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NOT Business as Usual--A Statewide Transportation Development Corporation for Maine

NOT Business as Usual--A Statewide Transportation Development Corporation for Maine. By Eva Lerner-Lam, F.ITE, M.ASCE President Palisades Consulting Group, Inc. Presented Thursday, March 6, 2008 Portland Marriott at Sable Oaks Drive South Portland, ME. Today’s Presentation.

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NOT Business as Usual--A Statewide Transportation Development Corporation for Maine

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  1. NOT Business as Usual--A Statewide Transportation Development Corporation for Maine By Eva Lerner-Lam, F.ITE, M.ASCE President Palisades Consulting Group, Inc. Presented Thursday, March 6, 2008 Portland Marriott at Sable Oaks Drive South Portland, ME

  2. Today’s Presentation • Current Situation in Maine • Urgent needs • What’s been considered • Typical PPP alternatives elsewhere in the US • Government-As-Shareholder Model • Definition • How it differs from traditional “PPP” models • Examples from China and the UK • Concept for Maine • Open Discussion

  3. Maine’s Urgent Transportation Needs • Maintain existing infrastructure (deteriorating roads and bridges) • Build new capacity (major bypasses and interstate-like extensions)

  4. Traditional Funding • Fuel taxes • Highway Tolls • Agency Bonds

  5. What’s Been Considered in Maine? • New tolls on existing highways • Increased gas taxes • Fully-privatized, new highways • Long-term leases for operating existing and/or new highways

  6. What’s Been Considered Elsewhere? • Regional Mobility Authorities (Texas) • Private Tollroad Systems (California) • Long-term Leases (Indiana, Illinois) • Availability Payments (Florida) • Public Benefit Corporations (New Jersey) • Public-Private Partnerships • “True PPP”: Government-as-Shareholder (China and UK)

  7. “True PPP” Model: “Government-as-Shareholder” DEFINITION: A for-profit corporation whose Business Mission is to provide infrastructure on a financially-sustainable basis. It can be co-owned by federal, state, regional and/or local governments, port authorities, as well as private investors such as industrial corporations and private equity funds that contribute cash and in-kind services for an equity stake in the company.

  8. Government-As-Shareholder: How It’s Done in China • Government and private sector partner to build and operate transportation infrastructure • Create a new, shareholding corporation • Flexible organizational structures, but governments own at least 51% controlling interest • Financed through investment by governments, banks and other investors • Clearly defined business Vision, Mission Objectives, Strategies and Tactical Plans • Transparency to meet shareholder requirements

  9. Government-As-Shareholder • “Two guys in a garage” analogy • One has the “gee-whiz” technology • The other has the angel investors and the business smarts • They team up and prototype their product • When they get market share and traction, they can either remain “closely held” or “go public” with an IPO

  10. Government-As-Shareholder Concept for Maine: • Government(s) forms corporation(s) to build, operate and maintain transportation infrastructure (highways, ferries, bikeways, busways, etc.) • Revenues are generated from tolls, fares, fiber optic leases, advertising, real estate proceeds, etc. • Each corporation invests in a segment of the adopted statewide transportation plan

  11. Government-As-Shareholder Concept, con’d. • Net income--yes, “profits”--are reinvested or paid in dividends to shareholders, who can do whatever their boards are authorized to do with income • If the venture fails, declare bankruptcy, close the company • If the venture succeeds, consider taking it public with an Initial Public Offering (IPO)

  12. 香港铁路周边综合开发的案例-将军澳Case Study of Integrated Development along Rail alignment in Hong Kong - Tseung Kwan O 宝琳 Po Lam 坑口 Hang Hau 将军澳 Tseung Kwan O 调景岭 Tiu Keng Leng Palisades

  13. 轨道交通主导综合社区发展模型The Conceptual Model of Integrated Development 低密度开发区 无车高密度综合开发区 地铁干道 高密度核心住宅区 400米步行区 地区道路 地区辅路和接驳公交 地铁站 Palisades

  14. China’s New Highways

  15. China’s New Highways • Currently 53,600 km of expressways--the second longest in the world behind the United States, which has 89,000 km • Will build at least 5,000 km of expressways in 2008, bringing the total length of expressways in the nation to almost 60,000 km by the year-end • Last year, 8,300 km of new expressways were built and opened for use across the country--more than the total length of freeways in Japan (7,000 km)

  16. China’s New Highways • In the past five years, China has built 28,000 km of freeways, almost equal to the combined total in Canada and Germany, which rank fourth and fifth in the world • China plans to have 85,000 km of expressways by 2020. • A 35,000-km national highway system that is comprised of five north-south highway trunk roads and seven east-west trunk roads took shape at the end of 2007, 13 years ahead of what was originally planned.

  17. China’s New Bridges

  18. China’s New Tunnels • China has 8,600 tunnels with the length exceeding 4,370 km, ranking the first in the world. • Railway tunnels make up 3,670 km, and highway tunnels total 835 km.

  19. China’s New Railways

  20. Examples of China’s Transportation Investments • The world’s longest sea-crossing bridge (a 36km six-lane highway across Hangzhou Bay) is due to open in June 2008 • Work began in January 2007 on a 1,300km line between Beijing and Shanghai that will be completed in five years’ time. • August 2008, the 115km journey from Beijing to Tianjin, its nearest port, will be reduced to half an hour with the inauguration of a bullet-train link

  21. Examples of China’s Transportation Investments • The world’s highest railway from Golmud to the Tibetan capital of Lhasa, (1140 km), was completed in less than three years. • Since the 1990s China has built an expressway network criss-crossing the country that is second only to America’s interstate highway system in length. By the end of 2007, some 53,600km of toll expressways had been built. The aim is to have 83,000km of expressways by 2020.

  22. Examples of China’s Transportation Investments • The World Bank says that China’s railways carry 25% of the world’s railway traffic on just 6% of its track length. In the past couple of years investment has grown considerably. This year’s target is $42 billion, compared with a total of $72 billion in the preceding five years • Air passenger traffic has increased: from 7 million passengers in 1985 to over 185 million in 2007 Source: The Economist, February 20,2008

  23. Example: China Railway Group, Ltd. 22% 60% 18% • Third largest civil construction enterprise in the world • Ranked 342 in the 500 world's largest enterprises in 2007 by Fortune Magazine

  24. United Kingdom’s “Shareholder Executive” • Created in September 2003 to improve the government's performance as a shareholder in businesses. • 27 government-owned businesses • Advises Ministers and officials on a wide range of shareholder issues including objectives, governance, strategy, performance monitoring, board appointments and remuneration. • Corporate finance resource within government. This is applied beyond the portfolio of government-owned businesses, for example to applications for support under regional and industrial assistance programmes. • http://www.shareholderexecutive.gov.uk/

  25. Sale Model Palisades

  26. Joint Venture Model Palisades Palisades

  27. Compare and Contrast: Asset “Equitization” in China vs. Asset “Monetization” the US • China built its transportation infrastructure in 15 years using government subsidies, yes, but also some fairly pure forms of ENTREPRENEURSHIP and CAPITALISM • Today, much of China’s infrastructure is owned by • Government • Private Investors • General Public as Investors Palisades

  28. Compare and Contrast, con’d. • In contrast, the US built its infrastructure using tax-funded government agencies • As tax cuts are legislated, the infrastructure deteriorates, and its very ownership goes “into play” • Future of infrastructure is uncertain, since financial objectives are not always consistent with public policy objectives • Warning: Investment groups “package” securitized assets and sell them to others in unregulated markets (déjà vu: subprime mortgage crisis) Palisades

  29. A Conceptual Model for Maine Lerner-Lam 2008

  30. Obstacles Same as for other PPPs*: • Understanding PPPs • Philosophical Differences • Resistance to Change • Legislature Control • Organized Labor Concerns • Contractor Concerns *Lynn Weiskopf, NYSDOT, July 2006

  31. Benefits • Government retains majority ownership of asset • Government collaborates with private sector for innovative solutions • “Profit motive” drives efficiency and productivity • Share ownership and IPO potential allows legitimate investment in the venture by outside investors, including equity and other direct investment funds

  32. Questions and Open Discussion www.palisadesgroup.com Palisades

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