Public-Private Partnerships in High Speed Rail Projects

1. With Presentations By:
PUBLIC – PRIVATE
PARTNERSHIPS IN HIGH-SPEED
RAIL DEVELOPMENT
May 18, 2010
Brought to you by
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2. Panelists
• Kathryn Kusske Floyd, Dorsey & Whitney LLP
• Stephen Small, P.Eng.
Bilfinger Berger Project Investments Inc.
• Jay Lindgren, Dorsey & Whitney LLP
• Peter O’Neill, Bank of Ireland
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3. Agenda
• Market Demand & HSR Update –
Kathryn Kusske Floyd
• Introduction to P3 Projects – Steve Small
• Legal Authority – Jay Lindgren
• Lender Perspectives – Peter O’Neill
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4. Market Demand & HSR Update
Kathryn Kusske Floyd
Dorsey & Whitney LLP
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5. High Speed Rail in Washington, DC
• The Obama Administration has made high
speed rail development one of its top priorities
• The American Reinvestment and Recovery Act
included significant federal funding for high
speed rail
• The Administration has formally designated ten
high speed rail corridors as eligible recipients of
federal funding
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6. The Issue
Federal funding is not enough. But in a time when
state and local governments face shrinking
revenues, P3s have become a timely model for
completing projects on time and on budget.
– P3: A long-term
performance-based
contract between public
sector and private sector
to deliver public
infrastructure
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7. One Tool: P3s
• Public-Private Partnerships
– Accelerates infrastructure projects deemed
impractical under traditional funding
– Well-developed international tool
– $200 billion capital available?
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8. Advantages/Disadvantages
Pros Cons
• Risk-sharing • Long-term/complex
contracts
• Innovation and efficiency
• Loss of public control
• Public liquidity
• Potential higher user costs
• Public focus on other core
functions • Risk of quality sacrifice in
exchange for profits
• Decreased reliance on
traditional funding • Impact on public jobs
• International investment • Loss of accountability
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9. Introduction to P3 Projects
Stephen Small, P. Eng.
Senior Vice President – Development
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10. Intro to P3 Structure
• A P3 Project has the following key elements:
– A long-term contract with public and private sector
– Private sector provides - design, construction,
financing, and operations of a public infrastructure;
– Public sector provides payments over the life of the P3
Contract – (range from 20 to 40+ years);
– Facility reverts to public-sector ownership at the end of
the P3 Contract.
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11. P3 Structure
The traditional organizational chart in a P3 Project
has the following characteristics:
Authority
– Authority is the ultimate client. PROJECT LEAD
– Concessionaire enters into long term contract
.
D&C Team O&M Team Financing Team
Financing Team
– Design-Build Contract (Fixed term and
fixed price)
LEAD DESIGN O&M Subcontractors
– Maintenance Contract
Design Subs Construction Subs
– Finance Arrangements .
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12. Key Advantages for P3 Contracts
Advantages
Effective Risk Transfer for Authority
Schedule and Cost certainty
Long term standards and funding provided for OMR

13. P3 Timeline
Preferred Financial
RFQ RFP Bidder Close
Construction
EOI Short-list BAFO Starts
Prequal Bidding Negotiation
Phase Phase Phase
1-2m 1m 4-5m 1m 2-3 m 3-4 m
Consortium Client Best and Final 3-way negotiations
Client
allocates risk and Evaluation Offer between project
Evaluation
submits tender consortium, public
sector client and
lenders
8 months to 16
months

14. Risk Sharing
√: Primary Risk Taker √: Secondary Risk Taker
Risk Allocation Government Concessionaire DB Contractor Operator
Categories
Finance
√ √
Design / Engineering
√
Construction
√
Operating Cost
√ √
Major Refurbishment
– Lifecycle Costs √ √
Compared to a traditional Design-Build project, a P3 Project results in significant risks relating to:
The costs of design and construction for the Facility;
Market demand for the Facility (if applicable);
Service provided by the Facility (Usage risk); and
The Facility’s operation and maintenance costs.
…being transferred from the Public Authority to the Project Company.

15. Do Public HSR Authorities Have Legal
Authority to Build P3 Projects?
Jay Lindgren
Infrastructure Practice Group
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16. Legal Authority Procurement Considerations
• Legal Authority to Move Forward with P3 Projects:
– Federal procurement considerations
– State and local public
authority procurement
considerations
• Enabling legislation:
– Broad authority
– Project specific or
pilot program authority
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17. Federal Considerations
• SEP-15
– Special Experimentation Project Number 15
– Process for FHWA to identify new P3 approaches to
project delivery – goal is to identify impediments in
current laws, regulations, and practices to the greater
use of P3 and private investment in transportation
projects.
– Allows U.S. Secretary of Transportation to waive
requirements of Title 23 of the United States Codes
– Applicant must be a State DOT

18. Federal Considerations
• Private Activity Bonds (PABs)
– Section 11143 of Title XI of SAFETEA-LU amends
Section 142 of the Internal Revenue Code.
– Adds highway and freight transfer facilities to the types
of privately developed and operated projects for which
PABs may be issued.
– Allows private activity on these projects while
maintaining the tax-exempt status of the bonds.
– Law limits total amount of such bonds to $15 billion.
As of January 2010, $6.3 billion had been allocated to
seven projects, and $1 billion of that amount had been
issued in PABs.

19. Federal Considerations
• TIFIA
– Transportation Infrastructure Finance and Innovation Act
– Provides Federal credit assistance in the form of direct
loans, loan guarantees, and standby lines of credit to
finance surface transportation projects of national and
regional significance.
– Each dollar of Federal funds can provide up to $10 in TIFIA
credit assistance.
– Goal is to leverage Federal funds by attracting substantial
private and other non-Federal co-investment in surface
transportation projects.

20. State Enabling Legislation – Designated HSR
Corridors
• Chicago Hub
State P3 Legislation? Covers HSR?
Illinois No (but bill is pending) (bill pending)
Indiana Yes Yes
Missouri Yes No
Wisconsin No
Minnesota Yes No
Ohio No
Michigan No
Kentucky No

21. State Enabling Legislation – Designated HSR
Corridors
• Northern New England
State P3 Legislation? Covers HSR?
New York No
Connecticut No
Massachusetts Yes Yes
Vermont No
New Hampshire No
Maine No

22. State Enabling Legislation – Designated HSR
Corridors
• Southeast
State P3 Legislation? Covers HSR?
Florida Yes Yes
Georgia Yes Yes
South Carolina Yes No
North Carolina Yes No
Virginia Yes Yes
Maryland Yes Yes

23. State Enabling Legislation – Designated HSR
Corridors
• Gulf Coast
State P3 Legislation? Covers HSR?
Texas Yes Yes
Louisiana Yes Yes
Mississippi Yes No
Alabama Yes No
Georgia Yes Yes

24. State Enabling Legislation – Designated HSR
Corridors
• Pacific Northwest
State P3 Legislation? Covers HSR?
Washington Yes Yes
Oregon Yes Yes
• South Central
State P3 Legislation? Covers HSR?
Texas Yes Yes
Oklahoma No
Arkansas No

25. State Enabling Legislation – Designated HSR
Corridors
• Single-State HSR Corridors
Corridor State P3 Legislation? Covers HSR?
California California Yes Yes
Florida Florida Yes Yes
Empire New York No
Keystone Pennsylvania No

26. Lenders’ Perspective – Peter O’Neill

27. High Speed Rail – Too Big to Succeed?
The amounts are staggering
Conservative estimate for developing the 11 HSR corridors:
– $500 billion.
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28. Federal $ - a Drop in the Bucket
Federal funds of $13 billion have been pledged by President Obama
2.6% of the costs of developing the 11 HSR corridors
Where’s the rest of the money coming from?
– State/Local?
– PABs / TIFIA?
– Private Capital?
Ultimately it will have to be a combination of all of the above.
Some “tracks” of the federal program explicitly favor projects that leverage
federal funding with non-federal investments.
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29. The European Experience
European Union’s Trans European Network (“TEN”)
EIB’s commitment of $12 billion to rail networks
Dutch HSR (2004) had significant EIB Guarantee Facility (35% of total
source)
French Government is developing an extensive HSR network
EIB funding also present here
Significant use of Guaranteed Facilities in addition to State subsidies
Private Capital
The Lesson – Everyone needs to be involved.
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30. Significant structural complexities
Enormous size of these projects, multiple sources of funding etc will likely
give rise to significant complexities in structuring.
Examples include:
– Timing of commitment of federal, state/local, private funds
– Potential for cost overruns – how can this be mitigated
– Revenue sources for the Project – patronage or availability?
– Intercreditor issues
– Integration issues – who operates the asset, schedules its use?
– Permitting/Land Acquisitions – who bears the risk
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31. PPP structures have addressed many of these risks
PPP structures have for many years successfully mitigated risks
associated with cost overruns, even on high value, complex projects
Requirements for fixed-price, date certain construction contracts pass risks
to the Design-Builder.
PPP structures have also addressed risks associated with multiple funding
sources
– Milestone payment structures ensure interests are aligned.
Complex intercreditor issues have also been addressed through PPPs
– Use of PABS and TIFIA have been structured succesfully
Basis of Revenue structures needs to be carefully considered
– Patronage will involve significantly more complexity than Availability
• Who bears risks associated with integrating use of asset by rail operator?
• Will Private investors want some protection against competition
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32. Risk Allocation
Fundamental principle is that a risk should be borne by the party best
placed to manage that risk
Private capital will focus on ensuring that the split of risks between
Government and the Private Sector are fair and equitable
An additional area of complexity – what “government” does the Private
Sector contractor (“Project Co”) deal with?
Federal?
State? What if HS network involves more than one state?
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33. What does Private Capital focus on?
How is it getting its money back?
Robustness of cash flows at Borrower/Project Co level.
– If there are delays, how long is Project Co kept whole?
– If there are cost overruns, can the Contractor absorb these and still
complete construction?
– What is the experience of the Contractor
– What other projects is it involved in or has provided guarantees in
respect of?
– Is there clear allocation of risk between project parties (“Integration
Risk”)
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34. Private Capital is ready and waiting!
Very excited about the prospects for HSR development in the US
A robust, tested and proven template is already in existence
US and International contractors have generally had positive experiences
The need is there
Significant opportunity to drive economic growth.
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35. Questions & Answers
Please type your Questions in the Q & A box in
the lower right hand corner of your screen

36. Contact Our Panelists
Kathryn Kusske Floyd, Partner, DORSEY & WHITNEY
(202) 442 - 3520
kusske.floyd.kathryn@dorsey.com
Peter O'Neill, Senior Vice President, Global Project Finance,
BANK OF IRELAND
(203) 391-5980
peter.oneill@boius.com
Steve Small, Senior Vice President of Development,
BILFINGER BERGER PROJECT INVESTMENTS
(604) 678-6532
steve.small@pi.bilfinger.ca
Jay Lindgren, Chair,
DORSEY & WHITNEY INFRASTRUCTURE PRACTICE GROUP
(612) 492-6875
Lindgren.Jay@dorsey.com

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