Sydney Cross City Tunnel

Cross City Tunnel Overview

• Description: A 2.1km fully electronic east-west tunnel

• Time Saving: Up to 20 mins, avoid 18 set of traffic lights

• Scope: One of the most technically complex tunnels

• Tolling: Fully electronic• Traffic: One of the fastest

growing toll road in Australia

Traffic Flows

What is PPP ?

• ‘An arrangement for the provision of assets or services, often in combination and usually for a substantial or complex “package”, in which both private sector supplier and public sector client share the significant risks in provision and/or operation’.

(Infrastructure Implementation Group, 2005).

• Concentrate on long term service delivery rather than asset creation

PPPs

Government Private Partner

WHY are PPPs attractive to both

Competitive Tendering+Flexible Negotiation

Different PPPs options

1-3 yrs

3-5 yrs

8-15 yrs

20-30 yrs

20-30 yrs

• SERVICE CONTRACTS are the simplest form of PPP. The private partner does not operate any public assets, but simply contracts with the public sector to provide a specified level of service.

• MANAGEMENT CONTRACTS typically involve the operation of public assets by a private partner. The private partner receives a management fee and, if there is risk-sharing, a profit-sharing incentive.

• LEASES are similar to management contracts, but involve a greater transfer of operational risk as the private partner pays a lease fee and generates income solely from the use of the assets.

• DESIGN/BUILD-OPERATE-TRANSFER (DBO/BOT) involves significant investment by the private partner, which constructs and operates the infrastructure, often with an offtake agreement from the public partner. The assets are returned to public ownership at the end of the PPP. While the demand risk can be shared by the public and private partners, the operating and finance risks remain squarely with the private partner.

• CONCESSIONS transfer a maximum amount of risk (e.g., demand, operating, investment/finance, etc.) to a private operator in exchange for some form of exclusive operating license. Contracts normally demand new investment to expand services and may include the assumption of existing assets. These are the most complex of PPPs and require careful structuring and monitoring.

Original Capital structure$ million

Construction cost 680

Financing costs during construction 160

Development costs 113

Up-front costs 97

Total Funding Required 1,050

Sources of Funds:

Private sector Equity 450

Project Debt 580

Pre-completion revenue & Interest earned 20

Total Funding Required 1,050

P3 Project Management

1. Genesis

2. Feasibility

3. Plan & Test

4. Procure

6. Operations

5. Implement

RISK ALLOCATED TO GOVERNMENT

RISK ALLOCATED TO CONSORTIUM

Native title risks Design, construction & commissioning risks

Force majeure Delay & completion risks

Uninsurable risks Ground/ geotechnical conditions risks

Legislative & Government Policy Operation & maintenance/ facility management risks

The above arrangement of risk allocation ensures that the consortium or the private partner over sees all the operational and the risks which it is better to handle. And the other risks are handled by government which brings in the required accountability of both the parties

Critical Success Factors (CSFs)

1. Need of greater transparency in PPP contracts2. Private sector and government needs to be

more open about the issues regarding the trade off between the risk and the pricing

3. PPPs should not be used as instruments against competition

4. PPPs consider the skills, finance, project skills of the private sector to provide economic and social benefits to the society at large

PPP structure

Rationale for PPP

• Availability of additional resources to meet the increasing needs of investment in infrastructure services

• Increased efficiency in project delivery and operation

• Access to advanced technology • Sustainable development in infrastructure facilities

and services. • Off-budget mechanism for infrastructure

development

• Govt reducing the GDP spend on capital expenditure over the last years

• Increasing pressure on the govt from financial markets to reduce debt

• Private sector filling the gaps not only in terms of – Funding– Expertise

• Collaborative Agreements• Accelerate development of infrastructure

projects• Central theme is potential financial benefits

and ability to transfer risks from the public sector to the private sector

• PPPs face collaboration inertia

Criteria for measuring success of PPPs

• Public sector acceptance• Society acceptance• Budget • Timeliness

What Went Right?

Designed and constructed in very efficient manner

Project opened two months ahead of schedule

Very little traffic disruption during the construction period

Government recovered all of its project tender costs and ancillary work costs (although the recovery of certain ancillary costs received criticism)

Market risk was effectively transferred and the tunnel continued to operate despite low traffic volumes and financial stress of the operator

What Went Wrong?

Motorists did not use the tunnel in numbers when opened

Motorists complained about toll price

Media criticised Government for closing roads and seemingly forcing traffic into tunnel

Media frenzy erupted and politicians started to criticise the project, the procurement process and seemingly overly optimistic traffic forecasts

Community developed negative views about PPPs in general and perceived them as secret deals

The Cross City Tunnel was a catalyst for a number of PPP – related inquiries in 2005 and 2006, including specific Cross City Tunnel ones

Lessons Learnt from CCT

Relationships with key stakeholders are long term & ongoing

The third ‘P’ in PPP is often understated

Community engagement critical

Building on accumulated knowledge & Understanding the key drivers

Understanding the risk involved -optimal risk transfer

Comprehensive traffic studies & Aligning traffic forecast outputs with design requirements effectively

Service delivery & Sustainable practice