ME Railway Development & PPP Financing Framework

ME Railway Development & PPP Financing Framework
4th Annual ME Rail Opportunities – Riyadh – 5/5/2013
Loay Ghazaleh – Advisor, Undersecretary office
Ministry of Works - Bahrain
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1. Regional Railway Policies & Projects Review
2. Global Railway Industry Overview
3. Railway Planning & Technical Studies
4. Railway Technical Parameters
5. Common Railway PPP Concession Types
6. Payment Models in Railways Concessions
7. Railway PPP FEED Model
8. Railway Franchises (UK)
9. Railway PPP Tendering & Bids Evaluation
10. Final Notes on Railway PPP Concessions
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1.REGIONALRAILWAYPOLICIES&PROJECTSREVIEW

COMMON TRANSPORT POLICY OBJECTIVES
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 Integrate land use with transport policy
 Adopt Consistent legislation and regulations
 Support green sustainable transport, improve air quality,
reduce Noise
 Increase public transport options and access, reduce
severance
 Safeguard public safety and transport security.
 Improve transport efficiency and encourage competition
(Value for money)
 Support businesses and create employment opportunities
 Implement cross-border integration & interoperability
 Connect People & move Goods for economic development
and regeneration

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TO BRING A SHIFT TO GREEN TRANSPORTATION
• Appropriate regulations like clean fuel quality standards are
essential to green transport that need to be socially and politically
acceptable.
• Transportation demand management practices to reduce vehicle
trips by increasing vehicle occupancy, reducing vehicle distances
travelled and institutionalize public transit as essential.
 Rail transport has comparative advantage over road transport for
bulky not time-sensitive goods (Cement, fertilizers, grains, oil
products, ores) and container goods, especially when transported
on point-to-point routes.
 Comparative advantage is assessed in terms of reliability, safety,
freight traceability, speed, punctuality, frequency, safety, and
comfort for passengers.
 There is a real environmental advantage brought about by energy
efficiency of diesel or electric traction. Railroad’s carbon footprint
could be respectively 65% and 85% lower than that for highway

TERRAPINN – ME RAIL 2013 REPORT

NORTH GCC CROSS BORDER RAILWAY LINKAGES

GCC RAIL NETWORK MAP & NATIONAL RAILS
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QATAR WORLD CUP TRANSIENT TRANSPORT MAP
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GCC RAILWAY TIMELINE & COSTS
 Feasibility study endorsed by GCC 30th Summit on December 2009.
Project is economically and financially feasible.
 GCC Member States (MS) are well advanced in developing the Detailed
Engineering Designs expected to be completed by 2012. (Kuwait to
Muscat with a proposed link between Saudi Arabia and Bahrain while
extension to Yemen is scheduled for stage II expansion).
 Construction is expected to commence by GCC Member States (MS)
about 2013/2014 and completed by about 2017.
 Total length estimated 2177 km single track mix use – passenger and
freight transport.
 Total capital cost estimated:
 US$ 15.5 billion (passenger 200 km / hr. – Diesel Traction)
 US$ 25.6 billion ( high speed passenger 350 km / hr. – Electric
Traction)
 GCC MS formed a Steering Committee - SG Transport Department PMU
- to oversee the Implementation of the GCC Railway (focal point). A
“GCC Railway Authority” is expected to be formed.
 GCC MS Governments pay infrastructure capital costs based on railway
length in each MS (Capital & Rolling Stock Cost Sharing).
 Concession of Operations & Maintenance to Private Sector
 Agreement with World Bank for continued Advisory Service.
 Cost of Extension National Lines (member state beneficiary pays).

GCC RAILWAY ESTIMATED EXPENDITURES
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CHALLENGES FOR NATIONAL / REGIONAL RAILWAY PPP
 Cross Border Technical Issues
 Cross Boarders Linkage Points Alignment & Optimized Design.
 Use of Common Standards and Specifications - open & interoperable standards &
Specification Harmonization
 Regional Logistics / Use Integration of the Railway Network.
 Scheduled Design & Construction – Packaging and Implementations - Interface
Management
 Standardized Means of Procurement
 Packaging for Design, Construction, Operation & Maintenance - Finding the
Balance (Large number of smaller contracts or smaller number of larger
contracts)
 Bidding Documents including PPP Concession Type (specifications to be
commercially non-discriminatory that support competitive market,
interchangeability & commonality of parts)
 Clear procurement guidelines for Technical, Legal & Financial Advisors.
 Value for Money Bids Assessment for Contractors & Operators that enforce
security of supply and guard against obsolescence while realizing the socio-
economic benefit.
 Stream line the decision making process
 Enabling PPP Environment - Private Sector Participation
 Adequate Legal, Economic & Safety Institutional and Regulatory Framework
adopting International best practices.
 Institutional Capacity Building and Efficient Cross Coordination
 Strong local financial markets.
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POLICIES CONTEXT FOR RAILWAY PPP MODEL
 Land Use Policy;
 Encourage transit oriented developments
 Facilitate accessibility and acquisition for railways corridors.
 Transport Policy;
 Measures to abate congestion, pollution, economic inefficiency
 Imposing parking charges, tolls and fuel levies on road transport.
 Making cross subsidies to railway to enhance affordability
 Adopting whole transport system ‘mindset’ [ road-marine-rail –
airport ]
 Build Governance Capacity;
 Accurate budgets forecasts, increase predictability of cost & delivery
 Value for money bids evaluations, optimal risk transfer
 Cash flow management and local financing
 Cross-border & local government management issues and flexibility
for change
 Government’s Financial Liability / Commitment
 Cost of Planned Railway (Capital & Rolling Stock and Government
Subsidy)
 Cost of Building Extension Lines and other modal transport systems.
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CROSS BORDER COUNTRY REGULATION
Purpose and Form of Regulation
To influence behavior or to mandate requirements in order to achieve outcomes that
would not be achieved by the railways acting in their rational interests considering
mode of operation, railway market structure, and the economics of different railway
markets
Price Regulation
Freight prices – need to regulated through strong competition with other modes
Passenger fares – Some countries may wish to regulate fares for social and
environmental reasons
Access Regulation
Under collaborative model of service provision, no need for access rules imposed by
regulator
Under open access competition model, access rules required considering „the access
charge problem‟
Safety and Standards Regulation
Process based approach or rules based approach are two approaches to safety
regulation
Key standards for interoperability need to be defined

KEY ISSUES FOR CROSS BORDER RAILWAY SERVICES
• Minimum needed to ensure interoperability
and interfaces control including line side
indications and equipment
Technical
Specifications for
Interoperability
• Customs and immigration checks at origin
and/or destination and reporting
Origin-Destination
Customs &
Immigration
• Regional railway services and control -
control center, real-time information
• Common operating rules and performance
Regional
Operations
• Regulatory framework
• Regional Railway Authority creation
Institutional and
Regulatory Issues

POSSIBLE REGIONAL RAILWAY MODES OF OPERATION
Single
Operator
Model
•Operate regional services along the cross border mainline
•Can be vertically integrated or would obtain access from
single infrastructure regional manager or national railway
companies
Open Access
Competitive
(EU Model)
•Each country rail operator has rights of access to all other
railways in other countries subject to payment of access
charge and available capacity.( access charge issues)
•Requires common rules relating to unfair State subsidies
and competition
•Coordination more difficult, long supply lines
•Volume of goods and passengers in early years may not be
sufficient to support meaningful competition.
Collaborative
Model
•Regional services provided through collaboration between
different railways
•Bilateral agreements for providing services, traction,
rolling stock and train crew
•Revenue sharing system, example joint determination of
services (Particularly passenger)
•Possible cooperation on product development, sales and
marketing, timetable development, passenger fares
structure and ticketing arrangements, etc.
•Possible closer forms of cooperation, e.g. pooling of rolling
stock / other resources or even joint venture

2.GLOBALRAILWAYINDUSTRYOVERVIEW
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GLOBAL RAILWAY OWNERSHIP - SECTORIAL POLICIES
 The earlier organizational models used in the rail sector were based on: integrated
companies, either intra-modal monopolies or in competition with other rail
companies on neighboring routes, with or without network access to third-party
operators.
 Since the 1980s, there has been an increasing trend particularly true in Europe
(mandated by the EU) to split up companies owning the rolling stock and those
owning the infrastructure (the tracks, signaling, tunnels, bridges, stations and
depots).
 This separation of rail infrastructure and rolling stock (Western Europe); or total
unbundling of functions (United Kingdom) has allowed open access to the tracks by
any train operator to any portion of the railway network that meets safety
requirements (Franchise system or time-limited contracts), however,
 The separation benefit was not fully utilized due to the lower levels of traffic , smaller
sizes of companies and the high coordination costs involved.
 This separation did not receive unanimous global support. In the United States,
virtually all rail networks and infrastructure outside the Northeast Corridor are
privately owned by freight lines. Union Pacific in US owns and operates both their
rolling stock and infrastructure. Passenger lines, primarily Amtrak, operate as
tenants on the freight lines.
 In Bundled ownership or shared operation system, operations must be closely
synchronized and coordinated between freight and passenger railroads.
 Both ownership systems as a result require interoperability regulation including
harmonized standards for rail track and vehicles / rolling stock. Thus the question is
often not raised in terms of equitable access to the market, but simply in technical
terms.
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RAILWAY PROJECTS REVENUES, SUBSIDES & FINANCING
 The main source of income for railway companies comes from ticket revenue and
advertisement for passenger transport and shipment fees for cargo (Freight revenue
may be sold per container slot or for a whole train).
 From an economic perspective, it is also not an absolute necessity to fully cover the
costs of a railway system from revenues. As private passenger services lost
significant ground in competition to the automobile and airplane, Government opted
to make up for loses by giving direct subsidies to the state-owned rail operation.
 When operations have been privatized where the infrastructure is owned by a
government agency, the Government can choose to provide the tracks free of charge,
or for a fee that does not cover all costs.
 Other option the Government can do is to become stockholders with a cash entrance
or by relinquishing locomotives and rolling stock as in Amtrak (US) or Canada's Via
Rail.
 The macroeconomic risk in railway stems from the prevalence of fixed costs,
therefore, lack of flexibility in case of economic turnaround, as well as the fact that
income is denominated in local currencies.
 Railway financing can take the form of corporate finance, project finance
(concessions type) or asset and title finance (rolling stock) while other forms of
leasing mechanisms are also available. 21

FINANCING STRUCTURES IN RAILWAY – CREDIT RISK
CLASSIFICATION
 Lenders often taking a mixture of asset risk, project risk, and corporate risk
 Corporate Finance (balance sheet lending) - One in which there is
neither a specific asset nor a specific stream of income on which the
credit decision is based, but rather lenders are relying on the general
financial position of the borrower.
 Project Finance (classical concessions) - A long term financing based on
the project cash flow rather than the balance sheets of project sponsors.
 The income generated by the project is a key factor in the lenders’ credit
decision. Project financing structure involves a number of equity
investors, known as sponsors, as well as syndicate of banks / lending
institutions (Investment / Development Banks, Infrastructure Funds).
Lead Arrangers / Underwriters provide primary debt funding.
 The loans can be non-recourse or limited recourse loans by establishing
a special purpose vehicle - SPV which owns project assets and income.
 Asset Mortgage / Title & Lease Finance - Commonly used for financing of
rolling stock where the future value of the rolling stock is a key factor in
the lenders’ credit risk. Most title financing arrangements involve the
separation of legal ownership or title to an asset from the economic
ownership of the asset (or the commercial risks and rewards that go
with ownership such as the risk or reward of loss or gain in value of the
asset).
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ASSET FINANCE EXPLORED - KEY ISSUES
 Law Conflict – As in the law chosen for the loan agreement, the law applicable to
the security (rolling stock), and the law in the place where the asset is at the time
 Financier Liabilities – Like environmental liabilities as a result of taking /
enforcing security over the asset, or as a result of its ownership as in a title finance
arrangement.
 Detention Rights of Third Parties on the Asset – Like what parties may be entitled
to detain the asset and prevent its profitable use especially the right to detain
rolling stock for safety or security reasons
 Asset Maintenance – Preservation of loan to value ratio of the asset is important to
the lenders and will want to be sure that the asset is properly maintained and
funds are set aside for this purpose throughout the loan tenure.
 Insurance – the lenders will want to be satisfied that the insurance of the asset
including liabilities to third parties arising in respect of the use of the asset are
met.
 Insolvency Impact – this relates to risks that restrict enforcement of security on the
asset or void guarantees as a result of insolvency proceedings.
 Registration – The place where the asset and any security on it need to be
registered and what are the consequences of non-registration;
 Ability to Sell the Asset Free of Liens and Other Interests – Like will sale has to be
done thru a court or can be done by simple enforcement. 23

Service
Quality &
Revenue
Operating
Infrastructure
Costs
Operating Plan
& Capacity
Analysis
Broad
Objectives
3.RAILWAYPLANNING&TECHNICALSTUDIES

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RAILWAY PPP IMPLEMENTATION CYCLE

CIVIL &
TRACK
•Rail Trail Alignment
•Special Track work
•Utilities
•Roadways/Grading
•Guide way Design
•Track Drainage
•Mechanical
•Signalized At-Grade
Crossings
•Safety and
Environmental
Considerations
•Infrastructure
•Unique Forces
•Derailment Load
•Acceleration &
Braking
SYSTEMS &
RAIL CARS
•Traction Power
•Overhead Contact
System
•Communications
•Signaling
•Train Control
•Fare Collection System
•Control centers
•Systems Integration
•Communication
•Rail Car
•Locomotives
•Electronic Security
(CCTV, Access Control,
Intrusion Detection)
•Fire Protection
•Safety Certification
BRIDGES &
STRUCTURES
•Bridge Architecture &
Aesthetics
•Grade Separations
•Tunnel & Bridges
Construction
•Tunnel design,
ventilation, Fire Life
Safety
•Rail Structure
Interaction Analysis
•Mode of Vibration
Frequency Criteria
•impact loading
•adequate rider comfort
STATIONS &
FACILITIES
•Ridership Forecasts
•Transit Development
•O & M Yards/Depots
•Support Facilities
•Parking facilities
•Entry /Pavilions
•Pedestrian Bridges
•Architecture
•Structural Design
•Pedestrian Amenities
•Landscape
•Visual/Aesthetic
•Signage
•Life/Safety
•Accessibility
•Safety/Security

EXAMPLE; DEVELOPMENT OF HIGH SPEED RAIL PROJECT

RAILWAY TECHNICAL STUDIES
Technical studies for railway projects are done a
head of time, its early public release allows solid
base for public discussion and successful future
bidding translated into;
 More time for bids
 Correcting any asymmetric information
 Contribute to transparency and increase tender
attractiveness
 Technical studies aim to achieve;
 Strategic decision support
 Project optimization
 Environment approval
 Financial analysis support
 Better cost & revenue estimates
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REGULATORY AUTHORITY’S ROLE
 Importance of regulatory authority’s competence
often underestimated or misunderstood.
Regulatory authority need to have
professionalism, technical and legal competence,
resources and ability to do its job
 Sound and durable regulatory system is a major
protective regime for:
 Infrastructure manager
 Infrastructure users
 Final customers
 Taxpayers
 Government 29

EXAMPLE; POSSIBLE ROLES OF A GCC RAILWAY AUTHORITY
• Development of
technical standards
for interoperability
• Consistent national
approaches to safety
regulation
• Common safety
methods and
targets
• Adoption of common
operating
procedures
• Spread best
practices, Promote
railways
• Common conditions
of carriage for all
GCC regional traffic
based on COTIF
services
Facilitate /
Coordinate /
Promote
• Report to GCC
Member States on
development of
national railways in
accordance with
agreed interoperable
standards and
against agreed
timescales
• Publish reports on
the performance of
GCC railways
Monitor / Report • Work with the
national railways to
develop likely
future capacity
requirements for
regional services so
that national
railway plans can
reflect this
• Appeal
function/arbitration
role in the event
that two or more
railways can’t agree
on the provision of
regional services
Other Functions

BIDS TECHNICAL PARAMETERS - OUTPUTS FOCUSED
1. User Service - Fares, Journey Time, Availability, Reliability,
Comfort, Safety
2. Planning
 Planning / Layout / Corridors / Stations
 Traffic type
 Passage / Freight points
 Systems integration
3. Infrastructure Design
4. System Safety and Security Requirements
5. Technology & Operations
 External Interfaces Requirements - Interoperability and flexibility of
usage between passenger & freight
 Compatibility of different suppliers’ equipment (available in several
languages)
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 Recent approaches to use FEED (Front End Engineering and
Design – pre-construction services) for turnkey delivery, has
proven successful (very similar to oil & Gas)

1. USER SERVICE - OPERATIONS & MARKETING FOCUS
 Market segmentation - understand the railway market with
focus on customer benefits like;
 Integrated scheduling and ticketing
 Operational flexibility
 Real time information
 Single seat journey
 Focus on ‘whole journey’ and ‘experience’; Stations need to be;
 Attractive meeting places
 Natural towards surrounding land uses
 With multiple entry points and moving walkways
 Build Image and Marketing
 Signage and branding
 Address perception issues
 Continuously monitor and develop products
 Focus on User Service (Fares, Travel Time, Reliability of Service,
Comfort, Convenience and safety) 32

RAIL CARS & PASSENGER COMFORT
Double glazed
and tinted
windows,
Improved car
body
insulation
Comfortable ,
adjustable
seating
Toilets
Adaption for
Local
Costumes
Bed / private
rooms Option

2. Planning
Route location , Service Planning and Systems Integration
Revenue & Demand Forecasting - Business Case & Marketing
Health, Safety & Environment Assessment
Operational Assessment , Capacity & Interface Management
Station Access Planning & Transport Architecture
3. Infrastructure Design
Track design - Noise , Vibration & Ventilation
Bridges ,Tunnels – Geo-technical , Utilities Diversions
Service Stations , Depots , Freight terminals , Control Centers
Stabling , Fueling & Maintenance Facilities
4. Systems , Safety & Reliability
Reliability, Availability, Maintainability, And Safety (RAMS)
Signaling & Communications (e.g. ERTMS standard)
Control & Data Systems Engineering & Assurance
Risk assessment
5. Technology & Operations
Appropriate Transport Mode Technology
Traction , Vehicle / Rolling Stock Styling & Design
Vehicles & Facilities Operating Costs (Diesel or Electric)
Structural Crashworthiness of Passenger Rail Vehicles
Electrifications & Plants (Energy Feeding Systems)
Wheel-Rail Interfaces, Control-Command
Traction , Vehicle / Rolling Stock Dynamics Simulation
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MULTI DISCIPLINARY RAILWAY PROJECTS
Civil/
Structural
Track
Architecture
/Urban
Design
Rolling
Stock /
Vehicles
Signaling
System
Automatic
Controls
Safety/
Security
Testing/
Commissioning
• Rail projects are complex that require large, multi-disciplinary
team of designers, contractors and manufacturers with high degree
of coordination and integration to ensure safety certification prior
to revenue service

TECHNICAL STANDARDIZATION
 At shared interfaces,
 Standardize everything necessary to meet the essential
requirements like safety, healthy, availability, reliability,
environmental protection and especially technical
compatibility.
 Elsewhere
 Standardize those which is necessary to ensure mutual
recognition of vehicle authorization and Safety Management
Systems
 And where market opening for common components adds
value
 Everything else – Beware!
 Too much standardization (e.g. couplings, design technical
solutions) inhibits innovation and market entry.
 Interchangeability of vehicles and components
 Is not necessary for interoperability
 Can often be achieved voluntarily
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EXAMPLES – AGREED GCC INTEROPERABLE SPECIFICATIONS
Mandatory Parameter Specification
Track gauge Standard 1435 mm
Structural clearance
Allowance for double stack
containers plus catenary to
cater for future
electrification
Axle load 32.4 tons
Passenger train speed 200 km/h
Freight train speed 80-120 km/h
Signaling system ETCS level 2
Max. train length Freight: 2,000m
Passing loop length Minimum: 2,500m
Level crossings None on mainline

MODAL TRAFFIC MANAGEMENT SYSTEMS
 Road (Intelligent Transport Systems – ITS); EASYWAY – Europe-
wide ITS deployment on main trans-European road network
corridors. Advantages near 15% reduction of congestion, less
fatalities and less co2 emissions.
 Cross Border Rail (European Rail Traffic Management System –
ERTMS). ERTMS aims at creating cross-border rail traffic that
enables speeds higher than 200 km/
 Rail
 ETCS ; European Train Control System
 Speed limits are transmitted from track to train
 Driver response is monitored continuously
 On-board computer stops train if speed limit exceeded
 GSM-R; A radio system similar to GSM (but with specific frequencies for
voice and data exchange between the driver and central control
 Aviation (Air Traffic Management – ATM); SESAR (Single
European Sky ATM Research) Development Phase
 Inland waterways (River Information Services – RIS)
 Maritime (Vessel Traffic Management and Information Services
– VTMIS)
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55%
10%
10%
5%
8%
10%
2%
Construction
Contracting
Right of Way
Acquisitions
Rail Car Procurement
Systems ( signalling
& Communication)
Consultants /
Professional Services
GENERAL COST DISTRIBUTION FOR RAIL PROJECTS
 Rail capital projects delivered under traditional EPC approaches
typically result in the following cost profile
• Almost one-half (45%) typically goes to non-construction
contracting and “soft costs” (professional services and project
management). PPP & FEED models delivery results in improved
cost utilization.

GENERAL TURNKEY COST DISTRIBUTION FOR RAILWAYS
5%
11%
2%
12%
2%
22%
11%
8%
18%
2%
32%
49%
14%
12%
Line Construction Station Construction
Fare Collection System Train Control
Communication Traction Power / Rolling Stock
Mechanical & Electrical Vertical Transport / Elevators
Track work Architectural
Structural Civil / Site Work

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4.RAILWAYTECHNICALPARAMETERS

SYSTEMS PACKAGES IN RAIL WAY
Operations Control Centers
Network Traffic
Management
Integrated Railway
Operation
Signaling Control
Communication
Modes – Radio,
Tetra, GSM-R
Multi modal
Systems
Communication
Transmission
Passenger Services
Passenger
information &
Comfort
Video Surveillance
& Security
Fare Collection
System

INTEROPERABILITY (TRACK GAUGES)
Track gauge is a technical
term used in railways to
define the spacing of the rails
in an individual railway track.
It is the dominant parameter
determining interoperability.
Broad gauge
Brunel 2,140 mm (7 ft. 1⁄4 in)
Indian 1,676 mm (5 ft. 6 in)
Iberian 1,668 mm (5 ft. 5 2⁄3 in)
Irish 1,600 mm (5 ft. 3 in)
Russian
1,520 mm (4 ft. 11 5⁄6 in)
Standard gauge (Stephenson)
standard 1,435 mm (4 ft. 8 1⁄2 in)
Medium gauge
Scotch 1,372 mm (4 ft. 6 in)
Cape 1,067 mm (3 ft. 6 in)
Meter 1,000 mm (3 ft. 3 3⁄8 in)
Narrow gauge
Three foot 914 mm (3 ft.)
Swedish
three foot
891 mm (2 ft. 11 1⁄10 in)
Imperial 762 mm (2 ft. 6 in)
Bosnian 760 mm (2 ft. 5 15⁄16 in)
Minimum gauge
Fifteen inch 381 mm (15 in)
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RAIL PLANNING - RAILWAY NETWORKS CHARACTERISTICS
Metro / Mass Transit / Light rail / Monorail /Guided buses
Max. Design Speed 80 km
Service Headway (min)
Peak 2 min
Off-peak 10
No. of City Passenger Stations 100 +
No. of City Major Interchange Stations 15 +
High Speed Passenger Rail
Design Speed (Alignment, Track and Structures) 350 km/h
No. of City Stations (desired long stations spacing) 5-
Journey Time (desired target) Optimal
Passenger Railways / Heavy rail / Suburban
Max. Design Speed (Alignment, Track and Structures) 250 km/h
No. of City Stations (desired few) 10-
Journey Time (desired target) Optimal
Freight Railways (Heavy haul freight)
Design Speed 120 km/h
Freight Terminals Custom
Slab Track Axle Load 25 t
Max. Train Length 3,000 m
49

DIESEL VERSUS ELECTRIC LOCOMOTIVES
 Lines with low traffic frequency (mostly long-distance lines) are not
feasible for electrification as the lower running cost of electrified
trains may be overcome by the higher costs of grids & maintenance.
 Electric locomotives are constructed with greater power output than
most diesel locomotives, thus, almost all high speed trains are electric.
 The high power of electric locomotives gives them the ability to pull
freight at higher speed over gradients; in mixed traffic conditions this
increases capacity when the time between trains can be decreased.
 Electric trains are more energy-efficient than diesel-powered trains. If
powered by low-carbon generating stations, an electric train can
produce a lower carbon footprint.
 Electric trains regenerative braking allows the power to be returned to
the electrification system so that it may be used by other trains on the
same system or returned to the general power grid. This is especially
useful in mountainous areas where heavily loaded trains descend long
grades.
 Central station electricity can be generated with higher efficiency than
a mobile engine/generator in Diesel-Electric locomotives. Energy
sources such as nuclear power, renewable hydroelectricity, or wind
power can be used at stations.
50

51
TYPICAL USA DIESEL - ELECTRIC LOCOMOTIVE
EU LOCOMOTIVE TAG

EXPECTED SERVICE LIFE - ROLLING STOCK (YEARS)
Service Life of rolling stock depends on the speed characteristics of the
material used and the service assigned to it while interiors in most
cases may need servicing before the end of service life.
Type of Vehicle Top Speed Years
Freight Wagons for Conventional
Lines
Speed Under 100Km/h 40
Freight Wagons for Conventional &
High Speed Lines
Speed Over 100Km/h 30
Passenger Cars For Long Distance &
Regional Services
Passenger Cars For Suburban &
Metropolitan Services
Motor Train Unit Speed Under 120Km/h 15-25
Locomotives for Services In
Conventional Lines
Locomotives for Services In High
Speed Lines
Cars for High Speed Lines Speed Over 250Km/h 15
52

EXPECTED SERVICE LIFE - TRACK SUPERSTRUCTURE
COMPONENTS (LOAD & YEARS)
 Track usually consists of steel rails installed on sleepers (UK) / ties (US) and ballast, on
which the rolling stock moves. A slab track where the rails are fastened to a concrete
foundation resting on a prepared subsurface are also possible
 Sleepers or Ties are used to facilitate drainage of water, to bear the load from the
railroad ties, and also to keep down vegetation that might interfere with the track
structure.
 Continuous welded rail is generally used to reduce track vibrations and misalignment.
 Service life of track superstructure components depends largely on the volume of traffic
sustained and speed. The shortest component is the ballast which requires renovation
without changing the rails or sleepers.
Component
Expected Life
in Million
Gross Tons
Expected Life in
Years for Traffic
35,000 t/day
Rail in Ballasted Track 500 40
Concrete Sleepers 500 40
Ballast (shortest Life) 250 20
Safety Facilities N/A 10 – 50
Electrification Facilities
( Distribution & Substations) N/A 10 - 50
53

EXPECTED SERVICE LIFE –
INFRASTRUCTURE (LOAD & YEARS)
Type Of Infrastructure
Infrastructure
Element
Years
Earth Works
Small embankments in
soft ground
50
Large embankments in
stable ground
100
Tunnels, Bridges & Other
Works
Drainage Works 80 – 100
Large works ( tunnels,
viaducts)
80 – 100
Access Facilities &
Stations
Structural elements
(façade, drainage
structures, etc.)
10 - 50
Elements of habitability 2 – 10
Aesthetic elements 1 - 5
55

ARCHITECTURE OF THE EUROPEAN RAIL STANDARDS
 UNIFE, the association of the European rail manufacturing
industry and European Rail Agency (ERA), are the main
contributors to building and maintaining the European system
of regulations and standards
 EU standards are freely available in the public domain
 Technical Specifications for Interoperability (TSI) and other
railway regulations are downloadable from the ERA website -
www.era.europa.eu
 EN standards Information avalable on - www.cen.eu,
www.cenelec.eu
 The European standardization system (UIC, CEN, CENELEC,
UNIFE, ERA, ECC, etc.) which is being further enhanced through
various MoU’s, is generally open, flexible, whilst ensuring
safety and interoperability and can be used both in the case of
dedicated High Speed lines or mixed traffic situation.
56

COOPERATION / MOU’S AMONGST EUROPEAN RAIL
STANDARDS ENTITIES
57

UAERAILWAYSTANDARDS
58
1 NTA/HRS/018 Trains Standard (including Diesel, Electric, Diesel-electric, and bi-mode)
2 NTA/HRS/0025 Interface between Electric Trains and Surrounding Environment Standard
3 NTA/HRS/011 Railway Planning and Alignment Development Standard
4 NTA/HRS/012 Permanent Way Standard
5 NTA/HRS/014 UAE Structure Gauge Standard
6 NTA/HRS/019 Standard for Railways Civil Infrastructure (including Tunnels, viaduct and buildings)
7 NTA/HRS/013 Stations Standard
8 NTA/HRS/021 Depot, Marshaling (separating) Yards and Siding Standard
9 NTA/HRS/000 Interoperability
10 NTA/HRS/001 UAE Railway Standards Plan
11 NTA/HRS/002 Railways Standards Change Procedures
12 NTA/HRS/003 Non-Compliance with Railway Standards
13 NTA/HRS/004 Exemptions to Railway Standards
14 NTA/HRS/005 Railways Business Plan Standard
15 NTA/HRS/999 Requirements for a Standard
16 NTA/HRS/016 Signaling System Standard
17 NTA/HRS/017 Telecommunication System Standard
18 NTA/HRS/006 Railway Operations Standard
19 NTA/HRS/010 Approval of Opening of Railway System for Public use Standard
20 NTA/HRS/020 Standard for Operational & Train Control Rooms
21 NTA/HRS/023 Ticketing and Revenue Collection Standard
22 NTA/HRS/007 Railway Infrastructure Maintenance Standard
23 NTA/HRS/022 Infrastructure Protection Standard
24 NTA/HRS/026 Railway Environment Standard
25 NTA/HRS/029 Railway Fire Systems Standard
26 NTA/HRS/030 Railway Competency Standard
27 NTA/HRS/031 Security & Disaster Planning Standard
28 NTA/HRS/015 Electrification Systems Standard (including third rail and catenary)
29 NTA/HRS/027 Traction Power Systems and Connection to UAE National Grid Standard
30 NTA/HRS/028 Railway Mechanical and Electrical Systems Standard
31 NTA/HRS/024 Rail-Road-Marine Interface Standard
32 NTA/HRS/032 Design, Development and Operation of Freight Terminals‟
33 NTA/HRS/033 Handling and Carriage of Freight by Rail, including Dangerous Goods
34 NTA/HRS/01 Tram
35 NTA/HRS/02 Metro
36 NTA/HRS/03 Rail Guided System (GLT)
37 NTA/HRS/04 Personal Rapid Transit
38 NTA/HRS/05 Automated People Mover
39 NTA/HRS/06 Mono Rail
40 NTA/HRS/07 Funicular (cliff railway)

5.COMMONRAILWAYPPPCONCESSIONTYPES
59
In The 1990s, Design-Build was the “New Trend” for the rail
industry in the United States. Today, the rail industry as a
whole is moving forward with more and integrated
Alternative Project Delivery models worldwide and
increasing Level of Private Sector Responsibility and Risk.

PPP CHALLENGES IN TRANSPORT
 National / regional strategic planning and setting
priorities (scheduled delivery).
 Land & transport policy issues, regulation and
management at various levels of government
 Public sector skills to deal with PPP complexity during
procurement & contracts management.
 Building pipeline & scoping projects (size/ability to
finance)
 Selecting the appropriate PPP concession type including
forecasting demand and assessing users ability to pay for
services
 Incentives and fair market behavior; industry-wide codes
and specifications
 Availability of infrastructure funds, and guarantees for
PPP. 60

NOTES ON PPP BIDS STRUCTURING
61
• Bidders should be free to optimize and innovate in areas that do not
compromise the strategic goals of the railway project.
• Different PPP & Financing strategies may encourage more or less
private sector investments.
• Passengers Traffic / Demand Forecast, rarely accepted by private
sector when affordable alternative transportation means are
available.
• Passengers Traffic / Demand Forecast, rarely accepted by private
sector when one or more of the following factors existed:
• Exclusivity to certain volumes
• Government guarantee for minimum traffic
• Government grants
• The shift to availability-based payment model is increasing (nearly
60% of all projects awarded since 2000)

BUILD–OPERATE–TRANSFER (BOT);
BUILD–OWN–OPERATE–TRANSFER (BOOT)
 The specific characteristics of BOT / BOOT of being transferred to the
Public sector upon expiration of the concession period make both
suitable for capital intensive infrastructure projects with technology
component like highways, roads mass transit, railway transport and
power generation.
 BOOT & BOT are methods which find very extensive application in
countries which desire ownership transfer and operations at the end
of the contract mostly popular in upgrades, rehabilitations.
 A BOOT structure differs from BOT in that the private entity owns the
works while in BOT specific concession rights are granted. The project
company bears the technical risk (during the construction and the
maintenance), the operation risk, most of the commercial risk and
financial risks in either type.
 The fees / tolls / tickets are collected directly by the concessionaire or
by the Government directly or indirectly through special tax, general
fund, bonds, etc.
 If the Government makes the collection, it pays shadow or availability
payment to the concessionaire.
62

BOO (BUILD–OWN–OPERATE)
BTO (BUILD – TRANSFER - OPERATE)
 BTO contracts are almost identical to BOT in terms of procedure
and scope and are used when the physical life of the project and
the financial arrangements coincides with the concession period
with the Investor getting the benefits of any residual value of the
project.
 The difference is in BTO the title transfer from investors to state
agencies happen upon completion of construction and before
the project operation starts.
 In both scheme, the concessionaire arrange for project finance.
The government only agrees to purchase the services produced
for a fixed length of time (usually availability based with
deductions system for non availability of the services) or allows
the investor to operate the project over a period of time so that
the investor can recover both capital and earn reasonable
profits.
 In railway with assets life reaching nearly 40 years, special
accounts need to be created to facilitate the assets transfer at the
end of the concession.
63

BLT (BUILD–LEASE–TRANSFER)
 Under BLT a private entity finances and builds a
complete project and leases it to the government. This
way the operations control over the project is
transferred from the project owner (shareholders) to
a lessee (Government).
 After the expiry of the leasing, the ownership of the
asset and the operational responsibility are
transferred to the government at a previously agreed
price.
 This framework is suitable for foreign investors to
avoid both Government risk as the project company
maintains the property rights and
avoiding operational risk as the project is leased to the
Government.
64

DBFO (DESIGN–BUILD–FINANCE–OPERATE)
DCMF (DESIGN–CONSTRUCT–MANAGE–FINANCE)
DBFO (Design–Build–Finance–Operate)
 DBFO is very similar to BOOT except that there is no actual ownership
transfer. The contractor assumes the risk of financing till the end of the
contract period as in BOOT.
DCMF (Design–Construct–Manage–Finance)
 In this framework, a private entity is contracted to design, built,
manage, and finance a facility based on the specifications of the
government.
 Project cash flows result from the government’s payment for the rent
of the facility in form of periodical payment (availability or shadow) or
by direct payment from the users to the private entity.
 The government has the advantage that it remains the owner of the
facility / infrastructure and has the price and quality control.
65

DBFOT (DESIGN–BUILD–FINANCE–OPERATE-TRANSFER)
 DBFOT combines both DBFO & BOOT with
ownership transfer. Most suited to
railways.
 Partial demand risk allocation to public
partner through traffic bands (volume)
including sharing of extra revenues. Unlike
a full concession, the scope of services for
the Private Sector can exclude ridership
and demand risks or fare collection
 Land acquisition/expropriation for service
corridors, stations, etc. allocated to private
partner (except public properties). The
same applies to EIA / Archeological risks.
 Penalties/incentives due to reliability of
arriving times, cover demand in rush
hours, accidents, safety, environment
sustainability
 Periodic availability & performance-based
payments are made to private partner as
milestones are met. The payments can
come from different sources; Fare Box
Revenue (collected by either), shadow or
availability payments.
66

6.PAYMENTMODELSINRAILCONCESSIONS
67

AVAILABILITY CONCESSIONS MODEL
 Payments are not made by Public sponsor until facility is
operational (available). Incentives / penalties are made based on
service quality, accidents and environment issues.
 If facility or portion of facility is not available (i.e., a station or rail
car, railway lane) deductions are made automatically as set in
contract.
 Performance is minority component of the pay structure – a
facility can be available, but not or sub performing (e.g. passengers
can not access station, landscaping not maintained to agreement).
 Availability structure creates high quality revenue stream to the
concessionaire without demand risk, thus allowing better access
to capital markets.
 Contract terms include detailed O&M provisions. If O&M are not
met, availability payment deductions are made.
 Promotes whole-life costing approach during design and
construction
 Encourages contract compliance, completion on time and better
capital maintenance
 Concessionaire is required to return the project in a “like new”
condition at end of concession term (30-50+ years). Special fund
can be set for this purpose.
68

AVAILABILITY PAYMENT REGIME
 Payment to the Private Sector =
+ Availability + Performance Payments
– Availability Deduction
– Performance Deduction
 Payments based on availability / service quality
 Reward a Concessionaire who makes the railway assets
available with full line capacity for the whole operational
day; and
 Reward a Concessionaire who maintains in good condition
other assets that do not directly affect the availability.
 Deductions due to non-availability or deficient assets
conditions (below minimum limit)
 Bonus to good condition of other assets that do not
directly affect the availability of the railway 69

AVAILABILITY PAYMENT MECHANISM
70
• Public Sponsor makes periodic payments to Private Partner
• Return on equity reflects level of transferred risk
• Private Partner finances (debt and equity) against payment stream

AVAILABILITY MODEL KEY BENEFITS
71
Public Sector PPP Concerns Benefits to Availability Model
 Transport Projects often lack stand-
alone financial viability.
 PPP availability model reduces
unwarranted financial risk.
 Public Sector need to specify policy
requirements
o Fare affordability
o Competing facilities
o Control over operating and
safety standards
 Public Sponsor retains control over user
fees
 Provisions against competing facilities
not necessary
 Performance Requirements allow Public
Sponsor to control operating outputs
 Public Sector needs to control
project cost exposure
 Payments do not start until facilities are
completed and operating
 Public Sponsor’s total payment
obligation is capped
 Public concerns over long term
concessions project
 Availability structures make shorter
contract periods more feasible
 Need to attract good competition
from private bidders
 Availability deals tend to attract a wider
group of investors and contractors
 PPP approach needs to provide
Value for Money in transferring risk
to Private Sector
 Encourages whole life approach to
design, construction and operations
 Economic drivers are more within the
control of the private developer

THE SHADOW PAYMENT MODEL
 Most appropriate for operational contract for rolling stock
 Public partner (tax-payer) pays a rent (leasing) to the concessionaire
in proportion to traffic and infrastructure use based on a previously
determined scale / per passenger sum. Public sector retains control of
fares and collection
 Can include hybrid payments with fixed availability payment to cover
minimum debt service while equity return reliant on shadow fares.
 The public authority's payment can also take into account the
concessionaire's performance like the number of trains closed to
traffic or safety issues.
 Demand risk on public partner , however, per passenger shadow fare
often tapers down with increased usage to limit public sector exposure
and private sector super profits while higher variable costs with
higher usage are accounted for.
 Many of the benefits are retained of both full concession and
availability models - flexibility and concessionaire's financial
contribution - without some of the perceived downsides of each.
 Equity return requirement higher than pure availability model but less
than concession model.
 Major challenges is for public sector to retain fare flexibility and for
private sector to get predictable cash flow
72

O & M - AFFERMAGE & LEASES
 In pure affermage & leases, the private party operates the
investments financed by the public authority against a fee
(typically 8 – 15 years); - Leasing and affermage differ in terms of
fees collection risks and how the Operator is paid from fees.
 In the concession type the operating asset investment costs are
borne by the operator . The concessionaire acquires or leases the
locomotives & rolling stock typically for 10 to 30 years. Both
settings allow separation of the management of operations and
infrastructure.
 In Pure O & M; affermage (leasing) contracts are used when
private equity and commercial debt are not available and there is
private sector efficiency benefit. The awarding authority remains
responsible for financing and managing investment in the assets,
which is supposed to come, at least in part, from the rental
payment/ surcharge.
 In Concession type O & M; affermage (leasing) are preferable in
railways; the responsibility for investments is shared between the
public authority and the operator based on road transport logic,
whereby investment in infrastructure is public and the cost of its
maintenance borne by the user (via fuel levies), while investment
and operation of the rolling stock are private.
73

PURE O & M - AFFERMAGE & LEASING CONTRACTS
 In pure Leasing , portion of the receipts going to the awarding
authority as owner of the assets as a lease fee (usually fixed) and the
remainder being retained by the operator. The operator takes on
commercial and collection risk (with incentives to perform). Usually
Operators require assurances to revenue increases and compensation/
review mechanism if they do not meet projections;
 In pure Affermages, the operator retaining the operator fee out of the
revenue and paying an additional surcharge that is charged to
customers to the awarding authority to go towards investments that
the awarding authority makes/ has made in the infrastructure. The
authority takes on commercial and collection risk.
 In Pure O & M, it is not unusual for the cost of maintenance and some
replacements to be passed to the operator. The operator may take
some degree of asset risk in terms of the performance and may also be
put in charge of overseeing capital investment program/ specific
capital works;
 Typical O & M contracts include minimum maintenance or
replacement provisions towards the end of the contract, so that
operating facilities are handed back in an operational condition.
 The conceding authority still has to bear the cost of infrastructure
rehabilitation or urgent repair works (tracks and fixed equipment), as
private concessionaire is rarely given the responsibility for
infrastructure works; Railways need full rehabilitation every 15 to 20
years, compared to 7 to 10 years for roads.
74

75
PPP MODELS SUMMARY
Best Approach is to work backwards - Decide on the capital and O & M
requirements , allocate the risks then , the PPP type will emerge!

RAILWAY PROJECT PHASES
77
Project
Development
•Funding
•Stakeholder alignment
•Planning regulations
•Land acquisition
•Operational requirements
•Organizational structure
•Contract terms
•Design Spec.
Design &
Construction
•Design finalization
•Procurement
•Construction & fit out
•Value management & engineering
•Risk management
•Stakeholder collaboration
Testing &
Commissioning
•Construction
•Fit out
•Systems integration
•Testing & commissioning
•Third party collaboration
Operation
•Rail operations
•Promotion of project benefits

RAILWAY PPP FEED CONCEPT;
 Single, integrated “turnkey” PPP contract that includes;
 Design & Construction
 Systems & Vehicles
 Operations & Maintenance (if desired)
 Private Financing (as applicable)
 Community/Stakeholder Outreach
 Owner (Government) maintains policy control
 Starts under (Phase 1) Development and environmental
phase with focus on driving “constructability” and “basis of
design” concepts early in the project cycle (independent
from selected environmental consultant)
 Brings “delivery” services on board earlier (as compared to
the typical lengthy use of “advisory” services) under a total
integrated solution.

PPP FEED TENDER
 Consortiums competing for two-phase awards
with qualifications based selection process with
acceptance of price/schedule/scope/quality and
performance risk.
 Phase 2 is awarded upon completion of:
 All project environmental clearances
 Approved “basis of design”
 Acceptable Phase 1 performance
 Acceptable Phase 2 pricing
 Agreeing on the PPP financing model.

PPP FEED MODEL ADVANTAGES
 Resolves the increasing difficulty in developing and/or maintaining
technical and managerial capacity on the owner’s side; insufficient
focus/lack of qualified resources.
 Allows better community and stakeholder support as it includes
community and stakeholder outreach elements to ensure support
throughout the entire project development and implementation life-
cycle.
 Results in reduced OH rates during development phase and Serves best
interests of Rail agencies and the public.
 Allows more project delivery responsibility and accountability with
private sector contracting partner, including acceptance of more risk.
 Serves the entire spectrum of “Greenfield” (new capacity) and
“Brownfield” modernization rail project types.
 Offers an opportunity to the engineering and construction industry to
reduce its “innovation deficit” and evolve from its dependency on past
practices.

FEED MODEL - OWNER/PUBLIC SECTOR FUNDING
Owner/Public Sector provides for the development of:
 Comprehensive program plan
 The “Basis of Design” requirements
 The Scopes of Work
 Preliminary price and schedule values
 Plan for managing public outreach, stakeholder coordination and
third-party impacts
 Firm Fixed Price/Not to Exceed pricing and schedule
 Limited Self-Perform Work
 Contracting process for subcontractors
 A single point of responsibility for total program/project delivery
 Owner supported program management, project controls, project
 Reporting, safety, quality assurance, etc. services

FEED MODEL - PRIVATE SECTOR FINANCING MODEL
Private Sector provides for the development of:
 All the previous PLUS
 Delivery through at-risk private sector financing
(Including possible “gap financing”)
 Payment subject to overall price, schedule, scope,
quality program and project delivery performance
 Higher risk/reward considerations

UK RAIL FRANCHISES SYSTEM
 It is Government policy in UK that passenger rail services are publicly
specified, procured and, where necessary, funded but are privately
delivered by train operators - for a specified period on a specified part of
the network - with objectives to improve railway performance, replacing
direct subsidies, stimulate competition, control costs and conform to
service specifications.
 Train companies bid for franchises on the basis of quality of service they
intend to offer and the amount of funding they require (subsidy) or the
premium they would be prepared to pay for the use of infrastructure to
run these services. Franchise agreements generally run for 7–10 years.
 Demand risk is partially shared risk in the first 4 years thus resulting in
better bids. Train operators can generate more revenue through attracting
more passengers, raising unregulated fares and other commercial income.
(Regulated fares are tied to retail price index)
 Responsibility for the operation and condition of the track rests with
Network Rail Company while strategic decisions on major investment,
which also affect service to passengers, are the responsibility of the
Network Rail Company / UK Department for Transport.
 Room is allowed to increase capacity in franchise contracts, to improve the
quality, reliability, accessibility and security of passenger services through
station refurbishment and investment in rolling stock.
85

NOTES ON UK FRANCHISING
 Franchising is still considered in UK, the best way to secure rail services for
tax payers and fare payers a like.
 Most franchises are receiving government support because they cannot
meet their financial targets despite traffic being at record high.
 The system needs to be flexible and encourages innovation to allow
operators to adopt to services changes in demand. An inter-city service is
very different from a regional operation.
 It also needs a system that is fit for purpose, attractive to bidders, flexible
to cope with economic fluctuations and delivers real improvement for
passengers.
 Minimum 5 years, with 7 -10 years are ideal with to the option to extend.
 The system needs residual value mechanisms to encourage investment in
projects that will give a return beyond the end of the franchise.
 Bidders should be responsible for the risks they can manage with a
mechanism to adjust premium payments or subsidy requirements
according to national economic performance.
 More competition is needed as it spurs real improvements and increases
traffic for both the franchise incumbent and the newcomer.
86

PUBLIC AND PRIVATE BODIES IN RAIL FRANCHISING (IN UK)
 The Department / Ministry for Transport - set the overall framework
and strategy for railways and provide public funding. The Department
/ Ministry specifies, procures additional rolling stock and oversees
delivery of franchises to private Train Operating Companies’.
 Regulatory Authority’s - Office of Rail Regulation - Usually an
independent statutory body led by a Board that regulates network
rail’s stewardship; secures compliance with relevant health and safety
law; licenses operators of railway assets; and enforces competition law
in the rail sector.
 Network Rail / Infrastructure Company - a company that owns and
operates the fixed rail infrastructure, including rail stations, which it
mainly leases to train operators. It is responsible for the reliability of
the network and leads on performance and industry planning. This
can be a Government unit (can receive grant funding) or a private
company.
 Train Operating Companies (TOCs) - are special purpose companies,
which hold rail franchise. The train operators pay Network Rail
Company for station access and track access charges.
 Rolling Stock Leasing Companies (ROSCOs) - own the rolling stock that
is leased to Train Operating Companies.
 Passenger Protection Groups – can be a statutory funded bodies or
private entities to protect passengers’ interests whenever decisions
are taken that affect rail service
87

9.RAILPPPTENDERING&BIDSEVALUATION
88
Best And Final Offers!

BEST PRACTICES IN PPP TENDERING &
CONTRACT MANAGEMENT
 Maintaining competitive pressure throughout the bidding
process;
 Proper / optimal allocation of risks . Optimal overall cost of
finance, commercial incentive.
 Providing incentives to the private sector for the delivery of
quality services and potential for innovation and increased
efficiencies. Allow third party revenues
 Encouraging innovative delivery solutions by use of an
“outputs / outcome” specification approach allowing the
Integration of service and operational needs with facility
design and construction
 Offering incentives for the benefit of both parties (e.g.
periodic cost benchmarking and sharing mechanisms);
 Target long-term partnership contract that provides a degree
of cost certainty to government and revenue security to the
bidder with clearer focus on respective responsibilities.
89

EXPECTATIONS - PRIVATE SECTOR BIDDERS
PPP - Private Sector Bidders Are Expected To:
 Undertake the detailed design and construction of the
railway to the requirements of the Client
 Procure finance for the associated capital costs; and
 Operate and maintain the railway to the requirements of
the Client over a concession period usually 25 Years Plus.
Therefore;
 Partners (many) – need maturity + competence and
controlled supply chain interests.
 Contracts structure need to allow change over time
(technological obsoleting, economic down turns,
shareholders change, etc.).
 Optimal risk allocation and in particular demand risk
or users volume - In railway projects it is usual to
consider; Existing Users, Diverted Traffic from other
modes and Generated Traffic from the project.
90

UNBUNDLING COMPLEX RAILWAY PROJECTS
 Unbundling can be a viable option and can increases private
sector involvement.
 Unbundling of less-commercially-viable railway assets is a big
plus!
 Unbundling increases public sector management risk and more
challenging interfacing risks.
 Usually in unbundling capacity allocation and traffic
management are borne by State.
 Each PPP Package can cover a specific route section in
unbundling; examples;
 Substructure (Tunnels, bridges): D&C contracts
 Superstructure (e.g. rails / stations) → DBFM
 Control Systems → DBFM or own Specified
 Signaling and communication → PPP
 Rolling Stock and Operations → O & M PPP Concession

EXPECTATIONS - NAVIGATING THE COMPLEXITY!
92

RISKS & ALLOCATION IN RAILWAY PROJECTS – EXAMPLE!
Typical Railway Project Risk Allocation
 Planning & scheme impact on city Government
 Rolling stock design & approval SPV / Government
 Third Parties Claims SPV
 Safety Issues SPV
 Performance of Trams / Rail SPV
 Fares policy, tickets pricing regime Varies
 Future demand for rail system Joint , Traffic Bands
 Revenue collection & payments Tickets, shadow, availability
 Financing funding gap Government
 Environmental impact / Archeological issues SPV - Contractor
 Construction ground conditions SPV - Contractor
 Construction schedule SPV - Contractor
 Construction price SPV - Contractor
 Import duties, levies & taxes SPV
 Permissions, planning & permits SPV / Government
 Acquisition of ( public / private) land rights SPV / Government
 Moving utilities services SPV
 Interface & systems integration SPV
 Integration with other facilities / assets SPV
 Interoperability - key for transit traffic SPV / Government
 Long term maintenance SPV - O & M Contract
 Railway hand back SPV
 Government interference , termination Government
93

FINANCING & FUNDING STRATEGY – THE RIGHT MIX!
Financing
Strategy
ECA &
Project
Procurement
Strategy Future
Borrowing
Needs
Environment
Issues (EU
Funding)
Contracts
and
SecuritiesLocal
Banks
Sector
Experience
Revenues
Currency
Hedging
Needs
Local
Banks
Capacities
Success of project financing, attracts private sector to future projects

95
TRANSPORT FINANCING – INTERNATIONAL SOURCES

MENA REGION MAIN FUNDING SOURCES
•Very liquid , Driving pricing lower
•Pressed on tenors, but available for quality assets
•Sibor (Saudi Interbank) hedging market is limited to 5-7 yr.
Local GCC
Banks
•Tight liquidity, Prices are higher, but offset by lower libor
•Tenor is available for quality assets
•Libor hedging is very deeps; 23+ years
International
Banks
•Amount is linked to procurement
•Tenor is mostly limited by OECD consensus
•Some offer direct loans to home companies
Export
Credit
Agencies
•Rapidly developing
•Tenors average life are 8-11 years
•Still requires sponsors guarantees
Bonds and
Sukuks

NOTES ON RAILWAY FINANCING STRATEGY
 The concession type and/or financing structure may impose
certain impact on developers’ returns or offer better returns to
railway developers.
 Developers think first in terms of relative size of investment to
project returns.
 Developers evaluate;
 Streams of revenue independent from the project company
 Additional revenue like commercial adds, use of associated
real-estate
 Equity share of the concession provider
 Leverage and government grants
 Timing of cash invested relative to cash received - Equity
bridge loans;
 Equity reduction prospects to other parties , IPOs

FINANCING SOURCES - COPING WITH BASEL III
 Global liquidity has improved since the 2008 financial
crisis but remains scarce with secondary market
syndication still limited. Pricing still above pre-crisis
levels
 Basel III requires banks to hold
 Higher percentage (6%) of Tier 1 capital of "risk-
weighted assets,
 Additional capital conservation and discretionary
counter-cyclical buffers (2.5 % each),
 Matching assets and liabilities tenors,
 Resulting in tighter lending appetite, increasing the
overall cost of funds (higher margins) with
Infrastructure deals of (20-23 years) tenors limited
(shorter tenors)

VALUE FOR MONEY ANALYSIS NOTES
 Rail and transit projects are subject to scrutiny by many stakeholders. VfM
analysis determines whether the chosen procurement route is the best
option for the public sector and users.
 PPP structure can provide VfM if it can reduce the public sector subsidy compared
to traditional funding. a project must be revenue positive to show VfM.
 The value for money of the Project as a PPP depends on the discount rate used.
 If most risks are transferred to the private sector, value for money will decline
since the premium demanded will outweigh the benefit.
 Private sector generally includes risks in cost estimates while the Public sector
rarely does and budgets are often optimistic for the lowest cost and earliest
completion not the most likely! Actual past history costs can be indicative.
 Most private sector company’s alternative options are priced on a ‘take it or leave
it’ basis due to lack of incentives!
 Value for Money and affordability of options should be tested multiple times
and be constantly refined starting from the project screening phase to
financial close. Factors Inducing VFM
 Project Operational & Social Benefits (Appropriate cost allocation)
 Financial Criteria (Optimum Whole Life Cost)
 Technical Criteria (Comprehensive Specification, Fit for purpose, Innovation, Time
& Quality)
 Safety, Health & Environmental Criteria
 Managerial Criteria (Incentive & Monitoring, Risk Management, Disputes &
Contractual Aspects)
99

CALCULATION OF VFM
 Calculates the indicative Net Present Value (NPV) or Net Present Cost (NPC) of
the project under a traditional delivery model - Risk adjusted, whole-life cost of
a project.
 Acts as a benchmark against alternative delivery methods / proposer bid
financial models or shadow bid model (the project under PPP delivery model
considering project financing, risk transfer, innovations and efficiencies); and
 Must take into account the value of “retained risks”. (Calculation of the financial
impact of a range of possible outcomes should such risks materialize)
 Monte Carlo simulation / sensitivity analysis allows estimates to be made of the
impacts and likelihoods of individual risks utilizing the “most likely outcome”
rather than the mean value used in NPV.
 Notes on Calculation;
 Capital costs - should reflect the full resource costs of the project, including
opportunity cost of public assets used in the project, adjusted for risks.
 Operating costs - whole life cost of maintaining the asset to the same
standards required from the Private operator.
 Projected revenues - Included only if bidders will be allowed to set tolls and
should be adjusted for inflation.
 Availability payments by the Client to Concessioners - comprises fixed and
indexed components in both local currency and foreign. Weighted
availability that combines both local and foreign payments assuming long
term exchange rate to be used.
100

VFM DISCOUNT RATE & DISCOUNTED CASH FLOW
 Discount Rate should represent the real opportunity cost of capital,
adjusted for inflation (& subsidies, if any), for public projects
(Government bonds can be used as a guide). This is not the interest
rate of private finance!
 There is no agreement on which discount rate should be used for the
transport sector. It has been a rather common practice to use lower
rates for rail projects as environmental and social benefits are not
realized immediately.
 Discount rate should reflect the “aggregate preference for the present”
of the economic actors performing the investment.
 In practice, acceptable rates of discount are often set at country level
for infrastructure, and can reflect not only economic realities but
budget constraints in the public sector (public cost of borrowing).
 High discount rates will favor the acceptance of projects with lower
investment and/or a concentration of benefits in the short term, whilst
lower rates will push forward those projects with longer-term returns.
 Discount rates currently used in the railway sector fall within the 3%
to 6% range for most projects appraised in developed countries.
101

10.FINALNOTESONPPPCONCESSIONS
102

MIXED RESULTS - IMPROVING CONCESSION CONTRACTS
 Optimal conditions for implementing a concession
 The conceding authority must be strong and extremely present.
 Assets should be accurately assessed
 The regulatory conditions need to be stable.
 The project preparation phase is crucial,
 Adequacy of the bidding arrangement and strong candidates is a must
 The presence of international institutions is keys to the success.
 Concessions remain feasible for lines with very high traffic density.
 In Cross border projects, conceding States cooperation is paramount.
 Globally; Northern American private rail operators have shown
a greater interest in Latin America concessions while Indian
and Chinese & Brazilian operators show interested in Africa.
European railways, for their part, remain relatively closed to
the private sector, except in the United Kingdom. ME is still
open field especially in city mass transient (Riyadh, Kuwait,
Qatar) and in railway O & M concessions.
 The use of traditional, long-term concession contracts (with a
moratorium on repayment of principal during the investment
period) to shift the financial risk to the private sector had
disappeared after the 2008 financial crises.
103

SUCCESS - GETTING STAKEHOLDERS TO ACT TOGETHER
104

CROSS BORDER CONCESSIONS –
SEAMLESS REGIONAL RAILWAY
 Cross border concessions should allow interconnection with
pre-existing infrastructures as well as for interconnection of
different high speed corridors as the same rolling stock need
to be operated on corridors going through technical borders.
 In cross border concessions for regulatory and political
purposes, the concession is structured legally as two
separate concession contracts signed by each country
(subsidiaries of an overall concession holding company)
with the intention of the for the concession to be run
political borders as a seamless operation.
 The concession covers the provision of services over the
entire rail network. As large amount of freight traffic is
expected to be cross-border, and the success of each
operation is expected to depend on the joint operations
coordination of the total network.
 The projects’ commercial risks associated with the
concessions (including the operations, investment, and most
importantly, traffic risks) are usually assigned to the
concession companies and their lenders.
105

REHABILITATION CONCESSIONS - FIGHTS FOR SURVIVAL!
 Usually railway assets, consisting of the railway infrastructure,
locomotives and rolling stock and maintenance facilities, are conceded
for use by the governments to the concession companies while the
ownership of the infrastructure still rests with the government.
 The concession companies are responsible for the rehabilitation and
maintenance of all assets to specified standards and for the
achievement of minimum investment levels and traffic growth targets
stipulated in the concession contracts.
 The concession companies make payments to the government of
concession fees for use of the conceded assets that can include a one
time entry fee in addition to an annual variable fee. (usually a
percentage of gross revenues but can be a flat fee).
 The concessionaires are expected to make a minimum, annual
investment over the initial years to upgrade and rehabilitate the main
rail line and rolling stock and to grow the business.
 It is imperative to create both a “conceded assets account” for all of the
public assets associated with the concession and an “acquired assets
account” for the newly acquired or improved assets and these accounts
need to be amortized and audited frequently and mutually over time.
 The reconciled assets accounts will be the basis for compensation
whenever the deal was terminated, or upon its natural expiration. 106

FINANCING - MITIGATING POLITICAL AND
GOVERNMENT RELATED RISKS
 Operators argue that new railway projects including track rehabilitation
and renewal should be financed by governments as the life expectancy of
these assets (often 40-50 years) makes it impossible for private
companies to pay for them and recoup this investment over the 20-30
year life spans of normal concession / financing agreements.
 One Solution is for concessionaires to agree to finance initial investment,
with governments committing to compensate concessionaires for
unamortized investment at the end of the concession period. Operators
question the willingness and/or ability of governments to make good on
potentially large commitments made earlier by other official’s.
 As a consequence, concessionaires insist that governments pay for some
or all of the initial investment, by securing “soft” loans and on-lending
these funds to concessionaires. This approach raises questions about
Governments ability to monitor contract compliance while representing
the rights of the lenders, yet most new rail concessions in Africa are of
this kind. The private operators can slow down privately financed track
toward the end of the concession period in case of government failure to
make good on end-of-contract payments.
 Another solution is to use a full or partial risk guarantees that will be
triggered by the failure of the government to meet its contract
termination payment obligations or breach of contract terms (and failure
to pay any liquidated damages). Such guarantees play important role in
increasing investor interest during the bidding process and provide a
level of certainty to lenders including both commercial banks and multi-
lateral financing agencies.
107

RAILWAY PRIVATIZATION
 Through privatizing operation, many Governments seek to completely
release themselves from financing investment and operation. This
objective is not realistic especially with low traffic density; public
financing for infrastructure investment continues to be required.
 When operation is privatized, the State should mainly expect
management to be improved, greater professionalization and a
normalization of relationships with the operator – rather than a
provision of private capital which will remain limited by risks and
moderate profitability.
 Old railway networks in many parts of the developed world are
insolvent as maintenance and investment lagged, revenues dropped,
while the workforce continued to expand.
 Where it is difficult to make railway operation sustainable due to the
high level of fixed costs, the only financially profitable projects are
those that improve existing assets. The other best thing to do in this
case is to shut down the railway line.
108

Loay Ghazaleh,
MBA, BSc. Civil Eng.
Advisor,
Undersecretary office
Ministry of Works,
Bahrain
loay.ghz@gmail.com
00973-36711547
109

ME Railway Development & PPP Financing Framework

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