Transcript Deloitte template - The Energy Roundtable

Financing in the Canadian
Power Sector
Michael Badham, Partner
September 20, 2004
The Canadian Economy Profile
Key Economic Indicators / Drivers
Real GDP
Ontario GDP by Industry, 2003 (in $1997)
1,200,000
5.11% 1.90%
1,000,000
($ millions)
Primary
5.10%
Manufacturing
21.12%
5.37%
800,000
Construction
Utilities
4.17%
Transportation & Warehousing
600,000
Information & Culture
7.62%
400,000
4.94%
Finance, Insurance & Real Estate
200,000
2.30%
3.79%
0
1999
2000
2001
2002
2003
C anada
Quebec
Ontario
Health Care & Social Services
Ontario Economy
Real growth, 2003
Nominal GDP, 2003 ($ millions)
% of Canada
Personal Income ($ millions)
% of Canada
Personal Income Per Capital ($)
Ontario
Canada
CPI Inflation 2003
Unemployment Rate 2003
Ontario Total Trade 2003 ($ millions)
Exports
Imports
Trade Balance
Source: Government of Ontario
Financing in the Canadian Power Sector
Public Administration
BC /Alberta
12.25%
Source: Statistics Canada
Professional & Administrative Services
Education
4.38%
21.95%
2
Wholesale & Retail Trade
Other Services
Source: Government of Ontario
1.3%
493,416
40.6
381,005
41.1
31,133
29,341
2.7%
7.0%
Canadian Inflation
15%
12%
9%
6%
3%
308,903
269,745
39,158
TARGET LEVEL
0%
1974
1978
1982
1986
1990
1994
1998
2002
Source: Statistics Canada
© 2004 Deloitte & Touche LLP and affiliated entities.
Opportunity in the Power Supply Market
• By 2014 demand could reach 32,000
MW.
Energy Production in Ontario
By Fuel Type
Gas, 7%
• Total capacity connected to the grid is
30,501 MW.
C oal, 22%
• Accessible capacity is 27,500 MW.
Typical demand is 25,000 MW.
Ontario Opportunity Through 2014
32,000
Demand
2,000 MW
11,600 MW
24,000
16,000
Nuclear
Hydro
Gas
Non-Hydro Renewable
2014
2013
2012
2011
2010
2009
0
2008
8,000
2007
• Need: To met demand and replace
coal, 11,600 MW in new generation
capacity by 2014.
Source: IMO
2006
• Target: By 2010, 10% (+2,000 MW) of
power will come from renewable, nonhydro sources.
Hydro, 24%
2005
• Commitment: Eliminate coal generated
electivity by 2007.
Nuclear, 46%
(Capacity - MW)
• Goal: Refurbish, rebuild, or conserve
25,000 MW of generating capacity by
2020.
Other, 1%
New Renewable
Coal
Source: IMO
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Financing in the Canadian Power Sector
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Opportunities
Bruce Nuclear Plant
Government Supply
Objective: Start-up Units A 3&4
Objective: To build non-hydro renewable
energy of over 2000 MW by 2010
Capacity: 750 MW X 2
Cost:
$1.5 b - $2.0 b
Capacity: RFI for 2,500 MW recently
released
Government Supply
Opportunity: Niagara Falls Hydro Plant
Objective: To provide +300 MW of nonhydro renewable energy
Objective:
Additional Diversion Tunnel
Capacity:
100 – 200 MW
Capacity: RFP (Closed August 2004)
Cost:
+$300 mm
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Financing in the Canadian Power Sector
© 2004 Deloitte & Touche LLP and affiliated entities.
The Value Environment
Public Partner
Government of Ontario
Financing
Partner
Dundee
Project
Engineering
Partner
Aecon
Advisory Partner
Deloitte / FMC
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Financing in the Canadian Power Sector
© 2004 Deloitte & Touche LLP and affiliated entities.
The Trend Towards Private Public Partnerships
Degree of Risk Transfer to Private Sector
Low
Privatization
Hwy 407
High
Design/Build/
Finance/Operate
Confederation
Bridge
Sea to Sky Hwy
Private
Debt/Equity
Design/Build/
Operate
Contract
Out
Bruce Power LP
Design/Build
NAV Canada
Special Operating
Agency
GTAA
Crown
Corporation
Ministry/
Department
1996
1997
1998 ...
2003
2004
Source: The Canadian Council for Public-Private Partnerships
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Financing in the Canadian Power Sector
© 2004 Deloitte & Touche LLP and affiliated entities.
The Deal Maker – Risk Transfer
Form
Optimal Structures
Ministry /
Department
Crown
Corporation
Design /
Build
Contract
Out
Design/Build/ Design/Build/
Privatization
Operate
Finance/Operate
Risk Transfer
(Government to
Private Sector)
High
Incrementally
Assumed Risks
Low
Policy Risk &
Approval Risk
Regulatory
Risk
Revenue
Risk
Credit
Risk
General Market
& Economic Risk
Total Project Finance Risk
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Financing in the Canadian Power Sector
© 2004 Deloitte & Touche LLP and affiliated entities.
Determining the Investment Opportunity
Revenue Inflow
• User / Service Fees
• Ancillary Charges
Bidder
ROI
Private
Sector
Funding
Technical
Inputs
•
•
•
•
•
Construction
Development
Advisory
Engineering
Other
• Debt Service
• Equity Return
• IRR Target
•
•
•
•
Operating Costs
Capital Costs
Financing Costs
Taxation Costs
Cash Outflows
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Financing in the Canadian Power Sector
Financing
Public
Sector
Funding
Government
Risk
Transfer
© 2004 Deloitte & Touche LLP and affiliated entities.
Considering Public Sector Value for Money
Cost
•
•
•
•
•
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Opportunity Cost Risk
Efficiency Risk
Credit Rating Risk
Quality Risk
Rate Setting
Financing in the Canadian Power Sector
Costs under private
delivery must be
less to warrant use
of private financing
Risks
Competitive Neutrality
Risks and Efficiencies
Raw Costs/Revenues
Raw Costs/Revenues
Retained Cost/
Revenues
Retained Cost/
Revenues
Public Delivery
Private Delivery
• Higher Financing
Costs
• Rate of Return
© 2004 Deloitte & Touche LLP and affiliated entities.
Opportunity Assessment
Public Sector Considerations

Go / No Go Decision 
Transaction Process 
Contract Execution 
Implementation

Private Sector Considerations

Bid / No Bid Decision 
Bid Development

Contract Negotiations
Project Planning
Bid Assessment
Post Transaction Development 
Success Factors
• Implementation of any procurement
process must consider public sector issues
around
• Transparency and fairness of process
• Public opinion / mood
• ‘Bidabilty’ and bid costs
• Requirements and realities of capital
markets
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Financing in the Canadian Power Sector
• Private sector wants opportunities that:
• Have a clearly articulated need
• Commitment from public sector to
work with private sector and a strong
‘champion’ of the project
• Credible processes in place
• Clear performance standards
© 2004 Deloitte & Touche LLP and affiliated entities.
An Action Plan for Canadian P3 Opportunities
Establish Canadian
presence to monitor
developments in key
market places
 Ontario
 BC
 Alberta
 Quebec
Assess needs in
comparison to skill sets
and capabilities – i.e.
determine partnering
needs
 Engineering
 Finance
 Advisory
 Supply
Present opportunities to
selected provincial
governments in areas of
need
 Confirms interest
 Leads to ‘front-end’
policy development
Be proactive –
do not wait for the opportunities to come to you.
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Financing in the Canadian Power Sector
© 2004 Deloitte & Touche LLP and affiliated entities.
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