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David Larocca, EY: Financing the delivery of light rail

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Information about David Larocca, EY: Financing the delivery of light rail
Business & Mgmt

Published on March 6, 2014

Author: informaoz

Source: slideshare.net

Description

David Larocca, Partner – Oceania Leader, Infrastructure Advisory, Ernst & Young delivered this presentation at the 2014 Light Rail conference in Melbourne. Across the globe the conception and delivery of light rail projects has been growing at an incredible rate. Seen as an efficient and sustainable way to alleviate the congestion that cripples the expansion of many key urban zones, light rail is fast becoming a central solution in the evolution of Australia's major urban areas. In order to work towards a congestion free future, it is imperative that federal and state governments support light rail projects.

Light Rail 2014 explored all the possible funding options for light rail projects, while also looking at international case studies, the latest rolling stock, braking technology, among many more. For more information about the event, please visit the conference website: http://www.informa.com.au/lightrailconference
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Financing the delivery of Light Rail projects David Larocca Head of Infrastructure Advisory, EY 4 March 2014

Agenda 1. Global infrastructure market trends 2. Australian infrastructure market 3. Outlook for public transport projects 4. Delivery models for light rail 5. Concluding remarks Page 2 Financing the delivery of light rail

Transport has dominated global market Global Project Finance Market (2010-2013) Deals $USbn Transport Renewables Deal Value Page 3 Social Infrastructure Debt Value Mining Deal Count Financing the delivery of light rail 2013 2012 2011 0 2010 0 2013 50 2012 20 2011 100 2010 40 2013 150 2012 60 2011 200 2010 80 2013 250 2012 100 2011 300 2010 120 Consistent market activity has resulted in global transport players

But there has been a dramatic change in Europe European PPP Market has shrunk by over 50% over the last 5 years : Number of Value (Billion Euros) Projects: 30 120 25 100 20 80 15 60 10 40 5 20 0 0 2008 2009 2010 2011 2012 2013 Year Value: (Billion Euros) Number of Projects: Source: European PPP Expertise Centre Page 4 Financing the delivery of light rail European investors, contractors and operators looking to diversify – Australia a focus

Agenda 1. Global infrastructure market trends 2. Australian infrastructure market 3. Outlook for public transport projects 4. Delivery models for light rail 5. Concluding remarks Page 5 Financing the delivery of light rail

A resilient financing market – with a significant increase in transaction activity Value of PPP Transactions ($Billions) 9 8 7 6 5 4 3 2 1 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (F) c$10bn of PPPs forecast to close between July 2013 and December 2014 – matching pre-GFC levels of activity Page 6 Financing the delivery of light rail

What is driving the transaction activity? ► Infrastructure is front of mind at all levels of government ► Unprecedented appetite for private sector involvement ► New funding models emerging – asset sales ► Public transport has historically lacked ‘new build’ activity Page 7 Financing the delivery of light rail

But it’s a lumpy markets – with 7 buyers … Number of Closed PPPs by State 9 8 7 6 5 4 3 2 1 0 Qld Fed NT SA WA Vic NSW 2004 Page 8 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (F)

Financing market continues to improve Equity Market Debt Market ► ► Continual improvement: ► 20-25 active banks ► Each bank is prepared to lend more ► UK/European bank withdrawals replaced with Asian and North American banks ► ECAs very active – following local suppliers ► $4B+ of capacity Commercial terms: ► Tenors of 7-10 years ► Margins trending down ► Gearing trending up – 85%-90% ► We expect to see more equity investors providing debt products into transactions ► But still lack of long-term bank market and capital market alternatives Page 9 Financing the delivery of light rail ► Unprecedented market interest ► Brownfield (including patronage risk) and greenfield/PPP appetite ► Main sources: ► Australian superannuation funds ► UK & European PPP investors ► Asian pension funds and trading houses ► North American pension funds ► Middle Eastern SWFs ► Investors are assuming refinancing risk ► Equity returns on downward trend

Debt pricing continues to improve 450 Pre-GFC 400 350 Term debt margins 300 250 200 150 100 50 0 Page 10 Financing the delivery of light rail Post-GFC

Buoyant transport contractor market Domestic Players International Players Significant domestic and international interest – particularly in large, complex transport projects Page 11 Financing the delivery of light rail

Superannuation sector is engaged, with an appetite to invest more … but barriers remain The sector wants: ► Greater certainty of pipeline ► Incentives for States to establish capital recycling processes ► Regulatory certainty over superannuation and taxation policy ► ‘Early project consultation processes between States and superfunds This could further open up Australia’s $1.75 trillion super industry to Australian infrastructure opportunities Page 12 Financing the delivery of light rail

Innovative solutions to funding and procurement issues are being developed Issue Example of Mechanism Examples Contractor balance sheet constraints “Discipline based” packaging North-West Rail Link (NWRL) Debt market capacity Capital contribution Gold Coast Rapid Transit, Sunshine Coast Hospital, New Generation Trains, NWRL, East-West Link, Queensland Schools Debt syndication guarantee Melbourne Desalination PPP Optimising the cost of capital Debt Paydown (Conditional on commissioning and operations) Darling Harbour Live, North-West Rail Link, Sydney Light Rail Market aversion to greenfield traffic risk ‘Build and Sell’ model Legacy Way, QML, WestConnex Availability PPP with retention of toll revenue East-West Link Page 13 Financing the delivery of light rail

Agenda 1. Global infrastructure market trends 2. The State of the Australian infrastructure market 3. The outlook for public transport projects 4. Delivery models for light rail 5. Concluding remarks Page 14 Financing the delivery of light rail

PPP Pipeline NSW currently the most active market … Recent deals closed Darwin Prison Sunshine Coast Hospital PPPs in procurement QLD Schools Project New Generation Rollingstock Gold Coast Light Rail Potential PPPs Gold Coast Light Rail Stage 2 Toowoomba Bypass UBAT QEII Hospital Car Park Mundaring Water Treatment Plant Convention Centre WestConnex Eastern Goldfields Prison Northern Beaches Hospital PPP Sydney Light Rail Perth Stadium F3/M2 North-West Rail Link Newcastle Light Rail Schools PPP Defence Leap 2 Perth Light Rail Airport Rail Link New Royal Adelaide Hospital 2nd Sydney Harbour X Moorebank Intermodal Capital Metro South Road Corridor ACT Courts facility University of Canberra Public Hospital Wiri Prison Hobsonville Point School Bendigo Hospital Transmission Gully Ravenhall Prison East-West Link Auckland East Prison Victorian Comprehensive Cancer Centre Page 15 Victorian Schools 2 Melbourne Metro Auckland Harbour X Financing the delivery of light rail Social housing

PPP Pipeline Public transport projects dominate the pipeline … Recent deals closed Darwin Prison Sunshine Coast Hospital PPPs in procurement QLD Schools Project New Generation Rollingstock Gold Coast Light Rail Potential PPPs Gold Coast Light Rail Stage 2 Toowoomba Bypass UBAT QEII Hospital Car Park Mundaring Water Treatment Plant Convention Centre WestConnex Eastern Goldfields Prison Northern Beaches Hospital PPP Sydney Light Rail Perth Stadium F3/M2 North-West Rail Link Newcastle Light Rail Schools PPP Defence Leap 2 Perth Light Rail Airport Rail Link New Royal Adelaide Hospital 2nd Sydney Harbour X Moorebank Intermodal Capital Metro South Road Corridor ACT Courts facility University of Canberra Public Hospital Wiri Prison Hobsonville Point School Bendigo Hospital Transmission Gully Ravenhall Prison East-West Link Auckland East Prison Victorian Comprehensive Cancer Centre Page 16 Victorian Schools 2 Melbourne Metro Auckland Harbour X Financing the delivery of light rail Social housing

PPP Pipeline … with Light Rail dominating Recent deals closed Darwin Prison Gold Coast Light Rail PPPs in procurement QLD Schools Project New Generation Rollingstock Gold Coast Light Rail Stage 2 Potential PPPs Toowoomba Bypass Sunshine Coast Hospital Cross River Rail QEII Hospital Car Park Mundaring Water Treatment Plant Convention Centre Eastern Goldfields Prison Northern BeachesHospital PPP Sydney Light Rail Perth Stadium North-West Rail Link WestConnex F3/M2 Newcastle Light Rail Perth Light Rail Airport Rail Link Capital Metro Wiri Prison Hobsonville Point School Transmission Gully Auckland East Prison Page 17 Financing the delivery of light rail

Australia’s light rail pipeline is globally significant Global Transport Deals and Volume (2012-2013) Deal Count US $bn 30 35 Less than 5 light rail deals closed in 2012 or 2013 globally 25 30 25 20 Australia’s pipeline of 5 Light Rail schemes is significant. 20 15 15 10 10 5 5 0 0 Airports Bridges Heavy Rail Light Rail Volume 2012 Volume 2013 Ports & Terminals Deals 2012 Roads Other Deals 2013 Source: Infrastructure Journal Page 18 Financing the delivery of light rail This is why we are seeing international Light Rail players engaged in the Australian market

Agenda 1. Global infrastructure market trends 2. The State of the Australian infrastructure market 3. The outlook for public transport projects 4. Delivery models for light rail 5. Conclusion / Q&A Page 19 Financing the delivery of light rail

Delivery Models for Light Rail Schemes Key Decision Drivers 1 Operating model – ops and infrastructure 2 Project size – capex, rolling stock, opex 3 Future flexibility – extensions of the network 4 Timing constraints 5 Urban renewal 6 Disruption and Utilities Page 20 Financing the delivery of light rail

Delivery Models for Light Rail Schemes Spectrum of models Less flexibility Greater risk transfer Model Contract packages • DCMO – for all infra delivery, maintenance as well as operations and rolling stock – potential PPP • DCM – Infrastructure delivery & maintenance – potential PPP Vertically Integrated Vertically Separated Greater flexibility Less risk transfer Page 21 Vertically integrated Ops D&C – Infra delivery • Operator contract for all light rail operations, Infrastructure maintenance • Rolling stock maintenance contract – potentially with Operator Docklands Light Rail Rolling stock maintenance contract • North West Rail Link Gold Coast Rapid Transit Operations contract • Vertically Separated delivery • Examples Financing the delivery of light rail Melbourne franchises IWLR O&M contract UK Rail Franchises

Example Light Rail Delivery Model Gold Coast Rapid Transit – Vertically Integrated PPP ► Gold Coast University Hospital to Broadbeach ► 13KM light rail service – 16 stations. ► Scheduled to open in 2014 ► 18 year contract ► Design, build, finance, maintain & operate PPP ► Government capital contribution ► Government payments for delivery of services based on KPIs. Contractor – McConnell Dowell ► Rolling stock – Bombardier ► Operator – Keolis/Downer ► Investors – Marubeni, IPP, Keolis, McConnell Dowell, Plenary, Palisade ► Page 22 Financing the delivery of light rail

Example Light Rail Delivery Model Sydney Light Rail – Vertically Integrated PPP ► New Sydney Light Rail network: New 12km line – Circular Quay to Central, Moore Pk, Randwick, Kingsford ► Existing 7.2 km Pyrmont Line – Central to Lilyfield ► New 5.6 km Inner West Extension – Lillyfield to Dulwich Hill ► ► Design, build, finance, operate and maintain delivery strategy ► Two contract packages: Separate contract for Early Works ► Government will make payments for delivery of ongoing services based on KPIs. ► Page 23 Financing the delivery of light rail

Agenda 1. Global infrastructure market trends 2. The State of the Australian infrastructure market 3. The outlook for public transport projects 4. Delivery models for light rail 5. Concluding remarks Page 24 Financing the delivery of light rail

Concluding remarks ► Public transport PPP has become a key asset class ► International players heavily engaged in the Australian market ► Buoyant Australian infrastructure market ► Careful thought required on delivery model for Light Rail – particularly strategy for infrastructure, rolling stock and operations Page 25 Financing the delivery of light rail

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