Let's talk about public-private partnerships in the United States of America. First, let me introduce myself. I'm Karl Reichelt, and I'm a Senior Vice President and Global P3 Leader for AECOM, and more specifically, AECOM Capital. From AECOM Capital, our company leads public-private partnership pursuits around the US and in other jurisdictions. And we focus on delivering design, construction, equity investment and financing, operations and maintenance on these large complex public-private partnership projects in the market, and I'll explain a little bit about what that means later on. But my role in the company is to lead the equity investment and development of projects where we bring in our colleagues from construction design and operations and maintenance to deliver the turn-key solution. And I think I bring a unique perspective to the US public-private partnership market in that, I served many years at the county, state, and federal government levels and then switched over to work in the private sector. First, several years working for Skanska and now AECOM, and in that history apply what I learned in the governmental side into the private side and actually delivered some significant projects in the US which we'll get into shortly. But ultimately, you'll see that I'm a big passionate believer in public-private partnerships. And how we can deliver infrastructure for the future without necessarily having to go seriously into debt, or raise taxes, or defer maintenance and other things that plague our current infrastructure system in the US. So you have a little bit of my background. I was very much involved in setting up the public-private partnership business for Skanska beginning in 2006. But helped lead the company to win the Midtown Town Tunnel Project, the LaGuardia Central Terminal Building Project, the I-4 Ultimate Managed Lanes Project, and I'll do some case study discussions later on about that. And now over at AECOM we're bidding for several projects in the US market, a light rail project, a managed lanes project, a river diversion project, and a people mover at an airport. So you can see there the diversity of project sectors, markets, and clients that we're pursuing. Here's what we'll discuss today, and I've kind of outlined I think what I would call the basics of US private-public partnerships, the market, how they work, what projects work best for public-private partnerships. So we'll go through the concept, we'll go through the driver and the drivers in the value proposition. We'll look at the P3 structures, there's different ways to do a P3, there's different definitions. We'll talk about the success factors and the benefits, why I believe P3s are gaining popularity in the US and elsewhere. Some myths and pros and cons about P3s they are somewhat controversial, they're non-traditional. And then, we'll go through several case studies where I can explain to you how the projects occurred, why they were developed and delivered, and some of the financial mechanism involved in delivering those projects. First, let me introduce what I mean by a public-private partnership in the US. There may be a dozen definitions. Often times, when there is a public or governmental entity on one side, and a private entity, like a developer or an investor on the other, people call that a P3, and rightly so. And in the definition of public-private partnership you can do real estate deals, you can do transportation, you can do water, governmental. But where I differentiate on a definition of public-private partnerships is it involves a long term concession agreement. In equity investment, a turn key design build delivery and the investment of equity, the arrangement of public and private financing in order to deliver the project more efficiently and effectively. And perhaps, even earlier and on time which is, and on budget which is sometimes an anomaly in our traditional delivery of infrastructure from the governmental side. So it's taking the very best that the private sector can bring to the equation of delivering infrastructure and levering that as a governmental agency to salary, project delivery, shed the long term operations and maintenance cost. Take advantage of innovation and technology to deliver complex large skill in the construction project. The public-private partnership that typically I refer to are those that are greater than $500 million in value. There are smaller P3s done around the market, certainly in Canada and other countries but in the US most of the P3s have been done that are much more valuable above 500 million in many cases above a billion. So again, until a little bit of those project shortly as well. So the P3 concepts what are the key elements to a public-private partnership, but then again, I called a P3, some people called it PPP, just to be abbreviate I'll say P3. First, it is a non-traditional delivery option for public agencies to deliver infrastructure, but really what it does is it stretches public funding. As we know, it's difficult in this day and age to go further into debt as a government, whether it's the federal state, city, county government. It's certainly, many of those jurisdictions are at their debt limits or unwilling to take on further debt to deliver these complex projects. There's also a very lengthy approval processes we know to deliver projects in the US, and then of course, people are lows to raise taxes whether it's a guest tax, user taxes. Income taxes in order to fully invest in the infrastructure needs of our country. So, as an alternative, you can take whatever public money is available and leverage due with private equity, and private debt, and lending capacity from the federal government and really stretch tax dollars through using the P3 mechanism. It is also involves a partnership. Obviously, the third P in public-private is partnership, and it's a partnership between governmental agencies. It usually those are authorities, take the Port Authority of New York, New Jersey as an example, or the Los Angeles World airports authority, or they are a state governmental agency such as the Department of Transportation. In the US, there really are no federal public-private partnership projects as you may see in Europe or Latin America where they have federal programs. Here P3s are literally and largely driven at this state level with federal support. Whether it's credit assistance, regulatory assistance or structural assistance provided by the federal government. So a framework by the federal government, funding and lending capacity, private activity bond capacity from the federal government. But the state governors are typically the ones driving the P3s or the leadership of the various authorities, the port authorities, the airport authorities, the water authorities. Then you have private equity investors, or concessionaires. AECOM Capital where I work happens to be one, there are many out there and I'll share with you of who competes in this space. But these are funds that are geared toward developing public-private partnership projects, overall elongated bid period, putting at risk development cost. Taking responsibility for turnkey delivery, and they are geared and setup if you will, to compete for those projects. All of the public-private partnership projects in the US are highly competitive and I'll share some of that further. But you should know that public-private partnerships have a very certain class of equity investor who are willing to take development risk. To have the team and the capabilities understanding of how to bid and lenient deliver the P3, and there were able to color and if you will, be a long bid period in the cost it takes in order, when deliver another projects. You then also have the construction firms. So we have the governmental agency, we have the equity and concessionaire, and you have the contractors. But along with that, you form a design-build joint venture, typically in a P3. That includes the design, engineering, and architect component. So there's an integration there. And then further you add in the operations and maintenance provider, or asset managers and you form a consortium. And you are meant to work seamlessly with a lot of synergies and efficiencies as a full consortia up against two, three, or four other consortia in bidding for these significantly large complex infrastructure P3s that we're discussing today. So it's not just one entity that carries the entire burden of pursuit and delivery. You bring together a number of very powerful strong teams in order to get pre-qualified by the client. And then, you'd carry that team through to the bid create all the way through the execution period. And then ultimately when the project is de-risk and up and running, there's optionality to remain as an investor or divest. For a P3 to work, economics are a major factor. The projects that are selected by the public client need to pass a viability test. A value for money examination. Before the market will be interested, so there is usually a need to either identify a revenue stream of some kind. Whether it is a user fee in the form of a toll or a tariff or if there is an availability payment structure where the governmental entity guarantees you an annual payment each year over the length of the concession so long as the asset is delivered exactly as prescribed in the contract. And is performing at a very high level, and it is a performance-based contract. The public client has complete authority over making sure that the private sector is delivering as promised, and there are very stringent performance metrics that come along with that contract. And as the equity investor, if we don't live up to the obligations of the contract, there's a points deduction system. And we will receive less of an availability payment per year, which means after we serve it and pay the contractors and the designers and engineers. After we service the debt and cover all other costs, whatever is left becomes the equity return, and so if we don't perform it actually affects the equity rate of return in the project. So we have every incentive as a developer, investor and partner in the infrastructure project to assure that what we finance, design, build and deliver operates on a life-cycle basis very successfully both for the public, and for the client, and for ourselves, and therein lies the beauty of the P3. At the end of the concession agreement, and they typically run anywhere from 15 to 35, sometimes higher 50 to 100 years, in some cases. At the end of that period, the asset reverts back to the public client at zero cost, and in a condition pre-agreed, already upon your six signing and the concession agreement and reaching financial close. So we are obligated, as the private developer, owner, equity investor to make sure we build the project to last. And it has to live up to those standards because we end up handing it back to the public client and the taxpayers. At the end of the concession, it has to be in prime condition. And so that's another I think really interesting aspect that we never really own the asset. The asset that is developed whether it is a toll road, or a water treatment plant, or an airport terminal. It is something that we create in partnership with the public sector, but we never really own it. We operate and maintain it. We have authority and control over its operation and maintenance to assure that we run it in the way that's best possible. But at the end of the day, it always falls back to the ownership of the public entity at zero cost at the end.
