Infrastructure and Public-Private Partnerships in Canada Embassy

Infrastructure and Public-Private
Partnerships in Canada
Embassy of Canada
Tokyo, 2015
Blair Cowper-Smith
Chief Corporate Affairs Officer
Not for re-publication, citing or external use
We are OMERS: One of Canada’s Largest Pension Plans
451,000 Members
81 Members over 100
974 Employers in
municipalities
35 Unions and
associations
• Ontario Municipal Employees Retirement System – Serves Municipal Workers in Ontario
• Ontario is the largest province in Canada and comprises approximately 1 million square kilometers
• OMERS was created in 1962 and is a jointly sponsored and jointly managed pension plan
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Investor in Infrastructure, Private Equity, Real Estate & Capital Markets
Private Markets
Public Markets
2014 gross return of
11.1%
2014 gross return of
13.4%
Net assets $40.7B
Net assets $12.7B
2014 gross return of
16.0%
Net assets $6.7B
2014 gross return of
8.7%
Net assets $11.8B
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We Build Strong Community Partnerships
Teranet
Bruce Power
LifeLabs
Serves more than
81,000 end users, 34
real estate boards and
over 250
municipalities/
institutions
Provides ~30 % of
Ontario’s energy
(2014)
Critical service
delivered across
Ontario:
- 240 collection centres
- 17 sessional locations
- 8 testing facilities
- 60 hospitals supported
- 6,800 physician
offices
Powers more than 1 in
4 hospitals, homes,
schools, businesses
with clean, affordable
energy
High quality jobs in
Bruce County
Hospitals
William Osler Health
System
Royal Ottawa Health
Centre
St Catharine's −
Niagara Health System
Facilities providing
healthcare to over 1.5
million Ontarians
2.5M square feet with
over 1,000 beds
Husky
Leading supplier of
injection molding
equipment and
services
Over 40 service and
sales offices
MTCC North
Convention Centre
255 Front St W Toronto
Fully accessible,
barrier-free
Green-awarded building
Over 4,000
employees
Significant expected
economic benefit to the
City of Toronto in 2014/15
Supports customers
in over 100 countries
Creates thousands of jobs
per year
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Global Investment – London, New York, Sydney Offices
NET4GAS
Czech Republic
Gas transmission
operator
Network of more than
3,800 km of highpressure pipelines
Joint ownership with
Allianz
Caruna
Finland
Ellevio
Sweden
Leadenhall London
Vue Cinemas
across Europe
More than 1,350
screens across 150
multiplex cinemas
Regulated electricity
distribution utility serving
southern, south-western,
western and northern
Finland
Most recent infrastructure
acquisition by OMERS
Office tower in downtown
London
Serves Nordic and Baltic
countries
610,000 square feet
47 floors
The country’s largest
electricity distribution
network
Joint ownership with GSIA,
Folksam, and Swedish
Pension plans AP1 and AP3
Joint ownership with British
Lands
Joint ownership with
AIMCo
Joint Ownership with GSIA,
Keva, and Elo
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Building for the Future
We invest globally
Total Assets $72B*
Rest of the
World 10%
We have a significant
appetite for
Infrastructure looking
ahead
We are growing
$100B+
$72B
Canada 45% Europe 25%
US 20%
2014
Typical private markets
leverage 50% +
*Total Assets includes the four divisions on the previous slide plus third-party assets we manage and other divisions not labeled here
2019 target
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P3 in Canada
Background
and History
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Highly developed P3 market in Canada since 1990
Canadian jurisdictions leveraged UK experience
with PFI
Alternate form of procurement based on a
contractual long-term arrangement with private
sector investors and suppliers
Fundamental principles
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Comprehensive fixed price solution in the hands of
one party
Transfer risk to party best able to manage the risk
Create strong accountability environment
Competitive procurement brings innovation and
strong focus on price
P3 in Canada – Key Principles
Importance of
public/government
champions
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Private sector DBFOM responsibilities – whole life
Government retains ownership
Transportation, hospitals, schools, court houses,
bridges, power, environmental
Private sector provides finance and equity 90/10
Fixed price turn key
Long duration – often 30 years
Retained risks – contamination, land acquisitions,
artifacts, force majeure
Right to terminate for supervening events
Specified turnover standards at completion
independent certification
Lender step in rights
RFQ/RFP Process
“A recent survey by
KPMG found that, in
projects procured
since 2007, the time
from release of
tenders to financial
close has fallen to
approximately 16
months.”
KPMG. PPP Procurement. Review of Barriers to
Competition and Efficiency in the Procurement
of PPP Projects. May 2010.
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Typically three teams in the final round post RFQ
Highly detailed specifications
Teams must provide committed financing and a
fully developed solution
Decisions reflect NPV
Standardized contracts and terms
Bidding costs in the range of 0.5-1.5% including
subsidies
(Canadian Council for Public-Private Partnerships “What the World Can Learn From Canada” pg. 16)
P3 in Canada
– Financing
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Royal Ottawa
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Equity components 8% range – slightly less for
operating phase; debt 90% +
Minimum debt service coverage before
distributions
Credit ratings A- or BBB
Secured privately placed fully underwritten
amortizing bonds with reserves
Issued for lifecycle term into institutional market
Insurance companies, pension plans and some
asset management firms
Recent pricing 180-200 bps spread
Bank construction financing
New Issue Spread Trends
P3 new issue spreads tightened considerably over the last 5 years; however, spreads widened this
summer on the back of multi-billion issuance as well as general market conditions
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Source: Scotiabank Global Banking and Markets, Canadian P3 Primer, September 2015.
Purchasing P3 Debt – OMERS Analysis
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Jurisdiction stability
Functioning legal system
Importance of the P3 project
Demographics
Contractor/builders experience – union contracts expiry dates,
experience
Construction complexity
Complexity of the corporate structure
Use of leverage
Coverage ratio and reserves
Topography, seismic, weather
Return sufficient to accept risks
Duration, credit ratings and spreads
Alternatives for fixed income portfolio
Canada’s Largest Public-Private Partnership – Bruce Power1
• Bruce Power is largest operating nuclear facility in the
world at 6300 MW
• Joint venture between Province of Ontario and Bruce
Power underpinned by long-term lease enabling
operation and refurbishment by Bruce Power
• OMERS, TransCanada, Power Workers’ Union and
Society of Energy Professionals own Bruce Power
• Up front payment to government from private sector
• Transfer of operational risk and capex requirements to
Bruce Power
• Candu technology − 2 Stations A and B and 8 units
• Independent safety regulator
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1Bruce
Power joint case study – August 2015 – Canadian Council for Public-Private Partnerships and Bruce Power
Key Attributes of this Public–Private Partnership
“In 2002, the first full
year of operations for
Bruce Power, the Bruce
Power site produced
just over 20 TWh of
electricity, in 2012
35TWh and in 2013 just
over 45 TWh”
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• Investing in publicly owned assets through a joint
venture
• Funding of long-term liabilities including
decommissioning
• Opportunity to strengthen operational and related
performance
• Provincial policy goals met
• Economic impact significant
• Competitively priced electricity generated for the
people of Ontario
• Public confidence and support
• People and jobs positively impacted
Ongoing Improvements, Upgrades & Investment by Bruce Power
• Since 2001, Bruce Power has invested $10B in site improvements which has
gone straight into the Ontario economy including restarting 4 units removed
from service in the 1990s
• Units 3 and 4 restarted in 2003/04
• 2005 agreement to refurbish Units 1 and 2 and sell generation to Ontario
• 2007 first steam generator ever to be replaced in Candu reactor
• 2010 – employees achieve 22 million injury free hours
• 2013 all eight units operating – largest operating facility in the world
• 2014 producing 30% of Ontario’s power (6300 MW carbon free)
• 2400 MW of flexible generation
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People and the Community
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In 2001 there were a total of 3,130 employees
By 2014 employment had risen to 4,091 employees
Rejuvenation of younger employee segment with 33% now under 35
Numerous awards for being a top employer including being named as
“Most Admired Corporate Culture” by Waterstone Human Capital
• Support and alignment with neighboring communities
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Further Renewal at Bruce Power after 2015
• Provincial policy goal to phase out coal which is now complete
• Affordable power with long-term price stability well below the average
price in Ontario
• Next stage of refurbishment as contemplated by the Ontario Long-Term
Energy Plan will see significant positive economic impact through jobs
and capital expenditures stretching over many years
• Price of electricity from Bruce Power is $64 MW under the generation
contract with OPA (which compares to solar in Ontario of $498 MW)
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Bruce Power – a successful long-term P3 arrangement in the Province of Ontario
serving the interests of the public
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