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Welcome to Public Information Session IW Highways PFI 16 June 2011 Edward Giles Stuart Love Jay Jayasundara
Welcome to
Public Information Session
IW Highways PFI
16 June 2011
Edward Giles
Stuart Love
Jay Jayasundara
Purpose
• To explain
• What is Highways PFI
• How it is funded
• What are the benefits
• Timescales
• Answer your questions
What is PFI?
• Private Finance Initiative (PFI)
• Private funding for delivering public services
• A means by which
• Private sector makes capital investment in a public asset –
front up
• Private sector provides service over life time of contract
• Public sector makes service payments – over the project
lifetime
• Performance – rewarded through Service payments -linked
to quality & minimising disruption
What is included in the PFI?
What is included in the PFI?Publicly maintained Highway Network
• Refurbishment – capital works – over 7 years
• Roads, bridges, footways, retaining walls, lighting, street
furniture, traffic signs, CCTV, drainage schemes, 17 major
capital schemes, car parks, new highway depot, cycle ways
• Life cycle maintenance – capital works – over 18 years
• Maintaining upgraded assets to standard
• Routine maintenance – over 25 years
• Street cleansing, grass cutting, hedge trimming, ornamental
planters, cleaning bus shelters, signs, street lighting
• Operating highway network – over 25 years
• Winter maintenance; energy payment; attending road traffic
accidents; emergencies (flooding..); operations of CCTV; traffic
lights; car park ticketing machines; removal of animal
carcasses…
How is PFI Funded?
• Government Grant
• For Capital works –- £260m NPV (Cash over 25yrs £487m)
• Biggest ever Grant – not a loan
• Council Contribution
• For Maintenance & Operations
• Maximum £8.3m in first year
• Not “new” money
• Simply transfer of current spend on Routine Maintenance &
Operating Highway Network
• £260m Govt Grant + IWC Contribution = Project Cost
• Final Cost of IWC Contribution, expected to be around £1m to
£1.5m less – finalised in November 2012
• Hence, £8.3m is upper end of IWC contribution
• Total Investment – just under £0.8bn over 25 years.
Where is £8.3m currently spent?IWC’s Statutory Responsibility - maintenance & operation
• Employs – over 70 staff in area within PFI scope – salary, accommodation,
overheads
• Contracts for street cleansing, winter maintenance, street lighting energy,
lighting maintenance, CCTV 24 hr operation, traffic lights, grass cutting,
planters, hedge trimming
• Cleaning of signs, bus shelters, street furniture, attending road traffic
accidents, animal carcasses, highway trees, trees adjacent to highways..
• Emergencies, flooding, supporting special events, festive decorations
• Road space allocation for Statutory Undertakers, NRSWA, collection of
fines, administering licences – skips, scaffolds, hoarding, oversailing…
• Temporary traffic orders, highway support to planning application,
unauthorised attachments, “A” boards
• Condition surveys of the highway network, safety inspections, bridge
inspections
• Customer inquiries, FoI requests, government statistics responses,
insurance claims
Local Employment opportunities• Civil Engineers & designers
• Technicians – site setting out, qauality control, supervision,
inspection, geologists…..
• Environmentalists – pollution control, flora & fauna, drainage,
archaeologists, tree & grass maintenance, water, carbon
• Lighting/electrical engineers & technicians
• Admin – IT experts, Accountants, Quality controllers,
• Ground workers, kerb layers, machine operators, masons,
painters, drainage workers
• Concrete/black top technicians
• Immediate Supply chain – aggregate industry, transport
industry
• Wider supply chain – hotels, farm products, local shops, …
Climate projections for 2020
Summer rainfall: -
10% Winter rainfall:
+10% Summer
temperature:+1-2°C
Source: UK Climate Impacts Programme
‘These projections show us the future we need to avoid,
and the future we need to plan for’
Hilary Benn
Carbon & Water• Carbon Footprint & Water Footprint Tool to measure usage
• Modeling Embedded & Consumed
• Isle of Wight predicted to be an area of significant water scarcity by 2025
• 30% of water already sourced from mainland
• Bidders – bid total carbon & Water likely to be consumed – in construction &
operations
• Bid – evaluated as part of selection process
• Winning bidder’s Carbon & Water – locked into contract
• Required to report carbon & Water consumption annually
• If consumption exceed bid – penalty applies
• Key drivers – significant incentive to locally source material, reduce transport,
max recycling, reduce energy consumption
• First ever bid model in a PFI Contract
• Practical delivery of Eco Island theme
Street lighting & Energy
• Major contributor to Carbon footprint - incentive to change to an
efficient lighting system
• Proposed LED lighting replacement – in the early CIP years
• Central Management system – providing ability to reduce lighting
levels, vary on/off times, turn off lights, detect faults remotely,
integrate with other remote control system
• Housed in single control room with CCTV - ability to increase
lighting – when an incident happens
• Incentives to reduce energy consumption & lighting cost by 50% or
more
• Lots of innovation in this area
Flexibility post contract
• Refinancing
• Best Value Reviews
• Future changes to technology, innovation,
efficiencies gain share 75:25 in Authority’s favour
• 3rd Party income – 75:25 in Authority’s favour
• Fully priced works schedule
• Requirement for market testing
• External competition
Will I see any difference?
Upgrading the Islands roads
Initial
Design Detail
Design
April 2013
Final
TenderPreferred
Bidder
6
months
6
months
10
months
What are the time scales?
5
months
5
months5
months
Mobilisation
No
ve
mb
er
20
12
May/J
une 2
012
De
ce
mb
er
20
11
Ju
ly 2
011
Octo
be
r 2
01
0
Refinement
What the Critics say?Critics Actions to address
• Rigid contracts
• Excessive profits
from refinancing
• Private sector
cannot borrow
cheaper
• Cost of borrowing
unknown for
contractor
• Loss of member
control
• Build in provision to change contract;
ascertain cost of making change up front
• Introduce sharing of refinancing gains in the
future; Fixed cost (except inflation) market
test future costs; build in best value reviews
• Contractor’s operational efficiencies greater
than additional cost of borrowing
• Contractor Fixes borrowing rate for the 25
years
• Write in reporting/ approval controls in
contract; make reporting transparent
What the Supporters say?Supporting Why?
• Efficient
• Price certainty
• Effective
delivery
• Better public
service
• Payments linked to performance; tasks
combined removing conflicts; no overlapping
contracts; efficient planning; modern
technology
• Fixed price contract provides cost certainty;
only variable is inflation - common to any
procurement
• No Service – No Payment; Delivery -
measured by performance targets; failure
leads to loss of income – big incentive
• Payments link to service – leads to
improvements in the service public receives
Excessive profits – secondary markets• Radio 4 programme 14 June – Treasury Select Committee & Public
Accounts Committee hearings
• Back ground – funding structure of contractor
• Mix of Debt & Equity = typically 15 to 20% equity around £20m
• Debt terms based on best borrowing deals at contract
• Equity – what the shareholders invest – accept both risks & rewards
• Internal Rate of Return determines profit they expect – 10% to 15%
• If contract performs well – share price goes up
• If share price goes up – shareholder may want to sell their shares
• Question – should they be entitled to sell shares & make profit?
• Share price increase – when performance exceeds expectations
• Gains – typically through aggregation – mainly FM, hospital types of
contracts
• Refinancing – to manage share of gains in Debt financing
• IWC Contract – will deal with Equity side gain – without destroying
incentives for improving performance
How is IWC dealing with PFI?
• 30 months of detailed contract planning, negotiations before
award of contract
• Comprehensive asset base and condition – strong basis for
contractors to bid on – significant work done to build this data
• Allocation of £7.6m of funding – to plan, prepare & manage
procurement – buying expertise where appropriate
• Dedicated team - building in-house capability & capacity -
for the future
What are the benefits?• One stop shop – refurbishment, maintenance & operations
• Refurbishment of the existing public highway network to current standards – roads, structure, cycleway, lighting, control room, street scene – retaining the heritage
• Life cycle maintenance of refurbished network for 18 years
• Hand back network in specified condition with residual life (typically 8 – 10 years minimum) – at end of 25 years
• Operate & maintain highway network to higher standard
• Carry out routine maintenance to maintain safety of the network
• A new depot & Central Control Room housing CCTV, Traffic signal, Yar Bridge controls – purchase land, build & handback
• Creation of apprenticeships & training schemes for next generation
• Island wide employment opportunity – between 100 to 500 jobs
• Significant up-skilling of Island Contractors & opportunity to deliver services
• Economic regeneration - £0.8bn worth of investment – economic benefit could be many times over
SummaryKey features
• £260m – non-repayable – only way to get huge investment
• Council contribution – same as what we spend now with potential
for savings
• Council – no borrowing – no repayment of any form
• Fixed price contract – Service payments linked to inflation
• Significant opportunity to create construction industry on the
Island
• Massive regeneration opportunity for next generation
• If no Highways PFI
• Piecemeal patching & mending
• Opportunity for greater efficiency missed
• Opportunity for potential savings missed
• Further public sector spend reduction-road closures inevitable
Any Questions?
The Highways PFI is the single largest engineering
project the Island has ever committed to
www.iwight.com
