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The Road to Ghana:
A Toll Road Infrastructure PPP Case Study
This presentation will probably involve audience discussion, which will create action items. Use PowerPoint to keep track of these action items during your presentationIn Slide Show, click on the right mouse buttonSelect “Meeting Minder”Select the “Action Items” tabType in action items as they come upClick OK to dismiss this boxThis will automatically create an Action Item slide at the end of your presentation with your points entered.Slide2
Table of Contents
IntroductionMajor ProjectsOur MandateWhy Accra to Kumasi roadwayOur ChallengeRoadway DesignProject BenefitsSlide3
Table of Contents
General Benefits of the Tolling RegimeImplementation ConsiderationsTransportation IntegrationEconomic EvaluationUtilizing PPP in InfrastructureRisk AssessmentPolitical and Commercial ChallengesIn ClosingSlide4
Introduction
Road transportation constitutes an integral part of a nation’s developmentIn Africa, roads form one of the most important and valuable public assets as it carries about 90% of its passengers and major access to its rural communities, which forms the food basket of every nation It is all encompassing and pervasive and therefore affects the social, economic, and the political life of every citizen In Ghana, road transportation accounts for 94% of freight and 97% of all traffic movements Good road network will enhance poverty reduction, by Nonor Daniel Ghana Ministry of Transportation September 2006 - © Ghana ChronicleSlide5
Introduction
In the growth of countries such as India and China, we have seen that there is a positive correlation between investment in road transportation and growth and poverty reduction.In Ghana, completed and maintained roads have lead to a20% increase in visits to hospitals, A major lowering of the cost of traveling to market centers, andEfficient delivery of farm produce to urban centers by farmers which empowers them financially and reduces food costs
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IntroductionThe Ghanaian government has undertaken to ensure that transport is used as a means to achieve the targets set under the Growth and Poverty Reduction Strategy (GPRS II) and to achieve the Millennium Development Goals and the attainment of middle income status by 2015Slide7
Introduction
Social and Economic ImpactIn North America, Road Transportation has had a major social and economic impact The United States and Canada developed the Eisenhower Interstate Highway System in the 1950’s and Canada, the Trans-Canada Highway, linking the Atlantic and Pacific
major undertakings that promoted prosperity with a substantial economic benefit that has had a profound long-term economic and social benefit which has changed the face of the United States and Canada and the lives of its people Slide8
Who we are
A Ghanaian corporation comprised of Global companies headed by multi-national seasoned infrastructure and construction industry professionals with diverse experience in all aspects of infrastructure and construction including:Project development,Structural and architectural engineering design,Financing, Construction,Concessions, and
Management and operationsSlide9
Major Projects
Integrated commercial inter-modal urban complexesSlide10
Major Projects
The National Football League Buffalo Bills StadiumSlide11
Major Projects
Power Plants, Dams and pipeline infrastructureSlide12
Major Projects
Commercial and Residential ComplexesSlide13
Major projects
Highway and Bridge InfrastructureSlide14
Major projects
DSC International - Raipur Durg Toll Expressway, IndiaSlide15
Major projects
Universities, affordable housing, houses of worship, schools, hospitalsSlide16
Our mandate
Arterial Toll Road Company Limited was selected by the Government of Ghanato develop, construct and finance an Arterial Highway System and Tolling Regime linking the land-locked African countries to the Port of Accra and to produce the Ghanaian link of the Intercontinental Highway System being planned for the Continent, anddevelop a cost-efficient, user-friendly approach to financing roadways and highways allowing for its individual users, no matter their nationality, to pay the cost of the roadways, without unduly burdening the country’s citizensSlide17Slide18
Why the Kumasi-Accra roadway
Serves:the most economic active area of the country and links the two major commercial centres of Ghana – Accra and KumasiProvides:primary access to the northern parts of the country as well as an international transit route for Ghana’s landlocked neighbours such as Bukina Faso and NigerIts strategic location:makes it one of the most important links in Ghana’s roadway network as it serves the northern, central, western, and southern parts of Ghana, and a major influence on transportation for the almost 20 million people of GhanaSlide19
Why the Kumasi-Accra roadway
Prone to Accidents:over-speeding and inadequate provisions for broken down vehicles have contributed to the high rate of accidents on this road which habours about 38% of the “black spots” (accident prone locations) in the country. Traffic Flow:the existing route of the highway passes through many towns and commercial areas with its inherent traffic delays contributing to a 5+ hour travel time to transverse the 230 Km from Accra to KumasiSlide20
Why the Kumasi-Accra roadway
Proof of Performance:its traffic flow supports an affordable Tolling structure allowing for reasonable tolling rates and the ability to repay debt over a reduced timeframe while providing to the International community Proof of Performance to substantiate the expansion of the dualization of the roadway system under a commercial financial structure without direct government guaranteesSlide21
Our challenge
To design, construct, finance, and operate a dualized highway system and tolling regime that isuser-friendly, for both public & commercial usesafefair as to Tolling for all its usershas continuous Traffic Flow without on-road checkpoints, Tolling stations, and Hawkingeconomical, andan integral component of a unified cohesive transit system for GhanaSlide22
Our challenge
Being the link between the two main commercial centres and the creation of a true DEVELOPMENT CORRIDOR, we are providing for future ’ribboning’ once completed with expected and anticipated SUBSTANTIAL commercial and residential growthSlide23
Design of roadway
A 4-lane urban and rural roadway with town bypasses, flyovers and amenities incorporating and renovating an existing 2-lane roadwayAssociated Facilities for the highway include: restaurants, food stalls, fuel stationsGovernment approved & licensed community stallsRest and convenience stopsaccident and Trauma Centres, withan integrated Bus Intercity Transit systemLandscaping is designed toprevent erosion, improve aesthetics, andcreate natural barriers to prevent unauthorized access to the roadway Slide24
Project Benefits
A value-added faster safer mode of transportation bringing the two major centers of commerce together with over 3 million consumers with a resultantReduction of driving time from 5 ½ hours to 2 ¼ hoursBypassing towns and cities Fuel savings ( >10L PER 100KM)Commercial transportation cost savings including drivers time and salariesReduced food spoilage of transport to urban centresMaintenance, major repairs and insurance savingsMost importantly, major reduction
in accidents and highway deathsSlide25
Project Benefits
Generates revenue for Ghana by providing primary access to the northern parts of the country for goods transportation as well as an international transit route for Ghana’s landlocked neighbours such as Bukina Faso and Niger to the Port at AccraA fair and user-friendly revenue model that provides the ability for financing and continuously maintain the highway system and its benefits (user cost savings > toll rates)Slide26
General Benefits of theTolling
RegimeToll payments are based on type of and amount of usage - commercial vs. residentialTolls are paid by both foreign and local usersGovernments can utilize budgetary funds for other projectsAlleviates and manages traffic congestionProvides funding for ongoing road maintenanceEnables governments to build projects fasterInnovative and
more user-friendlyJob creationNo requirement for Government appropriationsRevenue generatorThe dramatic reduction in the cost of congestion to society in terms of lost time, increased productivity and wasted fuel.Slide27
Implementation considerations
During the process one must consider the following:Legal and structure considerationsFinancing and risk assessmentPublic Awareness, Marketing and Governmental cooperationEnvironmental and social impact monitoring and managementHarmonization of ongoing maintenance, rehabilitation and construction projects on the highway, andSecurity and safety issuesSlide28
Transportation integration
Dualization of the roadway system should take into consideration current and future integration with other modes of transportationThe ability to access bus and/or rail and air travel at future integrated terminals is a goal of an integrated roadway systemAt selected Interchanges of the Roadway, Bus Terminals will be located to allow for an effective alternative to the absence of mass transit between communities and between Accra and KumasiConsideration has been given to the needs of the Railway and Airline sectors, and existing rail lines and airport terminals through discussions with the proper authorities and departments within the governmentSlide29
Economic evaluation
Our studies substantiated that the Accra to Kumasi roadway was viable, practical and necessary after assessing:its overall project and construction costsroad survey, design and engineering studiesa safety audit, environmental and social impact studya transportation and traffic studies of the roadwaythe need for weighing stations to minimize overloadingaffordability of Toll
Ratesthe stability, priority and willingness of the Government the current physical status of the roadway, andthe needs of the communitySlide30
Economic evaluation
In evaluating its feasibility, it was also important to review Ghanaian fiscal, legal, economic and political stabilityGhana’s government is a Constitutional Democracy, supported by a Constitution that has been adhered to stringently by its political partiesGhana’s Legal system is based on English common law and customary law, and Ghana is well endowed with natural resources: oil reserves, gold, timber, diamonds, bauxite, manganese, fish, rubber, hydropower, petroleum, silver, salt and limestoneSlide31
Economic evaluation
Upon completion, the Accra to Kumasi roadway will:provide the Ghanaian people with timely and necessary road infrastructure, and as importantdemonstrate to the international community Proof of Performance through the successful completion of a major dualized roadway corridor including successful introduction of a economically viable Tolling regime using a cost-efficient approach with minimum of riskSlide32
Utilizing Public Private Partnership (PPP) in infrastructure development
Why should a Government utilize a PPP development structure?Public-private partnerships (PPPs) provide flexibility and involve the supply by the private sector of infrastructure and services deriving from infrastructure assets which have traditionally been supplied by the public sector. Although initially there
was a fear by the financial community that such arrangements were initially an attempt to evade expenditure controls and hide public budget deficits. PPPs are now spreading worldwide. They are used in transportation infrastructure, such as roads, bridges, tunnels, rail, air and sea ports; utilities, such as water and electricity supply, sewage, and waste disposal; prisons; schools; and hospitals. Public-Private Partnerships: A Public Economics Perspective – an IMF Working Paper Prepared by Efraim Sadka March 2006 - © 2006 International Monetary Fund This Working Paper does not represent the views of the IMFSlide33
Utilizing Public Private Partnership (PPP) in infrastructure development
PPPs are not normally seen as genuine partnerships as they may not properly or efficiently share risks and liabilities (or profits) and, can be a means to mask conventional contracting undertaking which would normally be subject to standard budgeting processes (undertakings carried out by governments off budget).However, properly formed PPPs have developed into genuine partnerships aimed at properly pricing scarce public resources and efficiently sharing and managing risks.When properly designed and transparently reported, they can play a useful role in enhancing the efficient provision of infrastructure and services that were previously supplied solely by the public sector.Slide34
Utilizing Public Private Partnership (PPP) in infrastructure development
The most common forms of PPP’s are variations of design-build-finance-operate (DBFO) projects, in which a private sector concessionaire designs, builds, and finances a certain facility and then operates them for government, or build-operate-transfer (BOT), in which a concessionaire finances and builds a facility, operates it, and in both cases then transfers it to the government at the end of the concession period. In our case, we are designing, financing, building and operating the Accra to Kumasi roadway over a 30-year Concession.PPP’s play a useful role in enhancing a proper cost-benefit analysis and reducing the likelihood of government building “white elephants”.Slide35
Utilizing Public Private Partnership (PPP) in infrastructure development
With a PPP the private sector is the final “adjudicator” of a project, providing the economic viability of the project calculated at socially appropriate prices.This is a very important aspect of our relationship with the Government of Ghana, where, similarly as in the case of how funding was designated by the Millennium Fund provided by the USA, the private sector determines how funds are utilized in developing the necessary infrastructures. Essentially, all funding properly ends up in the developing, designing and building of infrastructures at much reduced overhead and a minimum of extraneous costs.Slide36
Utilizing Public Private Partnership (PPP) in infrastructure development
PPP’s also play an important roll in enhancing the efficiency of resource allocation. When properly designed, in particular with respect to sharing risks between the public and private partners, PPPs can improve the quality of services previously provided by the public sector without raising their costs to society as a whole.PPP’s show that it is a false dichotomy to believe that only the public sector should develop, construct, own, lease or operate infrastructure.Slide37
Risk Assessment
Ghana has one of the strongest economies in Sub-Saharan Africa. The areas that we concentrated on in our risk assessment were Production, Management , Political Stability and Economic Growth.PRODUCTION - With production starting on new gold deposits, record cocoa harvests and projected oil production, economic activity has been registering positive performance. The expansion of services and increased spending on social programs and government infrastructure should continue to fuel growth this year. Easing inflationary pressures, allows the Central Bank to relax monetary policy, and benefits the economy.Slide38
Risk Assessment
MANAGEMENT – Governmental tight management has facilitated the consolidation of public sector finances, promoted transparency with the institution of Procurement laws and regulations that has enhanced the reputation of Ghana in the international community.POLITICAL STABILITY - Ghana's political stability has facilitated implementation of reforms intended to develop a business environment more hospitable to the private sector.ECONOMIC GROWTH - Ghana is experiencing major economic growth with an anticipated increase in GNP of over 13% in 2011.Slide39
Risk Assessment
Through a PPP, a Concessionaire can mitigate risk though government providing fundamentals such as cash flow guarantees, Sovereign guarantees, Political Risk Insurance, and Currency devaluation guarantees.However, what is important for risk mitigation is assessing the risk rating of the Government, its ability to retain politically stable, the ability of the Government and the infrastructure users to accept the Tolling regime and understand its benefits, maintain a constant revenue stream and MOST OF ALL, the economic and commercial viability of the project.
In our evaluation of our project, which we consider to be the premier toll road project in Sub-Saharan Africa, we decided to take the path of least governmental and IMF resistance, and not include any Governmental or Sovereign guarantees in the Concession and undertake it as a fully commercial project.Slide40
Risk Assessment
The benefits of this structure are self-evident, from both a political and control perspective; still, within our Concession Agreement we have provided transparency and overseer capacity to the Government of Ghana providing the Government with direct input in all of the aspects of the project throughout the Concession Term. And, as important, once it is proven that projects such as the Accra to Kumasi roadway can be seen to be economically viable, providing a true ‘proof of performance’, this will open up Ghanaian infrastructure investment to the International community without affecting the budgetary pressures that Sovereign Guarantees put on a country.Slide41
Political and
Commercial challengesAs is similar in many break-through projects, we meet a number of Political and Commercial challenges:
Politically, the introduction of PPP Concession Agreements to dualize the major arteries in Ghana privatizes major roadways and diminishes the effect of the Ministries that are responsible for and tenders these roadways, creating an inherent conflict of interest which had caused us major technocratic delays and stumbling blocks. Other political challenges included an necessary reassessment of the Ghanaian Highway Act, highway policing and control of Commercial Trucking Weighing Stations to police variances of axle weight
limits.Only ‘true’
political resolve and perseverance can help developers and sponsors overcome these stumbling blocks. Slide42
Political and Commercial challenges
We also had to overcome a number of commercial challenges centering around the reality that there were no financially viable existing major Toll Roads in West Africa with its inherent negative financial preconceptionsOther commercial challenges to be resolved included:Effect of any potential future political unrest, either within Ghana or its neighboursCurrency devaluation and FOREX riskAnd most importantly PPP and Concession Agreements are new to Ghana with no previous experience for Government
to rely on, with preconditioned prejudices against the Private Sector in doing their workInexperience of Government within a PPP process should require Government to retain independent outside advisors to facilitate the Private Sector by reducing timelinesSlide43
Political and Commercial challenges
These challenges cause major delays and timelines that created an unreasonable time loss and risk funding in order to obtain the necessary Government approvals; in that our encompassed two administrations and 8 years; however, the current Government’s political resolve and our perseverance has allowed us to successfully complete the necessary approval processes.It is most important for Developers to be able to internally fund the development phases of a project in-houseprior to receiving the necessary approvals and obtaining Financial Close; and in doing so, the benefits to the Developer can outweigh the risks and provide for Africa its necessary infrastructure.Slide44
In closing
Our Ghanaian experience has shown that with PPPs, the International business community has the ability to help Africa and its Governments help themselves in developing the necessary infrastructure that is so urgently needed to
improve the social, economic, and the political life of every citizen. Slide45
Contact
Information:Howard Hurst, CEO
Arterial Toll Roads Company Limitedhoward@atrcl.com