Presented at the 4th Global Infrastructure Basel Summit 21 & 22 May 2014. Read more at www.gib-foundation.org. Next Summit: 27 & 28 May 2015 in Switzerland

1. Interactive Workshop:
Financing Infrastructure Projects in Cities
Avoiding Traps and Achieving Sustainability
1
21 May, 2014
André Schneider, Global Infrastructure Basel
John Macomber, Harvard Business School

2. 2
Working together to explore two important tools
for evaluating sustainable infrastructure
Format: Workshop
“Participant Centered
Learning”
Tools:
1. Value for Money (VfM)
2. GIB Assessment
Situations:
1. Confederation Line Light Rail Tunnel,
Ottawa, Canada
2. Trans Milenio BRT Avenue Septima,
Bogota, Colombia
Agenda:
8:30 Introduction and Expectations
Ottawa Light Rail: Value for Money
Bogota Avenue Septima BRT
GIB Grading
Conclusions and Best Practices
11:00 Adjourn

3. 1. Familiarity, not mastery
2. Advanced tools (Value for Money, GIB Grading)
3. Projects not truly comparable
4. Information not complete
5. Analysis should be more detailed and better documented
6. Table partners do not know each other…yet
7. Discussion questions are open ended
8. Alternate plenary / table / plenary / table / plenary
9. Expect energy…Expect uncertainty!
10. Launch pad for Summit
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We will work together to explore two tools,
across two situations, at a high level.

4. 4

5. The Project:
• Purpose: Relieve traffic, keep Ottawa
competitive, reduce carbon
• Challenge:
• Tunnel under a river
• Build an LRT rail system
• Build stations
• Procure rail cars
• Finance construction and ops
• Operate it for decades
• Capital budget: CAN$ 2.1 bn
(about € 1.4 bn)
• Process: Highly public, votes, many
consultants, “Infrastructure Ontario”
5
Nancy Schepers’ Decision:
PPP or “traditional?”
Elements of the Decision:
• Use Traditional Method?
• Issue bonds (general obligation)
• Design
• Bid
• Build tunnel, track - unit cost basis
• Procure and own rail cars, stations
• Operate (supplement tariffs with
subsidy)
• Do some flavor of PPP?
• Design-Build? Lump Sum?
• Finance by proponent (builder)?
• Split tunnel, track, stations, rail cars?
• Long term operations contract with
proponent?

6. Steps in VfM Analysis:
1. Define the Reference Project (First Cost & Operating Cost)
2. Calculate Raw Baseline “Comparator” (apples to apples on revenue & risk) –
as if the whole PPP scope were being done by public sector.
3. Calculate Competitive Neutrality Adjustments (taxes, rates, fees effects for
public v private)
4. Identify material risks [geotech, constr, O&M, revenue]
1. Probability x consequence
2. Retained by public sector? Or transferred to private proponent?
5. Calculate PSC Public Sector Comparator:
1. Baseline + Compet Neutrality + Transferable Risk + Retained Risk
6. Calculate VfM “Value for Money” as the DIFFERENCE between “Public Sector
Comparator” and the PPP bid + NPV of retained risks.
6
Value for Money (VfM) analysis tries to break down the
risk-adjusted components of value in a PPP proposal

7. 7
Illustration of material (major) risks as
probability x consequence

8. 8
Scope and Budget Comparisons: Ottawa LRT
Item
Traditional Public Sector
(This deal “public sector
comparator”)
This deal:
PPP Proponent Finance,
Design, Build, Operate,
Maintain
Finance the first cost Government issues bonds
Design the system Design Firm
Build the system Construction Firm
Accept Geotech Risk Owner (Government)
Operate the System (30 years+) Owner (Government)
Maintain the System (30 years+) Owner (Government)
Accept Op Cost Risk (30 years+) Owner (Government)
Accept Revenue Risk (30 years+) Owner (Government)
Projected First Cost Paid to
Proponent
1.7 bn
NPV Project Cash Flows 30+ years

9. 9
Scope and Budget Comparisons: Ottawa LRT
Item
Traditional Public Sector
(This deal “public sector
comparator”)
This deal:
PPP Proponent Finance,
Design, Build, Operate,
Maintain
Finance the first cost Government issues bonds Government PLUS private
proponent for $300 mm
Design the system Design Firm Private proponent design-
build
Build the system Construction Firm Proponent
Accept Geotech Risk Owner (Government) Proponent
Operate the System (30 years+) Owner (Government) Proponent
Maintain the System (30 years+) Owner (Government) Proponent
Accept Op Cost Risk (30 years+) Owner (Government) Proponent
Accept Revenue Risk (30 years+) Owner (Government) Owner (Government)
Projected First Cost Paid to
Proponent
1.7 bn 1.8 bn
NPV Project Cash Flows 30+ years
The Big Question: How to Tell if it’s Worth Paying More?

10. 10
It’s more
upfront
money to the
proponent. Is
there “value
for money”
for the
sponsor?
To Proponent
$1718
PSC ASB
PSC = Public Sector Comparator
ASB = PPP & Retained Risk
(Adjusted Shadow Bid)

11. Left side of room
(speaker’s right side):
Consider the table of “scope &
budget comparisons” and the
“value for money” stacks of costs.
1. What are the major
uncertainties and risks in this
project?
2. What party should bear which
of those risks?
Right side of room
(speaker’s left side):
Consider the table of “scope &
budget comparisons” and the
“value for money” stacks of costs.
1. How else could Nancy
Schepers procure this project
and its operation?
2. Do Schepers and the Ottawa
government realize “Value for
Money” if they enter into this
PPP as described?
11
Small group discussions->
Explore at your tables:

12. Transmilenio Bogota: Avenue Septima BRT
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13. 13

14. The Project:
• Purpose: Relieve traffic, keep Bogota
competitive, reduce carbon significantly, help
many, many low income workers get to work
• Challenge:
• Take existing traffic lanes
• Take some adjacent real estate
• Build dedicated BRT stations
• Procure buses
• Finance construction and ops
• Operate it for decades
• Capital budget: USD$ 508 mm (about €
370 mm)
• Process: Highly political; one party likes BRT,
one party likes Metro, some people like no
change at all.
14
Mayor Luis Eduardo Garzón’s Decision: Build
BRT down Avenue Septima in Bogotá?
Elements of the go/no-go Decision:
• Decide based on which political party
in power?
• Get a capital subsidy from
InterAmerican Development Bank?
• Charge fully loaded costs to riders?
• Create an operating subsidy from
other city revenues?
• Get a bigger subsidy for metro
instead?
• Will abutting businesses contribute to
capital and operating costs?
• There is no comparison to
“Infrastructure Ontario” oversight.
• There is no apparent PPP interest

15. Guiding Principles for Sustainable Infrastructure
15
André Schneider

16. Plenary Discussion of Confederation Line LRT
and Avenue Septima BRT
16
John Macomber

17. Comparing with GIB Assessment
Result Spiders
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18. Left side of room
(speaker’s right side):
Assume you can are an investor
and you must invest in one and
only one of these projects.
• Based solely on the GIB
Assessment as you understand
it, in which project would your
table group invest?
• Why? What are the three main
factors in your decision?
Right side of room
(speaker’s left side):
Consider the Ottawa situation, the
Bogota situation, VfM, and the
GIB assessment.
• What are the three biggest traps
in delivering sustainable
infrastructure, as experienced
by your table group?
• What is the best way to avoid
each trap?
18
Small group discussions->
Explore at your tables:

19. Conclusion and Best Practices
John Macomber
André Schneider
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20. 20
Seeking “Value for Money”: Ways to Organize PPP
(Source: GDF Suez)
Asset
Ownership
Operation &
Maintenance
Responsibility
Capital
Investment
Commercial
Risk
Term
A -
Management
Contracts
Public
Public /
Private
Public Public
3 – 5
year contract
B -
Operation and
Maintenance
Contracts
Public Private Public Public
8 – 15
year contract
C -
Lease/
Affermage
Contracts (i)
Public Private Public
Private /
Public
8 – 15 year
contract
D -
Concession
Contracts
Private /
Public (ii)
Private Private
Private /
Public
20 – 25 year
contract
E –
Private Utilities
Private Private Private Private
Indefinite
(License to
Operate)
i: Leases and affermage contracts are generally public-private sector arrangements under which the private
operator is responsible for operating and maintaining the utility, but not for financing the initial investment.
ii: In concession contracts, the new works funded by the private operator are amortized in the accounts of
the operator; but the works return to the Public Authority after the term of the contract.

21. Insights and Best Practises
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• Sustainable lifestyles can only be developed if the infrastructure makes choices available that
support these objectives.
• But confronting these challenges of climate change mitigation and adaptation, resource scarcity
and energy security will require massive investment in the fundamental reconfiguration of the
infrastructure that supports modern society.
• This implies that every infrastructure that will be developed has to comply with sustainability
characteristics and this for all aspects of sustainability: social, environment, and economic.
• Our experience shows clearly that not achieving such compliance will result in important risks for
infrastructure projects, like costs for non-compliance, delays in project implementation or use of
infrastructure, difficulty to assure project financing, and finally discontinuation of the project.
• During the conference, we will deepen many of the mentioned topics, like:
– sustainable transportation, today at 14:00;
– increasing credit worthiness, today at 16:00;
– sustainable infrastructure as an asset class, tomorrow at 9:00;
– sustainability grading, tomorrow at 11:00;
– sustainable credit rating, tomorrow at 13:00.

22. Thank you!
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