Commercial Matters Dublin Waste to Energy Project

Why use PPP for Incineration? Initial Reasons –Complex and expensive equipment, high maintenance –No existing incineration industry in Ireland –Optimise whole life cycle cost (design – build – operate) –Focus on reliability (finance & unitary gate fee) –Statutory permissions & design interaction Subsequent Reasons –Attractive “volume risk” sharing offer received as variant bid –Real commercial partnership (not just project finance)

Why PPP? – Unitary Gate Fee All costs included in unitary fee –Design, construction, operation & maintenance, hand-back –Taxes and fees –Development period and long term finance –Financial model part of contract City pays no costs (except site) until plant begins to process waste City pays only for waste actually processed –Contingent “put or pay” guarantee –Bypass waste –Options to use additional capacity

Why PPP? – Volume & Price City Request –400,000 tpa plant –320,000 tpa City waste –80,000 tpa third party waste Tender Offer –550,000 tpa plant –320,000 tpa City waste –230,000 tpa third party waste Economy of scale price reduction

Contract Issues Broadly patterned on SOPC & NDFA template Performance specification –Basic configuration definition –Facility availability guarantee –Electricity production guarantee –Emissions guarantees per EU incineration directive Price change provisions –Annual inflation of unitary gate fee –Few change in law adjustments (high triggers, incineration specific) –Contractor carries full commercial risk on 42% of facility

Financial Arrangements - 1 Revenue –Put or pay guarantee from City 58% of nominal facility capacity at fixed unitary gate fee –“Target” third party revenue from Contractor 42% of nominal facility capacity at “target” third party gate fee –Electricity revenue €0.035 per kwh “strike price” calculated into base City unitary gate fee price fluctuations above or below strike price shared 50% - 50% expected excess electricity revenue to City over entire contract period –Additional shared revenue third party revenue above fixed annual amount is shared 50% - 50% Contractor profits capped at a fixed rate of return (measured every 5 years) –Windfall profit cap

Financial Arrangements - 2 Costs –Lump sum turnkey design-build price –Fixed operations & routine maintenance price –Fixed major maintenance costs –Limited cost adjustments Financing –Construction & long term loans (equity structured as arms length loans) –Expected bank refinance (after commencement of operations)

Performance Indicators City –25 year fixed unitary charge (at current cost of alternative treatment) –Profit sharing (potential modest decrease in effective unitary charge) –Private sector competition (treatment price pressure) Contractor –Solid commercial return (City put or pay + target third party revenue) –Below market return (City put or pay + below target third party revenue) –Break even (City put or pay revenue only) Joint –National landfill levy (prevent lessening of cost alternative treatment) –First mover advantage (only incinerator in catchment area)

Long Term Viability Commercial & regulatory issues –Landfill always cheaper than incineration –Ownership of waste & existence of private sector competitors –Cost recovery, direction of waste & competition issues –User fees and cost recoverability Commercial versus economic –Full societal economic cost of landfill greater than incineration –Economic instruments Waste management system transition –Transition period is hardest to manage

Ireland in the Balkans? Policy & planning (start early) –Education & enforcement –Landfill size restrictions –Scalable economic instruments Limited short term ability to pay –Governmental or grant based incinerator subsidy? –Calibrated increase in user fees over time Private participation –Private sector risk appetite not usually as high as Dublin –Bundle incinerator with other infrastructure? Hire good advisors for the complicated bits

Jeff Austin Durango Browne Limited (+353) Thank You