Cross City Tunnel
1/16
- Joao Fialho & Nikhil Menon
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
2/16
1. Cross City Tunnel Background 2. Objective 3. Cross City Tunnel Project Proposal 3.1. Sources and Cost of Financing 3.2 Risk Analysis 3.3. Key Performance Indicators 3.4. Financial Analysis 3.5. Flexibility Analysis 4. Conclusion 5. Reference(s)
Outline
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
1. Cross City Tunnel Background
3/16
•Design - 2 Tunnels – one eastbound, one westbound - 2 lanes each way - Third small ventilation tunnel - Avoids 34 sets of traffic lights - Time taken: 2 minutes (free flowing); 11 minutes (peak hour) - Two stage development: 1. Construction of the tunnel, 2. Associated street works - Sydney’s first electronic tollway (requires electronic tolling tag for the driver)
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
•Project Description - Located in Sydney, Australia - Length: 2.1 km - Links Western fringe of the CBD to Eastern suburbs
1. Cross City Tunnel Background
4/16
•Infrastructure Delivery Model - Design, Build, Finance, Operate and Maintenance for a period of 25 years - Main partners and PPP design:
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
1. Cross City Tunnel Background
5/16
•Historical Development 2002 – New South Wales (NSW) government awarded Cross City Motorways the
contract Jan 2003 – CCT construction started Aug 2005 – CCT operations started 2 months ahead of scheduled, with toll free period
of 3 weeks Sep 2005 – Extension of toll free period until Nov 2005 Feb 2006 – First rumours of “buy out” by NSW government (rumoured price A$ 1B) Mar 2006 – CCT Consortium decides to reduce toll to half for 3 months period after
entering into consultation with NSW government. Jun 2006 – The NSW Government ends negotiations with CCT Consortium Nov 2006 – Financial difficulties reported and additional equity requested in order to
avoid administration. NSW government denies reports of buying or financial assistance of CCT
Dec 2006 – Tunnel sold after debt exceed A$560 M
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
2. Objective
6/16
•Criticisms of the original project - Failure in revenue estimation based on traffic modelling RTA’s traffic estimates clearly exceeded ceiling capacity (52.000 to 53.000 vehicles/day) - Original project went at no cost to government -> increased impost of almost 1/6 of the standard cost of the project
•Current study objective: PROPOSE AN ANALYSIS/INTERVENTION ON NEW INFRASTRUCTURE DELIVERY MODEL WHICH WILL ADDRESS THE CRITICISMS OF THE ORIGINAL PROJECT
1) Reduce capacity (and also investment) -> 1 tunnel solution with 1 lane each way 2) Reduce cost of capital -> bring public capital into the project
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
3. Cross City Tunnel Project Proposal 3.1 Sources and Cost of Financing
7/16
•Sources of financing - Public Financing (i = 4,25%) - Equity (i = 8,7%) - Debt Financing: Long-term (i = 6,8%) debt and Mid-term debt (i = 7,5%) •Weighted Average Cost of Capital (WACC) - Objective Function (5,92%)
- Constraints Total Investment Mid-term Debt Limit E/D Ratio Public Financing Limit Where E-Equity Financing, P – Public Financing, LD – Long-term Debt, MD – Mid-term Debt, TI - Total Investment, KE – cost of Equity capital, KP – cost of Public capital, KLD – cost of Long-term debt, KMD – cost of Mid-term debt, t – income tax rate
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
tKTI
MDK
TI
LDK
TI
PK
TI
EMinWACC MDLDPE
1
1 MDLDPE
41,0DBLD
E
EP 3,0
TIMD 15,0
3. Cross City Tunnel Project Proposal 3.1 Sources and Cost of Financing
8/16
•Sensitivity Analysis
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
3. Cross City Tunnel Project Proposal 3.2 Risk Analysis
9/16
•Main Risks - Construction Cost - Demand - Operation Performance - Others: Force majeure, behaviour of public and private agencies, etc.
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
Risks Public Private
Geology Uncertainty X
Land Acquisition X
Contractor Performance X
Public Protests and Litigation X
Construction Costs Inflation X
Demand X
Safety and Environmental Standards X
Levels of Sevice X
Maintenance X
Force Majeure X
Agency Behaviour X
3. Cross City Tunnel Project Proposal 3.3 Key Performance Indicators
10/16
•Construction Phase KPI’s Guidelines - Construction costs according to the proposed budget - Construction works in accordance with the schedule •Operations Phase KPI’s Guidelines - Lack of congestion (average travel times) - Road accidents (number of traffic incidents) - Ride quality (pavement surface condition) - Environmental Impacts (number of incidents of breach in noise/air quality requirements - Provision of traveler information (accuracy and frequency) - Vehicle breakdown services
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
3. Cross City Tunnel Project Proposal 3.4 Financial Analysis
11/16
•Assumptions - The demand adopted is not the demand proposed through forecasts but the actual demand - Inflation rate = 3,42% (Reserve Bank of Australia data for 2011) - Construction costs – 65% of the original project - Costs of construction are divided into 3 years - Operation costs: Fixed costs (A$5M) and Variable Costs (10% of toll revenues) - Increase toll prices in 29% Light vehicles – A$4.5 (against A$3.5 in the original project) Heavy vehicle – A$9 (against A$7 in the original project) Correction of demand through elasticity observed in similar projects (-0.26 for light vehicles and -0.6 for heavy vehicles) - Concession period of 20 years
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
3. Cross City Tunnel Project Proposal 3.4 Financial Analysis
12/16
•NPV – A$256 981 670 •Sensitivity Analysis
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
3. Cross City Tunnel Project Proposal 3.5 Flexibility Analysis
13/16
•Lattice Model -Base Case: Building one tunnel with NO provision of increasing the capacity
-Flexible Design: Building one tunnel WITH provision of increasing the capacity by building a second tunnel (call option)
- Results:
Value of Flexibility
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
Base Case Flexible Design Case Value of Flexibility
ENPV $139.318.190 $140.525.996 $1.207.806
3. Cross City Tunnel Project Proposal 3.5 Flexibility Analysis
14/16
VARG Distribution
Call Option
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
N N N N N N N N N N N N N N N Y Y N N
N N N N N N N N N N N N N N N N N N
N N N N N N N N N N N N N N N N N
N N N N N N N N N N N N N N N N
N N N N N N N N N N N N N N N
N N N N N N N N N N N N N N
N N N N N N N N N N N N N
N N N N N N N N N N N N
N N N N N N N N N N N
N N N N N N N N N N
N N N N N N N N N
N N N N N N N N
N N N N N N N
N N N N N N
N N N N N
N N N N
N N N
N N
N
CA
LL
OP
TIO
N?
4. Conclusion
15/16
•Financial feasibility was achieved - Reducing total investment cost (decreasing the tunnel capacity) - Reducing cost of capital (bringing public capital into the project) •Enhancement of risk sharing between public and private parties •Incorporation of flexible design - Increasing the expected value of the project •Assumptions taken for the course of the study govern the above mentioned conclusions
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on
Reference(s)
16/16
•http://www.maths.usyd.edu.au/u/geoffp/melfinrv.pdf •http://www.parliament.nsw.gov.au/Prod/parlment/committee.nsf/0/457c0aac44997eeeca2571000019d549/$FILE/Sub%2054%20NRMA%20Motoring%20&%20Services.pdf •http://www.parliament.nsw.gov.au/prod/parlment/committee.nsf/0/f412e826bc3dfd5bca2571720010fc97/$FILE/Final%20Second%20Report.pdf •http://www.irspm2008.bus.qut.edu.au/papers/documents/pdf/Chung%20-%20Public%20Private%20Partnerships%20A%20Procurement%20Device%20to%20Manage%20Public%20Sector%20Debt%20-%20IRSPM%20-%202008.pdf •http://www.scribd.com/doc/35386818/Sydney-Cross-City-Tunnel •http://eprints.qut.edu.au/28597/1/Esther_Cheung_Thesis.pdf •http://www.smh.com.au/news/national/cross-city-tunnel-deal-the-whole-bloody-thing-will-be-made-public/2005/10/18/1129401256764.html •http://www.crosscity.com.au/files/Media/CCT%20Financial%20Close%2027Sept07.pdf •http://auditofficestaging.elcom.com.au/ArticleDocuments/138/152_Cross_City_Tunnel.pdf.aspx?Embed=Y •http://www.parliament.nsw.gov.au/Prod/parlment/committee.nsf/0/ae685f47fb0e2884ca257100001bb60d/$FILE/051209%20Dr%20Goldberg%20Cross%20City%20Tunnel.pdf •http://www.atrf.info/papers/2006/2006_Goldberg.pdf •http://www.omegacentre.bartlett.ucl.ac.uk/studies/cases/pdf/AUS_SYDNEY_PROFILE_260311.pdf •http://www.en.wikipedia.org
Stru
ctu
red
Fin
anci
ng
in T
ran
spo
rt P
roje
cts
- H
om
e A
ssig
ne
mt
Jo
ão
Fia
lho
& N
ikh
il M
en
on