Time for Public-Private Partnerships for U.S. Navigation Projects Dominic Izzo PE – KBR Director, PIANC Commissioner Karim El Kheiashy PhD, MBA, PE – KBR Americas – Coastal / Maritime Sector Lead

Benefits of PPP Government control (participation and ownership) with private efficiency and capital Access to a broader range of financing Access to additional capital Fewer constraints on accessing capital (e.g. annual appropriation) Risk sharing (specificity, complexity, uncertainty) Lower costs of service through specialization 2011 PIANC - Smart Rivers Conference

Should a PPP be considered at all? Economic Factors Project Size and Scope Timing or Schedule Market Risk Analysis Business Case Comparison with Conventional Procurement 2011 PIANC - Smart Rivers Conference

Division of Roles Public Role –Establishing infrastructure –Establish a regulatory framework –Establish a business environment –Encourage economic opportunity –Encourage private investment –Protect labor interest Private Role –Generate a rate of return –Handle operational aspects –Manage commercial risks –Propose and implement investment policy –Incentives for high performance and competitive tariffs –Play a crucial role in fostering efficient logistics development 2011 PIANC - Smart Rivers Conference

Spectrum of PPPs (P3) Fully Public Fully Private Design Build Finance Operate Build Operate Transfer Federal Agency Public Authority Service Contract 2011 PIANC - Smart Rivers Conference

Role for the Public Agency Enforce Statutory Standards –Safety –Environmental –Design Specifications –Construction Standards Approve Plans and Designs Contract Management 2011 PIANC - Smart Rivers Conference

Risk Allocation Allocate risk to the party that is best able to manage it at the lowest cost Categories –Political, Legal and Regulatory Public Agency –PlanningPublic & Private –DesignPrivate –ConstructionPrivate –Operation & MaintenancePrivate –FinancialPrivate –Usage (Revenue Assumption)Public & Private 2011 PIANC - Smart Rivers Conference

Time to Delivery Greater private incentive to generate revenue as soon as possible leads to –Better Project Management –Better Risk Management Service provider is not paid until the facility becomes operational – incentives to get it done Economies of Scale; one contracting vehicle; less overhead 2011 PIANC - Smart Rivers Conference

Project Financing No Revenue Stream, No PPP Weighted Average Cost of Capital (WACC) must be less than the Return on Investment (ROI) Cost of Money in the Market vs the Cost of Government Debt? Market check on the federal government benefits / costs ratio 2011 PIANC - Smart Rivers Conference

Life Cycle Costing Offers incentives to the contractor to –Reduce maintenance costs –Reduce operations costs –Reduce down time for the facility Integrates to capital investment with service delivery Requires long-term contracts to allow the contractor (service provider) time to recover his investment 2011 PIANC - Smart Rivers Conference

Types of PPP Typical infrastructure projects –Highways –Mass transit –Hospitals –Wastewater treatment plants –Port facilities 2011 PIANC - Smart Rivers Conference

Global Economy – US Ports Panama Canal Expansion Anticipated increased ship traffic and bigger ships sailing through a widened Panama Canal, which is scheduled to open in Water Trade from Asia If you build it, they will come… 2011 PIANC - Smart Rivers Conference

The inland navigation system is funded through appropriations from two sources: The General Fund, and the Inland Waterways Trust Fund The IWTF is derived from revenues from a fuel tax on commercial barges, and currently has a shortfall; eligible projects far exceed available funding under current revenue and budgetary baselines The Corps has a harbor maintenance backlog $2.2 billion of coastal navigation O&M work that could be budgeted if funds were available Under current budgeting guidance, low-use coastal projects generally are budgeted only for critical minimum dredging and other critical minimum O&M activities PIANC - Smart Rivers Conference Current Status for Navigation Projects

2011 PIANC - Smart Rivers Conference Current Status for Navigation Projects Source: Budget Constraints and the Corps Consideration of Public-Private Partnerships: Where Is the Money Going to Come From?, US Army, IWR, 2008

2011 PIANC - Smart Rivers Conference President's Fiscal Year 2012 Budget for U.S. Army Corps of Engineers’ Civil Works Current Status for Navigation Projects $Millions vs. $Billions needed

2011 PIANC - Smart Rivers Conference State RECONNAISSANCE FEASIBILITY PRECONSTRUCTION ENGINEERING & DESIGN CONSTRUCTION O&M ALABAMA $ - $ 94,229,000 LOUISIANA $ - $ 1,000,000 $ 2,000,000 $ - $ 135,618,000 MISSISSIPPI $ - $ 7,736,000 TEXAS $ - $ 926,000 $ - $ 92,990,000 FLORIDA $ - $ 343,000 $ - $ 11,750,000 $ 55,357,000 President's Fiscal Year 2012 Budget for U.S. Army Corps of Engineers’ Civil Works Current Status for Navigation Projects $Millions vs. $Billions needed

2011 PIANC - Smart Rivers Conference Current Status for Navigation Projects The average tow barge can carry the equivalent of 870 tractor trailer loads. Of the 257 locks still in use on the nation’s inland waterways, 30 were built in the 1800s and another 92 are more than 60 years old. The average age of all federally owned or operated locks is nearly 60 years, well past their planned design life of 50 years. The cost to replace the present system of locks is estimated at more than $125 billion. Report Recommendations Create a predictable and reliable source of maintenance funding with a dedicated source of revenue ASCE Report Card for America’s Infrastructure

How Will it Work ? 2011 PIANC - Smart Rivers Conference Private organization would collect user fees at locks and channels that cover the inland waterway system costs in return for investing, maintaining, and operating the system. Government oversight would ensure safety, water levels, environmental compliance, etc. Guaranteed revenue stream. The income stream (fees, tolls, shadow tolls, tax increment financing, or a wide range of additional options)

Where can the Private Sector help 2011 PIANC - Smart Rivers Conference Construction and Operation of : Container Terminals Bulk, Break-Bulk, Multipurpose and specialized cargo berths Warehousing, Container Freight Stations, Storage Facilities and Tank Farms, Dry Docking Facilities Ship Repair Facilities Leasing of equipment for port handling and floating crafts from private sector Auxiliary Port Services (Pilotage, Tugging and Mooring) Captive facilities for port based industries

PPP Policies 2011 PIANC - Smart Rivers Conference Section 217 of the Water Resources Development Act (WRDA) of 1996 provided guidance for public-private partnerships in the design, construction, management, or operation of dredged material disposal facilities in connection with construction or maintenance of Federal navigation projects

Current Examples: Montezuma Wetland Project 2011 PIANC - Smart Rivers Conference The Montezuma Wetlands Project addresses two regional problems in the San Francisco Estuary: the loss of wetlands and the need for environmentally sound dredged sediment disposal options. This "beneficial reuse" project will restore over 1,800 acres of wetlands using approximately 20 million cubic yards of sediment dredged from the region's ports and waterways. Montezuma is the first privately sponsored wetland restoration in the nation. It is not compensatory mitigation for any mitigation; instead it derives its funding solely from dredge disposal. Source: Levine-Fricke Restoration Corp

2011 PIANC - Smart Rivers Conference Private developer is funding development of the property as a disposal site. Tipping fees charged for disposal of sediments will cover operating costs, payoff the 10-year debt, and provide a return on their investment to the project sponsors. Financing used for site acquisition and development, disposal, site maintenance, and site monitoring. Machinery used in the privately funded Montezuma Wetlands restoration project in California (Photo by Levine ‑ Fricke). Current Examples: Montezuma Wetland Project

Current Examples: JAXPort and Mitsui Operating and Lease Agreement 2011 PIANC - Smart Rivers Conference Deal between Jaxport and a Japanese shipping line (Mitsui OSK Lines) to create a new container terminal Mitsui could create 1800 high paying port jobs and another 3800 spin-off jobs. More distribution centers at the port JAXPort will own the facility during and after construction. Both parties have representatives on a "construction committee“ to oversee the planning and construction of the project. Mitsui will lease the premises (30 year lease) from JAXPort and operate the container terminal. Source: Jacksonville Port Authority

2011 PIANC - Smart Rivers Conference Mitsui will have exclusive right to use the facilities during the lease. Beginning on date of beneficial occupancy of the facilities, Mitsui will pay JAXPort a fee per container. Additional Rent under the lease will equal amounts payable to JAXPort for the Bonds used to finance a portion of the project. During the lease term, Mitsui is responsible for keeping the facilities in good working order at its own expense, including insurance, repairs, security, etc. Source: Jacksonville Port Authority Current Examples: JAXPort and Mitsui Operating and Lease Agreement

Questions ? 2011 PIANC - Smart Rivers Conference