T +1 (202) 466 6790 F +1 (202) 466 6797 1700 K Street NW Suite 410 WASHINGTON DC 20006 United States of America Making Public Private Partnerships Work for New Jersey T +61 (2) 9231 6862 F +61 (2) 9231 3847 36 38 Young Street SYDNEY, NSW 2001 Australia T +64 (4) 913 2800 F +64 (4) 913 2808 Level 2, 88 The Terrace PO Box 10-225 WELLINGTON New Zealand T: +33 (1) 45 27 24 55 F: +33 (1) 45 20 17 69 7 Rue Claude Chahu PARIS 75116 France --- www.castalia-advisors.com April 7, 2010 Testimony to New Jersey Privatization Task Force Copyright Castalia Limited. All rights reserved. Castalia is not liable for any loss caused by reliance on this document. Castalia is a part of the worldwide Castalia Advisory Group.
Overview Castalia s Experience P3 successes from overseas selected cases - Performance Based Road Maintenance Contracts, New Zealand - Mass Transit P3, Australia - Water Privatization to Finance Environmental Cleanup, England - Airport Privatization Revitalizes Regional Facility, Scotland - P3 for Fast, Efficient, Quality School Buildings, Australia Top 3 Lessons from International Successes 1
Castalia s Experience Established in 1980 focused on efficiency in infrastructure and public services Track record advised on over $46 billion in privatizations and P3s over the last 10 years Global experience offices in Washington DC, Australia, New Zealand, and Europe 2
Performance Based Road Maintenance Contracts, New Zealand The Status Quo 10,000 km road network old-style maintenance contracts for specific works, competitively bid P3 Solution starting from 1998 Ten-year contract to single supplier who is responsible for maintaining all state highways in a specified area to a defined standard Fixed price for ten years (indexed to inflation) Resulting Benefits 10% to 30% reductions in cost over traditional contracting Improved road conditions -Potholes filled within 48 hours -Drainage channels cleared within 1 week -Edge break repaired within 1 month In New Jersey, saving 15% on road maintenance would be worth $66 million each year New Zealand Highway 3
Mass Transit P3, Australia The Status Quo: Largest tram network in the world, plus commuter and regional rail. Serving 4 million people. Owned by state government Public Transport Corporation. Poor maintenance, rampant fare evasion. P3 Solution In 1999, the transit network was concessioned to three private operators through leastsubsidy bidding Trips/year New Jersey Transit 223 million Melbourne Franchise 460 million Resulting Benefits Service improved Light rail track Service area 107 miles 5,325 miles 2 152 miles 3,400 miles 2 -Delays cut by more than half (6% 2%) -More convenient timetables -Better information and customer service (e.g. SMS updates) -Fleet modernized, lines extended -Reduced fare evasion yielded $3.2 million Labor relations improved -32% reduction in absenteeism -8-fold reduction in lost time from injuries In 2009, contracts successfully re-bid for the next ten years to new operators Southbank Tram Depot, Melbourne 4
Water Privatization to Finance Environmental Cleanup, England The Status Quo Ten government-controlled Water Boards P3 Solution In 1989, the Government privatized the water supply and sanitation components of the ten water boards. Resulting Benefits Privatized companies invested $103 billion in water infrastructure from 1989 through 2009 UK reaped major environmental benefits -In the first 5 years, the percentage of plants complying with their discharge permits increased from 87% to 96% -Significant improvement to more than 3,000km of rivers and canals -Compliance with European standards improved from 76% in 1989 to almost 98% in 2009...and improved water quality drinking water quality has steadily improved, meeting the relevant standard in a record 99.96% of tests by 2009 5 Dartmouth Sewage Treatment, UK
Airport Privatization Revitalizes Regional Facility, Scotland The Status Quo Falling passenger and cargo traffic left Prestwick airport nearly idle. The British Airports Authority sold the airport in 1992. The current owner is Infratil. P3 Solution fully private ownership Aggressive promotion of Prestwick as a: -Freight airport -Low-cost airline facility -Aerospace manufacturing and maintenance facility Prestwick Airport Associated property development Resulting Benefits New rail station built by private owners $4.5 million terminal renovation Passenger traffic doubled from 2001 to 2008 Significant boost to regional economy through aerospace cluster Prestwick Airport Train Station 6
P3 for Fast, Efficient, Quality School Buildings, Australia The Status Quo The State Government of New South Wales wanted a way to combat high cost of school construction and poor maintenance P3 Solution 30-year P3 contracts that provide for financing, design, construction, facilities management, building and grounds maintenance, security, and cleaning Tendering of 9 schools in one transaction Resulting Benefits 7% reduction in construction costs over traditional tendering Builder incentives for whole-of-life savings In New Jersey, saving 7% on school construction would be worth $39 million each year Reduced teacher time spent on facilities management Grades and attendance improving faster at P3 schools New South Wales PPP Schools 7
Top 3 Lessons from International Successes 1. Focus on value-formoney, not asset monetization! Lower fiscal cost Lower government risk Better service to citizens Innovation Efficiency Risk transfer Value Drivers Whole-of-life costing Finance 2. Develop a program with clear guidelines Identify candidate projects and services Screen for P3 value-formoney/ public benefit Robust, transparent procurement process Clear rules Programmatic approach Transparency Stakeholder Consultations Competitive bidding Not one-off, ad hoc, backroomnegotiated deals 3. Create a dedicated P3 or value-for-money unit (Treasury is a good home for this) Build expertise in government Create a champion with value-for-money focus Prevent bad P3s that some agencies may be tempted to develop Partnerships UK Partnerships Victoria (Australia) Good Practice P3 Units New South Wales Treasury (Infra. Branch) National Infra. Unit, New Zealand 8
We are happy to provide more information David Ehrhardt, CEO of Castalia 1700 K Street, NW, Suite 410 Washington, DC 20006 Tel. (202) 466-6790 David.Ehrhardt@castalia-advisors.com www.castalia-advisors.com David focuses on private finance and regulation of infrastructure and utilities. Qualified in law and economics, his experience prior to Castalia includes work on infrastructure, regulation and finance at the New Zealand Treasury, London Economics and Azurix. He is skilled in developing new structures for private investment in public infrastructure, and advises governments on ways to improve policy and organization in infrastructure sectors. 9