This article appeared in Finance Magazine

Diary of a deal: the N4/N6 Kilcock - Kinnegad Motorway
Eamonn O'Hanrahan and Colm Fanning detail the events that led up to the financial close on March 24th, 2003, of the first roads public private partnership project - the Kilcock-Kinnegad motorway.
The flagship NRA Public Private Partnership (PPP) project - the 39 km N4/N6 Kilcock-Kinnegad motorway - achieved financial close on March 24, 2003, when the transaction documents were signed at the offices of McCann FitzGerald. This constitutes the most significant PPP project concluded in Ireland to date and represents a key milestone in the NRA PPP programme, both for the NRA and its adviser team consisting of McCann FitzGerald/Freshfields Bruckhaus Deringer (legal), KPMG Corporate Finance (financial) and Babtie Group (technical).

Financial close was the culmination of a procurement competition designed to deliver for the State the most economically advantageous offer to design, build, operate and finance the construction, operation and maintenance of the road. It also was the finalisation of a complex and multi-faceted transaction, involving various constituencies ranging from State agencies to contractors to financiers.

What is the N4/N6 Kilcock-Kinnegad motorway project?
This project involves the construction of 39 km of motorway from Kilcock to Kinnegad and is an extension of the Leixlip - Maynooth - Kilcock motorway on the N4/N6 road. The new motorway will by pass the towns of Kinnegad, Clonard, Moyvalley and Enfield.

Essentially, the PPP contract signed with the concessionaire (Eurolink Motorway Operation Limited) requires the design, building, finance and operation of the new motorway. The period of the concession is 30 years during which the concessionaire will build, operate and maintain the road. A construction programme of three and a half years is envisaged and the concessionaire will recover its initial and ongoing costs through charging tolls in respect of use of the road.

The PPP contract also achieves significant risk transfer in relation to those risks associated with the construction and operation of a road from the State sector to the private sector. Other features of the arrangement reached with the concessionaire include the requirement that, on handback of the road at the end of the concession, the concessionaire complies with certain requirements designed to ensure a satisfactory residual life in the road after handback and a revenue share between the concessionaire and the NRA (to provide protection against windfall profits).

The use of the PPP arrangement ensures that private sector funding is introduced allowing for greater development than would otherwise be the case if relying solely on Exchequer funding and also reduces the risks that the State sector would otherwise be assuming.

What was the process in reaching financial close on Kilcock-Kinnegad?
In November 2000 the NRA invited expressions of interest from interested parties and then undertook a pre-qualification exercise in relation to those interested parties. This pre-qualification process involved two stages, namely:
- Firstly, a pass/fail evaluation against minimum criteria;
- Secondly, the completion by each interested party of a questionnaire, which was then assessed by the NRA.

This process culminated in the selection of four tenderers who were issued with Invitations to Negotiate (ITNs) in September 2001. To assist the tenderers in submitting their tenders, the NRA established a query process whereby tenderers could submit written queries and requests for further information regarding the NRA's tender requirements. The NRA also undertook a consultation process where the tenderers could submit tender proposals for discussion with the NRA at consultation meetings. The intention behind the establishment of these processes was to allow tenderers to maximise the potential of their tenders and ultimately, to submit as competitive a bid as was possible.

Tenders were invited from the four tenderers in February 2002. These tenders were then evaluated by the NRA in accordance with the rules of the competition and from such evaluation, two of the four tenderers were shortlisted in April 2002 to proceed to submit Best and Final Offers (BaFOs).

Between the short-listing of the two tenderers and the submission of the BaFOs, discussions were held with both of the short-listed tenderers regarding the provisions of the contract and also the NRA's technical and financial requirements.

Ultimately, the two tenderers were invited in August 2002 to submit their BaFOs which they did in September 2002. These BAFO bids were evaluated in accordance with the invitation to submit BaFOs and a preferred tenderer was selected. In this case, the consortium selected consisted of SIAC Construction Limited and Cintra Concesiones de Infraestructuras de Transporte SA.
During the period from November 2002 to March 2003, the NRA on an ongoing basis reviewed the documentation that the preferred tenderer was required to produce in order to fulfil its requirements. This involved the NRA reviewing and commenting on various drafts of the preferred tenderer's:
- Funding agreements;
- Project documents;
- Corporate documents;
- Insurance arrangements; and
- Financial model.

Concurrently, there were regular meetings held between the NRA and the other interested parties to monitor the progress towards financial close and to resolve any final details before completion of the transaction. In tandem with that, the NRA also liased with the various interested parties from the State sector, to co-ordinate their views and address any concerns that may have been expressed.

At the end of the process and after all the final details were sorted out, the parties executed the documents on 24 March 2003 and the transaction became a reality.

While there has been some comment about the timeframe involved in PPP projects, the time between when initial tenders at the ITN stage were received by the NRA (February 2002) to financial close of the transaction (March 2003) was in total thirteen months which relative to the experience in the United Kingdom and in the context of the first transaction of its kind for an authority is a good performance and a very positive signal of the NRA's intention to get these transactions completed as quickly as possible.

Going forward
The financial close of the project represents evidence of the significant progress and development of PPP in the Irish market and is an important step in the NRA continuing to deliver its PPP programme. However, as mentioned above, the N4/N6 Kilcock - Kinnegad Motorway is only the first of the PPP programme of roads to achieve financial close and the next step is to build on the experience gained and deliver the other roads in the PPP programme. The ongoing delivery of this programme is evidenced by the fact that:
- Tenderers have been shortlisted to deliver Best and Final Offers (BaFOs) in respect of each of the N1/M1 Dundalk Western By-pass, the N8 Rathcormac - Fermoy By-pass and the N25 Waterford By-pass; and
- Pre-qualification submissions have been received from tenderers in respect of the N3 Clonee-Kells (which is anticipated to reach financial close in 2004),
and the expectation that financial close will be reached on projects other than N4/N6 Kilcock-Kinnegad in the comparatively near future.
Eamonn O'Hanrahan and Colm Fanning are both partners in the Public Private Partnership (PPP) Group of McCann FitzGerald.
This article appeared in the May 2003 edition of Finance Magazine.