To begin with, I would like to examine the financing and commercial structure of the proposed airport redevelopment project and why we believe that a public-private partnership, also known as a PPP or P3 model, is an attractive solution for Bermuda.

What is a public-private partnership? As the term suggests, it is at its heart a partnership between the public sector and the private sector, to which each party brings its greatest strengths, and where the private sector assumes a significant share of the risk.

Throughout the world, the private sector is becoming more involved in developing infrastructure solutions this way and Aecon has been a driving force in similar, important projects in Canada and around the world. These projects work well because they draw on and combine the strengths of all partners. They capitalise on the expertise and innovation of the private sector — companies such as Aecon — the discipline and accountability of capital markets (lenders, investors and equity partners) and ensure that governments are able to focus on protecting the public interest.

Benefits of this approach include:

• Majority of the risk is assumed by the private sector

• Ability to borrow funds without adding to Bermuda’s national debt

• Bermuda will continue to own and regulate the airport

• P3 model is a proven delivery mechanism, shown time and again to bring value for money over traditional procurement approaches

On top of the benefits of a P3 model, Bermuda’s project is substantially enhanced by the government-to-government approach brought by the Canadian Commercial Corporation, a Crown corporation, which brings a guarantee that the contract will be delivered per the agreed terms and conditions, including agreed timelines, quality and cost. Canada’s “AAA” credit rating stands behind CCC and will also help the project to secure an investment-grade credit rating for its financing. In practical terms, Aecon will play a pivotal role as developer, financier, investor, constructor and operator, and will ensure that the airport is maintained to an agreed standard through a specially created Bermudian project company, whose employees will be predominantly Bermudian. The new terminal and other works will not be financed by Bermudian taxpayers, but on a “user pay” principle; that is, financed by airport user fees and charges, which will go towards operating expenses and repayment of debt — similar to other P3 airports around the world and projects such as toll roads, bridges and tunnels in the United States, Canada and Europe.

In the P3 model, the private sector partner, not the taxpayer, stands behind capital costs and 30 years of operating costs. This is the primary vehicle for delivering value for money. Construction costs for the new terminal are locked in at financial close, together with the risk of delays and cost overruns, and then wrapped by Canada. The risks of long-term operating and maintenance costs are similarly transferred, together with the ability of the private partner to manage airport revenues to pay for such costs.

The project’s financing is indeed supported by a minimum-revenue guarantee by Bermuda, a mechanism designed to attract competitive financing rates and to comfort lenders against events such as economic shocks; it is not offered, nor permitted to be used in any way, to secure Aecon’s profits. The minimum-revenue guarantee is a contingent instrument, not a source of funding. And if guarantee funds are ever contributed, they may be applied only towards serving debt — debt that has been used to build Bermudian-owned infrastructure. In return for this investment, Bermuda would be entitled to a significant share of upside revenues.

The private sector financing model brings with it many stringent safeguards to protect the project’s integrity and the public interest. Lenders will have a set of financial and performance covenants in place to ensure the project is built and operated to the highest technical and environmental standards, and responsibly managed, failing which they will be able to step in to make required changes. This is yet another feature of the P3 model that aligns with and protects the interests of Bermuda.

The tailor-made collaborative development process crafted for the airport is already bearing fruit. For example, while the 2008 master plan estimated the new terminal would cost $514 million, our preliminary scoping and budgeting exercise indicates that we can deliver and privately finance the terminal project for approximately $250 million — without skimping on quality or operational necessities. The price optimisation is a result of an open, collaborative exercise with Bermudian stakeholders, and a more practical design concept, which lowers development cost without compromising standards. This is one of the values we bring to the table. Costs are aligned with the project and future revenue-generating capacity of the airport.

Any asset that generates its own income stream can be leveraged to finance improvements to that asset. The airport P3 is no different. As long as the projected revenue is enough to repay investments, and costs are fixed, the project is viable and can be implemented without the Government having to incur debt. Project lenders and investors also generate their return through the airport’s regulated and commercial revenue stream over a limited period of time, not government payments, and have no legal ownership whatsoever over the assets.

Their risk and return is related to the long-term performance of the revenue stream generated from the fees, airport concessions and other related revenues.

Major P3 project risks, such as design changes and construction cost overruns, are assumed by CCC and Aecon, who are contracted to complete the construction. The fixed sum of money, which is agreed upon the signing of the contract, is the total amount that will be paid to the contractor, regardless of any unexpected costs, hence the incentive to deliver on time and on budget, which is the essence of P3 projects.

The revised 2008 master plan stating the case for a new airport indicated that the existing terminal would reach the end of its lifespan in 2008. It’s now on borrowed time.

We are eager to move forward and finish what we do best: delivering a solution to Bermuda’s infrastructure needs. We have decades of experience around the world, and we would like to apply our best talents to Bermuda’s airport.

We welcome the opportunity to hear from Bermudians. Please feel free to ask questions on our Facebook page at Aeconbermuda.

•Steve Nackan is the president of Aecon Concessions and this is the second in a series of monthly articles scheduled to discuss the proposed redevelopment plans for the L.F. Wade International Airport