CUSTOMER:

State of Florida

SERVICE PROVIDER:

Florida Overland Express (FOX), a consortium led by Fluor Daniel Inc, which includes Odebrecht Contractors, Bombardier, and GEC Alsthom

TRANSACTION STRUCTURE:

Build, Operate, Transfer

YEAR:

1996 (Awarded)                                            DURATION: 40 Years

ILLUSTRATION: This case study illustrates how far government participation can go in crafting a public-private partnership. Depending on the risks associated with a project, the government will have to achieve an appropriate level of participation in the form of risk assumption or financing while preserving the incentives contained in a privatized contract. In this case, the State of Florida has assumed significant market risk by committing to a series of payments over die first thirty years of the project.

BACKGROUND: This project the involves the construction of a 320-mile high-speed rail system running from Miami The roiling stock consists of all electric trains and will operate at speeds of up to first true high-speed rail system in the United States.

TERMS OF CONTRACT/RISK ALLOCATION: Under the agreement, the state of Florida will invest $70 million a year in public funds over the next thirty years for capital development in return for the right of ownership of the land and its facilities. The private partners will invest $350 million in equity and will assume ownership of all rolling stock. Revenue bonds secured by ticket sales will be issued by a state entity acting as owner of the property and improvements.

ISSUES CONFRONTED: Despite previous attempts, the introduction of high-speed rail in the United States has proven too risky to be developed on a purely privatized basis. Under this structure, the estimated $4.8 billion in project cost will be supported substantially by recurring contributions from the State and will benefit from tax-exempt debt secured by revenues.  Subsidies, together with the ability of the private partner to depreciate rolling stock, results in competitive fares ($54 Miami to Orlando) and therefore make the economics of this transaction feasible.

OUTCOME/CURRENT STATUS: Contract award was made in 1996.Inaugural run is scheduled for January 2004 with full operation expected by January 2006.