Infrastructure - EU toll bridge model
Viaduc de Millau
It all started in 1998 with the Viaduc de Millau in the south-west of France around twenty years ago. Read the Norman Foster Architects description for an elegant write-up of the engineering and architectural challenge.
Its construction (by Eiffage SA, of Eiffel Tower fame) broke several records: it has the highest pylons in the world, the highest road bridge deck in Europe, and it superceded the Eiffel Tower as the tallest structure in France.
It was also financed with a model built by Dominic Robertson at the moment that France was giving up the franc and switching to the Euro, so the model had to calculate and report in both currencies.
Our deep experience in infrastructure was derived in part from the advent of the Private Finance Initiative ("PFI") in the UK in the late nineties. Most of the more than 800 PFI deals were project financed special purpose vehicles single-company entities on 25-year concessions that would revert back to the public sector. Some of these deals were relatively small (£15M-£30M) although some of the hospitals were much bigger. They all required a transaction model to come into being and then subsequently an operating model to navigate through the concession.
Lazuli Solutions has first-hand experience in over 10% of all PFI projects.
Our infrastructure experience also comes from large-scale monopolistic and therefore regulated infrastructure in the UK and across Europe.
The liberalisation of electricity and gas markets has led to parts of the national grids being sold to private investors. These private investors are often linked to pension funds, notably in Canada and Australia.
The Modelling solution is large and complex long-term strategic and operating models that allow the companies to report to their new shareholders.
Here below we describe three large-scale infrastructure modelling projects led by Lazuli Solutions.
Dalmuir Waste Water Treatment Works PFI in the UK
Caruna Oy in Finland
High Speed 1 in the UK
Dalmuir Waste Water Treatment
Dalmuir Waste Water Treatment Works PFI
Dalmuir Waste Water Treatment Works PFI ("Dalmuir") is in Clydebank, owned by Scottish Water and operated by SAUR Services Glasgow.
Scotia Water Dalmuir Ltd, the special project PFI company established by Taylor Woodrow Construction, SAUR (UK) Ltd, Stereau SA, Barr Holdings Limited, Halcrow and Innisfree, achieved financial closure for the Dalmuir wastewater treatment works project in Glasgow on Wednesday 14 July 1999. The project is valued at £50 million.
The project involves the design and construction of a secondary treatment works capable of treating an annual flow of approximately 100 mililon cubic metres per year of sewage to meet the standards required by the Urban Waste Water Treatment (Scotland) Regulations 1994 for West of Scotland Water Authority. Scotia Water Dalmuir Ltd is responsible for the operation and maintenance of works, in conjunction with West of Scotland Water, to meet these criteria for 25 years. Performance is closely monitored by the West of Scotland Water Authority and Scottish Environment Protection Agency.
Scotia Water Dalmuir Ltd’s advisors for this important project were Norton Rose (Legal) and ING-Barings (Financier); its lead bank arrange was Paribas.
Lazuli Solutions began its involvement with Dalmuir in 2008 with the complete design and rebuild of the operating financial model. The primary objectives of this rebuild were to create an update-able financial model for Dalmuir to report to directors, lenders and shareholders. The practical reasons were to free SAUR UK from a previous model that was over-complex and relied too heavily on a series of mysterious macros.
The model was also used extensively for other purposes including questions on tax, the cash reserves, new costs and SWAPs.
caruna oy, finland
Caruna (caruna.fi) is the largest company dedicated to the distribution of electricity in Finland. Caruna provides power to approximately 650,000 private and corporate customers in southern, southwestern and western Finland, the city of Joensuu and the regions of Koillismaa, Lapland and Satakunta.
Electricity distribution network
Caruna's electricity network is nearly 79,000 kilometres long; nearly twice the circumference of the earth.
Caruna’s direct owners are Finnish employment pension companies Keva (12.5%) and Elo (7.5%), as well as international infrastructure investors First State Investments (40%) and Borealis Infrastructure (40%) (now Omers Infrastructure Partners).
To complete the regulatory picture, Caruna’s operations are regulated by the Finnish Energy Authority, in charge of monitoring the electricity network business in Finland.
Towards the end of 2014, and just post-acquisition, Caruna began the process of reporting to shareholders and lenders. To meet this requirement Lazuli Solutions built a long-term strategic operating model in Excel. Features of the model included a multi-company structure, extensive financing and inter-company loans and the obligatory complex regulatory revenue calculations.
Elaborate and extensive regulated operations and a variety of long-term financing solutions provided the core of this long-term and update-able financial model.
Strategic operating model for Finnish electricity distribution company, 2014
Strategic operating model
Caruna Oy (caruna.fi)
High Speed 1
London & South-East, UK
high speed 1, london, uk
In 2012, HS1, the UK company with the concession to run the first piece of high speed rail and connected stations in the UK until 2040, required a suite of operating models to report to shareholders and run the company on a daily basis.
Lazuli Solutions built interfacing models. A Strategic Operating Model for the long-term and an Operating Model for the short-term.
Rail franchise modelling
Regulated rail franchise modelling has its own peculiarities. The requirement for thirteen rail periods per year, as opposed to 12 months. Paths, tariffs and discounts plot the track usage for the franchisee across a series of charges arranged to reward past and future investment and ongoing costs.
Macro-economic indexation underpins all revenue charges and costs.
VAT and working capital play a very important part in describing the company cash flows. Lazuli Solutions introduces the cash flow waterfall with a distinct priority of payments to facilitate the calculation of investor and shareholder reward.
Highly structured finance through a multi-company legal arrangement completes the picture for what has become a standard across regulated and privatised parts of UK infrastructure.
This was going to be a large Excel model or models. Mixing a long-term time-frame with a short-term operating horizon for a business as detailed as high speed rail was not going to work.
The solution was to divide and conquer. Two models but with a common interface. The clear candidate for the interface was the common result to both models: the statutory financial statements.
The short-term operating model would produce a three-year forecast seeded by 2 years of management accounting actuals. The long-term strategic model would use this 5 year base to forecast out 25 years, carrying on from where the short-term model.
Each model would meet the different requirements set by the company directors. But both models would not produce versions of the same, rather do what each did best.
Long-term strategic operating model & short-term operational model for high speed rail franchise in UK.
London & South East, UK
Strategic operating modelling, short-term operating modelling