INFRASTRUCTURE DEVELOPMENT CONSULTANTS

GCC Transport and Railways Conference

Barter for your Railway

Seán McDonnell

October 19, 2011

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 2

• Transport Infrastructure Development Consultants

• PPP Specialists

• Early Stages of Infrastructure Cycle

• Formerly part of CP Rail

• Independent since 1988

CPCS

Solutions for Growing Economies

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Non-Financial Development Incentives

• Canadian Pacific Railway

• Hong Kong MTR

• “Angola Mode”

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Dominion of Canada - 1867

Gov’t Need for Railway

• British Columbia to join Canada if railway built

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Dominion of Canada - 1871

Gov’t Need for Railway

• British Columbia to join Canada if railway built

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Dominion of Canada - 1871

Gov’t Need for Railway

• British Columbia to join Canada if railway built

• Helps stop North-South ties to prairies

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Dominion of Canada - 1871

Gov’t Need for Railway

• British Columbia to join Canada if railway built

• Helps stop North-South ties to prairies

• A route to the Pacific and Asia

• US cancellation of Can-Am Reciprocity Agreement

• Grand Trunk Railway debt

• A better means of settling the prairies

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Pre-Railway Travel Modes

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Railway

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Canadian Pacific Railway Charter

The Deal:

• $25 million fee

• 25 million acres (101,000 km2)

• Granting of extra land for RoW

• Duty-free importation of some construction materials

• Tax-free status on the prairies

• 10-year construction period

• Ability to enter communications field (telegraph and telephone)

• “Completion and perpetual and efficient operation of the railway”

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CP Railway – Working the Deal

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Ready-Made Farms

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CP Railway – Present Day (2010)

• Over 14,600 employees

• $7 billion market capitalization

• $5 billion revenue

• 24,800 track km

• 2.4 million carloads annually

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CP Rail and Canada

The Canadian Pacific Railway:

• Provided the tie to unite the nation politically and socially

• Provided a corridor for east-west trade within Canada

• Provided the means (transportation and organization) and the impetus to settle Western Canada

• Provided an economic link to Asia

• Endures to the present day

A successful Public-Private Partnership on the Barter System

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Hong Kong MTR

• MTRC originally a Crown Corporation (100% owned by Government); privatized in 2000

• Merged with Kowloon-Canton Railway Corporation (KCRL) in late 2007

• Largest shareholder base of any corporation in Hong Kong

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MTR – Rail+Property Model

• Gov’t leases underutilized land to MTRC at market rates

• MTRC develops land with private developers and adds transit to the properties

• MTR makes its money from transit farebox and property management

RAIL TRANSIT ADDS VALUE

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Hong Kong MTR – Success Factors

• Extremely high population density

• Supportive Government planning policy

• Excellent project planning/architecture

• Excellent transit service management

• World-class private property developers

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Hong Kong MTR Results

0

10

20

30

01 02 03 04 05 06 07 08 09 10

Turnover

Farebox

Profit

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China in Africa

• Complementarities between Africa and China

• SSA needs $22b infrastructure investment/yr, and a further $17b/yr for maintenance

0

200

400

600

800Paved …All Roads

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China in Africa

• Complementarities between Africa and China

• SSA needs $22b infrastructure investment/yr, and a further $17b/yr for maintenance

• $10 billion/yr finance gap

• China has accumulated substantial financial reserves

• China’s civil works contractors are world’s largest

• China’s “Going Global” strategy

• Ex-Im Bank has a mandate to promote trade

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“Angola Mode”

Recipient Government

Chinese Contractor

Chinese Resource

Company

ChinaExIm Bank

InfrastructureContract

Resource

Extraction Permit

Construction

Loan

Loan Repayment

"in kind"

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Angola Mode Projects

• $3.3 billion in six projects agreed, underway or completed by 2007

• Lagos-Kano Railway– 1315 km Std Gauge

– 100% Double-Tracked

– $8.3 Billion cost; $2.5 billion Ex-Im Bank loan

• Abuja Mass Transit System– Six million people in Abuja

– Three lines, 105 greenfield km

– $2.0 billion loan

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Drawbacks of Non-Financial Models

• Payment in non-financial terms is inherently more risky

• Due diligence can be expensive

• Payment medium is either non-portable or more difficult to transport than money

• Non-monetary payment medium can reduce interest in contract

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Conclusions

• Non-financial payment terms can be attractive where:

– Project proponent is resource-rich and cash poor

– There are better uses for financial resources

– The location is tied to the service (e.g. Transit)

• All project elements must be in place

• Government must be supportive

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The End

Thank You

Seán McDonnell

VP, International

CPCS

smcdonnell@cpcstrans.com

www.cpcstrans.com