1. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Public-Private-Partnerships (PPP) – “An International Perspective"

2. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Collection & Distribution of Funds General Budget Source: Juha Tervonen Other Directed Funds to Roads

3. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 PRESENTATION OVERVIEW PPP & DBFO BACKGROUND FINLAND E-18 PPP PROJECT PAYMENT MECHANISM E-75 PPP - LAHTITIE RESULTS INTERNATIONAL EXPERIENCES CONTRACTOR ISSUES & DEVELOPMENT ADVANTAGES & DIS-ADVANTAGES, PITFALLS, KEY ISSUES, & CHOICES

4. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 PPP & DBFO BACKGROUND

5. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Delivery Systems Choices Indirect Funding Direct Funding IntegratedSegmented Design-Bid-Build Design-Build Construction Management B-O-T B-O-O B-O-O-T Design-Build-Finance-Operate (DBFO) Indirect Funding Source: Prof. John Miller (MIT) Design-Build-Operate Design-Build-Operate-Maintain Pure O & M

6. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Design-Build Integrated Design & Construction (Public Funding) Traditional Design-Bid-Build LCC logical Step Life Cycle Consideration Life Cycle Responsibility Design-Build Plus Long-Term Maintenance & Upkeep Plus Financing ??? B DB DBOM DBFO Source: Pekka Jokela & Pakkala - Finnra

7. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 PPP Definition The basic definition or interpretation of Public Private Partnerships (PPP) is an arrangement that brings together the ”Public Sector” and ”Private Sector” in a long-term relationship or partnership, for the mutual benefit of both parties.

8. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 PPP = DBFO = Design-Build Finance Operate = Our Järvenpää-Lahtitie (E-75) Project Design-Build Definition Clarification One Contract for 20-30 Years with 100% Private Financing (Ownership Remains With Government) Operations Maintenance Financing && &

9. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 FINLAND E-18 PPP PROJECT

10. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Background - Methodology INTERNATIONAL BACKGROUND STUDY - 2001 FEASIBILITY STUDY FOR PPP - 2002 GOVERNMENTAL INTER-AGENCY WORKING GROUP INTERNATIONAL REVIEW OF PPP ROAD PROEJCTS RISK ANALYSIS STUDY - 2003 IMPLEMENTATION IN REAL PROJECTS: FINLAND'S NEW E-18 PPP Project Develop a Public Sector Comparator (PSC) Develop the Payment Mechanism Develop Contract – with Tendered Financial & Legal Advisors

11. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 E-18 IN THE NORTH

12. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Finland E-18 Muurla-Lohja

13. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Lahnajärvi grade separated intersection Suomusjärvi grade separated intersection Muurla grade Separated intersection Kruusila grade separated intersection Finland E-18 Muurla - Lohja Sammatti grade separated intersection Nummi grade separated intersection Karnainen grade separated intersection Lempola grade separated intersection Muurla-Lahnajärvi section open to traffic in 2008 Lahnajärvi-Lohja section open to traffic in 2009 50 km Motorway 49 Bridges 7 Tunnels (5.1 km)2 Service Stations 28 km - Noise Barriers

14. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Procurement Phase - Time Line for E-18

15. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 5 Participants Interested in Project

16. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 o o n a a e u r o a 10 Source: Pekka Jokela - Finnra Difference in Payment Schedule

17. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 PAYMENT MECHANISM

18. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Types of Payment Mechanisms Source: Transport for London

19. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Availability Payments Source: Transport for London

20. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 E-18 Finnra Availability Payments 90% For Road Available for Normal Traffic 10% Performance Payment Defining the Appropriate Unavailability Factors Deductions for Poor Performance (also Salt Sanction - excessive) Indexes for Cost Escalations (Fuel, Electricity) Compensation for Increased Traffic One time Safety Bonus One Time Innovation Bonus (after Construction - €2M max.)

21. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 ADVANTAGES & DIS-ADVANTAGES, PITFALLS, KEY ISSUES, & CHOICES

22. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Advantages of PPP Increasing the pace of infrastructure delivery Value for money No Disruption of Other Projects in Portfolio Package Complete important projects faster than traditional methods Optimization of risk transfer (Risks to best influence & manage) Seeking whole life solutions or Life Cycle Cost (LCC) Seeking innovation and better quality (more durable) Off-balance sheet (not considered as a public debt) More recently - the lack of public funding available Future Road Users are paying the costs - not just the present generation Source: Pekka Pakkala - Finnra

23. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Disadvantages/Concerns of PPP Contract Concession Winners Are Usually Large Companies Long Tendering Period Large Transaction Costs Legal & Financial Expenses Are Great Difficult to Predict into Future & Political Consequences Making Contracts Flexible During Contract Duration Making Too Many Fast Decisions & Errors Lack of Understanding of the DBFO Delivery Method Not Taking Advantage Of Real Concept of Design-Build - (It Was Intended As a Teaming & Partnering Type Concept) Source: Pekka Pakkala - Finnra

24. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Main Pitfalls Lack of Understanding of the DBFO Delivery Method Market Risks – Causes Project To Fail Financially Proposed Design & Construction Solutions Fail Proposed Technology That Doesn’t Work – Germany Not Understanding Risks Not Having Good & Reliable Partners Banks/Financiers Take No Risk Underestimating The Influence of Banks/Financiers/Investors Underestimating Completion Risk Other Threats To The Project (Env, Protest, & Political) Any Stipends To Non-Winners (Large Tendering Costs) Enticing International Competition - Language & Partners Influence of Project Size Source: Pekka Pakkala - Finnra

25. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Key Issues Demonstrating Value for Money Project Size – should be over €80M for Value For Money Need a Good Public Sector Comparator (PSC) Risk Analysis - Having the Appropriate Risk (Reasonable) Ability to Get the Best Financial Package (Low Risks) Utilizing Performance Specification & Outcome-Based Criteria Measurable, Objective & Fair Payment Mechanism (Transparent) Monitoring & Measuring Acceptance During the Delivery Phase Allowing Potential for Innovation Contract Flexibility Appropriate Hand-Back Clause Source: Pekka Pakkala - Finnra

26. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 Choices Toll Road or Not Payment Mechanism (Risks): Based Upon Real Toll Collected Tolls Plus Any Shared Savings Availability Shadow Toll (Järvenpää-Lahti Motorway) Performance Based (England - Darington-Dishforth Project) Series of Projects Benchmarking  Public Sector Comparator Stipends to Contract Losers Open Book Contractor Selection Criteria Performance Based Specification Source: Pekka Pakkala - Finnra

27. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 FINAL CLOSING REMARK Source: Pekka Pakkala - Finnra What decisions does one make when there is a need for new infrastructure development (present infrastructure is not meeting society's need), and there is a lack funding in the budget or there is no funding available from government?

28. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 www.finnra.fi Thank You! Final Report Is Available: “Innovative Project Delivery Methods For Infrastructure - An International Perspective". & "Procurement Strategy Of Finnra" & E-18 (Muurla - Lohja PPP Project - Instructions for Pre-Qualification) http://alk.tiehallinto.fi/e18/english/index.html

29. Pekka Pakkala IRF PPP Presentation - Oct 19 2005 SOME RESOURCES Innovative Project Delivery Methods for Infrastructure - An International Perspective, Pekka Pakkala, Finnish Road Enterprise (www.finnra.fi) Finnra Procurement Strategy (www.finnra.fi) E-18 (Muurla - Lohja PPP Project - Instructions for Pre-Qualification (www.finnra.fi) Highways Agency DBFO Web Site (www.highways.gov.uk)www.highways.gov.uk UK National Audit Office (www.nao.org.uk/) UK HM Treasury (www.hm-treasury.gov.uk)www.hm-treasury.gov.uk Norwegian Public Roads Administration (www.vegvesen.no)www.vegvesen.no Ireland National Roads Authority (www.nra.ie)www.nra.ie Principles Of Public and Private Infrastructure Delivery (John B. Miller) The Strategic Management Of Large Engineered Projects (R. Miller D. Lessard) Mega-Projects And Risks (Bent Flyvbjerg)