Here is the risk transfer that I mentioned earlier and you can see, essentially, you have the traditional risk transfer on projects that are procured as design build. And then you go all the way down the chain to where you have the design, build, finance, operate, maintain model, or as we call it the P3. And you have two structures, one is the availability and one is the revenue risk. So, the difference here as you can see as you move further to the right, more risk is being placed upon the private partners. And of course therein lies both the challenge, but also the reward. So, the challenge is you must deliver all of this, the design risk, the cost construction risk, the financial risk, the O and M and rehab. And making sure that all the way through you're able to either live up to performance contract of the availability payment regime, or you're able to generate enough tolls or user fees to pay back your contractors, and your design, and engineers, and other subs and consultants to pay back your debt and to ultimately pay your shareholders a dividend and earnings or return. And so, you can see here that the value or the beauty of a P3 is, the governmental entity is able to shift as much of the risk over as it feels comfortable, as it wishes to, but the more risk it retains, obviously, that exposes the balance sheet of the state and the tax payers. So, there are states that will go all the way to revenue risk, and there are several in the US, there's a few toll roads in particular. There are projects that have partial revenue risk, where the private sector is taking risk up to a certain point, the public sector may share in some upside. Or let's say 85% of the project is guaranteed, from a revenue standpoint, from the client, and the other 15% is available as an upside to the private sector, should they out perform. So, this is a real strong demonstration of why clients consider using the P3 structure, to shift the risks away from the public sector side, over to the private side. And the willingness to allow the private side to innovate, and be efficient, and use technology, use a life-cycle approach. Looking at the entire project in its whole entire life-cycle, from its early project development all the way to through until its hand back. That's not typically done at the state, or federal level, or the municipal level. It's more of a shorter term mindset. But with a P3, you're forced to behave in a particular way, because your return is dependent upon it. Here are the two compensation models in a P3 with more specificity. You have the availability payment structure, where your compensation is predetermined. Ie the performance regime that you agreed to when you signed the concession agreement. And you move on to financial closing you're now in the delivery phase. You have to provide that asset, let's call it a hospital. The hospital has to be open, it has to be well lit, it has to have all of its facilities up and running, all of its operating theaters and patient rooms and diagnostics, all the way down to the cafeteria. The place has to be clean, has to be safe, visitors need to be managed, the windows need to be cleaned, all aspects of the operation of that facility have to be held to a very, very high standard. And if so, the private partners receive a payment from that authority. Let's say the hospital authority on an annual basis. And there is a regime that monitors performance and deducts or ads points based on that performance. And so, what I mean by that is, after the asset is built, which is guaranteed as part of the financial package, it then has to be operated in an optimal way. Nurses need to be able to perform their job, doctors need to be able to performs theirs', the support personnel need to as well, and patients need to be treated there safely. And it also has to do with the success of the hospital. The availability payment is often geared on the quantum of patients and high patient satisfaction. And again, I think that's a differentiator from the traditional delivery of a hospital versus a P3. The P3 partner does not get its compensation unless it achieves that very high standard. Because you have a guaranteed contract so long as you perform over a longer period of time, the equity return tends to be lower in an availability payment. It's largely a less riskier proposition. Once the design, and financing, and construction are done and you're into the operational period, it's a matter of living up to the terms of the contract in an optimal way. So, the risk part of it, there's no volume risk, so therefore the return on equity is a little bit lower. And most of the availability payment projects that you see have been done in Europe. There's more now in the US than in prior years. Clients are unwilling to allow the private sector to take market risk on the project, they just uncomfortable, or worry perhaps if traffic doesn't materialized, or a volume of some kind doesn't materialized, that it would undermine the project. So, clients more and more would like to have some control and have some authority, and therefore the availability payment structure works best. They're still getting a lot of value out of the P3, just not as much as a full market risk project. And on the right, that is the full market risk, the aspects of that kind of contract. And here you have, again, user fees, whether it's volume of water or volume of cars, volume of parking, whether it's rental of space, there is market risk. Even if it's a fiber optic line, are you selling enough of the fiber optic service to various large users, to offset the cost of delivery and also gain your return? So, you have end user fees, which means that the equity returns tend to be higher, because you're taking that long term market risk. And I'll share a few case studies where the long term market risk over 50, 60 years, it's very difficult to project, you have to be really smart about how you financially model out such projects, but you are taking that risk as the private side and therefore, because you are, you're achieve a bit of a higher return. And you see some of the projects in the US, the early toll road projects in particular, that have market risk. There are some projects that are availability with some, as I said earlier, upside potential or shared risk, paid share, gain share with public clients. But ultimately, you see a lot of the market risk projects in Latin America. And here's another demonstration of how the P3 risk transfer works. And you see here on the right is the traditional delivery, so let's just say that a public client would like to build a new airport and they want to do it through the authority, and the authority wants to fund it 100%, and pick the designer, and the contractor, and pick the operations and maintenance provider, and provide all of the funding. There's nothing wrong with that model and we've built amazing buildings in our country's history using that model, and I I don't mean to cast any negativity on that approach. It's just that when you're looking at it from a P3 perspective, nearly all of the risks related to that project fall on the state, or the authority, or the agency. And if they're very well run, and they're really good at, it no problem, the tax payers are well protected. The long term legacy cost are factored, a high quality facilities is constructed and maintained, and we're all good. However, in a P3 you can see the shift of risk over to, if you will, the contractor, or the concessionaire, or the private partners. And that is a way for the government to say, you guys take it on, we'll manage it, we'll keep an eye on it, we'll support you with financing, and we'll make sure that you deliver what you promise. And for all that risk that you're taking, we're okay with the return that you will achieve, and perhaps even your divestment of the project to other investors down the road. But the shift of risks is significant. And this, I believe, puts a lot skin in the game for the private side to really out perform. To really design, build, and deliver, and operate an asset that is of the highest quality, because any and all of those risk, any one of them could actually crater the equity investment made to deliver the project. And I'll talk about some myths later about where projects that still have a challenge on equity side still can be operated, and funded, and completed, even if the private partner fails, we'll talk that in a minute. But this risk transfer is the fundamental difference between the way we largely deliver our infrastructure in the United States today, and perhaps a way for us to consider strongly going forwarding, so that we can lever those tax dollars and that debt to really move the needle on our infrastructure demands.
