ADMINISTRATIVE REPORT

Date: May 14, 2002
Author/Local: Carli Williams/604-871-6422

RTS No. 02683

CC File No. 5558

T&T: May 28, 2002

TO:	Standing Committee on Transportation and Traffic
FROM:	General Manager of Engineering Services
SUBJECT:	Public Private Partnership Review - Downtown Streetcar

RECOMMENDATION

A. THAT Council receive the report titled, "PPP Review of Vancouver Streetcar Project" and refer it to the public for comments;

B. THAT Council authorize staff to seek a Project Advisor, consistent with the Terms of Reference given in Appendix A, in order to pursue a cost effective work program for advancing work on the Downtown Streetcar;
C. THAT staff report back with a recommended Project Advisor, including budget and source of funds, for Council approval; and
D. THAT Council authorize the General Manager of Engineering Services to begin discussions with TransLink to explore issues related to service integration and fare allocation for the Downtown Streetcar.

COUNCIL POLICY
The City of Vancouver Transportation Plan (1997) supported the use of transit in meeting our future transportation growth needs.
Council supports establishing and preserving streetcar corridors in the False Creek area and Downtown.
Council has established that planning for the Southeast False Creek as a demonstration project for a sustainable community that includes a potential streetcar service.
The City has consistently supported the introduction of a demonstration electric rail transit service along the south side of False Creek, with the potential of providing regular service linking the high employment, residential and activity nodes in and around the Downtown core.

Council directed staff (March 1999) to "report back on a proposed work program and funding requirements to undertake detailed design and cost analysis of Phase One and Phase Two" of the streetcar.

PURPOSE
The purpose of this report is to present the "PPP Review of Vancouver Streetcar Project" completed by Macquarie North America and Jane Bird (the Consultants). The Consultants' report examines the feasibility of funding the Streetcar as a Public Private Partnership (PPP) and makes several recommendations for further work to be done in order to advance the project. Copies of the complete Consultants' report are available for review in the City Clerk's office (limited distribution).

BACKGROUND
The Downtown Heritage Railway initiative, in conjunction with a variety of progressive transportation services, further solidifies Vancouver as a world class city. Its purpose is to link a number of activity centres in the Downtown (residential, employment, tourist, shopping, etc.) which have expanded the core beyond comfortable walking limits. As a transportation service, it will provide a transit alternative to the automobile for commuters, tourists, shoppers and a variety of other users. Another vital feature is that it will link into other transit services, such as SeaBus, SkyTrain, West Coast Express and regular bus services to provide a seamless transit network.
To further these objectives in the short term Council has approved the development of a demonstration line from Science World to Granville Island. This line operates two historic interurban rail vehicles, using volunteers on Saturday and Sunday afternoons during the summer months. The demonstration line is popular and enjoys support from local residents, tourists and the broader community.
While the demonstration line has enjoyed short term success, there is a medium to long term vision to expand and integrate the streetcar system into the transit network serving the Downtown area. In response to a 1998 consultant study, Council endorsed a routing from Granville Island to Waterfront Station via Quebec, Columbia and Cordova Streets as Phase I, and a general routing from Science World to Roundhouse Community Centre, along Pacific Boulevard and Davie Street, as Phase II of the Downtown Streetcar system.

In July of 2001, Council approved the retention of Jane Bird to review Public Private Partnership options for the development of the Downtown Heritage Railway (Downtown Streetcar). The findings of this review are outlined in this report.

DISCUSSION
One of the key findings of the Consultant's report is that the Downtown Streetcar does have the potential to be developed as a PPP. This conclusion is due mainly to the high levels of expected ridership for the system and the self-contained, stand alone nature of Streetcar operations. However, in order to advance the project as a PPP and seek a potential partner, further work must be done in order to evaluate this project as a PPP versus as a public sector project. It will also be important to share the report with the public in order to receive feedback on its assumptions and recommendations. The Consultant's report makes the following recommendations:

· project definition and policy analysis is required in order to select the most appropriate PPP model for the delivery of the project;
· the City should determine the availability of capital and operating funding, including the opportunity for grants from senior levels of government;
· further ridership analysis is required, especially in the area of tourist ridership, prior to seeking a private partner;
· further analysis regarding phasing options, corridor selection and engineering specifications is required prior to seeking a private partner; and
· any funding or operating agreements with Translink should be agreed to before private sector partners are solicited;

There are several different models for a PPP project such as the Downtown Streetcar. Each of the models differ in the type of government contribution (i.e. up-front capital, operating subsidies) and defining the roles of the private partner (i.e. design, ownership, maintenance, operation). For example, an up-front capital contribution generally is cheaper and fits better into the standard government budgeting process but it often results in less control over the private partner in the future. However, operating subsidies, while more expensive, can provide greater value in the level of control and incentive that governments can provide. One of the primary roles of the Consultant was to develop a financial model that would describe the differences with each type of government contribution.

Table 1 shows a summary of the financial model that was generated in the Consultant's report. In order to develop a financial model, the Consultant used previously estimatedconstruction costs increased to allow for inflation, financing and ridership ramp up. Assuming that a private partner would retain all revenues from the fare box, Table one shows the Government contribution that would be required in order to make the Streetcar viable as a PPP. The table models two scenarios, one where the contribution is provided as a one-time, up-front capital cost and the other where the contribution is in the form of an annual operating subsidy. The report goes into more detail and also models scenarios that combine and up-front with annual operating contributions. The numbers given are estimates and it will be through more work, as described in this report, that staff are able to further evaluate the benefits and risks of a PPP.

		Estimated Government Contribution as Up-front Capital Contribution		Estimated Government Contribution as Annual Operating Subsidy
		Average Commuter fare=$1	Average Commuter fare=$1.50	Average Commuter fare=$1	Average Commuter fare=$1.50
Route	Capital Cost	Average Tourist fare=$2	Average Tourist fare=$2.50	Average Tourist fare=$2	Average Tourist fare=$2.50
Granville Island to Waterfront	$ 43 m	$ 25 m	$11 m	Year 1-10 = $4.1m Year11-20=$2.6m Year 21-30=$1.1m	Year 1-10 = $1.7m Year11-20=$1.4m Year 21-30=$1.1m
Granville Island to Waterfront and to Roundhouse	$59 m	$ 48 m	$ 32 m	Year 1-10 = $8.2m Year11-20=$6.6m Year 21-30=$5.2m	Year 1-10 = $5.2m Year11-20=$4.6m Year 21-30=$3.3m
Granville Island to Stanley Park	$ 66 m	$43 m	$ 22 m	Year 1-10 = $7.3m Year11-20=$5.8m Year 21-30=$4.7m	Year 1-10 = $3.6m Year11-20=$2.9m Year 21-30=$2.3m
Granville Island to Stanley Park and to Roundhouse	$ 82 m	$ 50 m	$ 23 m	Year 1-10 = $8.6m Year11-20=$6.9m Year 21-30=$5.5m	Year 1-10 = $3.9m Year11-20=$3.1m Year 21-30=$2.5m

Table 1: Summary of Financial Model

In order to better understand a PPP at all the stages, the Consultant's report gives several examples of projects around the world and explores their differences and what has made them effective. The report examines the Portland Streetcar, Croydon Tramlink, Manchester Metrolink and Melbourne Trams. Each of the case studies involved the private sector in different roles and all of the systems are light rail intra-urban systems. The case studies not only help to clarify the PPP process, but each of the Consultant's recommendations reflect the expertise gained by examining each case study.

One of the challenges in advancing work on the Streetcar while evaluating the potential for a PPP, is determining at which point it is most advantageous to seek a private partner. This report recommends that Council approve the retention of Project Advisor (consistent with the Terms of Reference given in Appendix A) in order to provide expertise in this area. The Project Advisor will be able to assist in determining the scope of any potential PPP relationship and the scope of work that could be shared between the City and a potential private partner. Another role of the Advisor will be to create confidence with the private sector. The City has limited experience with PPP's, particularly related to the developments of a transit system.

It is suggested that staff engage a Project Advisor, experienced in advising government on P3 process, to advise the City and perform the work outlined on the attached terms of reference. Staff will report back with a recommended Project Advisor, including a budget and a source of funds, for Council approval.

In addition to the work of the Project Advisor, the Consultant's report recommends that any funding or operating agreements with TransLink be determined before seeking a private partner. This report recommends that Council authorize the General Manager of Engineering Services to begin discussions with TransLink regarding any potential agreements relating to the Downtown Streetcar. In particular, it will be important to explore issues of fare allocation and service integration. Both of these issues are important factors in the cost and operation of the Downtown Streetcar and need to be determined prior to entering into any PPP relationship.

CONCLUSION

According to the Consultant's report the Downtown Streetcar has the potential to benefit from a Public Private Partnership. In the meantime, the Consultant's report needs to be shared with the public in order to solicit their feedback and comments. It is recommended that Council authorize staff to seek a Project Advisor in order to establish the scope of work required to pursue a potential Public Private Partnership and that discussions begin with TransLink to discuss fare and integration issues. Staff will report back with a recommended Project Advisor including budget and a source of funds.

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APPENDIX A

Terms of Reference: PPP Project Advisor: Downtown Streetcar

The Financial and Commercial Adviser will be required to provide the full range of financial and commercial services to the Downtown Heritage Railway Project regarding PPP delivery including:

_ Analyse commercial and economic features of the project;

_ Analyse technical features of the project relevant to PPP delivery;

_ Gain an understanding of Stakeholder objectives from the project;

_ Assist in Stakeholder and public understanding of PPP delivery;

_ Assess funding options for the project;

_ Assess financing strategies for the project - government financing sources and commercial financing;

_ Refine output specifications into a clear and measurable form and link the output specifications to the payment mechanisms;

_ Develop a clear, robust payment mechanism that provides the greatest performance incentives for the contracting parties;

_ Complete a risk analysis of the project, and update it at key stages of project development to include risk identification, assessment and allocation;

_ Manage ridership consultants and other relevant consultants;

_ Define options for PPP scope and recommend a preferred option(s);

_ Identify potential private sector bidders;

_ Run a PPP seminar and assess private sector appetite for the preferred PPP scope;

_ Review and comment on the PPP delivery process in the Macquarie Report (in particular the budget and the scope of work of the in-house team);

_ Assist in developing governance structures for the projects;
_ Assist in defining the project delivery structure (teams, workgroups, responsibilities);
_ Assist in the interface between the project procurement process and other Governmental agencies private sector procurement policies, budgeting and tendering requirements;
_ Involvement in stakeholder and community consultation as required;
_ Financial modelling, including risk valuation and sensitivity analysis;
_ Develop, refine and implement an appropriate public sector comparator;
_ Establish and communicate clear objectives for the PPP process;
_ Develop an evaluation process and structure;
_ Develop evaluation criteria;
_ Interface with probity consultants in respect of design of the tender process;
_ Advise on the preferred tender strategy and process and implement the agreed process;
_ Assist the legal advisor in drafting basic concession documentation;
_ Identify project specific features of the documentation;
_ Draft EOI/RFP/RFT documentation as required in consultation with the legal advisor;
_ Manage the bidder marketing and information process, including establishment and management of any data rooms, bidder information sessions and manage the flow of information between bidders and the development team;
_ Advise on and evaluate private sector proposals received and participate in negotiations with the private sector as required;
_ Monitor the tender process and advise if at any point objectives are unlikely to be met. Advise on fallback strategies; and

Any other services as required.

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