P3’s in Inland Waterway Projects and Engineering Ethics

IEEE Annual Ethics Dinner, November2016

Norma Jean Mattei, Ph.D., P.E. ASCE President

Global Strategy

Civil Engineers in

ASCE Vision Entrusted by society to create a sustainable world and enhance the global quality of life, civil engineers serve competently, collaboratively, and ethically as …

IEEE Vision IEEE will be essential to the global technical community and to technical professionals everywhere, and be universally recognized for the contributions of technology and of technical professionals in improving global conditions.

Engineering Ethics

IEEECodeofEthicsPOLICY7.8

Assistcolleague’sprofessionaldevelopmentandadherencetocodeofethics

#10

IEEECodeofEthicsPOLICY7.8

Avoidinjuringothers,theirproperty,reputa9on,oremploymentbyfalseormaliciousac9on

#9

IEEECodeofEthicsPOLICY7.8

Treatfairlyallpersonsregardlessofsuchfactorsasrace,religion,gender,disability,age,orna9onality

#8

IEEECodeofEthicsPOLICY7.8

Seek,accept,andofferhonestcri9cismoftechnicalwork;acknowledgeandcorrecterrors,andtocreditothers’contribu9ons

#7

IEEECodeofEthicsPOLICY7.8

Maintainandimprovetechnicalcompetence;undertaketechnologicaltasksonlyifqualifiedbytrainingorexperience

#6

IEEECodeofEthicsPOLICY7.8

Improvetheunderstandingoftechnology,itsappropriateapplica9on,andpoten9alconsequences

#5

IEEECodeofEthicsPOLICY7.8

Rejectbriberyinallitsforms

#4

IEEECodeofEthicsPOLICY7.8

Behonestandrealis9cinsta9ngclaimsores9matesbasedonavailabledata

#3

IEEECodeofEthicsPOLICY7.8

Avoidrealorperceivedconflictsofinterestwheneverpossible;disclosethemtoaffectedpar9eswhentheydoexist

#2

IEEECodeofEthicsPOLICY7.8

Acceptresponsibilityinmakingdecisionsconsistentwiththepublic’ssafety,healthandwelfare;disclosefactorsthatmightendangerthepublic/environment

#1

NormaJeanMaEei,DennisLambert,GarlandPennison,ErnieDroE

P3SoluMonsforInlandWaterways

Buenos Aires, Argentina, 7-11 September 2015

“SMART RIVERS 2015”

BuenosAires,ArgenMna,7-1September2015

FromPiancPresentaMon

WorkoftheASCECOPRIWaterwaysCommiEeeP3SubcommiEee•  DefinePublic-PrivatePartnership(P3)

– WorldwideuseofP3–  UShistoricaluseofP3–  DifferenttypesofP3–  RiskAllocaMonandRevenueGeneraMon

•  USsurfacetransportaMonP3examples•  WRRDA2014P3demoprojects

–  Issues,barriersandpotenMalprojectsidenMfied

BuenosAires,ArgenMna,7-1September2015

WhatisaPublic-PrivatePartnership(P3)?

AnalternaMveprojectdeliverytoolforgovernmentcapitalprojects

•  Increasedinvestment–  throughprivateenMMesand/orpublicsponsors

•  Acceleratedprojectdelivery•  LifecyclecostreducMon/operaMonalefficiencies•  Up-FrontFinancing•  LongTermPayback•  RiskallocaMon&incenMvizedperformance

Globally–WhyP3?Global Infrastructure Funding Deficit Source: OECD/WEF

•  By 2030 global needs estimated to be $57-$67TR

•  US needs estimated - $7TR by 2030

•  50% needs cannot be funded by public authorities

•  Standard & Poor: most $$ will go to energy & transportation (so other sectors such as water are at greater risk)

•  Governments are being asked to do more with less

Infrastructure deficiencies have a direct, material adverse effect on economic growth, competitiveness, life-safety and standards of living.

P3asaFinanceandDeliveryTool

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• Common delivery tool: both developed and developing nations

• From 1990-2009, P3 contracts • 1400+ in EU ( ~ €260B) • 200+ in Canada (~C$70B)

• Total global P3 investments since 1990 estimated at over $4.3TR USD

• Both good and bad examples of P3 exist national/internationally

• US slow to adopt P3

Erie Canal (courtesy eriecanal.com)

Philadelphia & Lancaster Turnpike (courtesy The American Pageant)

P3MilestonesinUSHistory1792–Philadelphia&LancasterTurnpike(1stUSengineeredroad)

–  Over100P3turnpikeconstrucMonprojectsin19thcentury1808–1825ErieCanalConstrucMon

USDepartmentofTransportaMon–  1990-SpecialExperimentalProjectsNo14–AlternaMveContracMng(SEP-14)

–  1994-InnovaMveFinanceProg.–Test&Eval.Project(TE-045)–  1998-TransportaMonEquityActfor21stCentury(TEA-21)–  2003-Safe,Accountable,FlexibleandEfficientTransportaMonEquityAct(SAFETEA)

2014–WaterResourcesReformandDevelopmentAct

P3–WhatTypeofInfrastructure?

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■  Rail ■  Roads ■  Airports ■  Ports ■  Multi-Modal

■  Education ■  Public Buildings / Facilities ■  Social housing ■  Healthcare ■  Municipal works

Transport

Social Infrastructure

■  Power generation and transmission ■  Oil and gas storage and transport ■  Water and waste management ■  Environmental works

Environment & Energy

■  Defence and National Security ■  IT backbone ■  Telecommunications infrastructure ■  National Broadband ■  Emergency Response

Other

Key asset types Key Infra Sectors

TypesofP3§  BroadSpectrumofPossibleOp9ons

Design/Build/Finance(DBF),Lease/Design/Operate(LDO),Design/Build/Operate/Maintain(DBOM),Affermage(enhanceduselease),Design/Build/Finance/Operate/Maintain(DBFOM),Build/Operate/Transfer(BOT)

§  P3Transac9onDesignContractsaredifferenMatedinlargepartbyriskallocaMonandprojectscopeofservices:

23

TypicalP3Arrangement

24

PublicPartner• Specifiesrequirements/standards

• Ownsassets/publicservice

PrivatePartner• BuildfaciliMes• Provideservices

• Infrastructureandservices

• PaymentstoPublicPartner

Rights Users / Public

Federal Sponsor

P3/P4 Contract

Local Sponsors

Equity Investors Creditors

Design / Build O&M

Usage Fees

BuenosAires,ArgenMna,7-1September2015

RiskAllocaMoninP3

25

RiskAllocaMoninP3

26

§  HowisRiskAllocated?Tothepartybestabletomanageit

Too little: no

Value For Money Too much:

project failure

Risk Transfer

Optimal: efficient sharing

of risks

P3CompensaMonModels

27

P3 is not “free money” - investments and costs need to be repaid

Type User Applica9on RiskConsidera9ons Comment

UserCharges CustomersTollroads,ports,airports,water,electricity,etc.

Demandrisk,affordabilityissues,collecMonrisks,enforceability,cost-recovery

•  NeedforcleareconomicregulaMon.

•  RiskscanbemiMgatedwithguaranteestructures.

UsagePayments PublicenMty Shadowtolls

Demandrisk,performancerisk,creditriskofpayingagent.

•  Needforusage,availability,andperformancemonitoring

Off-takepayments UMlity UMliMes(energy,

water,etc.)Availabilityandperformancerisks,creditriskofpaymentagent

•  Needfordetailedoff-takecontracts

•  PriceregulaMonsAvailabilityPayments

PublicenMty

PFI,infrastructureassets

Availabilityrisk,creditriskofpayingagent.

•  Needfordetailedavailabilitycriteria.

PerformancePayments

PublicenMty

PFI,infrastructureassets,faciliMesmanagement

Performancerisk,creditriskofpayingagent

•  Needfordetailedavailabilitycriteria

Grants&Guarantees

PublicenMty

Allinfrastructureasset

MechanismstomiMgaterisksandenhanceaffordability

•  GovernmentcapitalpaymentsorcontribuMons

•  Minimumrevenueguarantees

AncillaryRevenue Customers Commercial

acMviMes Commercialrisks •  TypicallysubjecttominimalornoregulaMon

P3RevenueStructures

FundingSources&FinancingTools

USP3Experience

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Federal• DOT$28BillioninFHWAprojectsalone• DOEenergyinfrastructure:renewableenergy,nuclearsafetyandhydrogeninfrastructure

• DODmilitaryhousingandrenewableenergy.WorkingonP4forsharedservices

• USACEWWRDA’14pilotprogramunderway• CBPcustoms/borderfaciliMesagreementsinHouston,Dallas,andMiami

• GSAgeneralservicesgovernmentfaciliMesState/Local• MajorityofUSstateshaveadoptedP3enablinglegislaMoninmulMplesectors

• Standard&PoorpredictsUSP3markettobecomemarketleader

USP3Example#1

31

LasVegasMonorailCompany,NevadaDeptofBusiness&Industry,ClarkCounty,andNevadaDOT• $650M• Originallyprivatejointventure(MGMGrandandBally’sHotel)• ‘97NV:privatecompanytoown,operate,fareforpublicmonorail• Mod50yrBOT(w/ClarkCounty),Currentexpansion:DBOMFundingsources• Taxexemptrevenuebonds(backedbyfaresandadverMsing)

USP3Example#2

32

PortAuthorityofNewYorkandNewJersey–tollbridge• $1.4Bineligiblecosts• 40yrDBFMconcessionFundingsources• TIFIAloan,privateacMvitybonds• Equity• PortAuthoritymilestonepayments

USP3Example#3

33

FloridaDOTandI-4MobilityPartners–expresslanesw/toll• $2.9M• 40yr,DBFOMavailability/milestonepaymentconcessionFundingsources• Bankdebt,TIFIAloans• EquitydistribuMon• FDOTmilestoneconstrucMonpayments• TIFIAcapitalizedinterestandinterestincome

InlandWaterwaysOpportuniMes

•  EnablinglegislaMon:WRRDA2014&WIFIA•  SignificantImpedimentsandConstraints

– NoauthoritytotransfermoneytootherenMMesexceptthroughFARcontracts

•  CostsharingagreementsauthorizedinWRDA’86(P4?)

– OMBscoring

– Mustalreadybeauthorized– Ringfencingissuew/revenuegeneraMon– NoappropriaMonsforP3demoprojects

–  *

* = Current demo project avoids issue – solutions that can be replicated in future P3s X = Constraint exists

Whi_erNarrows(FRM)

X X X X X X X Fargo

Moorhead(FRM)

* * X X X X X SabineNechez(NAV)

* * * * GreatLakes

(NAV)* * * *

ILWaterways(NAV) X X X X X X X X

Recrea9on(REC)

* * X X X

WDMayo(Hydro)

* * * * *

ListofP

rojects

! $ NEW

P3DemoProjectConstraints

Key Program Constraints Pilot Impediments Program Gaps

P3Challenges&OpportuniMes§  Requiresextremelycomplexpolicy§  USACEmustchangeitstradiMonalwayofdoing§  USACECivilWorksassetsclassesarediverse

§  projectsauthorized(&operated)forusuallyonlyonebutprojectispartofaSYSTEM•  Flood&CoastalStormDamage•  CoastalHarbors/Dredging•  InlandWaterways•  Hydropower•  Dam&LeveeSafetyPrograms•  WaterStorage•  AquaMcEcosystems

•  Water-basedRecreaMon§  ProgrammaMcchallengesexist,butarenot

uniquetoUSACE36

MovingForward

•  ChangelegislaMonandpolicytorelieveconstraints– Ringfencing– Statusquofortotalfundingbutwithincreasedrisk

•  Aggressivelyinvolveindustrypartners•  StrengthenWIFIA•  Educatethepublic

P3ChallengesRECAP•  FederalPaymentMechanisms

–  Can’tmakecommitmentsonfutureappropriaMons

•  RevenueGeneraMon–  Newauthoritytoallowaprojectrevenuestream

•  Budgetability–  LacksfullalignmentwithprioriMzaMonofprojectswithincurrentbudgetpolicy(BCR)

•  Non-FederalPartner–  Aleadnon-Federalpartnerisneededforthiseffort

•  ProgramAuthorizaMon–  NofundingtomoveforwardwithP3pilotprojectatthisMme

P3InLandWaterwayProjects

•  FargoMoorheadDiversionProject– Twoseparateparts(reallyaP4)– USACEpart:Undercontract– MNDNRdeniedpermitinOctober(EISissues)

•  IllinoisWaterwayProject–  InnegoMaMons– Embracedbyseveralusersofthewaterway

ProjectMap•  Fargo,ND•  Moorhead,MN•  CassCounty,ND•  ClayCounty,MN•  CassCountyJointWaterResourceDistrict

•  Buffalo-RedRiverWatershedDistrict

FargoMoorheadDiversion

•  FormedtheFloodDiversionBoardofAuthority(DiversionAuthority)– esMmated$1.8billionProjectcosts

– SplitDeliverymodel•  DiversionAuthorityintendstodeliverthroughP3•  TheDCAIWPgenerallyconsistsof30milesofchannel,2aqueducts,2riverinlets,variouslocaldrainageinlets,thechannelouqall,4railroadbridges,4interstatehighwaybridges,and10countyroadbridges,aswellasassociatedenvironmentalmiMgaMonandrecreaMonalfeatures

IllinoisWaterwayP3Project

•  IWWP3Demonstra9onProject– HelpaddressFederalmaintenancebacklog– ProvidealternaMvefundingsourcestoaddressmaintenanceneeds

– Speeduprepairsandupgradestoaginglockanddams(resetsystemin7-10years

– GreatlyimprovenavigaMonsystemreliability(>50%vesselsexperienceddelaysonIWWin2014)

– Reduceriskstousers/shippersandimprovetheeconomicviabilityofthenaMon

IllinoisWaterway

Colleague’sPerspecMveonP3

•  Asayoungengineerinthemid'70's– consulMngteamprogrammanager

•  firstregionalUSsolidwaste/resourcerecoveryschemes

•  fourcounMesoftheTampaBayarea

•  Teammember:recentlyreMredchiefeconomistoftheNYDeptofPublicFinance– proposedasfinancingscenarios–  revenuesharingopMonsfortheparMcipaMonofprivatecapitalinsomeofthelargercomponentsofthesystem

Colleague’sPerspecMveonP3•  ThenumberslookedveryaEracMveinthefirstfewyears

•  GraduallyMppingfeesincreasedafewcents/ton– atabouttenyearsintothevalueanalysis– equityinvestorswereassuredofrevenuecomparedtothepublicdebt(revenuebond)holders

•  Theyrevisedthemixofexpense(capital,O&M,etc.)opMons– Unlessthepublicownedtheland– nocombinaMonsgavethelifeMmebenefittothepublic

TheInfrastructureProblem

•  USfacesagrowingbacklogofinfrastructurerepairandexpansionprojects

•  Manyoftoday’sassets– propelledrapideconomicgrowthauerWWII

– havecometotheendoftheirusefullives

•  Governmentatalllevelsmustincreaseinfrastructureinvestment– ASCEesMmatesneedsat$3trillion–  Ifnot,USfacesadragonproducMvity

Howdowefundinfrastructure?•  Usuallystateandlocalgovernmentsfinancepublicinfrastructure–  issuanceofmunicipalbonds

•  RecentlyinsurfacetransportaMon,andwatersupplyandtreatmentandsolidwastehavesomeMmesusedWallStreet– AlternaMveformofinfrastructureprocurement(P3)thatmayinclude:

•  equityfinancing•  long-termmaintenanceandoperaMonscontractfortheprivateconcessionaire

WhysupportP3s?1.Liquidity

•  Governmentshavebeenunabletoinvestsufficientlybecauseoflackofliquidity(accesstofinancialcapital).– Thereisavastamountofprivateequitycapitalavailable

– Currentmunicipaldebtis$3.7trillion– nonfederalborrowershavenoproblemaccessingthemunicipalbondmarket–itisrobust

•  FACT:equitycapitalismoreexpensivethanbonds

Equityvsmunicipalbonds•  Differentinthreeways:

– First,projectequityisnotlistedonapublicexchange;amunicipalbondistradablefixed-incomesecurity

– Second,thereturnthatequityinvestorsreceiveoverMmeisfederallytaxed

– Third,therateofreturnonequitycanbevariable.Example:atollhighway(concessionaireassumesrevenuerisk),therateofdependsontraveldemandandoveralltollrevenues

IMPORTANTPOINT:bothareprivatedollarsfinancinginfrastructureprojects

WhysupportP3s?2.PublicPensions

•  P3scanstrengthenworkers’reMrementandbuildneededinfrastructureprojects– PublicpensionfundsareobligatedtoprovidebenefitstofuturereMrees,arequirementforwhichtheylackadequatefunding

– ThevolumeofP3transacMonswithanequitycomponentistoolow

– Pensionfundsaretax-exemptinvestors,meaningtheyhavenofederalincometaxliabil-ity

– SobondsnotaEracMve

Rateofreturn

•  MunicipalBonds:– AAA-ratedbondsofferonly2.4percentannuallyovera30-yearperiod

•  Privateequity– FHWAcitesarateonsurfacetransportaMonprojectsof8-14%annually

•  Pensions:CaliforniaPublicEmployees’ReMrementSystem–  fundisat~$300Bbutfundingliabilityis~$100B

CanP3ssolvethepensionproblem?

•  TIFIA:– Began1998– Financed24projects– Totalcostoftheprojectsis$1.28billion– Averageequityinvestmentofis$183M

•  SoCalPERSwould– Trytoreduceporqolioriskbytakingalimitedshareofequityinanygivenproject

– FundalotofP3projects

Sowhat’stheproblem?

•  Thesinglemostimportantfactorconstrainingoverallgovernmentinvestmentininfrastructure– Notaccesstocredit– Ratherinsufficientgovernmentrevenues– TheproblemisfundamentallypoliMcal

– Thepublichasafinitewillingnesstopaythetaxesandfeesnecessarytoserviceprojectdebts

P3notasoluMontothedeficit•  P3sareanalternaMveformofprocurementthatoffersgovernmentawaytomanagerisk

•  Goodifproject–  isacomplexfacility

– GovernmenthasliEleexperience– PrivateenMtyislockedtoprovidingaspecifiedLOS

•  insulateacriMcalinfrastructureassetfromrisksofdecliningstatebudgetsandrecession.

•  STILLneedtaxesandfeesnecessarytorepayprojectdebts,regardlessoftheirsource

QUESTIONS?