hours (door to door time)
  for 3 hours time will be around 90
• Consolidation of a stronger and more coherent
  urban network, by increasing the influence of the
  middle size urban centres

Access to High Speed Services
21
Business and Procurement Model
22
Activities Developed for the Definition of the
Business Model

• Development of some studies and analyses, between
  2003 and 2007, with the support of national and
  international advisors
• A.T. Kearney (2003/2004)
• Banco Finantia, Goldman Sachs and Depfa Bank
  (2005/2006)
• KPMG (2005/2007)
• Meetings with public and private, national and
  international entities
• Rail sector
• Construction sector
• Suppliers of railway technology
• Financial sector
• Advisory firms
• Workshop with public and private entities
  involved in the HSR project in Holland

23
Business Model Strategic Goals
What is the Business Model that better allows to
reach these goals?
24
Procurement Alternatives Analyzed Infrastructure

• Traditional procurement (Short and medium
  Contracts)
• Traditional procurement (Large Contracts)
• Mixed procurement (Construction Contracts PPP)
• PPP procurement (DBFM Infrastructure
  Operation)
• PPP procurement (DBFOM Infrastructure and
  Operation)

-

Private Sector involvement
25
Business Model Selected Infrastructure (1/2)
Capacity Allocation and Railway Traffic
Management (State/REFER)
Signalling / Telecommunications (PPP)
Substructure / Superstructure (PPP)
Substructure / Superstructure (PPP)
Substructure / Superstructure (PPP)
Substructure / Superstructure (PPP)
Substructure / Superstructure (PPP)
26
Business Model Selected Infrastructure (2/2)
Reasons for the breakdown of the value chain
Risk
Functionality
Value for Money
and

• Dimension of the investment
• Type and number of suppliers
• Technological risk
• Lifecycle / Useful life
• Horizontal and vertical interface risks

• EU funds segmentation
• Level of national incorporation
• International experience
• Maintenance of the strategic role within the State

27
Procurement Process / Timetable Infrastructure
Braga-Valença 3rd Quarter 2009
Pombal-Oporto 2009
Lisbon-Pombal 2009
Signalling / Telecommunication 3rd Quarter 2009
Lisbon-Poceirão / 1,9 Billion PPP Tender
Launched on March 30
Poceirão-Caia / 1.45 Billion PPP Tender
Launched on June 2, 2008 BAFO on June 1
28
Procurement Process HS Stations

• Lisbon and Oporto To be developed directly by
  the State (REFER/RAVE)
• Évora, Oeste, Leiria and Aveiro Integrated in
  PPP deals
• New Lisbon Airport To be developed by the NLA
  Concessionaire
• Coimbra, Braga and Valença Still to be defined
• Elvas/Badajoz Still to be defined between
  Portugal and Spain

29
Business Model selected Rolling Stock and
Operation

• Passengers
• Rolling Stock acquisition
• Operation Service
• Main alternatives analyzed
• 1) Future HSR Operator(s) acquires the Rolling
  Stock
• 2) State acquires Rolling Stock and lease it back
  to the future Operator(s)
• Relevant issues
• Future EU directives
• Negotiation with Spain about the exploitation
  model for cross-border services
• Time needed for Rolling Stock acquisition
• Compatibility of Rolling Stock lifecycle w/
  transferring demand risk to the future
  Operator(s)
• Freight
• Already liberalized Sector

30
Availability /Performance Regime
30
31
Payments due to the Concessionaire during the
Availability Period
RCt PDt Dt CTt

• where
• RCt Payment due to the Concessionaire during the
  Availability Period in year t
• PDt Performance Payment in year t
• Dt Performance Deductions to be applied to the
  Concessionaire in year t
• CTt Traffic Payment in year t.

These specific payments are part of the income
that is due to the Concessionaire during the life
of the Contract and are to be paid every
trimester throughout the Availability Period of
the Concession.
32
Performance Deductions
Dt Dd Cd

• where
• Dd are deductions due to non-availability of the
  Concession
• (deductions to manage asset failure and
  possessions that restrict train operations
• Cd are deductions due to poor asset condition
• (deductions to manage asset deterioration and
  loss of function that does not restrict train
  operations)

Dd are calculated with an Availability Model
Cdare calculated based on set of rules and asset
condition standards
33
Availability Concept
Length of line (km)
Number of tracks ()
Speed (km/h)
Time (h)
Non-Availability Unit (NAU) Concept
Repair time
Normal max line speed
Length of line affected
Administrative logistic delay
Allowable line speed
Number of tracks affected
Total non-availability (NAU)
Total down time
Enforced Speed reduction
Total track length affected
34
NAU Formula
NAU (LS AS) x r x k x t

• where
• LS Normal Maximum Line Speed
• AS Allowable Speed (Speed imposed by the
  operator)
• r Number of tracks affected
• k total Length of Line affected
• t Total down time

The Non-availability is calculated by multiplying
the enforced speed reduction, track length
affected and the duration of a failure event
34
35
Availability regime other issues

• Freezone in witch no penalties will be applied
• Bonus in each month that the freezone is not
  reached
• Blue periods to allow the Concessionaire to do
  the maintenance

The Performance Payments and Deductions are part
of a Performance Regime designed to provide
incentives for a good infrastructure management.
36
Funding the Project
37
Financial Model for the Portuguese HSL Project
5 Infrastructure PPPs 1 Signalling
Telecommunications PPP
Operation Period (Approx. 36Y)
Construction Period (Approx. 4Y)
Availability Payment
Portuguese State Subsidy
Funding Model
?
?
REFER Subsidy
Maintenance Payment
?
?
European Union Funds
Traffic/Demand Payment
EIB Loan
Financing Model
?
Commercial Banks Loan
?
Equity
37
38
Funding Model for the Portuguese HSL Project
Main Issues
Portuguese State Subsidy
Construction Period (Approx. 4Y)

• About 20 of the total initial investment of the
  Project is supported by public funding during the
  Construction Period
• It allows to reduce the global expenses for the
  State with the Project and the average annual
  Availability Payment value
• Structured in order to allow private sector to
  have relevant money a risk

?
REFER Subsidy
?
European Union Funds

• European Union Funds already assured (Euro 1.338
  million?)
• Based on Investment Eligibility

Availability Payment
Operation Period (Approx. 36Y)

• Performance is based on availability
• About 3/4 of the total payments to the
  concessionaire
• Partially indexed to the CPI (quasi linear
  payment over time)

?
Maintenance Payment

• Fixed annual value paid by REFER, totally
  indexed to the CPI
• About 1/10 of the total payments to the
  concessionaire

?
Traffic/Demand Payment

• The private sector remuneration is affected by
  the actual traffic
• /- 2 of the annual total payment

38
39
Financing Model for the Portuguese HSL Project
Main Issues
EIB Loan
Construction Period Operation Period

• Due Diligence early initiated by the EIB
• Maximization of the EIB funds (thus minimizing
  commercial banks debt) respecting the rule EIB
  funds EU funds lt 90 of the total financing
  structure
• It is expected that EIB will have a strong
  commitment in the Project - 500/600M per PPP

Commercial Banks Loan

• Financing for the remaining needs not supported
  by EIB or Equity
• Guarantees for the EIB

Equity

• Strong promotion, communication and cooperation
  with potential private partners
• IRR 10 (assumed on the Strategic Studies Base
  Scenarios)

39
40
Funding the LisbonOporto and LisbonMadrid axes

• As with other railway projects operating cash
  flow is not sufficient to cover the amount of
  investment
• Public support is required
• According to calculations the required support of
  public funds will be
• State - 36
• EU funds - 19
• Of the total initial investment.

41
Poceirão/Caia PPP Lisbon/Madrid HSL
42
PPP1 - Assessment Methodologies

• Evaluation Criteria

43
Risk Allocation
Principles 1st Minimization 2nd Efficient
Allocation
44
1St PPP Bidders / Consortiums

• Brisa Soares da Costa Iridium Concessiones
  Dragados Lena Engenharia e Construções Bento
  Pedroso Construções Odebrecht Edifer Zagope
  BCP Investimento Caixa Geral de Depósitos
• Eiffage Forclum SEOP Wittfeld FCC
  Construccion Ramalho Rosa Cobetar
• Cintra Concessiones Meridiam Infrastruture
  Finance Sociedade de Construções H. Hagen
  Conduril Tecnovia Novopca
• Mota-Engil, Engenharia e Construção Vinci
  Concessions Vinci Construction Grands Projects
  Somague Engenharia Teixeira Duarte MSF OPWAY
  Engenharia Banco Espírito Santo Esconcessões
  Banco BPI Banco Invest. Alves Ribeiro

Major Portuguese, Spanish and French construction
companies are interested in the Project
45
PPP1 (Poceirão/Caia) Funding Mechanism
Main Issues
Portuguese State Subsidy
Construction Period (2009 / 2013)

• Paid directly by the State
• Euro 127,8 Million (Fixed Value) 9 of total
  CAPEX

?
REFER Subsidy

• Paid by REFER
• Euro 60 Million (Fixed Value) 4 of total CAPEX

?
European Union Funds

• Paid directly by European Union / Portuguese
  State
• Maximum of Euro 641 Million 40 of total CAPEX

Availability Payment
Operation Period (2014 / 2049)

• Paid directly by the State
• 60 to 80 of annual payment (annual average of
  Euro 55M)

?
Maintenance Payment

• Paid by REFER
• 20 to 40 of annual payment (annual average of
  Euro 16M)

?
Traffic/Demand Payment

• Paid/deducted directly by the State according to
  the difference between the actual traffic and the
  Contract reference traffic (up to 30)

45
46
1St PPP Financing Structure (_at_ June 2008)
Financing the Poceirão/Caia Stretch
47
1St PPP Tender Process Timetable
a
Ongoing
48
Next Steps
49
Next Steps 2009-2010

• Completion of Environmental Impact Assessment
  Procedures

• Tender Process for
• HSR Infrastructure
• PPP Braga-Valença
• PPP Pombal-Oporto
• PPP Lisbon-Pombal
• Signalling Telecoms
• Rolling Stock

50
Project Overview Business and Procurement Model
Presentation 13th Informal PPP Exchange
For further information please contact RAVE
at 351 211064000 rave_at_rave.pt
Lisbon, 6th July 2007